Broker commission impaired by second listing

Real Estate Weekly, July 7, 1993 by Edward L. Schiff

In this unusual case, a real estate brokerage firm may have deprived itself of a brokerage commission, by accepting a second listing agreement from a seller after the broker procured a valid buyer under a prior listing agreement.

The transaction started in a straightforward manner. In January 1986, Neuhaus Realty Inc., a Staten Island real estate brokerage firm, accepted a listing from a seller of a building on Richmond Terrace, Staten Island, New York, for a price of $1.75 million. The firm also accepted a listing for the seller's business at a price of $750,000. The listing agreement provided that the broker would be entitled to a commission of 10 percent of the price of the business and 5% of the price of real property. The listing agreement went on to provide that the broker would be paid "if the property is sold, conveyed or other wise transferred."

The broker secured a purchaser who was willing to buy the business as well as the property for the amounts requested by the seller. A binder agreement was then signed by both the seller and purchaser. The binder included the identities of the purchaser and the seller, the location of the property by its address, a good faith deposit of $1,000, the total purchase price of $1.75 million, which would be paid at closing and that the deed would be the customary and acceptable type. The binder was subject to a formal contract to be signed by both parties within a reasonable time. The binder agreement aid not provide a closing date.

A sit-down formal contract signing was scheduled for a date in May, 1986 and on that date all the parties met in the seller's attorneys office where a Formal contract was to be signed on the agreed upon terms of sale, to wit, 11,75 million or the real estate and $750,000 for the business. The seller, whose attorney prepared the form of contract of sale, decided not to sign and the parties left the meeting.

Thereafter, the seller signed a second listing agreement with the broker which increased the price for the real property from $1.75 million to $2.1 million and provided that the brokers commission would be reduce to a flat fee of $100,000.

Again, the broker procured the selfsame purchaser at the increased price and a formalized contract was again sheduled to be signed in early October, 1986 in the seller's attorneys office. The purchasers arrived at the attorney's office to sign the contract only to find that again the seller had raised the price for the property this time to $3.1 million. The contract of sale was never signed by the parties.

The broker then sued for his commission of $162,500 representing 5 percent of the original purchase price of the real estate of $1.75 million and 10 percent of the price-of the business of $750,000. The broker claimed that no trial was necessary because on the undisputed facts and that the broker thereby should be entitled to summary judgment.

Judge Pasquale Bifusco, of the Civil Court, Richmond County, New York, ruled that it is a fundamental proposition of law that absent an agreement to the contrary a real estate broker has earned its commission when it has produced a buyer ready, willing and able to purchase on the terms acceptable to the seller. A broker is not entitled to his commission unless the minds of the parties have met, not merely on the price but on all of the terms and incidents of the transaction.

When the broker in this case agreed that the commission was to be paid when the property was "sold, conveyed or otherwise transferred," the parties had in effect agreed that the commission was due, only if as and when title passed. In an "if as and when" deal, if title does not pass (as in this case) the one instance in which a broker could be entitled to a commission would be if the buyer and seller went to contract and the seller thereafter willfully defaulted.

The judge examined the "binder agreement" and determined that the binder did indeed meet all of the requisites of a valid contract of sale. It contained all of the essential terms that constitute a valid contract; for it identified the parties, the property, the sales price, the down payment, the customary and acceptable deed, and it was signed by both parties. Although the binder did not specify a closing date, the law will imply a closing within a reasonable time, with the purchase price to be paid at closing.

The judge distinguished this case from the typical situation where the binder is signed "subject to the approval of the attorneys for the parties". Those binders are conditioned upon subsequent events whereas the binder in this case did not condition its effectiveness or vitality upon any subsequent approval by attorneys or anyone else.

However, the judge ruled, the broker by entering into a second listing agreement with the seller defeated hit chance for summary judgment. The judge ruled that although the broker is entitled to a commission because it produced a buyer ready, willing and able to purchase the seller's property on the seller's terms and at the sale failed to go forward as a result of the seller's own default, still a trial was required because of the fact that the broker entered into a second binder agreement with the seller for the same property. The judge stated that this subsequent listing agreement raised various issues of fact which only a trial could resolve. Does the subsequent listing agreement act as a waiver of the broker's right to a commission under the previous binder or does it merely reduce the plaintiff's commission to a flat $100,000 for the sale of the property? The only issue that must be determined on trial is whether the subsequent listing agreement released the seller either wholly or partially of its obligations to pay the broker's commissions.