Commissions Reboot!!!

In September 2010 Buffy Lawrence and Reyna Realty executed a listing agreement. The listing agreement engaged Reyna for three months to market and sell her property, in exchange for a 5% commission, to be shared with a cooperating broker if one was used in the deal by the buyer.

Although the listing term ended December 31, 2010, Reyna Realty’s broker continued to list the property, post signage and generally market the property after it expired. Buffy never objected to these continuing services and efforts.

Reyna Realty received an offer to purchase the property and assisted Buffy by negotiating a higher purchase price. The deal was poised to close in March 2011, and the Seller’s Statement provided for a commission payment to Reyna. Buffy, however, instructed the title agent to reduce the commission amount by 30%. Reyna rejected this proposal, so Buffy withdrew her offer and refused to pay Reyna anything.

The purchase and sale funded, and in October 2011 Reyna Realty sued Buffy Lawrence to recover a real estate commission. Reyna Realty attached the Purchase and Sale Contract to Reyna’s lawsuit pleadings, which Contract contained a statement to the effect that “all obligations of the payment of brokers’ fees are contained in separate written agreements.”

It was Reyna’s position that although the stated listing term had indeed expired three months before the sale date, both the Contract and Settlement Statement contained written evidence of an extension of the listing at least through the date of sale.

Buffy defended Reyna’s claim by using a statute of frauds defense. Basically, that defense means that all commission obligations in the State of Texas must be in writing, signed by the party obligated to pay it, and no oral or unwritten modifications are typically allowed.

The trial court awarded Reyna its commission of $14,440, plus $36,000 in attorney’s fees. Buffy appealed.

The Appellate Court, looking at the initial Listing Agreement, Purchase and Sale Agreement and Settlement Statement, concluded that the documents constituted a written extension agreement and defeated a statute of frauds defense. Similarly, even though the Seller’s Statement that was eventually signed provided no compensation to Reyna Realty, it still indicated that Reyna Realty was serving as the broker for the Seller.

And further, Buffy had willingly accepted the benefits of the services offered by Reyna Realty, which services were beneficial to Buffy.

From there it was an easy leap to legal conclusions of “ratification” and “non-repudiation.”

Judgment for Reyna Realty was affirmed. Reyna wins; Buffy Lawrence loses. See Lawrence v. The Reyna Realty Group; Cause No. 01-13-00819-CV; Court of Appeals of Texas, First District, Houston Division; May 15, 2014.

Lessons learned:

1.      Reyna Realty forgot to get its listing agreement extended, or maybe Reyna made the request but Buffy Lawrence was unwilling to sign it. Either way, if the listing agreement had been properly extended then one might assume that a lawsuit would not have been necessary and Reyna would have been paid in full at closing.

2.      While this case was ultimately won by the broker, a slight variation in facts would yield a different result. If the broker’s name was not included in the Purchase and Sale Agreement, then I suspect Buffy would have prevailed.

3.      Do not assume that just because you continue working for a principal’s benefit after the expiration of your contract that you will get paid if your efforts result in a closing. Get it in writing, *before* expiration of your agreement.

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

Commissions! Commissions!! COMMISSIONS!!!

So. My 50^th Counsel’s Corner article. Seems appropriate that this article should be about that which is nearest and dearest to the hearts of my readers . . . commissions!

James Murphy was licensed as a Texas real estate broker. He sued Reed Williams (not a licensee) for a brokerage commission regarding the sale of five tracts of property in the Frisco Medical Center subdivision.

Murphy was working with the Sellers in 2010 to secure financing for their Frisco Medical Center properties. When Murphy learned that the Sellers might consider marketing the properties, he approached Jim Williams to request authority to serve as their broker.

Reed Williams was a Vice President of the general partner entity of the various Sellers. Jim Williams (Reed’s father) was the President of one of the Sellers, and was the individual who initially discussed an exclusive listing agreement with Murphy.

Murphy was given limited authority to market the properties, but only to one prospect. Either that prospect or an affiliate of the prospect then contacted Healthcare Realty Trust to present the purchase opportunity. Healthcare was not approved as a prospective buyer, and James Murphy had no authority to consent to the delivery of information from the prospect or affiliate to Healthcare.

Evidently Healthcare then approached representatives of the Sellers directly including Reed Williams, and the target parcels were sold to Healthcare at the end of 2010. For $133 million. Since no commissions were paid to James Murphy, Murphy sued Reed Williams and others for various claims including tortious interference with contract or contractual expectation.

James Murphy likely felt that he prepared or delivered the information and materials that ultimately found their way to the purchaser, and at least in part may have induced the purchaser to close the deal. And consequently, absent Murphy’s actions, the target properties may not have been sold.

