Why should you pre-register at an auction?

April 21, 2010

Pre-registering at an auction is important. It identifies the possible bidders, but more importantly, it identifies whether those bidders are represented by real estate agents. In a well written opinion by the Court Appeals of the Western District, the Court was presented with the issue of breach of a real property auction sales contract: Eric H. McPherson v. William E. George, Inc. No. W2008-02450-COA-R3-CV, filed April 20, 2010.

In this case, an auction was held John Roebuck, Auctioneer, for the Seller (Eric H. McPherson). There was a ten percent (10%) buyer’s premium on the sale. According to the auction sales contract, this amount constituted the commission payable William E. George, Inc. was the high bidder, and after the bidding and win by George, he asked if his agent (his wife) would be paid a commission on the sale. Roebuck answered in the affirmative. When the matter came to closing, however, Roebuck informed George there would be no buyer agent commission as it is not contained in the contract and he did not pre-register designating an agent. George refused to close, and Seller sued for breach. Buyer counter-sued for fraud by inducement, stating that he was induced to bid on the promise that his agent would receive a commission.

The Court of Appeals upheld the trial court’s ruling that the Seller was entitled to specific performance by the Buyer, and damages for breach of the contract. Further, the Court held that the auctioneer was entitled to the buyers premium as commission, because that provision was clearly set forth in the contract, and that such a provision did not limit damages to the Seller:

“The provision quoted above plainly permits Seller to declare the contract canceled in the event of a purchaser’s failure to pay, and at the same time it permits Roebuck to retain the earnest money while Seller affirms the contract and seeks specific performance or contractual damages from Buyer. The agreement specifically states that Seller’s election to treat the contract as canceled and permit Roebuck to keep the earnest money is not Seller’s exclusive remedy. This sales agreement was freely entered into among Seller, Roebuck, and Buyer, and it provides specifically for the type of damages allowable to each party in the event of Buyer’s breach. This Court must enforce the plain terms of the contract as written, even if doing so leads to a result that seems harsh or unjust.”

The full text of the case in PDF format can be found on the Tennessee Supreme Court website by clicking this link. To view the file, get Adobe Acrobat Reader.

Don’t Delay in Preparing Your Will

March 25, 2010

Benjamin Franklin once said, “You may delay, but time does not.” In the case of Carl Harris, his delay in addressing his testamentary wishes created a three-year court battle for his children. According to the Trial Court, Mr. Harris had always intended to disinherit one of his children and leave the family farm to the others. However, Mr. Harris waited to address this desire in the one-week period before his demise as a result of terminal cancer. During that time, he communicated with his lawyer, and two deeds were drafted leaving the property to the two children and a son-in-law, leaving out one of his children. He died less than three days later.
In reaching its decision, the Trial Court determined that the Plaintiff had not carried his burden of proving a confidential relationship between the devisee children and Mr. Harris, which would create the presumption of undue influence. Iacometti v. Frassinelli, 494 S.W.2d 496 (Tenn. Ct. App. 1973). See also Kelley v. Johns, 96 S.W.3d 189. The Court further determined that the Plaintiff did not carry his burden of proof that Mr. Harris lacked the mental capacity to execute the deeds in question. In Tennessee, the mental capacity to execute an instrument is where the person possesses the sufficient mind to understand… the effect of the act or transaction in which he is engaged.” Roberts v. Roberts, 827 S.W.2d 788 (Tenn. App. 1991) citing 17 CJS Contracts 133.
Most importantly, the Appeals court quotes CJS as to real property, stating that “if the donor has sufficient mental capacity to understand the extent and value of his property, what persons are the objects of his bounty, and the manner in which he is distributing his property among them, his gift will be valid.” CJS Gifts 13
The Court of Appeals affirmed the trial court in all respects, based in a large part upon the Court’s reliance on the testimony of Mr. Harris’ attorney. Plan for your conveyances early in order to avoid trouble for your heirs, and to leave no room for interpretation of your intention. In addition, the method of planning used by Mr Harris leaves trouble for his Estate in terms of gift tax on the property