Daily Development for
Monday, August 17, 1998
by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
BROKERS; COMMISSIONS; THIRD PARTY BENEFICIARY CLAIMS: Although the real estate broker may have an exclusive right to sell property subject to an option as a third party beneficiary of an original executory option contract, the optionee may assign the option free and clear of the rights of the broker, whose claim, if any, is against others.
Lewis v. Boehm, 947 P.2d 1265 (Wash. App. 1997).
Broker arranged for the sale of property by Lundy to K&G, and "the parties" according to the court, owed Broker a deferred commission. Subsequently, the parties got into a dispute over the contract, and settled the dispute by agreeing that Lundy would retain title, but that K&G would have an option. This agreement provided that Broker would have an exclusive right to sell for a 10% commission if K&G exercised the option. This apparently was in compensation for Broker's receiving no commission on the sale to K&G, even if the option were exercised. All parties executed this agreement and Broker clearly was a third party beneficiary to it.
Later K&G purchased other property elsewhere from Boehm and assigned to Boehm its option rights in the subject property to the seller of that property. By specific supplemental contract, K&G agreed to be liable for "payment of the real estate commission contemplated in the Option Agreement." (In the words of the court.)
Still later, Boehm, a broker herself, released the option back to Lundy in exchange for a promise of payment of $95,000. Lundy declared bankruptcy without ever making this payment, and in the dispute over this payment Boehm again obtained an option, which she subsequently exercised. Later, she enlisted the help of another broker and resold the property, by now substantially improved, for $300,000. Broker claimed a 10% commission on this sale.
Held: No commission payable. The exclusive right to sell did not "run with the option." Although normally the assignee stands in the shoes of the assignor, there is a different treatment for the assignment of an executory contract, such as the assignment of the option contract to Boehm. The common law rule is that duties owed to third parties under such contracts are not delegated by the assignment of the rights unless the assignee in fact agrees to assume such duties. Here, of course, it was clear that Boehm and K&G intended that K&G retain any obligation to Broker Consequently, Boehm owed no duties to Broker.
The court does not address the question of whether K&G owed a commission to Broker as a consequence of Boehm's sale of the land. It would appear that K&G;frustrated Broker's ability to have the exclusive listing and to earn the commission, and consequently should be liable. Perhaps K&G is "judgment proof."
Comment 1: There certainly is a lesson here for brokers who participate in sophisticated future listing arrangements get a good lawyer. The lawyer in this case should have been good enough to expressly limit K&G's assignment rights or to require that any assignee of the option necessarily would assume the exclusive listing rights of Broker. Under the circumstances of this case, even if the broker was being "shucked," it is likely that the "shuck" would have included representations that K&G would not attempt to transfer the option away from the Broker's rights. In the editor's experience, any asurrances that a party makes in the course of negotiation ought to appear as representations, conditions, or requirements in the final contract. If they didn't mean it, why did they say it?
Comment 2: This was only an option right. Presumably, if we were talking about fee ownership, the broker's lawyer also should have provided for the eventuality that the current owner might transfer the property to another. The broker always wants the right to obtain a commission from the party obtaining the price, and not from some third party who may not have ready cash.
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 16, 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 firstname.lastname@example.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. The same is true of all commentary provided by contributors to the DIRT list. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.