Doctrine of “Ultra Vires” and Real Estate Agent Risks
By Brian Madigan LL.B.
The latin expression “ultra vires” as translated means “beyond the powers”.
As a legal doctrine it often applies in the case of corporations that exceed their authority. Did the corporation have the authority to enter into a particular transaction? If not, a court will rule that the contract is void, or voidable.
This is actually the area where real estate agents can get into trouble.
Let’s consider the case of a prominent philanthropist who donates a large parcel of property to a municipality to be used as “park land, or community services for the residents”, and “not be sold”. The donation can be effected by an inter vivos trust during the lifetime of the benefactor or upon death through a testamentary trust. In order to enforce the “not be sold” provision of the gift, there is the risk of forfeiture.
The municipality in these circumstances would never have been granted authority to convey the property. As time goes on, large parcels of donated properties dedicated to a specific purpose are often transferred to a separate corporation with managed by its own board of directors. Fifty years go by, and the corporation is short of cash.
So, one of the board members comes up with the bright idea of selling 10 one acre parcels of property that are not in active use since they are located on the other side of the pond. The money will be used to build a clubhouse and community centre.
As great an idea as this may be, and as popular an idea as this may, and as practical an idea as this may be, there is still one little problem. The land cannot be sold, even part of it. There is no authority to do so.
This occurs frequently in the case of endowments, foundations, charitable institutions, hospitals, universities and government agencies.
Any purported sale would be “ultra vires”. The corporation or other legal entity would have “no authority”. It does not have the power to do so. Any purported sale triggers the forfeiture clause in the trust, with the consequence that the municipality or corporation no longer owns it. The property either reverts to the former owner or another beneficiary.
A real estate agent would be well advised to investigate this matter ahead of time. Otherwise, there is a risk of liability for damages. The sale won’t go through. The transaction is void. But the agent might be responsible for the financial losses of both the vendor and the purchaser, as well as being subject to disciplinary proceedings. And, don’t forget that the vendor doesn’t just have minimal damages; the vendor forfeited ownership of the property.
Be careful and be sure to undertake your due diligence. In such cases, examine the original trust documents, or obtain a legal opinion from the corporation’s lawyers confirming that such a transaction is not “ultra vires” of the corporation.
Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com
