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The Duty of Good Faith and Fair Dealing

November 2018 Insight Cover Image

LEGAL TALK

Knowing that a published reversal of the Wake County judge’s decision by the Court of Appeals of North Carolina would provide valuable assistance to other REALTORS®, Colleen decided to request assistance from the Legal Action Committee.

BY: BILL GIFFORD, MANAGER, MARTIN & GIFFORD, PLLC

Over 40 years ago, the National Association of REALTORS® established the Legal Action Program, and in subsequent years, a number of state associations, including NC REALTORS®, established similar programs. The purpose of all these programs is to provide financial assistance to REALTORS®, REALTOR® associations, property owners and others who are engaged in litigation where the outcome could be of benefit to other REALTORS® across the state and the country.

This article will describe a recent piece of litigation that the NC REALTORS® Legal Action Committee heard about, and agreed to support, which ultimately resulted in a very important decision for REALTORS® across North Carolina. The case involved a seller who went behind a REALTOR®’s back in an attempt to deprive her of her commission. This article will then discuss the types of cases that are eligible for financial assistance through the Legal Action Program, and the procedures that REALTORS® should follow if they want to request that assistance.

THE CASE

The litigation in question is a case entitled Colleen Blondell vs. Shakil and Shabana Ahmed. Colleen Blondell is a broker who, in early 2013, was doing business in Cary. In March of that year, Colleen agreed to list the home of Mr. and Mrs. Ahmed for sale. The Ahmeds and Colleen entered into a standard exclusive right to sell listing agreement, and the Ahmeds consented to dual agency. Shortly thereafter, Colleen showed the Ahmeds’ property to Michael and Susan Fekete. The Feketes were interested in making an offer. Before submitting that offer, the Feketes and Colleen entered into a buyer agency agreement. The Feketes also agreed to dual agency.

On April 6, 2013, Colleen presented the Ahmeds with an offer signed by the Feketes. The Ahmeds rejected that offer. On April 22, the Ahmeds informed Colleen that they no longer wished to list their property with her. Colleen sent them an unsigned copy of the standard “Termination of Agency Agreement and Release.” In her cover email, Colleen stated that if they signed the termination form and returned it to her, the listing agreement would be terminated.

The Ahmeds signed the termination form and emailed it back to Colleen. However, aware that the Ahmeds might change their minds again, Colleen did not sign that form right away.

On April 25, the Feketes left a note in the Ahmeds’ mailbox indicating that they were still interested in purchasing the Ahmeds’ home. This note led to conversations and meetings between the Feketes and the Ahmeds, none of which were disclosed to Colleen.

On May 9, the Feketes presented a new written offer directly to the Ahmeds. Although the terms of the offer were acceptable, the Ahmeds did not sign it right away. Instead, they contacted Colleen and asked her about the status of the termination form. Knowing nothing about the Feketes’ new offer, and the Ahmeds’ intention to sign that offer, Colleen signed the termination form on May 10 and sent it back to the Ahmeds. The following day, the Ahmeds signed the Feketes’ offer. The sale to the Feketes closed one month later.

When Colleen discovered that the Feketes had purchased the property, she filed suit in Wake County alleging breach of contract and fraud. The Ahmeds responded that they were not obligated to pay a commission because Colleen had signed the termination form on May 10, and that form included broad release language. In January 2015, a judge in Wake County agreed with the Ahmeds and entered judgment in their favor.

ENTER THE LEGAL ACTION PROGRAM

At this point, Colleen had personally invested a significant amount in legal fees. Although she wanted to pursue an appeal, she was concerned about incurring additional costs. Knowing that a published reversal of the Wake County judge’s decision by the Court of Appeals of North Carolina would provide valuable assistance to other REALTORS®, Colleen decided to request assistance from the Legal Action Committee.

In February 2015, the committee agreed to Colleen’s request. With the financial assistance she received, Colleen filed her appeal. The principal argument she made on appeal was that the termination form should not be given effect, and its release language should be ignored because the Ahmeds had acted in bad faith. Specifically, Colleen argued that the Ahmeds had acted in bad faith when, on May 9, they asked Colleen to sign the termination form without disclosing that they had received a new offer from the Feketes, and they intended to sign that offer.

In a well-reasoned decision published in May 2016, the Court of Appeals agreed with Colleen. The Court noted that there is a “covenant of good faith and fair dealing” implied in every contract. The Court found that Colleen had presented substantial evidence that the Ahmeds had breached that duty when they asked Colleen to sign the termination form without disclosing that they had an acceptable offer in hand. The Court of Appeals found that if the Ahmeds breached their duty of good faith, Colleen was not bound by the release language in the termination form.

Although the Ahmeds appealed this decision to the North Carolina Supreme Court, that Court affirmed the Court of Appeals in an opinion issued in September 2017.

HOW CAN I USE THE LEGAL ACTION PROGRAM?

Together, these very recent decisions by North Carolina’s appellate courts affirm the principle that an owner of a property may not escape liability for a real estate broker’s commission by terminating a listing agreement and then dealing directly with a purchaser who was produced as a result of the broker’s efforts. The Court of Appeals decision can and should be cited by real estate brokers across the state who find themselves faced with similar circumstances.

It should be noted that not all cases involving real estate brokers are eligible for consideration by the Legal Action Committee. A case is eligible if it relates to governmental agency action or investigation, or to actual or proposed litigation. In either situation, however, the case must “present an opportunity for clarifying precedent on issues of significance” to NC REALTORS®, local boards and associations of REALTORS® or related organizations, or a substantial portion of the NC REALTORS® membership.

If you should be involved in a case that meets these criteria, you can submit a request for assistance from the Legal Action Program. Your request must be in writing, on the form prescribed by the Legal Action Committee, and must be filed with the Chief Executive Officer of NC REALTORS® at least 45 days prior to the next scheduled meeting of the Executive Committee. REALTORS® should contact an NC REALTORS® staff attorney for a copy of the complete policy governing the Legal Action Program and the current request form.

Legal Action Program

Administered by the Legal Action Committee, the Legal Action Program exists to provide financial resources to parties engaged in litigation or administrative action. The case must present an opportunity to set or clarify legal precedent statewide on issues affecting NC REALTORS®, real estate licensees, real estate associations, private property owners or the real estate industry generally. Contact an NC REALTORS® staff attorney for a copy of the complete policy governing the Legal Action Program and an application form. Call 336-294-1415.



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