New York Law Review

Tag: brokerage agreement

  • Morpheus Capital Advisors LLC v. UBS Real Estate Securities, Inc., 21 N.Y.3d 531 (2013): Clarifying the Distinction Between Exclusive Agency and Exclusive Right to Sell

    Morpheus Capital Advisors LLC v. UBS Real Estate Securities, Inc., 21 N.Y.3d 531 (2013)

    A brokerage agreement must contain clear and express language to create an exclusive right to sell; otherwise, it establishes only an exclusive agency, allowing the owner to sell the property independently without owing a commission to the broker.

    Summary

    Morpheus Capital Advisors sued UBS Real Estate Securities (UBSRE) for breach of contract, seeking a commission after UBSRE transferred distressed assets to a fund created by the Swiss National Bank (SNB) as part of a 2008 bailout. Morpheus argued its agreement granted an exclusive right to sell, entitling it to a commission regardless of who found the buyer. The New York Court of Appeals held that the agreement created a standard exclusive agency, not an exclusive right to sell, and therefore no commission was owed because UBSRE independently transferred the assets without Morpheus’s involvement. The court emphasized that an exclusive right to sell requires explicit contractual language.

    Facts

    In September 2008, Morpheus and UBSRE entered an agreement for Morpheus to serve as a financial advisor for the proposed sale of UBSRE’s student loan assets. Morpheus’s duties included identifying potential investors and negotiating terms. The agreement granted Morpheus the “exclusive right to solicit counterparties for any potential Transaction.” The contract defined “Transaction Amount” as the value of assets “transferred or sold to a third party.” UBSRE later transferred student loan assets to the SNB as part of a bailout. Morpheus demanded a commission, which UBSRE refused to pay.

    Procedural History

    Morpheus sued UBSRE for breach of contract. The Supreme Court granted UBSRE’s motion to dismiss, finding the financial crisis and bailout an unforeseeable event that frustrated the agreement’s purpose. The Appellate Division reversed, reinstating the complaint, holding that UBSRE hadn’t shown that the bailout made Morpheus’s performance worthless and that UBSRE had a duty to allow Morpheus the opportunity to solicit a counterparty prior to the transfer to the fund. The Court of Appeals reversed the Appellate Division and dismissed the complaint.

    Issue(s)

    Whether the agreement between Morpheus and UBSRE created an exclusive agency or an exclusive right to sell the student loan assets, and therefore, whether UBSRE owed Morpheus a commission when it transferred the assets to the Swiss National Bank as part of a bailout.

    Holding

    No, because the agreement created an exclusive agency, not an exclusive right to sell, and UBSRE independently transferred the assets without Morpheus’s involvement. The contract lacked the explicit language required to establish an exclusive right to sell.

    Court’s Reasoning

    The court distinguished between an exclusive agency and an exclusive right to sell. An exclusive agency prevents the owner from hiring another broker, but the owner can still sell the property independently. An exclusive right to sell prevents the owner from selling the property independently without owing the broker a commission. The Court stated, “[a] broker is entitled to a commission upon the sale of the property by the owner only where the broker has been given the exclusive right to sell; an exclusive agency merely precludes the owner from retaining another broker in the making of the sale.”

    The Court emphasized that a contract must “clearly and expressly provide[] that a commission [is] due upon sale by the owner or exclude[] the owner from independently negotiating a sale.” Requiring an affirmative statement protects an owner’s freedom to dispose of their own property. The court rejected Morpheus’s argument that the agreement’s language giving it the “exclusive right to solicit counterparties” imposed a duty on UBSRE to wait before transferring the assets, stating this would “transform a contract that expressly confers the exclusive right to deal . . . into one that confers the exclusive right to sell”.

    The Court further stated that it was “inconsequential whether UBSRE was legally compelled to participate in the bailout or whether the Stabilization Fund is technically a separate entity from the SNB” since the transfer was not the result of Morpheus introducing a third party. The Court thus concluded that there was no breach of contract and no commission was owed.

  • Morris Cohon & Co. v. Russell, 23 N.Y.2d 569 (1969): Satisfying the Statute of Frauds for Finder’s Fee Claims

    Morris Cohon & Co. v. Russell, 23 N.Y.2d 569 (1969)

    A memorandum satisfies the Statute of Frauds for a finder’s fee claim in quantum meruit if it acknowledges the plaintiff’s employment, identifies the parties and subject matter, and establishes the plaintiff’s performance, even if it doesn’t specify the compensation rate.

    Summary

    Morris Cohon & Co. sued Sidney Russell to recover a finder’s fee for services rendered in Russell’s sale of stock. The lower courts dismissed the claim based on the Statute of Frauds. The Court of Appeals reversed, holding that a clause in the sale contract, representing that Cohon was the only broker involved, sufficiently evidenced Cohon’s employment and performance, thus satisfying the Statute of Frauds for a quantum meruit claim. The court emphasized that the Statute of Frauds should not be used to evade just obligations when the writing identifies the key elements of the agreement.

    Facts

    Morris Cohon & Co. (plaintiff) claimed to have acted as a broker in connection with the sale by Sidney A. Russell (defendant) of his 50% stock interest in Russell and Russell, Inc.
    The contract of sale between the buyer, Atheneum House, Inc., and the sellers, including Russell, contained a clause stating the sellers had dealt with no one other than Morris Cohon & Co. as broker or finder and would indemnify the buyer against any brokerage claims.
    After the lawsuit commenced, Harry Magdoff, another seller, provided a letter and affidavit stating he procured Cohon’s services for himself and Russell, with Russell’s authorization.

    Procedural History

    The Supreme Court, New York County, denied Russell’s motion for summary judgment.
    The Appellate Division, First Department, reversed and granted summary judgment, finding the action barred by the Statute of Frauds.
    The Court of Appeals reversed the Appellate Division’s order.

    Issue(s)

    Whether a clause in a contract of sale, representing that a specific broker was the only one involved in the transaction, is sufficient to satisfy the Statute of Frauds requirement of a written memorandum for a claim of compensation for services rendered by the broker.

    Holding

    Yes, because the clause, by reasonable construction, acknowledges that the plaintiff performed services and that an obligation to the plaintiff actually existed, satisfying the Statute of Frauds for a claim in quantum meruit.

    Court’s Reasoning

    The Court of Appeals found the Appellate Division’s view of the memorandum too narrow in light of the Statute of Frauds’ purpose: to prevent perjury and fraudulent claims, not to allow evasion of just obligations.
    The court noted that the peril of perjury was largely absent because the writing identified the parties, the subject matter, and established that the plaintiff performed. The court reasoned that the clause, stating the sellers dealt with “no person…other than Morris Cohon & Co. as broker or finder,” was an affirmation that the defendant dealt only with Cohon.
    “Standing alone, the contract clause constitutes an admission by the defendant that plaintiff performed services and that an obligation to plaintiff actually existed.”
    The court distinguished this situation from cases where no memorandum existed at all. The court emphasized that, for a quantum meruit claim, the memorandum only needs to evidence the fact of the plaintiff’s employment and performance.
    “In an action in quantum meruit…a sufficient memorandum need only evidence the fact of plaintiff’s employment by defendant to render the alleged services. The obligation of the defendant to pay reasonable compensation for the services is then implied.”
    The court found the memorandum sufficient because it identified the buyer and seller, established the plaintiff’s employment as a broker, identified the transaction’s subject matter, and acknowledged the plaintiff’s performance in bringing about the sale.