Texas court rules that listing broker breached his fiduciary duty and engaged in fraud when he increased the amount of his commission without receiving the seller’s consent.
A property owner (“Owner”) asked a real estate professional (“Listing Broker”) to list two properties that he owned for sale after the Listing Broker had helped locate a tenant for another property that he owned. The Owner wanted to quickly sell the properties because he was in a dispute with another real estate licensee and she had threatened to place liens on the properties.
The Owner and the Listing Broker negotiated a commission arrangement for the properties which set forth a specified commission for the Listing Broker and another for all cooperating brokers. However, the listing agreement that the Listing Broker sent to the Owner only contained the Listing Broker’s commission amount and did not include the commission amount to be paid to cooperative licensees.
The Owner returned the agreements to the Listing Broker signed, after which the Listing Broker noticed the mistake in the total commission amount. The Listing Broker changed the total commission amount to the originally agreed upon amount and signed the agreement. While the Listing Broker claimed he sent the amended agreement to the Owner, there was no record of the Owner receiving the amended agreement.
The Listing Broker located a buyer for one of the properties. The purchase agreement listed the originally agreed upon commission for the cooperating broker, but the Listing Broker had crossed off that amount and reduced that amount by .5%, essentially increasing his commission by .5%. The Listing Broker testified that the Owner had agreed to this change because of the extra work involved in the sale, but the Owner testified he had not agreed to increase the Listing Broker’s commission and simply thought he would pay less in total commissions. The cooperative licensee testified that the Listing Broker had contacted him and told him that the Owner would only pay him the reduced commission amount.
The Owner became aware of the altered commission amounts when he received the HUD-1 for the sale setting forth each real estate professional’s commission. The Owner later filed suit against the Listing Broker for breach of contract, violations of the state’s deceptive trade practices law, fraud, and breach of fiduciary duty. The trial court found that the Listing Broker had violated the state’s consumer fraud law, breached his fiduciary duty, and committed fraud. The court awarded the Owner $1,175 in damages, $3,525 in treble damages, and attorney’s fees. The Listing Broker appealed.
The Court of Appeals of Texas, San Antonio, affirmed the trial court. The court first examined the Listing Broker’s argument that the Owner had ratified the agreement by proceeding with closing. Ratification occurs when a party later validates an action either through words or actions. The Owner testified that a provision in one of the closing agreements required all parties to comply with all applicable agreements and he believed that this provision would allow him to later collect the excess commission from the Listing Broker following the closing. Since the trial court had evaluated and accepted the Owner’s testimony, the court rejected the Listing Broker’s ratification argument and affirmed the damage awards to the Owner.
Next, the Listing Broker argued that the dispute over the increased commission amount was a contract dispute and therefore the state’s consumer fraud statute was inapplicable. The consumer fraud statute allows for the award of attorney fees if an individual engages in a deceptive trade practice while in commerce with consumers in the state. The court found that the Listing Broker had agreed to accept the lower commission amount but then actively worked to receive an increased commission without fully disclosing the higher commission to the Owner. Because these actions were more than a breach of contract, the court affirmed the award of attorney’s fees under the state’s consumer fraud statute.
Campbell v. Luong , No. 04-16-00460-CV, 2017 WL 3044591 (Tex. App. July 19, 2017), review denied (Oct. 27, 2017). [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.]