Dworak v. Michals
1982 Neb. LEXIS 1131, 211 Neb. 716, 320 N.W.2d 485 (1982)
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Rule of Law:
A real estate broker earns a commission if a sale fails to close due to the seller's fault, such as a material misrepresentation that gives the buyer a legal right to rescind the contract, even if the sale is not ultimately consummated.
Facts:
- F. R. Michals, Sr., through his company Nebraska Real Estate Corporation, listed his apartment complex for sale under a Multiple Listing Service (MLS) contract.
- The MLS listing sheet provided to brokers and potential buyers stated specific monthly rental incomes for the apartments and garages.
- Around the same time the property was listed, Michals notified tenants of a rent increase, effective June 1, meaning the figures on the listing sheet represented future, not current, income.
- Real estate broker Douglas J. Dworak provided the MLS listing sheet to potential buyers Michael Johanns and A. J. Swanson.
- Relying on the income figures on the listing sheet to calculate the property's cash flow, Johanns and Swanson submitted a purchase offer, which Michals accepted on April 14, 1977.
- While seeking financing, the buyers learned from an appraiser about the impending rent increases, which they had not been told about previously.
- Swanson called Michals, who confirmed that the listed rents were the future increased rents, not the current ones.
- Michals immediately agreed to release the buyers from the purchase contract, which they formally did the following day.
Procedural Posture:
- Douglas J. Dworak sued F. R. Michals, Sr., and Nebraska Real Estate Corporation in a Nebraska District Court (trial court) to recover a real estate commission.
- Following a trial to the court (a bench trial), the court found that Dworak was not entitled to the commission but awarded him $250, representing one-half of the earnest money deposit.
- Dworak, as the plaintiff-appellant, appealed the trial court's judgment to the Supreme Court of Nebraska.
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Issue:
Is a real estate broker entitled to a commission when a ready, willing, and able buyer withdraws from a purchase agreement before closing due to the seller's material misrepresentation about the property's rental income?
Opinions:
Majority - Buckley, D.J.
Yes. A real estate broker is entitled to a commission when the failure to close is the fault of the seller. The court adopts a three-part test from Ellsworth Dobbs, Inc. v. Johnson for when a commission is earned: 1) the broker produces a purchaser ready, willing, and able to buy on the owner's terms, 2) the purchaser enters into a binding contract, and 3) the purchaser completes the transaction by closing title. However, this general rule does not apply if the sale fails due to the seller's wrongful act or interference. Here, Michals made a material misrepresentation on the listing sheet by presenting future, increased rents as current income. This misrepresentation gave the buyers a legal basis to rescind the contract. Because the failure to consummate the sale was directly attributable to the seller's (Michals') conduct, the broker (Dworak) is entitled to his commission.
Analysis:
This decision formally adopts the rule from Ellsworth Dobbs, shifting Nebraska's standard for real estate commissions to require consummation of the sale, which generally places the risk of a buyer's default on the broker. However, the significance lies in its powerful reinforcement of the exception for seller default. By categorizing a material misrepresentation as a 'wrongful act' that causes the sale to fail, the court ensures brokers are protected when a seller's own misconduct prevents a closing. This holding clarifies that the seller cannot create the conditions for a sale to fail and then use that failure to avoid paying the commission that has been rightfully earned by the broker.
