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.