A recent Tennessee case illustrates the importance of disclaimers in contracts. Here are the facts of the case:
• The Seller told the real estate brokers that he “had the property under contract” with the owner
• The Seller signed a listing agreement with the brokers in which he represented to the brokers that he had title to the property or full authority to enter into the listing agreement
• The real estate brokers showed the property and found a Buyer
• The Buyer signed a contract to purchase the property with the Seller
• The purchase contract contained a “disclaimer” which provided that the real estate brokers were not liable for non-performance by the Seller
• After the execution of the purchase contract, the Buyer learned that the Seller could not convey a marketable title to the property because he was not the sole owner of the property
The Tennessee Court of Appeals upheld the decision of the trial court that the real estate brokers were not liable to the Buyer because the Buyer had expressly agreed, in the purchase contract for the property in question, that it would not hold the real estate brokers legally liable for the failure of the Seller to perform the contract.
The protection provided by a disclaimer, such as the one in this case, is worth remembering any time that you find yourself in the middle of a deal of any type. Even if you do have such a disclaimer, you might end up having to pay a significant amount in attorneys’ fees just to have the court dismiss the case on summary judgment and then to defend that dismissal on appeal. The real estate brokers in this case incurred just such legal expenses. So, this case illustrates well a second point worth remembering when you find yourself in the middle of a deal—include not only a disclaimer, but also, a provision that requires that the party suing you must pay all of your attorneys’ fees and expenses if you prevail.
Under the “American Rule,” which is followed in Tennessee, in most cases, unless there is a contract provision requiring the payment of attorneys’ fees by the losing party, the losing party does not have to pay the attorneys’ fees of the prevailing party. If there had been an attorneys’ fee provision in the purchase contract in this case, the Buyer might not have sued the real estate brokers. Why? By increasing the risks associated with bringing an “iffy” lawsuit, attorneys’ fees provisions can stop parties from filing suit when they might have otherwise filed suit just to see if they could flush out a little settlement money.