Daily Development for Tuesday, January 25, 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

BROKERS; COMMISSION: Although sale listing agreement does not provide that broker may obtain a commission by negotiating a lease of client’s property,  a broker is entitled to a commission based on the theory of quantum meruit when a potential buyer, instead of purchasing, enters into a long term lease with the seller.

Chabbott Petrosky, Commercial Realtors, Ltd. v. Peterson, 859 A. 2d 77 (Del.. 9/29/04)

The trial court had found no commission since there had been no contract for a commission.  The trial court had permitted the broker some compensation for administrative services.  The appeals court, however, reversed and remanded, holding that the broker was entitled to a commission where the defendants signed a listing agreement with the plaintiff for the sale of certain real property that included a price for the listing and a percentage of the price to be the commission.  A potential buyer found by the broker eventually entered into a long-term lease of the property rather than a purchase.  The lease stated that no lease was payable to any broker other than the broker in question.

Delaware Real Estate Commission rules, supported by Delaware case law, require that listing agreements for sale or for lease of real property must be in writing and signed by the parties.  A federal court decision had determined that the public policy supporting these rules required that there be no quantum meruit commission award when the commission agreement as not in writing.

Here, the Delaware Supreme Court rejected the reasoning of the federal decision, at least under facts such as those present here.  The court found that in this case the broker had complied with the written listing agreement requirements for a sale, and in fact had produced lessee during the term of the original written agreement.  Further, the court found relevant the existence of a written reference to the broker in the leasing agreement (although it does not say why that was significant).  Further, the broker met the basic requirement of quantum meruit - his efforts in fact produced the lessee for the client.

Comment 1: The holding in the case actually is very narrow, and won’t have broad application, since in many commission disputes the client has not referred to the broker in the papers relating to the transfer for which the broker demands a commission.  On the other hand, the court did credit language that did not expressly say that the broker got a fee - it said only that no other broker was entitled to a fee.  This might have been intended for the lessee and lessor to give comfort to the one another that there were no other claimants out there, and arguably was not an acknowledgment that the broker was entitled to a fee.

Comment 2: Note also the requirement that the broker’s efforts be the “procuring cause” of the client’s deal.  A mere introduction might not have been enough.  Query, however, whether all the efforts have to take place during the original listing period.  Here the broker’s activities stretched beyond the original listing period.  (Note that under the original agreement, the broker only had to produce a ready willing and able buyer, so the broker probably believed he’d already earned the commission, but as a practical matter knew that unless the deal closed he’d have trouble either asking for it or collecting it.)

Comment 3: There are other circumstances in which quantum meruit might apply in which a Delaware court might still draw the line.  For instance, courts are far more careful in applying the doctrine in assisting parties who don’t qualify for a commission under their agreement because they are unlicensed.  Further, the court might also be more cautious where there is no evidence of an agreement at all, and the only thing the broker can show is that the broker in fact produced a buyer or tenant.  Here, the equities mounted strongly for the broker’s position.

Comment 4: Note also that some jurisdictions have a separate exemption for “finders” - unlicensed parties who do not perform any services but introducing the parties.  Here, of course, it would be common for there to be a written listing for a finder’s fee, but some courts wouldn’t enforce it where the finder has no license.  Others, however, will not impose a license requirement when the finder does no more than “find.”  Of course, if one is expecting a big fat commission if a deal closes, and the parties are struggling to put together a deal, one will often be tempted to take a more active role in bringing the deal to fruition, thus voiding the “finder” status.  Many who do this understand that later their principle may stiff them, but regard that possibility as a more remote risk than the risk of the deal not closing at all, thus frustrating their expectations another way.

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