As
a
practicing attorney representing real estate
brokers, I continue to monitor current lawsuits as
an aid in preparing cases for trial. Fortunately, the
state of Texas has many good cases where brokers
" the right thing" and avoided liability. When
teaching others, however, I often emphasize those
lawsuits with terrible consequences to real estate
agents so that students understand that " the
right thing" is more than just a moral duty. Doing
the wrong thing can have disastrous legal consequences
in the courthouse, and the outcome is
never predictable.
My listing is void!
In Perl v. Patrizi; 20 S.W. 3d 76 (Tex. App.-Texarkana
2000), Joe Perl was a real estate agent who prepared
a listing agreement giving himself six percent (6%)
commission on the income or lease payments if
Patrizi' Restaurant sold or was leased to Post Oak
Grill, L.L.C., which operated a restaurant in
Houston. The agreement was signed by Tommy
Patrizi on behalf of the corporation. The property
was later leased to a newly created entity Post Oak
Grill, L.L.C.-Beaumont. Perl thought he was entitled
to a commission on the lease and sued the
current owners of the property
(lienholders who had foreclosed),
but who were members of the Patrizi
family.
The Court focused on whether or
not the listing document was an
enforceable contract. The Court
noted that Section 15(a)(6)(G) of
the Texas Real Estate License Act
provided that the Real Estate Commission
may suspend or revoke a
real estate agent' license when it
has been determined that licensees
have been guilty of failing to specify
a definite termination date of their
employment contracts. The Court
further noted a Real Estate Commission
rule (Section 535.148),
which also requires that the licensee'employment contract must have a
definite termination
date. The Court held that the listing agreement
clearly did not meet the requirements of the
rule or the statute, and held that, by applying the
legislature' stated definition of the terms of the
agreement, the failure to provide a termination date
is a failure to meet a condition precedent in the
contract. Therefore by statutory fiat, the listing
agreement
is unenforceable.
There is a very good
dissent in the case by one
of the judges noting that
Section 15 of the Texas Real
Estate License Act "
the real estate broker or
salesperson to sanctions involving
his or her real estate
licensee," but contains no
language to void a listing
contract. Similarly, nothing
in the rules cited by the
majority of the Court suggests
that it would void a
contract, and it was never
intended to negate all real
estate contract listings if the
ending date is not contained
in the contract. While not
mentioned in the dissent, a leading authority (moi)
agrees with this logical conclusion. (See Jacobus,
Texas Real Estate Law, 8th edition, p.124.)
Buyer's Broker Promises
"Peaceful House"
If the buyer requests a "" house, the buyer'
broker better deliver it! In Wyrick v. Tillman &
Tillman Realty, Inc.,(No.03-00-00061-CV, Tex. App.-
Austin, 2001), a buyer brought a cause of action
against Tillman Realty who acted as the buyer'
agent for the purchase of property in New Braunfels.
The purchaser anticipated moving to New
Braunfels, and requested that Tillman represent her.
He agreed to represent her solely as a buyer' agent.
The buyer explained that she was moving away
from San Antonio to escape the city life, noise and
traffic. Tillman showed her a home and said it was
in a quiet and safe neighborhood. Due to an illness,
she only visited New Braunfels twice before the
closing date and did not move in for several
months. Near the end of her first month of occupancy
(September 1996), the buyer discovered that
the railroad right-of-way was
near the house and a meat
processing plant was a block
away.
In 1988, the railroad temporarily
discontinued the use
of the railway for train traffic,
but the railroad retained the
right to re-open the right-ofway
to rail traffic and did
so in November 1998. The
broker admitted that he
knew the ongoing issues of
the right-of-way and knew
that it had not been resolved
when he found the house for
the buyer. It was further
noted that the meat processing
plant discharged fumes
and odors and created a high
volume of traffic from the trucks going to and from
the plant. The broker alleged that: (1) he had no
duty to disclose facts not known to the real estate
agent, (2) there is no duty to disclose facts regarding
other properties, and (3) the buyer is deemed to
have relied on her own investigation. The trial
court granted a summary judgment for the broker.
The buyer appealed, alleging that the broker
had a duty to disclose these two facts because they
materially affect her property. The broker told the
buyer that the neighborhood in which the house
was located, was then and historically had been, a
quiet and safe neighborhood. Broker defended by
saying the statements were true at the time they
were made (1996), but there was no guarantee they
Students have to
understand that "
the right thing" is more
than just a moral duty.
Doing the wrong thing
can have disastrous legal
consequences in the courthouse,
and the outcome
is never predictable.
