by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
randolphp@umkc.edu

BROKERS; COMMISSION; REQUIREMENT OF WRITING: Commission earned despite absence of formal agreement, verbal or written, where broker's efforts have conferred a benefit on seller, even where statute requires a written commission agreement.

Moshovitis v. The Bank Companies, 694 A.2D 64 (D.C. App. 1997).

Broker was shopping for some property for Buyers. Broker contacted Defendant, and Defendant suggested some property it owned.

Broker introduced Buyers to seller, and negotiations ensued. Broker gave Defendant a letter of intent that provided for Broker to receive a six percent commission. Later, after further negotiations, Broker submitted a contract to for a higher price that also included a written provision for the commission. Ultimately, the parties did sign that contract, but soon thereafter apparently rescinded it..

At the time, Defendant had entered into an auction contract with another broker, and one of the problems in this case is that Defendant did not properly negotiate a split commission between the instant broker and the auction broker. This may have led to Defendant's decision not to complete the contract with Buyers, but Broker did not learn of the auction broker's contract until after all of the above events.

A week or so after the rescission of the first contract, Defendant contacted Buyers independently and entered into a contract on basically the same terms and conditions as before, except that the new contract did not provide for Broker's six percent commission and instead provided for a lower commission to the auction broker (which, incidentally, was not licensed).

The contract included assurances from Buyers to Defendant that they would indemnify Defendant if Broker was able to collect a commission, but Buyers testified in this action that Broker, a sophisticated real estate dealer, assured them that Broker had no legitimate commission claim.

When Broker discovered that Buyers had dealt separately with Defendant, Broker sued for a commission. The court here upheld the trial court's determination that a commission was payable. It found an implied in fact commission agreement based upon the dealings of the parties. The Defendant was well aware that Broker was in the business of providing its serves in exchange for payment, and that it anticipated being paid by Defendant. Defendant further received a benefit from Broker's efforts in this case. That was enough to make out a true "implied in fact" contract. The court was careful to point out that some contract was required. It was not willing to base recovery solely on the basis of an "implied in law" obligation or restitution.

D.C. Statutes require that all commission agreements be in writing. While this case was pending, the D.C. court decided Fred Ezra Co. v. Pedas, 682 A.2d 173 (D.C. Cir. 1996), which, unfortunately, our reports missed when it was decided. The Fred Ezra decision, in a case of first impression in D.C., determined that brokers could recover commissions under unwritten contracts notwithstanding the statutory requirement. Enforcement of the statute is available through administrative and criminal sanctions, but the statute will not preclude a broker from enforcing its rights. But the court viewed the policy of the District of Columbia to be that the legislature intended to permit brokers to recover on unwritten commission agreements notwithstanding the statutory requirement.

The court here commented that the existence of the statute placed a heavy burden upon Broker to prove its unwritten contract, but apparently Broker satisfied the court here. It may be that the court's "burden" was a factor in the court's ultimate decision to remand on the question of whether Broker must credit Defendant for the commission paid to the auction broker. The court held that the indemnification signed by Buyers was unenforceable due to the misrepresentation of Defendant, which, in the minds of the court, should have known better than to say that Broker had no chance to claim a commission.

Comment 1: Both parts of the opinion are significant. Obviously the concept that a party who has not expressly agreed to pay a commission is nevertheless liable for one due to implicit agreements is a major precedent. For a parallel decision, see Proctor v. MacDonald, 689 A.2d 1330 (N.H. 1997), where a leasing broker recovered on an implied contract for new leases when broker and client continued to do business after an existing listing had expired.

Comment 2: The notion that a statutory requirement for a written commission agreement does not prohibit recovery of a commission on an oral contract is not unprecedented. It is more significant now, however, than other, in light of the many new NAR generated statutes that not only require written agreements but rather extensive disclosures and other content. Some statutes make plain whether a commission can be earned in such cases, but others do not. Although residential brokers will have systems established to meet these statutory requirements, many commercial brokers are chaffing under them, as their business workings are far more varied and informal, and often it is difficult to "sign everyone up" before the real work gets done. We will see more cases where there has been less than full compliance with statutory prerequisites but the broker seeks some compensation for benefit conferred.

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 Stacy Walter at the ABA. (312) 988 5260 or stacywalter@staff.abanet.org

Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.