Real Estate Deal Goes Sour, But Litigation Blossoms

April 23, 2010 | Erin Herbold

Three parties were involved in this case: a real estate brokerage company, the buyer of the property (a real estate investment LLC), and the property seller (a hotel management company). The real estate broker generated a written contract to be used in the purchase of the real estate consistent with the buyer’s ultimate offer. The parties agreed to the terms of the agreement. Unfortunately, the sale fell through and a closing never occurred.  The broker sued the seller of the property for brokerage commission, claiming that the real estate contract specifically stated that a commission would be awarded even if the seller failed to fulfill the agreement. The buyer sued the seller for breach of the real estate contract and asked for the seller to pay their attorney’s fees. The seller claimed that while they did sign the real estate contract, there was no “meeting of the minds,” such as to form an enforceable contract.  So, the litigation was a tangled mess, but at its heart the primary legal issue involved whether the real estate contract was a valid contract and whether there was ever a valid listing or commission agreement between the seller and the broker.

The court found that the buyer had a valid purchase agreement with the seller and that the seller breached the contract. However, the buyer failed to provide enough evidence to prove the amount of damages they claimed. Thus, the buyer was only awarded the costs of bringing suit and their reasonable attorney’s fees which were to be paid to the prevailing party should litigation ensue. The trial court further found that while the broker did not have a separate written listing agreement with the seller before the sale, the Iowa Real Estate Commission regulations allowed for the broker to obtain commission fees in this case because the parties had a written agreement attached to the back of the purchase agreement, stating that a brokerage commission would be paid. Thus, the brokerage agreement was not based solely on an oral agreement- there was some written evidence to substantiate the commission. 

On appeal, the appellate court agreed on the breach of contract issue, but disagreed with the trial court’s award of the broker’s commission.  The appellate court determined that attaching a brokerage commission agreement to the purchase agreement was insufficient to justify a commission.  The agreement merely stated that at the time of closing, the seller agreed to pay a commission to the broker. The agreement failed to identify “all of the terms and conditions” of the brokerage agreement and did not give an expiration date which is required under the Iowa Administrative Code for listing agreements. Thus, the appellate court determined that there was no valid brokerage agreement, because any attempt at an agreement was “so deficient” in its terms and time for performance that the seller could not reasonably be expected to comply.

However, the appellate court of appeals did agree with the trial court that the buyer was not entitled to damages.  Iowa law requires that when a contract is breached, the non-breaching party is entitled to be “placed in as good a position as he or she would have occupied had the contract been performed.” However, the buyer offered little evidence to prove the extent of their damages.  Thus, the court could not appropriately calculate or award damages in this case to the buyer.  Indeed, the court went as far as to say that the lack of evidence “raises a suspicion as to the validity of the damage claim.” Samann L.C.and Bassman Real Estate v. Victory Lodging, Inc., No. 0-096/09-1160, 2010 Iowa App. LEXIS 260 (Iowa Ct. App., Apr. 8, 2010).