The language of law
REALTORS® advised with scenarios that affect business

Every once in a while a decision is made by a court that causes people to run around crying “the sky is falling, the sky is falling.”

In most instances, the court decision does not cause all or any part of the sky to fall. In 1981, private property rights advocates began to cry “the sky is falling” when the Michigan Supreme Court rendered its decision in the so-called “Poletown” case. Unfortunately, over the next 23 years, portions of the sky did begin to fall all around the country.

Generally, in the Poletown case, the city of Detroit sought to condemn privately owned property in the Hamtramck area so that the land could be provided to an automobile maker to construct a new plant. In other words, the private property of a group of persons was condemned by a city in order to hand the property over to another private property owner for a different use. The Michigan Supreme Court in 1981 generally found that the construction of the automobile plant and the creation of the jobs that would come with the construction of the plant constituted a public use. This was particularly the case since Michigan was at that time mired in a deep recession.

Critics of the Poletown decision claimed the decision was revolutionary and would result in governments throughout the land condemning perfectly good residential and other types of property solely for the purposes of allowing another private party to redevelop the property for a use that the government found more beneficial. Unfortunately, the critics proved to be correct. In many instances, perfectly serviceable residential neighborhoods were deemed to be “blighted” and were condemned to make way for new privately owned residential and commercial developments. The “public use” requirement for the condemnation of property appeared to be disappearing as the sky fell in.

The Michigan Supreme Court recently reversed the downward flow of the sky by reversing the 1981 Poletown decision in County of Wayne v Hathcock. The facts in the Hathcock case demonstrate how far the “public use” requirement for condemnation had disappeared.

New construction at the Wayne County Airport raised concerns about noise from increased air traffic plaguing neighboring landowners. To eliminate these problems, Wayne County, funded by a partial grant from the Federal Aviation Administration (“FAA”), purchased approximately 500 acres in nonadjacent plots scattered in a checkerboard pattern in an area south of the airport. The string attached to the money from the FAA was that any properties acquired by Wayne County were to be put into an economically productive use. In order to meet this requirement, Wayne County, through its Jobs and Economic Development Department, decided to construct a large business and technology park with a conference center, hotel accommodations and a recreational facility. The project became known as the “Pinnacle Project.” The Pinnacle Project was to be a state-of-the-art business and technology park comprised of 1300 acres next to the Wayne County Airport. The Pinnacle Project was anticipated to create 30,000 jobs and add $350 million in tax revenue for Wayne County.

Having acquired 500 acres, the county negotiated the purchase of another 500 acres within the Pinnacle Project area. The county then determined that it needed an additional 46 parcels contained within the project area for the business and technology park. These 46 parcels were, of course, all owned by private property owners, then presently being used for perfectly lawful residential or business purposes. On July 12, 2000, Wayne County adopted a resolution which would authorize the condemnation of the remaining 46 parcels. In conjunction with the condemnation, offers were made to the owners of all 46 parcels. Owners of 27 parcels accepted the offers. This left only 19 parcels which needed to be condemned for the business and technology park.

The owners of the 19 parcels contended that Wayne County’s purchase of their property for resale to private developer to develop the business and technology park violated the Michigan Constitution. The Michigan Constitution requires that any condemnation be for a “public use.” The property owners lost at the trial court and at the Michigan Court of Appeals, as those courts were bound to follow the Supreme Court’s 1981 Poletown decision.

The Michigan Supreme Court found that there was ample evidence in the record that the Pinnacle Project would benefit the public. However, the Michigan Supreme Court then found that the condemnation of the 19 individuals’ properties and the subsequent transfer of those properties to private entities to develop the Pinnacle Project was not consistent with the common understanding of the term “public use” at the time the Michigan Constitution was ratified. In other words, it violated the 19 property owners’ constitutional rights by condemning their properties under these circumstances.

The Michigan Supreme Court did describe three circumstances under which private property could be condemned by the government for subsequent use by another private property owner. First, this type of condemnation can occur if it involves “public necessity of the extreme sort otherwise impracticable.” This would include condemning land for construction of a railroad. Second, private property can be condemned for subsequent use by another private property owner when the private property owner remains accountable to the public in its use of the property. An example of this type of condemnation would be a petroleum pipeline that was constructed by a private property owner on condemned property which is heavily regulated by the state. Finally, private property may be condemned for use by other private property owners when the selection of the land to be condemned is itself based upon public concern. This would include the condemnation of blighted housing where the government’s controlling purpose is to remove unfit housing and thereby advance public health and safety.

The decision in Wayne County v Hathcock should be celebrated by all persons who champion the cause of individual real property rights. Citizens of Michigan can now be certain that their homes or businesses will not be condemned simply to provide another private individual with the opportunity to use the site of their properties for some purpose the government deems more suitable. The sky is now back in place.

