New York Law Review

Tag: Real Estate Broker

  • Sonnenschein v. Douglas Elliman-Gibbons & Ives, 96 N.Y.2d 337 (2001): Real Estate Broker’s Duty to Multiple Principals

    96 N.Y.2d 337 (2001)

    A real estate broker owes no duty to a seller to refrain from showing a potential buyer other properties, even after oral negotiations have commenced, unless there is an explicit agreement to the contrary.

    Summary

    Plaintiffs, the Sonnenscheins, listed their condo for sale. DEGI, a brokerage firm, found potential buyers (the Tams) and began negotiations. However, DEGI also showed the Tams another, more desirable apartment in the same building. The Tams purchased the other apartment. The Sonnenscheins sued DEGI for breach of fiduciary duty, claiming DEGI sabotaged their sale. The court held that DEGI owed no such duty, as there was no exclusive agreement and no binding contract between the Sonnenscheins and the Tams. Real estate brokers can represent multiple principals unless explicitly agreed otherwise.

    Facts

    The Sonnenscheins listed their condominium for sale with Phyllis Koch Real Estate.

    Koch contacted other brokers, including Douglas Elliman-Gibbons & Ives (DEGI), seeking potential buyers.

    Susan Turkewitz, a DEGI salesperson, found potential buyers, the Tams, who were initially interested in the Sonnenscheins’ apartment.

    Negotiations ensued, and Sonnenschein drafted a commission agreement with DEGI.

    The Tams were shown another apartment in the same building by Patricia Cliff, another DEGI salesperson; this apartment was superior to the Sonnenscheins’.

    The Tams ultimately purchased the other apartment.

    The Sonnenscheins sold their apartment for a lower price and sued DEGI for breach of fiduciary duty.

    Procedural History

    The Sonnenscheins sued DEGI in Supreme Court, which denied DEGI’s motion for summary judgment.

    A jury found in favor of the Sonnenscheins.

    The Appellate Division reversed, directing judgment for DEGI.

    The Sonnenscheins appealed to the New York Court of Appeals.

    Issue(s)

    Whether a real estate brokerage firm that produces a potential purchaser for a seller owes the seller a fiduciary duty to refrain from showing the potential purchaser additional properties after oral negotiations have commenced.

    Holding

    No, because, in the absence of an agreement with a principal to the contrary, a broker owes no duty to refrain from offering the properties of all its principals to a prospective customer.

    Court’s Reasoning

    The Court of Appeals emphasized that a real estate broker is a fiduciary with a duty of loyalty to their principal. However, determining the existence of a broker/principal relationship requires reviewing the communications and agreements between the parties.

    The Court found that the Sonnenscheins did not establish that DEGI agreed to become their broker or act as their fiduciary. The commission agreement alone was insufficient to create such a relationship.

    Even assuming a broker/principal relationship existed, the Court held that DEGI did not breach any fiduciary duty by showing the Tams another property. The Court adopted the view that, absent an explicit agreement, a broker is not obligated to decline a prospective purchaser’s request to see other properties listed with that broker.

    “Unless a broker and principal specifically agree otherwise, a broker cannot be expected to decline a prospective purchaser’s request to see another property listed for sale with that broker. Any other rule would unreasonably restrain a broker from simultaneously representing two or more principals with similar properties for fear of violating a fiduciary obligation in the event a buyer chose the property of one principal over that of another.”

    The Court also noted that there was no complete and enforceable purchase agreement between the Sonnenscheins and the Tams. The commission agreement and cover letter drafted by Sonnenschein indicated that the parties were free to decline to enter into a contract.

    The Court declined to address the Sonnenscheins’ argument regarding disclosure of confidential price information, as this theory was not raised in the original complaint or summary judgment papers.

  • Dubbs v. Stribling & Associates, 96 N.Y.2d 337 (2001): Termination of Fiduciary Duty in Real Estate Transactions

    Dubbs v. Stribling & Associates, 96 N.Y.2d 337 (2001)

    A real estate broker’s fiduciary duty to a principal can be terminated by agreement or by conduct that demonstrates the end of the broker-principal relationship, especially when the broker enters into an arm’s-length transaction with the principal after full disclosure.

    Summary

    This case addresses whether a real estate broker breached a fiduciary duty to their client when the broker purchased the client’s property and subsequently acquired an adjacent property the client had previously expressed interest in. The New York Court of Appeals held that the broker’s fiduciary duty terminated when she entered into a purchase contract with the client after full disclosure, acting then as an adverse party. The Court emphasized that there was no evidence the broker withheld any information at the time of the sale, and that the plaintiffs acknowledged in the contract that no broker was involved in the transaction. Thus, summary judgment dismissing the breach of fiduciary duty claim was appropriate.

