New York Law Review

Tag: commissions

  • Cobble Hill Nursing Home, Inc. v. Henry and Warren Corp., 74 N.Y.2d 475 (1989): Enforceability of Agreements to Negotiate Under the Statute of Frauds

    Cobble Hill Nursing Home, Inc. v. Henry and Warren Corp., 74 N.Y.2d 475 (1989)

    An agreement to negotiate the terms of a future contract is unenforceable under the Statute of Frauds if it lacks material terms and provides no objective method for determining those terms.

    Summary

    Cobble Hill Nursing Home sued Henry and Warren Corporation, alleging breach of a termination agreement. The defendants moved to dismiss, arguing that the alleged agreement was unenforceable under the Statute of Frauds. The New York Court of Appeals affirmed the dismissal, holding that the letter agreement between the parties was merely an agreement to negotiate future terms and lacked essential terms necessary for enforcement, especially regarding the division of commissions. The court emphasized that it could not supply the missing terms, as there were no objective criteria for determining the parties’ intent.

    Facts

    Plaintiff joined HBS, Ltd., an agency, and brought personal clients with him. A letter agreement dated January 31, 1963, outlined terms regarding these clients and commissions should the plaintiff leave HBS, Ltd. The letter stated that clients signed by plaintiff could request release upon his departure. Commissions from contracts negotiated for plaintiff’s clients would go to HBS, Ltd., with the extent of sharing to be negotiated upon his departure, with HBS, Ltd. receiving a minimum of 5%. If deals were in progress when plaintiff left, an arrangement would be made regarding commissions. Plaintiff left in 1972 and sued, alleging breach of the termination agreement.

    Procedural History

    The trial court initially heard the case. The defendants moved to dismiss the complaint based on the Statute of Frauds. The Appellate Division affirmed the lower court’s decision to dismiss the claims against the individual defendants (corporate officers), and the Court of Appeals affirmed the Appellate Division’s order.

    Issue(s)

    Whether the letter of January 31, 1963, constituted an enforceable agreement regarding the division of commissions upon the plaintiff’s departure from HBS, Ltd., or merely an unenforceable agreement to negotiate future terms.

    Holding

    No, because the letter agreement lacked material terms, specifically regarding the division of commissions, and provided no objective method for determining those terms, rendering it an unenforceable agreement to negotiate.

    Court’s Reasoning

    The court reasoned that the letter expressly contemplated future negotiations to determine the division of termination commissions. Paragraph 2 required agreement on the plaintiff’s share of commissions on contracts already negotiated (ranging from 0% to 50%), while paragraph 3 required agreement on commissions from ongoing negotiations (ranging from 0% to 100%). The court found that the letter failed to include a material element—the extent of the plaintiff’s right to commissions. The court could not fill this void because there were no objective criteria to determine the intended fraction, amount, or payment period. “At best there is but an agreement to negotiate at some future date.” Even if a 50% division was allegedly negotiated orally, the Statute of Frauds bars adding such oral understandings to the written letter to create an enforceable contract. The court emphasized that without written proof of a negotiated division, there was no enforceable obligation. The absence of key terms prevents the enforcement of the alleged agreement.

  • Hecht v. Meller, 23 N.Y.2d 301 (1968): Broker’s Right to Commission After Property Destruction

    Hecht v. Meller, 23 N.Y.2d 301 (1968)

    A real estate broker is entitled to a commission when they procure a buyer who meets the seller’s requirements, even if the sale is later rescinded due to substantial property damage under a statute allowing rescission.

    Summary

    This case addresses whether a real estate broker is entitled to a commission when a property sale is rescinded because of substantial fire damage before the buyer takes title or possession, invoking a statutory privilege to rescind. The New York Court of Appeals held that the broker is indeed entitled to the commission. The court reasoned that the broker fulfilled their obligation by finding a suitable buyer, and the seller’s obligation to pay the commission is independent of the buyer’s eventual performance, unless the brokerage agreement stipulates otherwise. The statute providing the buyer with the right to rescind does not shift the responsibility for the commission from the seller to the broker.

    Facts

    Helen Hecht, a real estate broker, had an exclusive agreement with Herbert and Joyce Meller to sell their property for $75,000. Hecht found buyers, and a sale contract was signed on May 30, 1963, for $60,000, with a closing date of August 1. The contract acknowledged Hecht’s role in bringing the parties together. On July 20, before the closing and without fault of either party, the house on the property was substantially damaged by fire. The buyers rescinded the contract under Real Property Law § 240-a (later General Obligations Law § 5-1311), and the sellers returned the down payment. The sellers then refused to pay Hecht her $3,600 commission.

    Procedural History

    Hecht sued the Mellers to recover the brokerage commission. The case was submitted to the Supreme Court, Westchester County, on an agreed statement of facts. The Supreme Court ruled in favor of the broker, Hecht. The Appellate Division, Second Department, reversed the Supreme Court’s decision, finding the seller not liable for the commission. Hecht appealed to the New York Court of Appeals.

    Issue(s)

    Whether a real estate broker is entitled to commissions on the sale of real property if the purchaser asserts a statutory privilege to rescind the contract of sale because the property has been substantially destroyed by fire after the contract was executed, but before the buyer took title or possession?

