Buyer informed Broker that Buyer was interested in acquiring commercial property. Broker then located Seller's property.  Broker contacted Seller's broker and inspected the property. Broker told Buyer about the property.  Buyer liked the property, and Broker submitted an offer to purchase on behalf of Buyer to Seller.  Seller accepted the offer.

The purchase price was $4 million. The Purchase Agreement provided that if Buyer defaulted, Seller would retain the $20,000 deposit as liquidated damages.  The Purchase Agreement also provided that Seller had employed Broker, and that Seller would pay Broker (2 ½) percent of the sale price as commission, "payable as follows: (a) On recordation of the deed or other evidence of title or (b) if completion of sale is prevented by default of Seller, upon Seller's default or (c) if completion of sale is prevented by default of Buyer, only if and when Seller collects damages from Buyer, by suit or otherwise, and then in an amount not to exceed one-half of the damages collected provided same shall not exceed the full amount of the commission but same shall not constitute a waiver of any right to a commission under a listing agreement ... "

Buyer subsequently refused to complete the transaction.  Broker filed suit against Buyer seeking $100,000 from Buyer for the commission. Broker alleged the commission was (2 ½) percent of the $4 million purchase price ($100,000).

Broker argues that if a broker is retained by a buyer, locates property for the buyer, and the seller agrees to sell at the price offered, then the buyer impliedly promises to complete the transaction so that the broker can recover the commission.  If the buyer subsequently defaults, the broker can recover the full commission from the buyer based upon breach of the implied promise.  If he fails or refuses to do so without a valid reason and thus prevents the broker from earning the commission from the seller, he becomes liable to the broker for breach of the implied promise.

Buyer raises several arguments against Broker's recovery.  He argues that the acceptance clause in the Purchase Agreement governs Broker's commission.  First, the Purchase Agreement contained a promise by the Seller to pay the Broker's commission, not the Buyer.

Second, the clause governs Seller's obligation to Broker.  It imposes no express obligation on Buyer regarding Broker's commission.  The clause permits Broker to recover from Seller in three different situations: (1) when the deed is recorded; (2) when the Seller defaults; and (3) when the Buyer defaults.

In the third situation, Broker can recover from the Seller "only if and when Seller collects damages from Buyer, by suit or otherwise, and then in an amount not to exceed one-half of the damages collected provided same shall not exceed the full amount of the commission ...."  Thus, if Seller does not collect from Buyer, Broker recovers nothing from Seller.  Conversely, if Seller recovers $20,000 as liquidated damages, then Seller would owe Broker one-half of that amount (prorated between brokers).  Thus, the contract sets forth Seller's duty to pay Broker's commission. It does not refer to an obligation of Buyer.

Broker argues that because Broker has been retained by the Buyer, there is a preexisting relationship between them.  For this reason, there is an implied promise on the part of the buyer to complete the transaction so that the broker can recover the commission from the seller.  Alternatively, the Broker may be regarded as a third party beneficiary of the contract between the Buyer and Seller and in these circumstances the Broker may recover from the defaulting Buyer.

As a member of the jury, based on the evidence provided above, what party is best supported by governing law? Provide the basis of law and the supporting facts
What facts, if different, would change your mind as juror as to whether the Broker is entitled to a commission?
What measures could the Broker have taken to better protect himself from the precise risks he now faces in this litigation?

Answer rating: 100% (QA)

As a member of the jury your decision would depend on the interpretation of the governing law and the specific facts presented Lets analyze the argume... View the full answer