    Facts

    Plaintiffs listed their co-op apartment with Defendant Stribling & Associates on an open listing basis. Plaintiffs told defendant agents that they wanted to purchase the adjacent apartment. Defendant Chappel-Smith, an agent, offered to buy Plaintiffs’ apartment. Plaintiffs were urged to contact their neighbor one last time. In December 1994, Plaintiffs contracted to sell to Chappel-Smith, with the contract specifying no broker was involved, and the commission provision was struck out. Prior to the closing, Chappel-Smith made an oral agreement to buy the adjacent apartment. Plaintiffs were unaware of this and closed the sale to Chappel-Smith. Chappel-Smith then purchased the adjacent apartment.

    Procedural History

    Plaintiffs sued Defendants, alleging breach of fiduciary duty. The Supreme Court dismissed the complaint on summary judgment. The Appellate Division affirmed. Plaintiffs appealed to the New York Court of Appeals based on a two-Justice dissent in the Appellate Division.

    Issue(s)

    Whether a real estate broker breaches a fiduciary duty to a seller when the broker purchases the seller’s property, and subsequently purchases an adjacent property the seller had previously expressed interest in, without informing the seller of the second purchase before the initial sale closes?

    Holding

    No, because the broker’s fiduciary duty was terminated when the broker entered into an arm’s-length purchase agreement with the sellers after full disclosure, explicitly acknowledging the end of the broker-principal relationship in the contract.

    Court’s Reasoning

    The Court reasoned that while a real estate broker owes a fiduciary duty of loyalty to their principal, this duty can be severed by agreement or unilateral action. Here, Chappel-Smith fulfilled her duty by disclosing her intent to purchase the apartment. The purchase contract explicitly stated that no broker was involved, effectively terminating the fiduciary relationship. As the court stated, “[T]he disclosure to be effective must lay bare the truth, without ambiguity or reservation, in all its stark significance”. Once the arm’s-length transaction commenced, the parties’ relationship changed, and there was no longer a basis for Plaintiffs to expect Defendants to continue acting as fiduciaries. The court further noted that plaintiffs speculated that Chappel-Smith knew the neighbor was selling prior to closing, but they failed to present any admissible evidence supporting this. The neighbor’s testimony and Defendants’ statements indicated otherwise, specifically that the neighbor did not decide to sell until shortly before listing the property in May 1995. Additionally, the court found the claim regarding confidential information about combining the apartments was unfounded because the floor plan was already on file and available to any agent. Because Chappel-Smith was no longer acting as the Plaintiffs’ agent when she learned of the adjacent property for sale, no fiduciary duty was breached.

  • িনিয়র v. Lehmann, 98 N.Y.2d 785 (2002): Upholding Stare Decisis in Contract Law

    니어 v. Lehmann, 98 N.Y.2d 785 (2002)

    Stare decisis should be stringently applied in cases involving contract and property rights, as parties rely on settled rules when drafting agreements.

    Summary

    니어 v. Lehmann concerns a real estate broker’s attempt to overturn a prior New York Court of Appeals decision, Graff v. Billet, regarding when a brokerage commission is due. The broker drafted the commission agreement using language similar to that in Graff, which had been interpreted against brokers. When the deal fell through, the broker sued for the commission, arguing that Graff was wrongly decided. The Court of Appeals declined to overrule Graff, emphasizing the importance of stare decisis, especially in contract and property law, where predictability and reliance on established precedent are crucial. The court noted that parties are free to draft agreements to avoid prior interpretations if they choose.

    Facts

    1. Plaintiff, a real estate broker, entered into a commission agreement with the defendant, a seller.
    2. The commission agreement contained language similar to that in Graff v. Billet, stating the commission was payable “if and when title passes…except for willful default on the part of the seller.”
    3. The sale did not close.
    4. The broker sued for the commission, arguing that Graff v. Billet was incorrectly decided and should be overturned.

    Procedural History

    1. The lower courts ruled against the broker, citing Graff v. Billet.
    2. The case reached the New York Court of Appeals, which affirmed the lower court’s decision.

    Issue(s)

    Whether the Court of Appeals should overrule its prior decision in Graff v. Billet regarding the interpretation of a brokerage commission agreement.

    Holding

    No, because the doctrine of stare decisis should be applied in cases involving contract and property rights, and the broker could have drafted the agreement differently to avoid the effect of the prior interpretation.

