Realtor’s commission claim revived on appeal

A circuit court erred by sustaining a demurrer where a realtor sufficiently alleged that a city may be obligated to pay a sales commission after exercising a right of first refusal under the same terms and conditions of the private offer, the Court of Appeals of Virginia has held.

Both the city and the seller refused to pay the realtor’s commission but deposited the disputed amount into escrow. The circuit court ruled against the realtor, finding it lacked standing against the city and had no enforceable agreement against the seller.

Judge Steven Frucci affirmed the dismissals in favor of the seller but found that the seller’s deed “confirms that the City, if it chooses to accept an offer on the Property, purchases the Property ‘upon the same terms and conditions as set forth in the offer.’”

“Accordingly, [the realtor] sufficiently alleges that the City agreed to direct the closing agent to pay [] its real estate commission, and thus breached the agreement by not doing so,” the judge wrote.

Judges Mary Grace O’Brien and Doris Henderson Causey joined Frucci in Ware Creek Real Estate Corp. v. Dandridge K. Davis and Jonathan B. Keyser, co-executors of the Estate of Ann B. Darst (VLW 025-7-339).

Unanswered question

Bruce Arkema of Durrette, Arkema, Gerson & Gill in Richmond represented the realtor and was happy about the reversal but disappointed that the court did not answer the real question underlying his client’s appeal.

“I asked the court specifically to clarify what happens to a contract when a right of first refusal is exercised,” Arkema said. “Is there a new contract with all the same terms and conditions or do they step in the shoes and assume the contract that the original purchaser was on the hook?”

Because the city had been dismissed from the case before trial, Arkema did not address that question until briefing on appeal. He now intends to rely on the city’s prior admissions in a motion for summary judgment.

“The court has got to decide once and for all what are the legal ramifications under a first right of refusal,” Arkema said. “Is there a brand-new contract with the same terms or do [they] step in the shoes and, if so, can they get rid of some of the terms?”

Equally important to Arkema’s client was the issue of attorneys’ fees. “My client has spent more than what’s at stake, but he wants an answer to the question,” he told Virginia Lawyers Weekly.

Attorneys for the defendants did not respond to a request for comment.

First refusal

Desiring to sell her Williamsburg home and 130.76-acre property, Ann Darst first offered it to the city, which held a right of first refusal. When the city did not meet her price, Darst contacted Ware Creek Real Estate, which informed her of an interested buyer.

Darst and the buyer signed an offer to purchase the property for $1 million; Darst forwarded the offer to the city, which invoked its right of first refusal. Darst released the buyer, but Ware Creek refused to sign the release unless it was paid a real estate commission. Darst refused.

To close on the property, Darst and the city entered into an escrow agreement to deposit the disputed commission. Ware Creek sued Darst and the city for breach of contract.

Ware Creek alleged that the city purchased the property under the same terms and conditions of the offer to purchase and was obligated to pay the commission. Ware Creek further alleged that it was a third-party beneficiary of the escrow agreement.

The circuit court sustained the city’s demurrer, finding that Ware Creek lacked standing. Although the court sustained Darst’s demurrer to Ware Creek’s third-party beneficiary claim, it decided to hold a bench trial on the contract claim.

Following trial, the court ruled in Darst’s favor because it found there was no meeting of the minds with Ware Creek. Alternatively, the court held that if a contract existed, there was an unmet condition precedent – the city declining to exercise its right of first refusal.

Ware Creek appealed.

Third-party beneficiary

Ware Creek maintained that the city purchased the property under the same terms and conditions set forth in the offer, including but not limited to paying Ware Creek’s commission.

The Supreme Court of Virginia held in Levine v. Selective Ins. Co. of Am. that the “essence of a third-party beneficiary’s claim is that others have agreed between themselves to bestow a benefit upon a third party but one of the parties to the agreement fails to uphold his portion of the bargain.”

“‘A third party who claims to be the beneficiary of a contract between others must show by the evidence that the contracting parties clearly and definitely intended to confer a benefit upon him,’” Frucci explained, citing Aetna Casualty & Sur. Co. v. Fireguard Corp.

“‘Put another way, a person who benefits only incidentally from a contract between others cannot sue thereon,’” the judge added.

Here, the offer to purchase stated that “[p]urchasers hereby direct the closing agent to pay [Ware Creek] 6% (six percent) of the total sales price at closing” and specified that “the purchaser(s) shall pay the realtor fee.”

But Frucci looked to a document attached to the city’s demurrer – the deed granting the city a right of first refusal – which confirmed that the city would purchase the property upon the same terms and conditions as set forth in the offer.”

Thus, the circuit court erred in sustaining the city’s demurrer because Ware Creek sufficiently alleged that the city breached its agreement to direct the closing agent to pay its commission.

Contradictory language

Although Ware Creek clearly asserted it was a third-party beneficiary of the escrow agreement, Frucci said that assertion was contradicted by the language of the agreement attached to its complaint.

“Looking at the Escrow Agreement, it plainly states that Darst and the City disputed Ware Creek’s right to the commission,” the judge pointed out, noting how it stated that Ware Creek “‘has asserted a claim to a 6% commission on such sale, which Darst and [the city] dispute.’”

“It is clear from the language of the Escrow Agreement that Darst and the City entered into this agreement for their own benefit, not Ware Creek’s,” Frucci said.

Finding that the escrow agreement contradicted Ware Creek’s allegations, the panel disregarded them.

“In fact, the reason Darst and the City entered into the Escrow Agreement was because they did not believe Ware Creek was entitled to the benefit of the commission,” the judge opined. “Darst and the City desired to close on the Property without delay, and in order to accomplish this, they set aside the disputed amount.”

And while Ware Creek may ultimately benefit from the funds that were set aside, Frucci said nothing in the language of the escrow agreement indicated that Darst or the city clearly and definitely intended to confer a benefit upon Ware Creek.

Condition precedent

The panel also found no error in the circuit court’s judgment in favor of Darst based on its ruling that city’s right of first refusal was subject to a condition precedent which had not been met.

“‘A condition precedent calls for the performance of some act, or the happening of some event after the terms of the contract have been agreed upon, before the contract shall take effect,’” Frucci said, citing Smith v. McGregor.

The Smith court clarified that “‘the contract is made in form, but does not become operative as a contract until some future specified act is performed, or some subsequent event occurs.’”

“A right of first refusal operates in the same manner,” Frucci pointed out. “A right of first refusal is a ‘right that a buyer shall be given an option to purchase before an owner makes a contract to sell to another,’” he said, guided by Landa v. Century 21 Simmons & Co.

All parties in this matter were aware of the city’s right of first refusal, which was an included provision in the offer to purchase that Darst sent to the city, prompting the city to exercise its right to purchase the property.

The offer to purchase stated that “[p]urchasers understand and acknowledge that there is a ‘first right of refusal’ with the [C]ity of Williamsburg with terms and conditions which may affect the outcome this contract of purchase.”

“As our Supreme Court stated in Landa, ‘when an owner receives an offer the owner cannot accept that offer without first offering it to the holder of the right of refusal,’” Frucci said.

In this case, the condition precedent of the offer to purchase was the city not exercising its right of first refusal.

“It follows that the Offer to Purchase was not operative as a contract until the City declined to exercise its right,” the judge wrote. “And so, because the City elected to exercise its right of first refusal, the condition precedent was not met and the Offer to Purchase never took effect.”

Therefore, Ware Creek’s breach of contract action against Darst failed as a matter of law.