Tough Results for Texas Brokers Real Estate Educators Association
Journal 2002-2003 Page 37
would be true in the future. The court relied on
the Canons of Professional Ethics and Conduct of
the Texas Real Estate Commission in defining a
fiduciary relationship, and confirmed that: (1) a
broker' contract of employment calls for the
utmost good faith on the part of the broker; (2) that
the broker is bound to disclose to his principal all
material facts within his knowledge affecting the
transaction; (3) a buyer' agent has a duty to
perform his work in a competent, skillful and professional
manner; and (4) has
a duty to disclose all material
facts that have a bearing on
the decision to purchase, and
that, viewed in the context
of the contract between the
broker and his client, would
have an effect on the client'
satisfaction with the property.
The court confirmed the fact
that the broker already knew
the existence of the railroad
right-of-way and meat processing
plant.
As for the buyer' duty to
inspect the property, the
court held that the evidence
tended to show that the railroad tracts were difficult
to discover and that her visits to the house were in
the evening and when it was often dark, and therefore
she may not have been aware of the railroad
right-of-way or the meat processing plant. The
summary judgment was reversed, and the case was
sent back to court for further proceedings, so we
may hear more about this case in the future.
Don't all small town brokers tell potential purchasers
that their towns are peaceful and quiet—
even those little towns with railroad tracks?
What Did I Do Wrong?
In McFarland v. Associated Brokers, 977 S.W.2d 427
(Tex. App.-Corpus Christi 1998), the purchaser
brought suit against the defendant (listing broker)
for violations of the Texas Deceptive Trade Practice/
Consumer Protection Act, specifically negligence
and fraud. The purchaser had requested the inspection
of the home prior to closing which was
performed by a real estate inspection company.
The inspector did not discover nor report any major
roof damage. On the same date as the inspection,
however, the purchaser discovered water in the
light fixture in the closet in the master bedroom,
indicating there was a roof leak. The purchaser
requested that the roof be
repaired at the seller' expense
with the assurance that
the repair work would be guaranteed
for at least one year.
Repairs were made by a
contractor who assured the
purchaser that the roof was
in good shape and extended
a one-year warranty on the
repairs. The purchaser then
closed the sale, moved into
the house and discovered
that the roof was still leaking.
The purchaser then brought
suit against the listing broker
for damages alleging the
broker' knowing concealment, non-disclosure of
known defects, and the non-disclosure of false representations
made by the sellers.
The brokers defended by saying that the broker
was not the cause of the damage, alleging that (1) a
contract addendum eliminated their liability (it
stated that the buyer had not relied upon any representations
or statements made by the real estate
agent), (2) the inspection was performed by the
buyers, (3) the buyer discovered the leakage, and
(4) the buyer had an agreement and warranty with
the roof; therefore, the broker could not have been
the cause of the damage. The trial court entered
judgment in favor of the broker and awarded the
broker $19,200.00 for legal services, plus additional
amounts for appeal.
The buyers obtained
an inspection, they
discovered the defect,
the repair was fixed
and they got a warranty
from the contractor.
What more could this
broker have done?
Page 38 Real Estate Educators Association Journal 2002-2003 Tough
Results for Texas Brokers
The Court of Appeals reversed the trial court,
holding that an independent inspection was not,
in and of itself, enough to constitute a new and
independent basis for the purchase of the dwelling.
The court seemed to infer that if the buyers had
subsequently agreed to take the property " is" that
the case may have gone the other way. The case was
then sent to the trial court for another full trial.
The buyers obtained an inspection, they discovered
the defect, the repair was fixed and they got a
warranty from the contractor. What more could
this broker have done?
Dual Agency
In a recent arbitration case, a real estate agent,
acting as a dual agent, assisted a buyer in buying a
home in an area that was deed restricted. Part of the
contingency in the buyer' contract provided for
construction of an addition to the residence. There
was evidence that the broker assured the buyer that
the addition complied with the deed restrictions.
Several months later, the broker stirred up the homeowner'
association (the broker was a member) and
encouraged the association to file suit against the
owners for violating the deed restrictions (apparently
feeling the fiduciary duties had ended, and
that the broker had other fiduciary duties to other
listed properties in the neighborhood). The total
award against the broker exceeded $700,000.00.
The moral of this story: The broker' fiduciary often
does not end when the deal is closed.
While these cases focus on Texas brokers, real
estate licensees outside of the Lone Star State
should not assume that these cases or their outcomes
are unique. These four cases demonstrate the
sometimes surprising and even arbitrary decisions
rendered by courts and judges against real estate
practitioners— when they appear to do the
right thing.
|