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is entitled to a commission when they procure a buyer who meets the seller’s requirements, even if the sale is later rescinded due to substantial property damage under a statute allowing rescission.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This case addresses whether a real estate broker is entitled to a commission when a property sale is rescinded because of substantial fire damage before the buyer takes title or possession, invoking a statutory privilege to rescind.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 The buyers rescinded the contract under Real Property Law § 240-a (later General Obligations Law § 5-1311), and the sellers returned the down payment.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.”