    Holding

    Yes, because the broker fulfilled their contractual obligation by procuring a buyer who met the seller’s requirements, and the statute granting the buyer the right to rescind the contract does not relieve the seller of their independent obligation to pay the broker’s commission.

    Court’s Reasoning

    The court emphasized that a broker’s right to a commission arises when they produce a buyer who meets the seller’s requirements. Citing precedent like Levy v. Lacey, the court reiterated that this right is enforceable at the point of procuring an acceptable buyer, regardless of whether the sale is ultimately completed, unless the brokerage agreement specifically conditions payment on the sale’s completion. The court stated, “If from a defect in the title of the vendor, or from a refusal to consummate the contract on the part of the purchaser for any reason, in no way attributable to the broker the sale falls through, nevertheless the broker is entitled to his commissions, for the simple reason that he has performed his contract.” The court found no indication in the legislative history of Real Property Law § 240-a (later General Obligations Law § 5-1311) that the legislature intended to shift the risk of paying brokerage commissions to the broker in the event of a rescission under the statute. The court noted that the seller has the flexibility to protect themselves by including clauses in the brokerage agreement conditioning the commission on the sale’s completion or by contracting with the buyer to cover the commission in case of rescission. The court reasoned that the buyer’s decision to rescind does not reflect on the broker’s performance. The court stated, “The sellers in this case, having failed to shift the possible loss, must be deemed to have assumed the risk themselves.”

  • Galbreath-Ruffin Corp. v. 44th & 6th Ave. Corp., 27 N.Y.2d 350 (1971): Recovery of Real Estate Commissions When Brokerage Services Performed by Licensed Individuals

    Galbreath-Ruffin Corp. v. 44th & 6th Ave. Corp., 27 N.Y.2d 350 (1971)

    A licensed real estate broker can recover commissions where brokerage services were performed by licensed individuals, even if one of those individuals was not specifically licensed to act on behalf of the plaintiff brokerage corporation, so long as there is no evidence of public harm or unlicensed activity.

    Summary

    Galbreath-Ruffin Corp., a licensed real estate broker, sued 44th & 6th Ave. Corp. to recover commissions for leases procured for a building. The defendant argued that the plaintiff could not recover commissions because Philip Shannon, an officer of the plaintiff, was not licensed to act on behalf of the plaintiff, even though he was a licensed broker acting on behalf of another corporation. The court held that the plaintiff could recover commissions because the brokerage services were performed by licensed individuals and that the statute requiring additional licenses for officers was primarily a revenue measure, not intended to protect the public from harm. The court granted partial summary judgment to the plaintiff.

    Facts

    Galbreath-Ruffin Corp. was the exclusive renting agent for 44th & 6th Ave. Corp. for a building under construction. The agreement was based on two letters outlining commission rates. Leases were executed with several entities, some procured by the plaintiff and others by outside brokers. The plaintiff had a corporate brokerage license and was affiliated with John W. Galbreath & Co., Inc., another licensed broker. Peter Baffin, plaintiff’s president, was a licensed broker for the plaintiff. Philip Shannon, plaintiff’s vice-president, was licensed for John W. Galbreath & Co., Inc. Shannon primarily handled the Bendix and TWA leases. The defendant paid $82,173.40 in commissions but then disputed further payments, arguing Shannon was not licensed to act for the plaintiff.

    Procedural History

    The plaintiff sued to recover commissions. Special Term dismissed the first seven causes of action and refused to dismiss the affirmative defenses and counterclaims. The Appellate Division modified the order, granting the plaintiff summary judgment on some causes of action and dismissing the affirmative defenses and counterclaims related thereto. Both sides appealed to the New York Court of Appeals.

    Issue(s)

    Whether a licensed real estate broker can recover commissions where brokerage services were performed by two separately licensed brokers, one licensed to act for the plaintiff corporation and one licensed to act for another corporation, even though the latter was not specifically licensed to act on behalf of the plaintiff corporation.

    Holding

    Yes, because the statute requiring additional licenses for officers of a brokerage corporation is primarily a revenue measure, and the essential requirement is that individuals performing brokerage services be licensed to protect the public.

    Court’s Reasoning

    The court reasoned that the licensing requirements for real estate brokers are primarily intended to protect the public from incompetent or untrustworthy brokers. The court stated, “The intrinsic nature of the business combines with practice and tradition to attest the need of regulation. The real estate broker is brought by his calling into a relation of trust and confidence. Constant are the opportunities by concealment and collusion to extract illicit gains.” The court emphasized that the animating purpose is the protection of the public, not simply to collect additional fees. Here, both Ruffin and Shannon were licensed brokers. The court rejected the argument that because Shannon was not specifically licensed to act on behalf of Galbreath-Ruffin Corp., the plaintiff could not recover commissions. The court noted that 441-b should be strictly construed because it is a penal statute. The court distinguished Brener & Lewis v. Fawcett Pubs. because in that case, the individual performing the real estate services was not licensed to act as a broker or salesman for the plaintiff or any other corporation. The court determined that requiring an extra license for Shannon would be a matter of form and would not accomplish anything useful in carrying out the purpose of the act.

    The court held that the Appellate Division erred in directing a trial to ascertain the views of the Department of State regarding the practical construction of the statute. The court stated, “This case is not one in which the administering agency, namely, the Department of State, was first charged with the function of construing the statute in an administrative proceeding.”