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Carter v. Patrick: Broker Awarded Commission

A Tennessee appellate court has considered a broker's lawsuit against a seller which sought to collect a commission from a sales price which was below the amount of the listing agreement.

In 1998, John Carter d/b/a John Carter Real Estate ("Broker") auctioned off a 29 acre property containing a home as well as farm buildings ("Farm"). The winner of the auction was Maria Patrick, her daughter Kelly Harris, and her daughter's husband Christopher Harris (collectively, "Owners"). The auction price was $131,000.

In 2000, the Owners decided to sell the Farm. The Owners contacted the Broker, who visited the Farm. The Broker offered to list the Farm for $159,000. The Owners thought this listing price was too low, and so declined the listing. Another brokerage listed the Farm for $199,000, but the listing expired in October 2001 without being sold. At that time, the Owners again contacted the Broker about listing the property. Once again, the parties could not come to an agreement on the listing price and so no listing was executed.

In October 2001, the Owners contacted the Broker and informed him that they did not have any money to continue making mortgage payments. The Broker told the Owners he thought he could sell the property, and so the parties entered into an agreement where the Broker would make mortgage payments, maintain the property and try to sell the property "for a reasonable length of time". The parties entered into a one-year listing agreement and an addendum. The addendum authorized the Broker to make mortgage payments for the Farm and maintain the property as necessary to "make the property presentable" for sale. All of the money expended by the Broker would be deducted from the proceeds of the sale. The listing price for the property was $159,000.

The Broker had the Farm cleaned up and he made the required mortgage payments through December 2001. At that time, the Owners informed the Broker that they wanted to raise the listing price to $169,000 because of other debts. The Broker thought the increased listing price was too high and so he discontinued making mortgage payments at this time. He later testified he also increased his efforts to sell the property at this time, as he knew the financial condition of the Owners would make it increasingly difficult to sell the Farm.

In May 2002, the Broker obtained a $159,000 offer for the Farm, contingent on a walk-through of the property by the prospective buyers. However, these negotiations fell through, due to the fact that the Farm had been stripped of all fixtures in the interim, allegedly by one of the Owners. At this point, the Owners learned that the mortgage payments had ceased. Eventually, the Farm was sold at an auction for $136,000.

The Broker brought a lawsuit, seeking to recover his commission based on the listing agreement price. The court ordered the amount of the commission be set aside from the auction proceeds until the litigation could be resolved, and also awarded the Broker the amount he had expended in mortgage payments as well as for property upkeep. Following a trial, the trial court awarded the Broker a commission based on the auction sales price, and the Owners appealed that award.

The Court of Appeals of Tennessee affirmed the ruling of the trial court. The court first considered whether the Broker violated his fiduciary duty to the Owners when he stopped making the mortgage payments. The Owners argued the Broker had a duty to make these payments for the duration of the listing agreement and the Broker's failure to make these payments compelled the auction of the property before the expiration of the listing agreement. Tennessee law is clear that a broker and his/her client are in a fiduciary relationship and the broker has a general duty to act in the best interest of his/her client. Looking at the listing agreement and the addendum, the court determined that there was no requirement that the Broker make mortgage payments and maintain the property. Rather, the addendum allowed the Broker to undertake these expenses on behalf of the Owners in order to prevent the foreclosure of the property so that the property could be sold. The court found that the Brokerage had met his obligations, and so did not breach his fiduciary duty to the Owners. Thus, the court rejected these arguments.

The court next considered whether the Brokerage had a duty to maintain the property. The Owners argued that the Broker's "indifference" allowed the property to be stripped of all its fixtures, thus causing the $159,000 potential sale to fall through. While the trial court had not conclusively determined that one of the Owners had stripped the property of its fixtures, testimony by one of the Owners strongly suggested that is what occurred. Additionally, the listing agreement absolved the Broker from all liability for theft. This evidence supported the ruling by the lower court and so the court affirmed the ruling of the lower court. Thus, the court affirmed the commission award to the Broker.

Carter v. Patrick, 163 S.W.3d 69 (Tenn. Ct. App. 2004).