Case Title: Harsch Properties, Inc. v. Nicholas

Citation: 2007 VT 70

Docket Number: 

State: vermont

Court: Vermont Supreme Court

Date: 2007-07-27T00:00:00Z

Document:
Harsch Properties, Inc. v. Nicholas (2005-494)

2007 VT 70

[Filed 27-Jul-2007]


       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any errors in order that corrections may be made before this opinion goes
  to press.


                                 2007 VT 70

                                No. 2005-494


  Harsch Properties, Inc.                        Supreme Court
  d/b/a Harsch Associates
                                                 On Appeal from
       v.                                        Bennington Superior Court

  Robert Nicholas and Deborah Nicholas           February Term, 2007
                                                 

  Karen R. Carroll, J.

  Donald W. Goodrich of Donovan & O'Connor, LLP, Bennington, for
    Plaintiff-Appellee/ Cross-Appellant.

  David J. Williams of Sleigh & Williams, St. Johnsbury, for
    Defendants-Appellants.


  PRESENT:  Reiber, C.J., Dooley, Johnson and Skoglund, JJ., and 
            Reiss, D.J., Specially Assigned

       ¶  1.  REIBER, C.J.  Homeowners, Robert and Deborah Nicholas, appeal
  the superior court's order awarding their real estate broker, Harsch
  Properties, Inc., attorney's fees and costs following a jury verdict that
  found owners breached the implied covenant of good faith and fair dealing
  and awarded broker $4000.  On appeal, owners argue that broker was not the
  prevailing party within the meaning of the contract and thus not entitled
  to fees.  Broker also appeals and argues that the trial court erred in
  denying its motion for additur or a new trial because the jury's award of
  $4000 was unsupported by the evidence.  We affirm.


       ¶  2.  In May 2001, owners entered into a listing agreement with
  broker, giving broker the exclusive right to sell their 100-acre property
  in Pownal, Vermont for one year. (FN1)  The agreement excluded a one-acre
  plot with a mobile home.  The listing agreement set a firm $600,000 asking
  price and established a brokerage fee of 8%.  The agreement required owners
  to "at all times conduct discussions/negotiations with respect to offers,
  contracts, addenda, extensions, etc., directly through the Broker(s)."  In
  addition, the agreement explained that broker's full fee would be due if
  owners defaulted or if owners declined to accept "a non-contingent full
  price offer with a reasonable closing period."  In the case of a
  disagreement, the agreement established: "If the Broker is forced by
  collection or litigation effort to enforce the terms and conditions of this
  agreement, then the prevailing party will be entitled to reimbursement for
  all costs of collection, including attorney's fees."
    
       ¶  3.  During the listing period, broker negotiated with two potential
  buyers.  In March 2002, a couple viewed the property and became interested
  in purchasing it.  In June 2002, with broker's assistance, they drafted a
  proposed purchase and sale agreement.  The proposal offered $675,000 for
  the property, including the one-acre lot and mobile home excluded in the
  listing agreement.  It required owners to hold a mortgage for part of the
  purchase price and contained contingencies for an inspection and a
  percolation test.  The parties disagree as to whether broker discussed this
  proposal with owners.  In any event, the first couple did not submit this
  proposal to owners as a formal offer.  
   
       ¶  4.  In August 2002, a second couple became interested in the
  property and submitted a full-price cash offer for $600,000 to owners.  The
  offer was contingent on an inspection and a percolation test, excluded the
  one-acre plot, and asked owners to obtain a permit to subdivide the lot. 
  The offer set a closing date of May 15, 2003.  Owners rejected the offer
  immediately after broker submitted it to them.  At trial, owners testified
  that they rejected the offer because it contained unacceptable
  contingencies, and had a delayed closing date.  Broker testified that
  owners rejected the offer because they liked the first potential buyers and
  wished to sell to them only.  

