Court Finds Creditor Intentionally “Manipulated” a Real Estate Contract
When a party intentionally interferes with a valid contract, the adversely affected party may be entitled to an award of damages if the interference caused the contract to fall through. In 2001, a realtor entered into a listing and commission agreement to sell a property. The realtor, under the agreement, was entitled to a 10% commission of the first $500,000 of the gross sales price of the property, provided he found a “ready, willing and able buyer.” When the property owner experienced financial distress, they sought to unload the property as soon as possible. The property owner owed its creditor nearly $6 million, so the creditor sent a representative to oversee the company’s operations and eventual sale of the property in order to protect its interests.
When the realtor received an offer of $120,000 to purchase the property, the property owner’s manager directed him to speak with the creditor, stating that the creditor was now in charge of all decisions concerning the sale of the property. The creditor asked the realtor to seek an extension and eventually the buyer proposed a counteroffer of $140,000, which was accepted by the property owner. A closing date was set by the realtor. Before closing, however, the creditor indicated that they would not accept less than $130,000 net return from the sale of the property. The realtor agreed to reduce his commission. However, the net return was not enough for the creditor. The sale fell through and the creditor refused to release its lien on the property.
The realtor filed suit against the property owner and the creditor, saying that he had performed his obligations under the listing and commission agreement by finding a ready and willing buyer and was entitled to commission. Further, the realtor alleged that the creditor intentionally interfered with the sale and was entitled to damages (even though the creditor was never a party to the contract). The trial court found that the creditor was bound by the listing agreement, under a theory of agency. Essentially the creditor was acting as an agent of the property owner. Further, the trial court found that the creditor intentionally and improperly interfered with the contract, in an attempt to force the realtor to reduce his commission.
On appeal, the court found that the creditor was never a party to the contract under a principal/agent theory. The court cautioned that intentional interference claims cannot be claimed against an actual party to the contract. Since the creditor was not a party, the court next found that the creditor did intentionally manipulate the contract. The realtor was able to show that the creditor knew of the contract and its contents and acted improperly. To prove improper interference, the court looked at the nature of the creditor’s conduct, the party’s motives and interests, the proximity of the creditor’s conduct, and the relations between the parties.
The court went on to say that since the creditor was owed such a large amount of money, they had a right to maximize their recovery. However, the creditor here intentionally manipulated the parties to the contract by trying to “squeeze out as much net proceeds as possible.” Thus, the realtor was entitled to commissions and damages in this case. Stewart v. Highland Crusader Offshore Partners, L.P., No. 8-872/07-1962 (Iowa Ct. App., May 29, 2009).