Howard v. Youngman: Broker Could Be Liable for Potentially Improper Advice Given to Client

A Missouri court has considered allegations made by a buyer against the seller's real estate brokerage firm in a lawsuit brought by the buyer seeking performance of the purchase contract, which the seller had argued was terminated and had thus secured a higher purchase price amount from a different buyer.

Kenneth Howard ("Buyer") entered into an agreement to purchase a home owned by T. French and Beverly Youngman ("Sellers"). The parties used a purchase form prepared by the St. Louis Association of REALTORS®, which contained a financing clause that provided the following:

Conventional, FHA or VA Financing. Buyer agrees to apply for a loan, as described below, within __two__ days after "Acceptance Deadline" date. If Buyer does not apply within that time for the loan described below, Buyer waives this financing contingency. Buyer agrees to do all things necessary, including but not limited to, the execution of loan applications and other instruments, and to cooperate fully in order to obtain the financing necessary to complete this transaction. If Buyer does not obtain a written commitment for a loan on the same terms as described below, or waive this contingency in writing, buy 5:00 p.m. on __July 24, 1998__ (or any written extension), this contract is terminated and earnest deposit will be returned to Buyer subject to paragraph 12, less any expenses incurred by or in behalf of Buyer. If Buyer wants to accept a loan commitment on terms other than described below, he must either notify Seller in writing of his acceptance of different terms, or waive the financing contingency in writing by the loan commitment deadline. If commitment is not obtained or waived by the loan commitment deadline, Buyer expressly waives any right to close this sale and acknowledges Seller's right to sell this property to another party. Any loan commitment requiring any of buyer's property to be sold and/or closed shall not be considered a commitment hereunder. (Note: Failure to "lock in", if available, may constitute a waiver by Buyer of the financing contingency.) Buyer to provide (and authorizes lender to provide) Seller and agents a copy of the loan commitment. Buyer to pay mortgage insurance, if required.

The Buyer did not apply for a loan by the "Acceptance Deadline," nor did he ever apply for a loan which met the terms specified elsewhere in the purchase agreement. The Buyer also did not inform the Sellers by 5 PM on July 24, 1998 in writing that he was waiving the financing provision. As a result, the Sellers real estate broker, Patricia Waelter ("Broker") of Gordon A. Gundaker Real Estate Company, Inc. ("Brokerage"), informed the Buyer's real estate salesperson on July 27, 1998 that her client's purchase agreement with the Sellers was terminated. The next day, the Sellers accepted a higher offer for the property from David Goings, who used another salesperson associated with the Brokerage as his representative. Different licensees with the Brokerage represented all parties to the transaction. The Buyer attended the closing scheduled in the purchase agreement, but the Sellers did not show up. The Buyer then filed a lawsuit seeking specific performance of the purchase agreement. The Sellers filed a counterclaim and also a third-party action against the Brokerage. In a series of rulings, the trial court ruled against the Buyer and in favor of the Sellers on the Buyer's tortious interference with contract claims, awarding the Sellers their attorney's fees. All other claims by all of the parties were denied. The parties appealed the various rulings by the trial court.

The Missouri Court of Appeals, Eastern District, reversed the tortious interference ruling by the trial court and also the award of attorney's fees. The court first considered the trial court's rulings declaring that the Buyer was not entitled to seek specific performance of the purchase contract. The Buyer argued that the financing clause in the purchase agreement existed entirely for his benefit and protection, and so his failure to apply for the loan described in the purchase agreement was an indication that he was waiving the financing condition. The court agreed with this argument, stating that a party to a contract can waive a condition which exists to protect that party. Since the Buyer had waived the financing condition at the outset, he argued that he did not need to perform the additional steps the purchase agreement required to be completed by 7/24. The court agreed with the Buyer, and the court stated that the Sellers were not allowed to benefit from a provision which existed to solely benefit the Buyer. Thus, the trial court was reversed, ruling that the Buyer had waived the financing contingencies in the purchase contract and so both parties had a contractual obligation to close the transaction.

The court next considered the Buyer's tortious interference with a contract allegations made against the Broker and the Brokerage. The trial court had ruled in favor of the Broker and Brokerage on these allegations, finding that the Buyer had failed to produce evidence in support of his allegations and, in the alternative, they could not be liable to the Buyer since the Broker was an agent of the Sellers and so they would be liable under principles of agency law for the Broker's conduct. The elements for tortious interference with a contract are: the existence of a contract; knowledge of the contract by the interfering party; intentional interference by the party causing or inducing a breach of the agreement; no legal justification for the party's actions; and damages resulting from the interference. Considering the first element, the court stated that a valid contract existed between the Buyer and Sellers. Next, the court determined that the Broker had knowledge of the existence of the purchase agreement. The court rejected the Broker's argument that she didn't have knowledge about the purchase agreement because she thought the purchase agreement had been canceled, finding it was unreasonable for the Broker to rely on her incomplete knowledge of the facts in arriving at her determination that there was no contract.

The court next considered the element involving intentional interference with the contract that causes breach of the agreement. The Buyer argued that the Broker's arranging appointments for Goings prior to the scheduled closing date and also telling the Sellers that the agreement with the Buyer was terminated amounted to intentional interference with the contract. The Broker argued that she did not urge the Sellers to breach the agreement, but merely offered her opinion that the agreement with the Buyer had terminated. The court ruled that there was a fact dispute on this point, requiring a trial to resolve it.

The court also ruled that the justification offered by the Broker, which was that she was justified to interfere with the agreement between the Buyer and Sellers because it was in her economic interest to receive a higher commission, was without merit because it was a misinterpretation of the law. The Broker sought to apply the standards used by courts in evaluating a prospective business relationship, which differs from an actual contractual relationship like the one here between the Buyer and the Sellers and that an actual contractual relationship is entitled to greater protection from the court.

Finally, the court found that the Buyer had properly alleged damages since he had made the allegation and the Broker had not rebutted the allegation in her pleadings. Thus, the court reversed the trial court and sent the intentional interference with a contractual relationship allegations back to the trial court. The court also vacated the attorney's fees that had been awarded.

The court next considered the Broker and Brokerage's argument that they could not be liable for contractual interference because they were agents of the Sellers. The cases cited in support of their argument were from corporate law, where a corporation was liable for the conduct of its agents. The court found that there was no basis to extend a similar rule to the residential real estate licensee/client relationship, and so rejected this argument by the Broker and the Brokerage.

The court next considered the allegations made by the Sellers against the Brokerage and the Buyer. The court rejected the respondeat superior allegations (a doctrine holding an employee liable for injuries cause by its employees) against the Brokerage for its representation of the Buyer, finding that in order to collect on these allegations, the Sellers would need to prove first that the Brokerage committed a tort, which the Sellers had not shown. The trial court had not found that the Brokerage committed any torts in its representation of the Buyer, and the court affirmed this ruling. The court also affirmed the lower court's dismissal of the Sellers' other allegations as well as the Going's counterclaim against the Buyer. Therefore, the court reversed lower court rulings on specific performance allegations by the Buyer and also the tortious interference with a contract allegations by the Buyer against the Brokerage, and sent the case back to the trial court to conduct further proceedings on those allegations.

Howard v. Youngman, 81 S.W.3d 101 (Mo. Ct. App. 2002).