The Collin County trial court, concluding that Williams had the better case, entered a Judgment for the Reed Williams. James Murphy appealed.

On appeal Murphy contended that Reed Williams acted as an unlicensed broker and interfered with Murphy’s expectation to receive a commission. Reed Williams defended the claim by stating that his limited actions in the deal did not constitute brokerage activities.

The first part of Texas law regarding brokerage is clear. A person may not recover a commission unless that person is a licensed broker, the agreement is in writing and the agreement is signed by the person obligated to make the payment.

The second part of Texas law is more obscure. Brokers are allowed by law to sue each other for “. . . interference with business relationships.” See Texas Occupations Code 1101.806(a)(2): http://law.onecle.com/texas/occupations/1101.806.00.html.

The facts in this case establish that Reed Williams was not acting as a broker. Even James Murphy admitted as much in his pleadings. As such, the Court of Appeals had little trouble finding that Murphy was not entitled to a judgment against Reed Williams.

And why did this case get my attention? Because James Murphy and his lawyers cleverly used an obscure portion of Texas law and coupled it with a novel theory that one does not have to hold a brokerage license in Texas to act as a broker. As by analogy one does not have to hold a driver’s permit to drive an 18-wheel truck, or hold a pilot’s license to fly a helicopter.

All of those actions require licenses and permits to do them lawfully, but even without a license or permit one who is flying a plane is still, well, flying the plane.

So, Murphy and his lawyer constructed an argument that if Williams’ actions constituted brokerage, then his license status was irrelevant and Murphy should be able to sue one who acts as a broker (licensed or not) and interferes with business relationships. That, so the argument goes, was the purpose of Section 1101.806(a)(2).

Regardless of licensure status, James Murphy was unable to show that Reed Williams was acting as a broker. So, the Court of Appeals did not need to delve further. Judgment affirmed for Reed Williams. See Murphy v. Williams; Cause No. 05-12-1730-CV; Court of Appeals of Texas, Fifth District, Dallas Division; May 5, 2014.

Post-script:

This case may be appealed to the Supreme Court of Texas. Stay tuned.

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

Brokerage Commissions [redux]

Dean A. Smith Sales, Inc. (out of Pflugerville – what is the right way to pronounce Pflugerville anyway) entered into a listing agreement with Metal Systems, Inc. Dean, as broker, was engaged in 2008 to sell Metal’s business for $4.5 million, which amount included real estate owned by Metal.

Two years later Dean sued Metal for $160k in damages. The trial court ruled for Metal. Dean appealed.

The Listing Agreement stated that Dean was to receive a 7% commission if real estate was included. Evidently, although not specifically stated, when Metal learned that Dean did not have a TREC issued real estate brokerage license Metal refused to pay.

One can only assume that real estate was included in the deal. And the license issue was the cause of the non-payment.

Dean first argued that the transaction did not involve real estate, so no TREC license was required. However, the listing agreement stated otherwise.

Argument Number Two was that there was an oral amendment to the written listing agreement, removing real estate from it. Dean Smith submitted an affidavit stating that:

“I never had any expectation of a commission for the sale of real estate . . . The sale . . . was expected to be a stock transfer . . . The sales price listed in the contract was based on the value of the business without any real estate.”

The Court of Appeals used Dean’s own Listing Agreement against him to refute this contention.

The Court then evaluated the Texas Real Estate License Act regarding commission claims. Section 1101.806(b) of the TRELA states that a party may not collect a real estate commission unless the party proves it was a license holder at the time the act [for which a commission became payable] was commenced.

And so the Court of Appeals concluded: (a) a listing agreement was signed; (b) the listing agreement provided for the disposition of real estate (and fairly, other assets too); (c) real estate services were provided by Dean as defined by the TRELA; and (d) Dean did not hold a brokerage license issued by TREC.

Do you recall the previous article about quantum meruit? Well, of great interest to me anyway, the Court teased us with that as Argument Number Three, but then dismissed it on a technicality.

So, Metal Systems, Inc. wins again, and Dean A. Smith Sales, Inc. loses again.

See Dean A. Smith Sales, Inc. v. Metal Systems, Inc.; 05-11-01449-CV; Texas Court of Appeals 5^th District, Dallas; March 11, 2013.

Lessons learned:

1.      If you want to get paid a commission for a deal involving real estate, you’d better have a TREC brokerage license. And a written commission agreement too. Which describes the property with specificity.

2.      Business brokers not holding TREC licenses might be wise to engage TREC brokers for the real estate component of the deal.


Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.