Missouri Real Estate Lawyer

On October 17, 2017, the Missouri Court of Appeals for the Western District, in Whirlwind Properties, LLC v. John John, affirmed that a real estate agent’s commission is earned when the seller enters into an enforceable contract to lease or sell the property.

Perhaps the greater lesson from the opinion is the importance of drafting a clear agreement between a real estate agent and client. Many of the terms in the agreement in this case were undefined and vague, requiring the court to refer to a dictionary and to other case law to make sense of the agreement. The agent got lucky in this case.

The Agreements

Whirlwind Properties, L.L.C. (Whirlwind) owned two mobile home parks in Columbia, Missouri with about 80 tenants (parks). John John was a real estate agent (yes, John was apparently both his first and last name), who entered into an authorization agreement with Whirlwind to show the parks to prospective buyers for a thirty-day period.

The authorization provided that if Whirlwind leased or sold the parks during the thirty-day period, or if Whirlwind leased or sold the parks “to a prospect introduced to the [parks] by John” within 180 days after the expiration of the thirty-day period, then Whirlwind “will pay John compensation of 4% to be paid in cash at closing”. Within the thirty-day period, John introduced a prospective buyer, Fulton Medical Center, LLC (Fulton Medical), to Whirlwind, and within the thirty days Fulton Medical entered into a real estate purchase and sale contract (purchase contract) with Whirlwind to purchase the parks for $4 million.

The authorization included a liquidated damages clause providing that if Fulton Medical failed to close on the purchase of the parks, “any net damages received by Whirlwind from Fulton Medical shall be divided equally between Whirlwind and John as liquidated damages”. The purchase contract also included a liquidated damages clause providing that Whirlwind shall, as its sole remedy, retain the earnest money if Fulton Medical breaches the purchase contract.

What Does “Sold” Mean?

Fulton Medical breached the purchase contract by failing to close its purchase of the parks, and Fulton Medical thereby released the $100,000 in earnest money to Whirlwind. However, John filed a realtor lien on the funds, claiming that he was entitled to half of the funds. Whirlwind filed suit against John, asking the court to find that no real estate agent’s commission was earned under the authorization, because the parks never sold. Following trial, the court agreed with Whirlwind. John appealed the judgment, claiming that under Missouri law, a real estate agent’s commission is earned when a buyer and seller sign an enforceable sale contract; that the purchase contract was signed within the thirty-day period of the authorization; and that John is therefore entitled his real estate agent’s commission under the authorization.

Whirlwind argued on appeal that Fulton Medical never closed on its purchase of the parks; John, as such, never produced a ready, willing, and able buyer; and he therefore was not entitled to any real estate agent’s commission. Whirlwind cited Dark v. MRO Mid-Atlantic Corporation in support of this argument. However, the appeals court found that Dark v. MRO Mid-Atlantic Corporation was different, because the purchase contract in that case required the approval of senior management before it was enforceable. Because senior management never approved the purchase contract, it was never enforceable. As such, the agent failed to procure a ready, willing, and able buyer, and the agent was therefore not entitled to a real estate agent’s commission.

Enforceable Contract

The appeals court further explained that there is a difference between an enforceable contract that contains conditions to closing and one that is enforceable only upon certain conditions being met. The contract in Dark v. MRO Mid-Atlantic Corporation was never approved by management and therefore was never enforceable. However, conditions to closing contained in an otherwise enforceable purchase contract does not render the contract unenforceable. The Whirlwind appeals court found that the purchase contract fell into this latter category. The mere fact that Fulton Medical failed to close on the sale does not mean that John did not produce a ready, willing, and able buyer. John, the appeals court held, was entitled to his real estate agent’s commission pursuant to the liquidated damages clause of the authorization (as the sale did not close). However, Whirlwind and John disagreed on how to calculate the “net damages received by Whirlwind” as provided in the liquidation clause of the authorization.

Real Estate Agent’s Commission Equaled Half the Liquidated Damages

Whirlwind and John agreed that Whirlwind suffered actual damages of $469,159.90 by reason of Fulton Medical’s failure to close on the sale of the parks. Whirlwind argued that net damages is calculated as the excess of what Whirlwind receives in damages compared to its actual damages. John is entitled to no liquidated damages, it argued, because Whirlwind is entitled to receive from Fulton Medical only the $100,000 in earnest money, which is less than Whirlwind’s actual damages of $469,159.90.

John argued, and the appeals court agreed, that under the purchase contract, Whirlwind is entitled to receive from Fulton the $100,000 in earnest money as liquidated damages, of which John is entitled to half. Whirlwind’s actual damages of $469,159.90 was irrelevant to the calculation, because Whirlwind was not entitled to receive actual damages from Fulton.

Drafting a Clear Agreement is a Small Cost

Litigation in this matter may have been avoided if the authorization had defined the terms “sold” and “net damages”. Retaining legal counsel to draft, or even just review, the authorization would have been an exceedingly small cost to John and Whirlwind compared to the fees they incurred to litigate the undefined terms in the authorization.

Sewell Law is located in St. Louis, Missouri. We provide legal services in the areas of litigation and asset protection strategies, including LLCs and trusts. Contact Michael Sewell at (314) 942-3232 or at michael@sewelllaw.net.

This article is for general informational purposes only. It does not include all of the laws and regulations related to the topics discussed in this article, and it is not intended as legal, tax, or investment advice. As such, you should not rely in this article alone in making decisions regarding the subject matter discussed in this article.

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© 2017 Sewell Law, LC