       ¶  5.  In September 2002, communication between broker and owners
  deteriorated and, with broker's approval, an attorney took over
  negotiations between owners and the first potential buyers.  Broker
  testified that he suspected that owners were also negotiating directly with
  the first couple, although both owners and prospective buyers denied it. 
  In November 2002, the first couple submitted an offer for $675,000.  The
  offer included the one-acre lot, proposed a mortgage to be financed through
  owners, and contained no contingency for an inspection or percolation test. 
  The offer stipulated that owners would pay broker his commission.  Owners
  rejected the offer as containing too many contingencies.  Broker attempted
  to resolve the differences between owners and the prospective buyers, but
  ultimately, owners did not accept an offer for the property.

       ¶  6.  On June 20, 2003, broker filed a complaint against owners
  seeking damages for breach of contract and breach of the implied covenant
  of good faith and fair dealing.  In his complaint, broker alleged that
  owners breached the listing agreement by negotiating directly with the
  first potential buyers  and by rejecting the second potential buyers' offer
  because they wanted to sell the property to the first couple.  Owners
  denied negotiating directly with the prospective buyers and maintained that
  they were justified in rejecting the offer because it contained
  unacceptable contingencies. 
   
       ¶  7.  The court held a four-day jury trial.  At the close of
  evidence, the court instructed the jury on the two claims.  Concerning the
  breach of contract claim, the court explained that the jury should decide
  whether owners' conduct failed to comply with the terms of the contract or
  whether owners made clear that they had no intention of performing under
  the contract.  To find a breach of the covenant of good faith and fair
  dealing, the court charged the jury to decide whether owners had "violated
  community standards of decency, fairness or reasonableness."  Finally,
  regarding damages, the court instructed: 

    if you have found that [owners] breached their contract with
    [broker], you should award him the commission he would have earned
    had the breach not occurred.  If you find that [owners] have
    violated the covenant of good faith and fair dealing, you should
    award damages to [broker].  The appropriate amount of damages in
    that instance is the amount that you believe would compensate
    [broker] for the value of the lost opportunity to effect a sale
    and thereby receive compensation under the contract.  

  Neither party objected to the jury instructions.

       ¶  8.  In a special form, the jury found owners had not breached the
  contract, but found owners had breached the implied covenant of good faith
  and fair dealing and awarded broker $4000.  Following the jury's verdict,
  broker filed a motion for a new trial or additur on the issue of damages,
  arguing that there was no support for the jury's $4000 award because the
  sole measure of damages was broker's brokerage fee, a minimum of $30,000.
  (FN2)   Broker also asked the superior court to award it attorney's fees as
  the prevailing party under the contract.  Owners objected to broker's
  request for a new trial and for attorney's fees.  Owners argued that broker
  had not prevailed on a term of the contract and thus was not entitled to
  fees.  In addition, owners filed their own motion for attorney's fees.

       ¶  9.  The superior court denied the motion for a new trial or
  additur.  The court explained that its instructions to the jury did not
  direct it to award an amount equal to broker's commission for the breach of
  the covenant of good faith and fair dealing.  The instructions asked the
  jury to award damages for the lost opportunity to complete a sale.  The
  court concluded that there was no evidence that the jury disregarded the
  court's instructions or that the award was a result of prejudice.  

       ¶  10.  The court also concluded that broker was entitled to fees as
  the prevailing party.  The court acknowledged that the covenant of good
  faith and fair dealing was not an express term of the parties' contract. 
  The court reasoned, however, that the covenant was an implied term, and
  thus broker could recover attorney's fees for its breach.  In addition, the
  court rejected owners' argument that they were the prevailing party under
  the contract and denied owners' request for attorney's fees.


                                     I.


       ¶  11.  On appeal, owners contend that the trial court erred in
  determining that broker was entitled to fees pursuant to the contract.  In
  general, we follow the American rule that each party is responsible for its
  own attorney's fees.  DJ Painting, Inc. v. Baraw Enters., Inc., 172 Vt.
  239, 246,