Sloppy Losses

REALTORS® are a cut above non-REALTORS® both by reason of their strict adherence to NAR’s Code of Ethics and the high degree of professionalism they exhibit on a daily basis. This professionalism extends to the careful preparation of transaction documents. A recent decision by the Michigan Court of Appeals demonstrates that the failure to adhere to a high level of professionalism in the preparation of documents can cost a lot of money.

In this case, the seller, through its agent, T.M.Bahhur, listed its car wash and associated property with a broker for a listing price of $3,650,000. The listing agreement called for a commission to be paid to the broker during the term of the contract if the property was sold at the price and terms set forth in the listing agreement and, in addition, if:

a) the SELLER refuses to sell when a ready, willing and able buyer is produced at price and terms.
b) the SELLER refuses or is unable to complete a sale pursuant to the terms of a duly executed Offer to Purchase, Purchase Agreement, Contract of Sale, or such other equivalent agreement signed by SELLER.

In March of 2002, the broker obtained an offer to purchase the property for $2,250,000. This offer was signed by “an officer of MI Corp.to be formed.” Then, according to the decision of the court, “someone with the initials A.H. purported to be the “seller” of the property and wrote notes and crossed out terms throughout the offer to purchase.” The court cited an example where the $2,250,000 figure was lined out and “2.55 million” was handwritten underneath. There were also several handwritten additions to the “additional conditions” paragraph of the offer to purchase. Finally, the Court of Appeals noted that “A.H.,” the purported seller, did not sign or date the marked up offer to purchase. Ultimately, the property did not sell to the “MI Corp.to be formed.”

The broker sued the seller, claiming that it was entitled to a commission because it produced a “buyer willing and able to purchase the property at a price of $2,550,000.” The broker contended that this was consistent with the defendant’s (A.H.) counteroffer that was accepted by the “MI Corp.to be formed.” The seller asked the trial court to summarily dismiss the case on the grounds that the purported purchaser never accepted the alleged “counteroffer” and, in any event, the offer to buy was void because it was signed on behalf of a nonexistent entity as the purchaser. The trial court agreed and dismissed the broker’s claims.

On appeal, the broker contended that it was entitled to its commission because the listing agreement did not require it to produce a “binding sales contract” between the seller and a prospective buyer in order for the broker to earn a commission. The broker claimed that it produced a ready, willing and able buyer under the terms of the seller’s counteroffer, but that the seller revoked the counteroffer and did so prior to any written acceptance by the buyer. Thus, the broker contended it fulfilled its contractual obligation entitling it to a commission since the seller refused to sell to the prospective buyer.

It is apparent from the Court of Appeals’ decision that the sloppy manner in which the “counteroffer” was handled influenced the court’s decision. The court found:

IT IS UNDISPUTED THAT [SELLER] DID NOT ACCEPT THE OFFER TO PURCHASE. FURTHER, THE ALLEGED “COUNTEROFFER” WAS FOR THE MOST PART ILLEGIBLE, NEITHER SIGNED NOR DATED, AND ONLY INITIALED “A.H.” AT VARIOUS PLACES; WHILE THE PURPORTED AGENT OF THE OWNER, WHO SIGNED THE LISTING AGREEMENT, WAS T.M.BAHHUR. EVEN IF THIS COULD BE CONSIDERED A LEGALLY SUFFICIENT “COUNTEROFFER,” AS PLAINTIFF ADMITS, IT WAS REVOKED PRIOR TO ACCEPTANCE — A VALID EXERCISE OF [SELLER’S] RIGHTS.

The Court of Appeals went on to find that although the broker was not required to obtain a binding sales agreement to earn a commission under the terms of the listing agreement, merely obtaining an offer to purchase on the seller’s behalf is not sufficient to entitle a broker to a commission. The court found that such a conclusion in this case would be “tantamount to requiring a seller to accept any offer to purchase from a ‘ready, willing and able buyer’ regardless of disparity of the price and terms provided in the listing agreement at a penalty of paying multiple commissions — an untenable result.” The court concluded by pointing out that this was not a case in which the seller had simply refused to sell its property, despite having reached an agreement regarding its terms.

While the broker in this case may well have ultimately lost this case based on the legal principle that the seller had the right to revoke the counteroffer up to the time of its acceptance by the buyer, the court was not inclined to rule in favor of the broker because of the sloppiness of the so-called “counteroffer,” which was only initialed by the seller, whose terms were “for the most part illegible” and were neither signed nor dated.

Whether the transaction had been for $50,000 or $3 million, the professionalism of a REALTOR® would have required a properly prepared counteroffer signed by an identified representative of the seller. The public should expect no less from someone identified as a REALTOR®.