This past week, the Tennessee Court of Appeals released an important case in the realm of contract law, in general, and in the world of real estate agents in particular.
The case in question is Crye-Leike, Inc. v. Carver, which was released by the court on May 26, 2011, in a decision written by Judge David Farmer.
As with all contract cases, the facts are essential. In this case, Ms. Carver entered into an exclusive real estate listing agreement with Crye-Leike, Inc. to sell her house in Memphis. The agreement was a form contract that had been drafted by Crye-Leike, and it gave Crye-Leike the exclusive right to sell Ms. Carver’s house until August 21, 2007. Under the agreement, Crye-Leike was given a 7% commission on the sale of Ms. Carver’s property.
The listing agreement also provided that if the property was sold to anyone “to whom this property was shown or submitted or to any person to whom CRYE-LEIKE shall have offered the same during the term of this contract, if such sale is consummated within ninety days after its termination,” then Crye-Leike would be entitled to its real estate commission.
The listing agreement also contained a provision that required that any amendments to the agreement be “in writing, signed by both parties, and shall be attached to this original agreement and all other copies hereof.”
During the term of the listing agreement, Crye-Leike marketed Ms. Carver’s property in a number of different ways: it placed a “For Sale” sign at the property; it took photos of the property for use in promotional materials; it placed the propery in the MLS database; and it advertised the property for sale on approximately 50 different internet sites. It also showed the property to a few potential purchasers.
No formal offers were made on Ms. Carver’s house during the listing agreement period. However, around the date that the listing agreement between Ms. Carver and Crye-Leike was to expire, the Sammons, a couple from Alabama, contacted a real estate agent at another company to set up viewings of homes for sale in Memphis, including Ms. Carver’s house.
The Sammons’ real estate agent contacted Crye-Leike on August 21, 2007, to schedule a viewing by the Sammons of Ms. Carver’s house. The Sammons and their agent toured Ms. Carver’s house on the morning and in the afternoon of August 22, 2007, one day after the stated expiration date of Crye-Leike’s listing agreement with Ms. Carver. At this point, no offer was made to purchase Ms. Carver’s house.
Ms. Carver learned that the Sammons had viewed her house on September 12, 2007, when the Sammons contacted her. They also mailed Ms. Carver a proposal to purchase her house. On October 2, 2007, the Sammons and Ms. Carver met for the first time in person. They negotiated a sales agreement with each other, and the sale closed on October 22, 2007.
When Crye-Leike learned that Ms. Carver had sold her house to the Sammons, it contacted Ms. Carver and told her that she was required to pay it a 7% real estate commission under the terms of the agreement between them. Ms. Carver refused, and Crye-Leike sued her for the real estate commission.
Crye-Leike claimed entitlement to a real estate commission on the fact that the Crye-Leike agent had participated or caused Ms. Carver’s house to be shown to the Sammons prior to August 21, and the Sammons bought the house within 90 days after the expiration of the listing agreement. Crye-Leike also claimed that the listing agreement had been extended until August 30, 2007, through the actions of Ms. Carver and Crye-Leike. Since the Sammons first viewed the property on August 22, an extension of the listing agreement until August 30 would mean that the Sammons’ initial viewing of the property of the property was within 90 days of the expiration of the listing agreement.
The court addressed 3 issues–(1) whether the property was shown, submitted or offered to the Sammons prior to August 21, 2007; (2) whether the parties orally amended the listing agreement to extend it through August 30, 2007; and (3) whether the parties extended the listing agreement through their actions.
On the first issue, the court noted that the terms in the listing agreement “shown or submitted” were ambiguous. Crye-Leike claimed that these terms would include internet advertisements of the property, which would have been made prior to the stated expiration date of August 21.
The court noted that since Crye-Leike had drafted the listing agreement, the agreement would have to be strictly construed against Crye-Leike.
IMPORTANT NOTE: If you provide form contracts to customers or clients, remember the axiom that, in a dispute, vague, ambiguous or undefined terms will be construed against you and in favor of the other party. Thus, make sure that you very carefully root out as much vagueness and ambiguity as possible. Important terms should be carefully defined to eliminate any doubt as to their meaning.
Since the court found that the terms in the contract relating to “showing” the property or “submitting” the property were capable of more than one possible meaning, which might require more than just being included in an internet advertisement, the court determined that Crye-Leike did not prove an entitlement to a commission based on a showing of submission of the property prior to the stated expiration date of the listing agreement.
Crye-Leike attempted to justify an entitlement to a real estate commission based on being the “procuring cause” of the sale of the property. The court found that the listing agreement did not provide a right to a commission under its express terms for being a “procuring cause.” Accordingly, that issue was irrelevant in making a decision in this case.
On the issue of whether there had been an oral modification to the agreement that resulted in an extension of the listing period until August 30, the court noted that the contract expressly barred oral modifications. On the witness stand, Mr. Leike acknowledged that the company would not be bound by an oral agreement by a real estate agent that shortened the term of a listing agreement. The point made by Ms. Carver’s attorney was clear–if the company would not be bound by an oral agreement that shortened the listing period, it shouldn’t be able to take advantage of a purported oral extension of a listing period.
A discussion by the court of the issue of whether Ms. Carver had waived her right to strictly require that any modification be in writing makes it clear that even a contractual provision that bars oral modifications can, under the right circumstances, be waived. Here, however, the court found that no waiver had been proved.
The main lesson to be gleaned from this case is that if you provide form contracts to your customers or clients, it is of paramount importance that the contract be clear and unambiguous, because, as the drafter of the contract, any unclear provisions will be construed against you in the event of a dispute.
A secondary lesson for real estate agents (or for anybody else, for that matter) is to get your contract in writing, including changes or modifications to your original contract. Don’t rely on oral understandings or the course of dealings with your customer or client to set the terms of your agreement, because if there is a dispute you may find yourself in the uncomfortable position of trying to prove by a preponderance of the evidence in a court of law that what you claim was the agreement was, in fact, the agreement. How much better would things be for you if you had a signed writing that left no doubt as to the parameters of your agreement?
In the real world, things move fast, and it is not always convenient or easy to reduce changes in contracts to a written form, but it is always the best policy to follow.