New York Law Review

Tag: Real Estate Broker Commission

Ely-Cruikshank Co. v. Bank of Montreal, 81 N.Y.2d 399 (1993): Accrual of Breach of Contract Claims and the Statute of Limitations

Ely-Cruikshank Co. v. Bank of Montreal, 81 N.Y.2d 399 (1993)

In New York, a breach of contract cause of action accrues at the time of the breach, not when damages are discovered, and the statute of limitations begins to run from the moment the contract is breached, even if the injured party is unaware of the breach.

Summary

Ely-Cruikshank, a real estate broker, sued Bank of Montreal for breach of contract, alleging the bank secretly negotiated the sale of a building, depriving the broker of its commission. The New York Court of Appeals held that the statute of limitations began to run when the bank allegedly failed to disclose the preliminary negotiations, not when the building was sold. Because the lawsuit was filed more than six years after the alleged breach, the claim was time-barred, even though the broker may not have known about the breach until later. The court emphasized that ignorance of a breach does not typically toll the statute of limitations in contract actions.

Facts

Ely-Cruikshank and Bank of Montreal entered a written agreement in 1980, granting Ely-Cruikshank exclusive rights to negotiate the sale of the bank’s building. The agreement allowed either party to terminate with 30 days’ notice after January 31, 1981. The bank terminated the agreement effective November 30, 1983. On February 1, 1984, the bank sold the building directly to RREEF USA Fund-II, Inc. Ely-Cruikshank sued the bank on January 26, 1990, alleging that the bank had secretly negotiated the sale before terminating the brokerage agreement, thus depriving the broker of its commission.

Procedural History

The Supreme Court granted the bank’s motion to dismiss. The Appellate Division modified, reinstating the breach of contract claim, finding the statute of limitations began running on the sale date. The Appellate Division granted leave to appeal to the Court of Appeals, certifying the question of whether the breach of contract claim was time-barred.

Issue(s)

Whether the breach of contract cause of action accrued when the bank allegedly failed to disclose its preliminary negotiations for the sale of the building, or when the building was actually sold, for statute of limitations purposes?

Holding

No, because in New York, a breach of contract claim accrues at the time of the breach, regardless of whether the injured party is aware of it. The alleged breach occurred when the bank purportedly failed to reveal its preliminary discussions, not when the sale occurred.

Court’s Reasoning

The Court of Appeals emphasized that, generally, a statute of limitations begins to run when a cause of action accrues. In breach of contract cases, accrual occurs at the time of the breach. The court cited Kronos, Inc. v AVX Corp., stating that “settled law marks accrual [for an action sounding in contract] from the contractual breach”. Ely-Cruikshank’s claim was based on the bank’s alleged secret negotiations prior to termination, not on the sale itself, as the bank had the right to terminate the contract and sell the building independently. The court also rejected the argument that the bank breached an implied covenant of good faith, stating that even if true, the breach occurred at the termination of the agreement, making the lawsuit untimely. The court cited Schmidt v Merchants Desp. Transp. Co., stating that “[e]xcept in cases of fraud where the statute expressly provides otherwise, the statutory period of limitations begins to run from the time when liability for wrong has arisen even though the injured party may be ignorant of the existence of the wrong or injury”. The court reasoned that adopting a discovery rule for contract actions would undermine the purpose of statutes of limitations, which are “statutes of repose” designed to bar stale claims, even if that results in “occasional hardship”.

June 10, 1993
Gurney, Becker & Bourne, Inc. v. Benderson Development Co., Inc., 47 N.Y.2d 995 (1979): Establishing Liability Through Account Stated Requires Existing Indebtedness or Express Agreement

Gurney, Becker & Bourne, Inc. v. Benderson Development Co., Inc., 47 N.Y.2d 995 (1979)

An account stated cannot create liability where none exists; it requires either an existing indebtedness between the parties or an express agreement to treat a statement as an account stated, even if the amount is not yet due.

Summary

Gurney, Becker & Bourne, Inc., a real estate broker, sued Benderson Development Co., Inc. for commissions allegedly due when a tenant exercised a renewal option. The trial court submitted the case to the jury on both implied contract and account stated theories, and the jury returned a general verdict for the plaintiff. The Court of Appeals reversed, holding that it was error to submit the case on an account stated theory because no commission was due at the time the statement was sent, as the renewal option had not yet been exercised, and the defendant had not expressly agreed to treat the statement as an account stated. A new trial was ordered because the basis of the jury’s verdict was unclear.

Facts

Gurney, Becker & Bourne, Inc. (plaintiff), a licensed real estate broker, claimed commissions were due from Benderson Development Co., Inc. (defendant) when a tenant exercised its renewal option.
A letter containing a typewritten notation stated that there was an “additional commission due and payable if tenant remains for another five years after 9/30/72.” At the time the letter was received, the tenant had not yet exercised the renewal option.

Procedural History

The trial court submitted the case to the jury as an action based on both implied contract and account stated theories.
The jury returned a general verdict in favor of the plaintiff.
The Appellate Division’s order was reversed by the Court of Appeals, and a new trial was granted.

Issue(s)

Whether the trial court erred in submitting the case to the jury as an action based on an account stated when no commission was due at the time the statement was sent and the defendant had not expressly agreed to treat the statement as an account stated.

