Daily Development for Wednesday, February 6, 2002

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

BROKERS; LISTING AGREEMENTS; "TAIL PERIOD" SALES:

A real estate broker is entitled to a commission when the terms of the exclusive brokerage agreement contains an "extension clause" which provides that a commission will be paid if the property is sold within a "reasonable term" after the expiration of the agreement to a prospect who was "introduced" to the seller by the broker.

Upper Cape Realty Corporation v. Roger C. Morris et all, 53 Mass. App. Ct. 53 (2001)

In August of 1983, Seller signed a brokerage agreement that provided Broker with an exclusive right to sell certain unmiproved property. The contract provided that, as consideration, Broker would make a reasonable effort to sell the Property. According to the agreement, the exclusive term would last for a period of 180 days and continue thereafter until terminated by either party by thirty days notice to the other.

The agreement also included a provision, commonly referred to as an extension clause, that stated " if the [] Property is sold within a reasonable term after expiration of this agreement (or before) to a prospect which Broker has introduced to the Property or to the Seller, then Seller agrees that Broker shall be entitled to a commission of ten percent (10%) of the gross sale price, or a minimum commission of Five Hundred Dollars ($500.00), whichever is greater."

Broker began a sales effort that included posting various signs on the property. Apparently, nothing came of its efforts, and over a year passed. One party, Lucier, had had prior dealings with Seller when Seller did some construction on his house. At some point, Broker told Seller that Lucier was "bad news" and that Seller should avoid dealing with him.

In September of 1984, Lucier, while out hunting, noticed one of the Broker's signs on the Property and contacted the Seller directly (rather than using the Broker as the sales conduit) to express interest in the Property. Lucier had views about Broker similar to Broker's views about him. He refused to involve Broker in the sales process due to an apparent prior bad experience with the Broker. Following discussions between the Seller and the Lucier , in November of 1984, the Seller presented Lucier with a purchase and sale agreement for the Property. But Lucier would not sign an agreement, and indicated that his word "should be enough." (Undoubtedly exhibiting the kind of attitude that had given Broker problems in the past.)

Lucier never signed the purchase and sale agreement, but did provide a deposit of $20,000 as a cash down payment for the property and agreed verbally to sign the purchase and sale agreement "no later than mid-January, 1984."

At the time Seller sent the purchase and sale agreement to Lucier, Seller mistakenly believed that the brokerage agreement with Broker had expired. In actual fact, the agreement required written notice for termination. Once Seller discovered this, Seller sent a letter to Broker on December 7, 1984, terminating the listing. The court apparently concluded that this letter terminated the listing as of January 7, 1985.

In late January, 1985, Seller delivered a deed to Lucier in exchange for the remaining $200,000 purchase price that had previously been specified in the deposit receipt. The Seller refused to pay Broker a commission on the sale, and Broker promptly filed suit to recover the commission monies. The trial court found for the defendant Seller on the contract and also .dismissed Broker's additional claims including a double damages claim under ch. 93A (Mass. Consumer Protection Statute), under which Broker alleged that Seller and Lucier had conspired in bad faith to deprive it of the benefits of its contract.

On appeal, the Massachusetts Appeals Court affirmed the dismissal of the ch. 93A claims, finding no showing of bad faith, but reversed the Superior Court's breach of contract ruling.

The Appeals Court rejected an argument by the Seller by which Seller attempted to characterize the listing agreement as a unilateral contract which could be terminated by the Seller at any time before performance by the Broker. This argument was based on a Massachusetts precedent that had made such a finding under an exclusive listing agreement that had not required Broker to perform any services. The Appeals Court stated that since the language in the instant agreement explicitly stated that Broker had to make a "reasonable effort" to sell the Property, the parties created a bilateral contract that was irrevocable during its term. While the Appeals Court found that no sale had taken place during the term of the brokerage agreement (within 180 days), the court found that the extension clause and the "reasonable term" language allowed the Broker's recovery. The Appeals Court pointed out that there was no discussion in the record with respect to what would constitute such a "reasonable term," and that there was no issue on that point in this case. Note that the closing occurred only two weeks after the time that the court found the contract to have been terminated.

The court did feel it was required to interpret the language indicating that the Broker was entitled to a commission for sales during the extension period to anyone it had "introduced to the Property." It concluded that "introduced to" meant simply that if the broker's actions had "at least some minimal casual connection with the sale or, in other words, be in the 'chain of causation' leading to the sale," then the broker was entitled to a commission. The court further stated that a broker "introduces" a purchaser to a principal "if, through any means [the broker] uses to attract attention, the purchaser is led to the principal." In this case the Court found that the Buyer first became interested in the property as a result of seeing the sign on Seller's property.

Comment 1: Brokers should be very happy for this one, especially in a jurisdiction that has some relatively unfriendly precedent in its rulings that brokers cannot collect a commission on the provision of a "ready, willing and able" buyer, but only upon closing.

First, the court finds acceptable an "open ended" listing agreement that continues to renew until notice to terminate. It does not indicate what efforts the broker undertook to continue to try to sell the property during the sixteen months that it had the listing. The seller made a feint at trying to show that Broker had not carried out its promise to exercise reasonable efforts to sell, but there was very little discussion of the issue.

In a consumer context, which this apparently was, one wonders whether such open ended agreements ought to be accepted. Many jurisdictions have rules requiring that listing agreements have definite termination dates. The editor is not sure whether a thirty day notice requirement would satisfy such a requirement.

Comment 2: Further, the court distinguishes earlier precedent that concludes that an exclusive listing agreement is unilateral and terminable at will. It pins its finding on the requirement that the broker "exercise reasonable efforts." This language did not appear in contract in the earlier case. But wouldn't a modern court ordinarily read such a requirement into the agreement anyway? If so, then there is very little left of the precedent.

Comment 3: Then there's the issue of "procuring cause." Typically, in these "extension" or "tail" agreements, the broker must demonstrate that it was the "procuring cause" of the sale. It is not unusual for a court to require some involvement in the actual negotiations. There are a number of cases where a simple introduction was not held to be enough. The court decided that the contract language "introduced to the property" establishes a lower degree of involvement for the broker. All that has to happen is that the buyer saw the sign. That's an "introduction," even where the buyer might in fact have been repelled by the sign.

None of the above rulings are "beyond the pale." Brokers are entitled to be compensated for their efforts, and there is a certain gamble that both sides take when they enter into contingent agreements such as listings.

All put together, though, the Brokers got the long end of the stick in this little dispute. It will be useful precedent on a number of points.

Comment 4: For another interesting "tail" case, involving some issues similar to this case, see RE/MAX R.E. Professionals, Inc. v. Armstrong, 680 N.E. 2d 520 (Ill. App. 4 Dist. 1997), the DIRT DD for 2/6/98, (Where agreements provide that a commission is owed only if the property is "sold or exchanged" within ninety days from the effective date of the broker's withdrawal, and the contract defines the term "sale" mean any exchange to which the property owners consent in writing, owners do not owe a commission if they do not sign a written sale agreement during the ninety day term, even if they do agree to sell and later complete the sale.) Also compare: Island Realty v. DeckerBibbo, 748 A.2d 620 (App. Div. 2000); cert. denied 758 A.2d 646 (N.J.2000) (the DD for 1/9/2001) (Absent a specific provision to the contrary, an owner who has signed a listing agreement may withdraw its property from the market before a buyer is produced and is liable only for contract or quantum meruit damages, not for loss of the full sales commission.)

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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