Thursday, June 28, 2012

Anyone Still Care About Brokerage Commissions?

Michael Neary and St. John’s Holdings, Inc. brought a lawsuit to collect brokerage fees in connection with the sale of eight apartment complexes to Comunidad Corporation. The Contract did not contain a provision regarding brokerage fees. Neary was a licensed real estate broker. SJH was wholly owned by Neary. SJH had assigned his commissions to SJH, but SJH did not hold a corporate brokerage license issued by TREC.

Neary and SJH claimed that a “Term Sheet” plus several email messages constituted a contract. And that the Sellers breached that contract. And as a consequence, that Neary and SJH were entitled to collect brokerage fees.

The Term Sheet was signed. However, immediately above the signature lines is the sentence: “This term sheet is a guideline only, and is not binding [emphasis added].” Various emails did not definitively state the brokerage fee either, as the fee was evidently the subject of hot negotiation.

Doubtless it gave Neary and SJH little comfort when the Dallas Appellate Court wrote that “. . . strict compliance with the [Texas Real Estate License Act] is required; the agreement to pay a real estate commission must be in writing or it is not enforceable.” The Appellate Court then defined the term “not binding” to roughly mean, yes you guessed it correctly, “not binding.”

The Appellate Court determined, much like the trial court, that the Term Sheet and emails represent at most an effort to negotiate an agreement regarding brokerage fees and other matters. As such those documents do not constitute a signed, written memorandum as contemplated by the TRELA.

Owners win. Brokers lose. See Neary and St. John’s Holdings, Inc. v. Mikob Properties, Inc.; 05-09-01175-CV (5th Texas Court of Appeals, Dallas, opinion filed May 9, 2011).

Lessons learned:

1. Texas real estate commission agreements must be in writing.

2. Texas real estate commission agreements must be signed.

3. Texas real estate commission agreements must be in writing and signed.

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

Monday, June 11, 2012

Whoops! I May Have Made a Mistake

In August 2004 Hazel Berry, Evelyn Mebane and Rebecca Robinson entered into a contract to sell 176 acres in Scurry County, Texas to Cynthia Gail for $80,000. The contract reserved to the sellers all minerals and royalties. When the deal closed in September 2004, however, the deed did not contain a mineral reservation. It appeared to be an oversight as the attorney who prepared the contract and the deed did not compare the two.

One of the sellers sued Gail, claiming a legal theory of “mutual mistake,” and asked that the court reform the deed by adding the mineral reservation effective as of the date of closing. The trial court agreed. Cynthia Gail appealed.

Gail’s testimony was that: (a) this is not a case of mutual mistake; (b) contract negotiations continued after the contract was signed; (c) Gail believed that the contract would be later amended; (d) although the contract contained a mineral exception, in actuality there was no definitive agreement on that point; and (e) Gail believed the absence of a mineral reservation in the deed meant that the Sellers had agreed to amend the contract to remove the mineral reservation.

Gail also submitted an Affidavit, generally claiming that the absence of a mineral reservation in the deed was not a mistake, but rather reflected the intent of the parties.

The Texas Court of Appeals had little difficulty dismissing all of Gail’s arguments, relying instead on the legal principle that a party is entitled to reformation of a deed when it proves that it reached an agreement with the other party, but the deed does not reflect the true agreement due to mutual mistake. Unilateral mistake by one side (Berry and Mebane), and knowledge of that mistake by the other side (Gail), is equivalent to mutual mistake.

The contract contained a mineral reservation. The deed did not. The lawyer who failed to insert the reservation in the deed testified that it was an inadvertent failure. A scrivener’s failure to follow the precise terms of a contract equals a mutual mistake. Judgment affirmed for Mebane and Berry.

Gail v. Berry; 11-09-00299-CV (11th Texas Court of Appeals, decided April 16, 2011).

Lessons learned:

1. Everybody makes mistakes.

2. Lawyers make mistakes.

3. Mutual mistakes can be corrected. Unilateral mistakes cannot.

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.