DD 11/10/05 Broker forges seller's signature, but seller's knowing execution of subsequent disclosure documents ratifies

Daily Development for Thursday, November 10, 2005
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin Kansas City, Missouri dirt@umkc.edu



VENDOR/PURCHASER; STATUTE OF FRAUDS; RATIFICATION: Despite fact that real estate agent forged sellers’ names on sale agreement and related documents, where buyers in fact negotiated the contract and verbally agreed to it, and later executed escrow and disclosure documents in preparation for sale, sellers ratified the contract notwithstanding lack of their signature and buyers may sue for specific performance.

Behniwal v. Mix, 2005 Westlaw 2404612 (Cal. App. 9/30/05)

Buyers submitted an offer to purchase condominium home, and sellers responded with a multiple counteroffer, inviting buyers to respond to a proposed increase in price.  This counteroffer was sent to several prospective buyers, with full disclosure that this was happening.  Because the counteroffer was sent to several people, it provided that it would not be effective unless and until sellers signed the accepted counteroffer.  Buyers executed and delivered the counteroffer to Selllers’ broker.  It was undisputed that the broker then forged the signatures of the Sellers to the counteroffer document.  Sellers denied that they knew of this forgery, but the trial court did not believe them. 

Subsequently, an escrow “was opened,” likely by the Sellers’ broker, and Sellers executed certain documents routinely required at the early stages of escrow, including a disclosure with respect to registered sex offenders, which referenced the sale agreement documents and stated that it was incorporated into that agreement.  The signatures of Sellers on this document was noticeably different from those on the sale agreement, but Buyers had no actual knowledge of the forgery and apparently didn’t notice the difference.

Later, one of the Sellers sent a handwritten note to escrow requesting an extension of the closing by thirty days.  Thereafter, one of the Sellers took ill, and he escrow was postponed for six months, and one of the Sellers again delivered to her broker a handwritten consent to the extension.  A month after that, however, both Sellers sent a handwritten note delivered to escrow asking that escrow be cancelled for health reasons.

The appeals court appears somewhat dubious of the health claim, as the evidence showed that the Sellers had received and treated as a “back up” an offer to purchase their condo for $20,000 more than the $540,000 price agreed to in their deal with Sellers, but the trial court bought the illness explanation, and the appeals court saw no need to specifically challenge it in light of the appeals court’s ruling.

The trial court had refused to grant specific performance, due to the failure of the contract to satisfy the Statute of Frauds, but awarded attorney’s fees to the Buyers anyway, payable by the broker, whose forgery led to this mess.  In fact the court ruled that Sellers could recover attorney’s fees, nominally against Buyers, but also payable by the broker.  The fees appear to have been substantial - a total in excess of $169,000 prior to the costs of the appeal.  Buyers and broker crossappealed, and the appeals court reversed both rulings.  It held that Buyers could proceed with specific performance because Sellers had ratified the contract by executing various documents through the early course of the closing purporting to advance the closing, knowing that the Buyers believed that they had executed the contract.  The court reversed the attorney’s fee ruling against the broker, but remanded for a determination as to whether the Buyers, now prevailing parties, were entitled !

 to att
 orney’s fees from the Sellers. 

The court took care to indicate that its finding was that the Sellers had ratified the contract, and was not based upon an estoppel theory, which Buyers had not plead.  The court held that the agent’s signature for the Sellers on the original counteroffer document constituted their formal acceptance of the counteroffer.  Although they had not authorized the broker in writing to act as their agent for these purposes, the court held that Sellers’ execution the very next day of the various disclosure documents, all referencing the sale agreement, established that they had ratified the broker’s behavior.

It was important to the court that it draw a distinction between alleged ratification of the contract itself by the execution of the disclosure papers, which it specifically did not find had happened, and ratification of the agent’s execution of the original contract, which thus bound the Sellers - which the court did find had occurred.

In an important additional piece of analysis, the court held that the Buyers here did not need to show that they still had a committed loan in order to satisfy the requirement that they were “ready willing and able” to buy - a common requirement in specific performance actions.  Buyers only had to show that they had the wherewithal to secure a necessary loan within a reasonable period of time.  The Buyers had blown virtually their entire earnest money deposit on attorney’s fees, the had arranged for a personal loan from a relative to cover that amount, and the court noted that the attorney’s fee award in the outcome of the case likely would solve that problem anyway.

Comment 1: The case is nicely written and thoughtfully presented.  It shows some sympathy for the Sellers, who were in their 70's and dealing with illness, but indicates that the trial court had made extensive efforts and mediation which had failed.  Some of that failure must be laid at Sellers’ feet (or their counsel.)

Comment 2: The court also comments in a footnote that an estoppel theory might also have worked, but it’s nice to have a clear ruling on the ratification issue.  The court pointed out that the disclosure documents were not themselves escrow papers incorporating the entire deal, but only referred to the deal, but under the circumstances were adequate to establish ratification.

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