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Gebhard v Laxmi Vishnu Enterprises Inc: Salesperson Liable for Misrepresentation

A Texas court has examined a jury verdict to determine whether a jury properly awarded a seller damages for a real estate professional’s failure to accurately disclose the terms of an amended sales contract to the seller’s representative while the seller was out of the country.

In 2006, Laxmi-Vishu Enterprises, Inc. (“Owner”) listed a hotel for sale with William J. Gebhard III (“Salesperson”) of Capitol Area Realty, Inc. (“Brokerage”).  The Owner’s president and sole shareholder Pravin Gaehl (“Gaehl”) had told the salesperson that he would consider providing seller financing, but only for offers containing the following terms: a minimum purchase price of $4.5 million and a minimum down payment of $1.25 million.  Gaehl explained that he required those terms because he wanted to pay off the outstanding notes on the property and he also wanted a high down payment so that it would not be easy for the buyer to default and walk away.

The Salesperson brought the Owner an offer from the Pacific Hotel Group (“Buyer”), but Gaehl rejected the offer because it did not meet the down payment requirement.  The Buyer made a second offer, and Gaehl accepted this offer because it met his terms, with a $4.75 million purchase price and an approximately $1.25 million down payment.  Because Gaehl was going to be out of town for several months, he gave a friend power of attorney to represent his interests during the closing.

While Gaehl was out of the country, the Salesperson prepared an amended contract.  The amended contract significantly reduced the Buyer’s down payment amount and so did not meet Gaehl’s specified terms.  The Salesperson allegedly told Gaehl’s representative that Gaehl had approved the changes to the agreement, even though Gaehl claimed he had not discussed it with the salesperson and would have never agreed to such terms.  Based on the Salesperson’s alleged representation, Gaehl’s representative signed the amended agreement and the transaction closed.

Upon his return, Gaehl advised the Salesperson that he was not happy with the terms of the amended agreement and the parties agreed to place the Salesperson’s commission into escrow until the Buyer paid the down payment in full.  The Buyer defaulted on its obligations, and Gaehl reacquired the property through foreclosure.

The Owner sued the Salesperson for breach of fiduciary duty, fraud, and statutory fraud.  The jury found in favor of the Owner, and awarded the Owner both actual damages as well as punitive damages.  The Salesperson appealed.

The Court of Appeals of Texas, San Antonio, affirmed the trial court’s rulings.  The Salesperson challenged the sufficiency of the evidence.  The Salesperson acknowledged that the trial revolved on whether the jury believed that Gaehl had approved the amended contract.  As the resolver of factual disputes, the jury chose to believe Gaehl’s account over the Salesperson’s, and the jury’s weighing of evidence is not subject to review by the appellate court. 

The court also ruled that the evidence supported the jury’s conclusion that the Salesperson had breached his fiduciary duty to the Owner.  The parties had a fiduciary relationship, and the Salesperson was aware of Gaehl’s specific requirements for an acceptable offer.  Nevertheless, the Salesperson had Gaehl’s representative sign an amended agreement that dramatically changed the terms of the parties’ original agreement and did not meet Gaehl’s stated requirements.  This caused the Owner losses, including the payment of the commission and also the fees incurred for initiating foreclosure.

Finally, the court affirmed the fraud and punitive damage awards.  First, the jury had determined that the Salesperson had committed fraud by falsely telling Gaehl’s representative that Gaehl had approved the amended contract.  A jury can award punitive damages when the evidence of fraud is “clear and convincing,” a higher standard of proof.  The Salesperson argued that the evidence of fraud did not meet this higher standard, but the court disagreed.  The evidence could support the conclusion that the Salesperson had not properly advised Gaehl about the amended contract and had misled Gaehl’s representative, and the parties’ subsequent actions supported this conclusion.  Therefore, the court affirmed the jury verdict.

Gebhard v. Laxmi-Vishnu Enterprises, Inc., No. 04-11-00086-CV, 2012 WL 131415 (Tex. App. Jan. 18, 2012).  [This is a citation to a Westlaw document.  Westlaw is a subscription, online legal research service.  If an official reporter citation should become available for this case, the citation will be updated to reflect this information.]