Contract Good Faith and Fair Dealing Obligation

Realtor Wins Chance to Prove Sellers Acted in Bad Faith when they Accepted Offer to Purchase Home One Day After Listing Agreement Was Terminated

In what is probably a not infrequent occurrence, the sellers of a residential property who had rejected an offer brought to them by the real estate agent with whom they had entered into an exclusive listing contract, sold the property to the same purchasers only a few days after they had asked the agent to terminate the contract, and one day after the termination agreement was fully executed, thereby saving them – or so they must have thought – the real estate commission they otherwise would have had to pay the agent.

In a published opinion, the North Carolina Court of Appeals reversed a summary judgment order in favor of the sellers and remanded the case to superior court, holding that the plaintiff agent had raised a genuine issue of fact as to whether the sellers had breached their duty of good faith and fair dealing, a duty that is implicit in every contractual relationship in North Carolina.  

In Blondell v. Ahmed, COA 15-796 (N.C.App. 17 May 2016), after entering into an exclusive listing agreement with plaintiff, on April 6, 2013 sellers rejected an offer from prospective purchasers brought to them by the agent.  On April 22 sellers informed plaintiff they no longer wanted to sell their home and wanted to terminate the listing agreement.  Plaintiff sent them an unsigned termination agreement that specifically provided it was effective only when signed by both parties.  Sellers signed and returned it to plaintiff on April 23.  On May 2 sellers met with purchasers to discuss the sale of their home and tentatively agreed on a purchase price, and on May 9 purchasers presented a formal offer to sellers.  On May 10 sellers contacted plaintiff to confirm she had signed the termination agreement, and later that day she signed it and emailed a copy to them.  At no time did sellers inform plaintiff they were negotiating the sale of their home to purchasers.  The next day sellers formally accepted the purchasers’ written offer.

In reversing summary judgment for the sellers, the Court held that the facts outlined above created a genuine issue of fact whether sellers had breached their duty of good faith and fair dealing under the Listing Agreement.  The Court observed:

It is axiomatic that Sellers owed a duty of good faith and fair dealing to [Plaintiff] during the term of the Listing Agreement and during the negotiation of the termination of that Agreement.  Indeed, our Supreme Court has recently reiterated the long standing principle that there is implied in every contract a covenant of good faith and fair dealing.  Arnesen v. Rivers Edge Golf Club, ___ N.C. ___, ___, 781 S.E.2d 1 (2015); see also Great Am. Ins. Co. v. C.G. Tate Constr. Co., 303 N.C. 387, 399, 279 S.E.2d 769, 776 (1981) (recognizing “the common law principle that implicit in every contract is the obligation of each party to act in good faith”).  Also, our Court has consistently held that “[i]t is a basic principle of contract law that a party who enters into an enforceable contract is required to act in good faith and to make reasonable efforts to perform his obligations under the agreement.”  Weyerhaeuser Co. v. Godwin Bldg. Supply Co., 40 N.C. App. 743, 746, 253 S.E.2d 625, 627 (1979).

Blondell, at 5-6.

The Court also held that the Listing Agreement was not terminated until 10 May, when the plaintiff signed it, and not on 22 April when she sent the Termination Agreement to sellers with her email that stated that upon the sellers signing and returning the Agreement all obligations between them would be severed.  The Court found that to accept the email as evidence of the date the Termination Agreement took effect, in contradiction to the express language contained in the agreement, would contravene the parol evidence rule, which provides that “when a written instrument is introduced into evidence, its terms may not be contradicted by parol or extrinsic evidence, and it is presumed that all prior negotiations are merged into the written instrument”.  Blondell, at 7, quoting Root v. Allstate Ins. Co., 272 N.C. 580, 158 S.E.2d 829, 835 (1968).   Because the language in the Termination Agreement was unambiguous, it was error for the superior court to have considered the email statement as evidence of the effective date of the Termination Agreement.  

The litigation was no doubt costly for both parties in this case, and since the case has been remanded to superior court more litigation is likely to ensue.  The opinion is valuable, however, for underscoring the point that parties should take their contracts seriously and courts will hold contracting parties to a high standard to ensure they behave fairly towards each other.

Published by Hutchens Law Firm on June 15, 2016