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 C.A.R.'S
ATTORNEY FEES PROVISIONS WITHSTAND COURT SCRUTINY
The courts in two recent cases judicially enforced the
attorney fees provisions in C.A.R.'s standard forms.
These cases serve to remind REALTORS® to familiarize
themselves with the wording in the C.A.R. forms, such as
the widely-used Residential Purchase Agreement and
Residential Listing Agreement.
First, C.A.R.'s Residential Purchase Agreement generally
allows the prevailing seller or buyer to recover
attorney fees and costs for any action, proceeding, or
arbitration. This provision came under scrutiny in a
case involving a licensed real estate broker, Thomas
Horning, who entered into a contract to buy a $715,000
property in 2001. The seller agreed to pay Tom a 3%
commission, even though Tom merely represented himself
as buyer. When the seller breached the contract, Tom
sued for specific performance, or in the alternative,
monetary damages. Tom also recorded a lis pendens
against the property. The seller, however, successfully
moved to expunge the lis pendens, and then sold the
property to a third party for $920,000 in 2003.
In pursuing his remaining claim for monetary damages,
Tom sought to recover his lost profits and the 3%
commission. As for the lost profits, Tom claimed the
difference between the $715,000 contract price set in
2001 and the $920,000 sales price in 2003. The court
denied this claim because the proper measure of damages
was the difference between the purchase price and the
fair market value on the date of breach, not at the time
of trial. Yet, Tom failed to present any evidence of the
fair market value on the date of breach.
The court also denied Tom's claim for the 3% commission.
The court noted that a person acting on his own behalf
is not a broker, because a broker is defined as someone
acting for compensation on behalf of someone else.
Hence, the court considered the 3% commission as a 3%
credit to the buyer. The court would have awarded Tom
the difference between the $693,550 net price and the
fair market value of the property on the date of breach.
However, as mentioned above, Tom failed to present any
evidence of the fair market value on the date of breach.
Because Tom ultimately recovered nothing, the court
deemed the seller as the prevailing party of this case.
As a result, the court awarded the seller, the party who
breached the underlying contract, over $85,000 in
attorney fees and costs. This case is called Horning
v. Shilberg, 120 Cal. App. 4th 1023 (decided June
14, 2005).
The second case of interest addresses the attorney fees
provision in C.A.R.'s Residential Listing Agreement.
This provision allows the prevailing listing broker or
seller to recover attorney fees for any action,
proceeding, or arbitration regarding the obligation to
pay compensation. In the case of interest, a seller
alleged that his listing broker failed to disclose that
his property, which sold for $3.7 million, was actually
worth $4.5 million.
The seller sued for fraud, breach of fiduciary duty, and
breach of the duty to disclose, but later dismissed his
own complaint voluntarily. The listing broker asked the
court to award her, as the prevailing party, her
attorney fees. The court refused because the case did
not involve "the obligation to pay
compensation" as called for by the listing
agreement. Upon winning that particular issue, the
seller now asked for an award for his attorney fees. The
seller argued that, as a matter of reciprocity, he was
entitled to recover his attorney fees because the
listing broker previously claimed a right to her
attorney fees. The court disagreed. The court held that
the seller was not entitled to attorney fees merely
because the listing broker requested them. This case is
called Hasler v. Howard, 2005 WL 1530520
(decided June 30, 2005).
For more information, C.A.R. members may contact
C.A.R.'s Member Legal Hotline at 213.739.8282, or for
office managers, broker/owners, and designated REALTORS®,
call 213.739.8350. Access to Member Legal Hotline is
also available through C.A.R. Online at http://www.car.org/index.php?id=NTk2.
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