Holding

No, because an account stated cannot create liability where none exists; it requires either an existing indebtedness between the parties or an express agreement to treat a statement as an account stated, even if the amount is not yet due.

Court’s Reasoning

The Court of Appeals reasoned that the rule regarding an account stated assumes that there is some existing debt between the parties or an express agreement to treat the statement as an account stated. The court cited American Lithographic Co. v Dorrance-Sullivan & Co., 241 NY 306; Jugla v Trouttet, 120 NY 21; and Bauer v Ambs, 144 App Div 274 in support of this principle.

The court emphasized that at the time the letter was received, no commission was due on the renewal option because the option had not yet been exercised. Since an account stated cannot be used to create liability where none exists, and the defendant had not expressly agreed to treat the letter as an account stated concerning the contingent commission, the trial court erred in submitting the case to the jury on an account stated theory.

The court acknowledged that the jury could have found that the defendant was required to pay a commission on the renewal term based on an implied contract theory. However, since the case was submitted on both theories, and a general verdict was returned, it was impossible to determine whether the erroneous charge predicated on the account stated theory was the basis of the verdict. Therefore, a new trial was necessary.

The court stated: “The rule that an account which has been rendered and to which no objection has been made within a reasonable time should be regarded as admitted by the party charged as prima facie correct assumes that there exists some indebtedness owing between the parties or an express agreement between the parties to treat the statement as an account stated although such statement may encompass amounts not yet due if there remain no further obligations to be performed by the party claiming payment.”

July 10, 1979
Levy v. Lacey, 22 N.Y.2d 271 (1968): Broker’s Commission Contingent on Closing of Title

Levy v. Lacey, 22 N.Y.2d 271 (1968)

A broker’s right to a commission can be conditioned upon the actual closing of title, but the seller cannot avoid the commission if the failure to close is due to their own fault.

Summary

Levy, a real estate broker, sued Lacey for a commission after a sale he procured fell through. The contract between Lacey and the buyer, Frazer, was contingent on Lacey obtaining abandonment of a street. After the abandonment was successful, title issues arose, and Frazer threatened to cancel the agreement if these weren’t resolved quickly. Lacey offered Frazer the option to either pursue legal action to clear the title or cancel the contract; Frazer chose to cancel. The court held that while a broker’s commission can be contingent on the closing of title, the seller can’t avoid paying if the failure to close is due to their own fault. The case was remanded to determine if Lacey acted reasonably in handling the title issues.

Facts

The Laceys (defendants) contracted to sell property to Frazer, procured by Levy (plaintiff), a real estate broker.
The contract was contingent on the Laceys obtaining abandonment of a street on the property.
The contract acknowledged Levy as the broker and agreed to pay him a 5% commission ($6,500), but did not specify when the commission was payable.
After the abandonment was successful, a title search revealed clouds on the title.
Frazer informed the Laceys he wanted to cancel the agreement if the defects were not cured within 30 days.
The Laceys gave Frazer the choice of initiating legal proceedings to remove the defects or cancelling the contract; Frazer chose to cancel.
Levy never received his commission.

Procedural History

Levy sued the Laceys to recover the commission in the Supreme Court, Nassau County.
The trial court ruled in favor of Levy.
The Appellate Division, Second Department, affirmed the trial court’s decision without opinion.
The New York Court of Appeals reversed the lower courts’ decisions and ordered a new trial.

Issue(s)

Whether Levy’s right to a commission was contingent upon the actual closing of title.
Whether the Laceys’ actions in offering Frazer the choice to clear title defects himself or cancel the contract constituted fault that would waive the condition that title actually close.

Holding

1. Yes, because Levy’s own testimony and a letter from the Laceys’ attorney indicated an understanding that the commission was contingent on the closing of title.
2. The Court of Appeals remanded for a new trial to determine if the Laceys acted reasonably, and if they were at fault for the failure of the sale to close. The reasonableness of the Laceys’ conduct presented a question of fact.

Court’s Reasoning

The Court recognized that parties to a brokerage agreement can condition the commission upon the actual consummation of the sale.
Levy himself testified it was his understanding he would receive his commission on the closing of title, and the Court stated that “in legal effect such language in a brokerage agreement imports also the notion that closing of title is a condition precedent to the broker’s being entitled to a commission.”
A letter from the Laceys’ attorney reinforced this understanding, stating that the attorney’s fees for the abandonment proceeding would be paid out of Levy’s commission “if, as and when” the deal was actually closed.
However, the Court emphasized that a seller cannot avoid the obligation to pay a commission if the sale fails to close due to their own fault. The Court noted, “The prospective seller will be held to have waived the condition that title actually close where closing of title was prevented solely by his refusal to remove curable defects or clouds on his title.”
The Court found that the Laceys’ response to Frazer’s ultimatum presented a “much closer question” regarding the reasonableness of their conduct. Specifically, the question was whether the Laceys acted reasonably in giving Frazer the option of bringing the necessary proceedings himself or cancelling the contract, instead of undertaking to cure the title defects themselves.
The Court remanded the case for a new trial to determine the reasonableness of the Laceys’ conduct based on the circumstances known to them at the time. The court noted that the defendants were not required to bring an action for specific performance against Frazer, but perhaps they should have themselves offered to clear the title defects.
The Court also stated that if the Laceys could persuade the court that Levy urged them to allow Frazer to cancel the sale agreement, they should not be held to have waived the condition that title close.

June 6, 1968