    Court’s Reasoning

    The Court emphasized the importance of stare decisis, particularly in contract and property law. Chief Judge Kaye, in her concurring opinion, stated that “continuity and predictability are important values for a Court. We should adhere to precedent unless it is clear that a prior decision has produced an unjust or unworkable rule.” The court highlighted two main reasons for strictly applying stare decisis in these areas:

    1. Reliance: Parties entering into contract and property transactions rely on settled court decisions to guide their agreements.
    2. Freedom to Contract: Parties are generally free to draft their agreements to say what they intend and avoid the effect of prior court interpretations. As the court noted, “settled rules are necessary and necessarily relied upon, stability and adherence to precedent are generally more important than a better or even a ‘correct’ rule of law”.
    The Court found no evidence that Graff v. Billet had proven unworkable or produced manifest injustice. Furthermore, the broker drafted the agreement a decade after Graff was decided and could have used different language if a different result was intended. The decision underscores a commitment to stability and predictability in contract law, placing the burden on parties to clearly express their intentions in their agreements.

  • Greene v. Heilman, 51 N.Y.2d 195 (1980): Establishing Apparent Authority for Real Estate Brokers

    Greene v. Heilman, 51 N.Y.2d 195 (1980)

    A real estate broker is not entitled to a commission unless they are the procuring cause of the sale, and apparent authority to hire a broker requires actions by the principal that reasonably give the appearance of authority and upon which the third party relies.

    Summary

    Alfred Greene, a real estate broker, sued Maynard Heilman for commissions allegedly owed on the sale of a shopping center. Greene claimed that Richard Driscoll, acting with apparent authority on Heilman’s behalf, hired him to find a buyer. The sale occurred a year after Greene initially informed I. Gordon Realty Corporation about the property, with direct negotiations between Heilman and Gordon. The court held that Greene was not the procuring cause of the sale and that Driscoll lacked apparent authority to bind Heilman, as Heilman made no manifestations that would reasonably give the appearance of authority to Driscoll.

    Facts

    In October 1974, Driscoll told Greene he wanted to find a buyer for a shopping center. Greene, assuming Todd Mart, Inc. owned the property, informed Robert Gordon of I. Gordon Realty Corporation about the center and provided operating statements. Heilman actually owned the property, having purchased it at a Sheriff’s sale, but this was unknown to Greene and Gordon. Gordon was initially uninterested due to W.T. Grant’s bankruptcy and other business matters. In the spring of 1975, Heilman, facing financial pressure, was advised by his accountant that Gordon was seeking investment opportunities. Heilman then directly contacted Gordon, leading to negotiations and a sale in the fall of 1975, a year after Greene’s initial contact. Greene was not involved in these later negotiations.

    Procedural History

    Greene sued Heilman, Driscoll, and others for breach of contract, fraud, and civil conspiracy. The trial court ruled in favor of Greene solely against Heilman on the contract claim, finding Driscoll had apparent authority. The Appellate Division affirmed, stating Heilman had a duty to address Greene’s potential claim after the purchase offer mentioned Greene. Justice Cardamone dissented, arguing that neither actual nor apparent authority was established. The New York Court of Appeals reversed the Appellate Division’s order.

    Issue(s)

    1. Whether Driscoll had apparent authority to bind Heilman to a brokerage agreement with Greene.

    2. Whether Greene was the procuring cause of the sale of the shopping center to I. Gordon Realty Corporation.

    Holding

    1. No, because Heilman did not engage in any conduct that would reasonably lead a third party to believe that Driscoll had the authority to hire a broker on his behalf.

    2. No, because there was not a direct and proximate link between Greene’s initial introduction and the ultimate consummation of the sale; Greene did not bring together the minds of the buyer and seller.

    Court’s Reasoning

    The Court of Appeals found no evidence that Heilman delegated authority to Driscoll or Diamond to hire Greene. The court emphasized that holding stock or serving as officers in common corporations does not automatically confer authority to act on behalf of each other’s personal property. “Mere authority to manage Heilman’s personal realty would not include authority to take steps to sell it.”

    The court clarified that apparent authority requires verbal or other acts by the principal that reasonably give the appearance of authority to conduct the transaction, and the third party must be aware of them and rely upon them. Here, Heilman made no such manifestations. The court noted that Gordon’s purchase offer mentioning Greene’s statement did not create a duty for Heilman to settle with Greene, as it did not acknowledge a commission was due or that Greene was the procuring cause.

