Verdict Against Brokerage Affirmed

Read the full decision: Hensley v. Duvall

A Pennsylvania appellate court has affirmed a jury verdict ruling that buyers suffered damages from an improperly prepared contingency clause by their real estate professional.

The owners of a dog day care business (“Buyers”) decided to offer overnight kennel services and so began searching for a property to accommodate the kennels.  The Buyers entered into a buyer representation agreement with a real estate brokerage (“Buyer’s Representative”) and explained to the Buyer’s Representative that they were searching for a property that could accommodate their kennels. 

The Buyer’s Representative located a property that had a barn on it, and the Buyers found that the barn would accommodate their kennels.  The Buyers negotiated a purchase price with the sellers and then measured the property to ascertain whether the kennels would meet the town’s zoning ordinances.  After discovering the barn did not meet the 200-foot setback requirement for the kennels, the Buyers expressed concern.  One of the sellers was a township supervisor and he told the Buyers that he would help them obtain a zoning variance for the barn.  Additionally, he told them the barn did meet the zoning requirements because the steps that extended into the barn brought the barn within the setback requirement.

Before entering into the purchase agreement, the Buyers asked the Buyer’s Representative to draft a contingency clause allowing the Buyers to void the agreement if the barn could not be used as a kennel. The Buyer’s Representative drafted a contingency that allowed the Buyers to cancel the agreement if the property could not be used as a kennel without specifying the barn, and the language was approved by the firm’s managing broker.  The Buyers expressed concern that the contingency was not specific enough, but the Buyer’s Representative assured them that the language was sufficient.  The Buyers received a zoning variance from the town and completed their purchase of the property.

Following their purchase, the town informed the Buyers that the town would not issue the permit allowing the Buyers to use the barn as a kennel.  The Buyers filed a lawsuit against the Buyer’s Representative, claiming that the Buyer’s Representative was negligent in drafting the contract contingency because it did not allow them to cancel the agreement when they couldn’t use the barn as a kennel.  A jury found that the Buyer’s Representative was negligent in drafting the contingency clause and awarded the Buyer damages of approximately $200,000.   The Buyer’s Representative appealed.

The Superior Court of Pennsylvania affirmed the verdict against the Buyer’s Representative and remanded the matter back to the trial court for an award of attorney fees and interest to the Buyers.  The court first considered the Buyers’ argument that they should have been awarded attorney fees because they were the prevailing party in the litigation and the buyer’s representation agreement contained a clause that awarded the prevailing party in any litigation “reasonable attorney fees.”   

The Buyers argued that they were the prevailing party at trial and so should receive attorney fees.  The jury found that the Buyer’s Representative was negligent in drafting the contingency clause because it did not allow them to void the contract when the barn could not be used as a kennel.  Since the jury had found that the Buyer’s Representative was negligent in drafting the contingency clause, the court agreed that the Buyers should receive attorney fees and so sent the case back to the trial court for a determination on the amount of attorney fees to be awarded to the Buyers.

Next, the court considered the Buyer’s Representative’s argument that the court should have granted its motion for judgment after the verdict because the evidence did not support the jury’s determination.  The Buyer’s Representative argued that it did not owe a duty to the Buyers to draft a contingency clause.  The Buyer’s Representative knew that the Buyers would not buy the property if they could not use the barn as a kennel.  When the Buyer’s Representative authored the contingency clause, they assumed the duty to properly craft the clause to protect the Buyers.  Because they negligently drafted the clause, the court rejected the Buyer’s Representative’s argument and affirmed the jury award.

Hensley v. Duvall, No. 2911 EDA 2015, 2017 WL 1372759 (Pa. Super. Ct. Apr. 13, 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.]

Editor’s Note: The Pennsylvania Association of REALTORS® has filed an amicus curiae brief in support of the Buyer’s Representative’s appeal. In its brief, PAR argues that the court had improperly held the Buyer’s Representative responsible for the town’s refusal to issue a permit allowing the Buyers to use the barn as a kennel.