Real Property Notes Blog

Option Signed Before Agency (commission) Agreement Did Not Extend Period of Agency Agreement

fIn Colburn Hundley, Inc. v West Michigan Developers, Inc., an unpublished Michigan Court of Appeals opinion, a real estate broker sued for a commission based upon an Agency Agreement, which provided that its term would be extended for any period during which the seller granted an option for the property.  The owner of the property granted an option to purchase to a third party (of which the broker was one of the principals) in the morning.  In the afternoon of the same day, the owner of the property signed the Agency Agreement which provided that “in the event” the seller granted an option to purchase, the term of the Agency Agreement would be suspended for the term of the option and automatically recommence for the remainder of the term at the option’s expiration.  The Broker argued that the option, entered into before the Agency Agreement, extended the term of the agency agreement for the duration of the option. The trial court held otherwise, granting summary disposition for the owner on the broker’s claim for a commission.

The Court of Appeals ruled that the words “in the event” used in the Agency Agreement were forward-looking, and could not be construed as to encompass an option agreement entered into before the Agency Agreement.  Because the Agency Agreement expired by its own terms before the property was sold (to a third party), the seller was not liable to the broker for a commission.

The Court of Appeals also rejected the argument that there was a subsequent agreement to pay a commission, finding that there had not been a meeting of the minds sufficient to form a contract.

Terms in Restrictive Covenant Should Be Given Ordinary Meaning; Covenant Enforced

In Theil v Goyings, an unpublished Michigan Court of Appeals Opinion, the Defendants installed a home, assembled partially off-site, trucked to the site, and installed on the foundation by crane.  The restrictive covenants prohibited “modular” homes and required homes to be “stick-built.”  The trial court found that the term “modular” was ambiguous and held that the home did not violate the covenant.

The Court of Appeals reversed, holding that the term “modular” should be given its plain and ordinary meaning; under such meaning, it clearly applied to the home built by defendants.  The court remanded to the trial court for entry of an injunction requiring removal of the home.

The court noted that there are two, sometimes inconsistent, principles in the enforcement of restrictive covenants.  The first is that owners of land should have broad freedom to make legal use of their property.  The second is that courts must normally enforce restrictions on which other owners similarly burdened have relied.

Retaining Wall Trespasses, but Owner Entitled to only Nominal Damages

In Divito v Post, an unpublished Michigan Court of Appeals Opinion, the defendant built a retaining wall whose footings were on her property but which leaned, over time, over the Plaintiff’s property.  The Plaintiffs sued, claiming the installation of the retaining wall caused erosion on their property and that the retaining wall was a trespass.  The trial court dismissed the case entirely and the Plaintiffs appealed.

On appeal, the court held that the trial court erred by finding that no trespass occurred, because the evidence showed that the wall did in fact lean over the Plaintiff’s property.  However, the court found that requiring removal of the wall would impose harm and hardship on the defendant, and that Plaintiffs had proven no actual damages because of the trespass.  The court reversed and remanded the case to the trial court for an award of nominal damages for the trespass.

6th Circuit Court of Appeals Interprets MCL §600.3280

In DAGS II, LLC v Huntington National Bank, where commercial property sold at foreclosure sale for $1.85 million and subsequently sold less than a year later to a third party for $2.35 million, the Sixth Circuit Court of Appeals held that the latter value was the true value of the property at the time of the foreclosure and used this value to determine whether there was any deficiency left on the debt.  Based upon a debt in excess of $5 million, the court held that there was still a deficiency left to be collected, thereby dismissing the debtor’s claims that the bank engaged in wrongful conduct in pursuing collection of the deficiency.

MCL §600.3280 provides two defenses to a deficiency action:  1), that the property was fairly worth the amount of the debt at the time of the sale, and 2), that the amount bid at the foreclosure sale was substantially less than the true value of the property.  In this case, the court held that the property was worth more than the amount of the foreclosure sale price, but still was substantially less than the debt owed.

© Steve Sowell 2018