    Regarding procuring cause, the court stated that a broker must do more than initially call the property to the buyer’s attention. There must be a direct and proximate link between the broker’s actions and the sale. Citing Sibbald v Bethlehem Iron Co., the court emphasized that Greene did not bring together the minds of the buyer and seller. Greene’s role was limited to alerting Gordon to the property’s availability, with no further involvement in negotiations or the ultimate sale, indicating abandonment of the effort.

  • Park Avenue Clinical Diagnostic Group, Inc. v. Cross & Brown Company, 37 N.Y.2d 102 (1975): Civil Penalties Under Real Property Law §442-e Apply Only to Unlicensed Activity

    Park Avenue Clinical Diagnostic Group, Inc. v. Cross & Brown Company, 37 N.Y.2d 102 (1975)

    The civil penalty provision of New York Real Property Law § 442-e(3), which allows a person aggrieved by a violation of Article 12-A to recover a penalty from the offender, applies only to unlicensed real estate brokerage activity, not to the actions of licensed brokers or salesmen.

    Summary

    Park Avenue Clinical Diagnostic Group sued Cross & Brown, a licensed real estate broker, alleging that Cross & Brown breached its fiduciary duty by relocating the plaintiff’s tenants to other buildings without the plaintiff’s consent and profiting from those transactions. The plaintiff sought to recover a penalty under Real Property Law § 442-e(3). The New York Court of Appeals held that the penalty provision of § 442-e(3) only applies to unlicensed real estate activities, not to the misconduct of licensed brokers or salesmen. The court reasoned that Article 12-A provides a comprehensive regulatory scheme for licensed brokers, with its own set of disciplinary measures, and the penalty provision was intended to deter and remedy unlicensed activity.

    Facts

    Park Avenue Clinical Diagnostic Group, Inc. (plaintiff) owned a large office building at 2 Park Avenue, New York City. Cross & Brown Company (defendant) was the plaintiff’s managing and leasing agent for the building.
    The plaintiff alleged that Cross & Brown, along with two of its officers and employees, wrongfully participated in and profited from the relocation of two of the plaintiff’s prime tenants to other buildings. This relocation allegedly occurred without the plaintiff’s knowledge or consent.

    Procedural History

    The plaintiff filed a complaint with seven causes of action, including breach of contract, breach of fiduciary duty, fraudulent misrepresentation, and a claim for the statutory civil penalty under Real Property Law § 442-e(3).
    The Supreme Court denied the defendant’s motion to dismiss the cause of action under § 442-e(3).
    The Appellate Division reversed, granting the motion to dismiss, holding that the penalty provision applies only to unlicensed activity and that the plaintiff was not a “person aggrieved” as required by the statute.
    The New York Court of Appeals granted leave to appeal.

    Issue(s)

    Whether the civil penalty provision in subdivision 3 of section 442-e of the Real Property Law applies to licensed real estate brokers and salesmen for violations of Article 12-A of the Real Property Law, or whether it is limited to unlicensed real estate activity?

    Holding

    No, because the civil penalty provision of Real Property Law § 442-e(3) is limited to suits against those that are not licensed under Article 12-A.

    Court’s Reasoning

    The Court of Appeals reasoned that Article 12-A of the Real Property Law is a comprehensive regulatory statute designed to ensure competency, honesty, and professionalism among real estate brokers and salesmen through a licensing system. The statute provides specific provisions and penalties for licensees, including the power to revoke, suspend, fine, or reprimand them for misconduct.
    The court emphasized that these administrative sanctions are supplemental to existing common-law damage actions available to injured parties. By contrast, the criminal and civil penalties provided in section 442-e were intended to deter and remedy unlicensed activity, where the regulatory sanctions applicable to licensees would not apply.
    The court reasoned that imposing the quadruple penalty of § 442-e(3) on licensees would lead to the incongruous result of harsher penalties for licensed brokers who are subject to regulation than for unlicensed individuals who defy the regulatory scheme altogether.
    Even if the intent of section 442-e were ambiguous, the court stated that the statute should be strictly construed because of its punitive nature, as evidenced by the heavy penalty recoverable (four times the sum received in violation) and the provision making violations a misdemeanor.
    The court stated that “the deterrents and remedies provided in the article for misconduct by licensees are the regulatory sanctions of suspension, revocation, fine and reprimand.” The court also noted that “the criminal and civil penalties separately provided in section 442-e were included to deter and remedy unlicensed activity to which the above-mentioned regulatory sanctions would obviously not apply.”

  • 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.”