New York Law Review

Tag: Real Estate Brokerage

  • Georgia Malone & Co., Inc. v. Rieder, 19 N.Y.3d 511 (2012): Establishing the Necessary Relationship for Unjust Enrichment Claims

    Georgia Malone & Co., Inc. v. Rieder, 19 N.Y.3d 511 (2012)

    To succeed on a claim for unjust enrichment, a plaintiff must demonstrate that (1) the defendant was enriched, (2) at the plaintiff’s expense, and (3) that it is against equity and good conscience to permit the defendant to retain what is sought, and that the connection between the enriched party and the party conferring the benefit is not too attenuated.

    Summary

    Georgia Malone & Co. sued Rosewood Realty Group for unjust enrichment, alleging that Rosewood used Malone’s due diligence materials to close a real estate deal and collect a commission, without compensating Malone. The New York Court of Appeals affirmed the dismissal of the unjust enrichment claim, holding that Malone failed to establish a sufficiently direct relationship with Rosewood to sustain the claim. The Court emphasized that while privity is not required, the connection between the plaintiff and defendant must not be too attenuated, and the defendant must be aware of the plaintiff’s existence.

    Facts

    Malone, a real estate broker, performed due diligence work for potential buyers (the Rieders) of commercial properties. The Rieders ultimately did not purchase the properties from CenterRock. Subsequently, CenterRock provided Malone’s due diligence materials to Rosewood, another real estate broker. Rosewood then used these materials to facilitate a sale of the properties to a different buyer, earning a commission. Malone claimed that Rosewood was aware that the diligence materials were generated by Malone.

    Procedural History

    Malone sued Rosewood for unjust enrichment. The Supreme Court dismissed the claim. The Appellate Division affirmed. The New York Court of Appeals granted leave to appeal and affirmed the dismissal.

    Issue(s)

    Whether Malone established a sufficiently direct relationship with Rosewood to sustain a claim for unjust enrichment, given that Rosewood received the benefit of Malone’s work through an intermediary (CenterRock and the Rieders).

    Holding

    No, because the connection between Malone and Rosewood was too attenuated, and there were no direct dealings between them that would support an unjust enrichment claim.

    Court’s Reasoning

    The Court of Appeals emphasized that while privity is not required for an unjust enrichment claim, there must be a sufficiently close relationship between the parties. The Court cited Sperry v Crompton Corp., stating that the connection between the party conferring the benefit and the enriched party cannot be “too attenuated.” The court found that Malone’s relationship with Rosewood was too attenuated because Rosewood received the benefit of Malone’s work through CenterRock and the Rieders. There was no evidence of direct contact or dealings between Malone and Rosewood, and Rosewood was not aware that Malone expected to be compensated by Rosewood directly. The Court distinguished the case from situations where the defendant directly induced the plaintiff to perform services or knowingly exploited the plaintiff’s work. The Court reasoned that allowing Malone’s claim to proceed would create an unreasonable burden on commercial transactions, requiring parties to investigate the source of all information they receive. The dissent argued that Rosewood’s awareness that the diligence materials originated from Malone, a competitor, was sufficient to establish the necessary connection. Chief Judge Lippman, dissenting, stated, “[W]e indicated that ‘an awareness’ by defendant of plaintiffs existence was sufficient for an unjust enrichment claim.” (16 NY3d at 182). The dissent also argued that the majority’s ruling condoned willful ignorance, as Rosewood should have inquired about the circumstances of the materials’ transmission given Malone’s name on the documents.

  • Fischer Co. v. Premiere Realty Assoc., 66 N.Y.2d 520 (1985): Broker’s Commission and Implied Contracts

    Fischer Co. v. Premiere Realty Assoc., 66 N.Y.2d 520 (1985)

    A real estate broker cannot recover a commission from a seller when the broker has an express agreement to act as the buyer’s agent in the transaction, as this negates any implication of employment by the seller.

    Summary

    Fischer Co., a real estate broker, sued Premiere Realty Assoc. (the sellers) for a commission, alleging it procured a buyer. Fischer claimed it advised Premiere that the offer was subject to a commission and that the buyer was ready, willing, and able to purchase the property. The New York Court of Appeals affirmed the dismissal of Fischer’s complaint, holding that because Fischer had a signed agreement to act as the buyer’s agent, no implied contract with the seller could exist. This express agreement negated any potential implication that Fischer was also employed as the seller’s agent.

    Facts

    Fischer, a real estate broker, initiated contact with Premiere in May 1983 regarding the potential sale of Premiere’s property. Negotiations ensued between Premiere and Fischer’s proposed buyer (“the Goodsteins”). These negotiations eventually terminated, and Premiere sold the property to another party. Fischer sought a commission from Premiere, claiming it had procured a ready, willing, and able buyer. However, Fischer had a signed agreement with the Goodsteins stating, “We have acted as your agent in connection with your prospective acquisition of the above premises.” Fischer did not disavow this agreement.

    Procedural History

    Fischer sued Premiere to recover a brokerage commission. Premiere moved for summary judgment, arguing there was no agreement to employ Fischer as their agent. The Appellate Division granted summary judgment dismissing the complaint, concluding that Fischer acted as a mere volunteer and had no right to a commission. Fischer appealed to the New York Court of Appeals.

    Issue(s)

    Whether a real estate broker can recover a commission from a seller when the broker has a signed agreement to act as the buyer’s agent in the same transaction.

    Holding

    No, because the express contract reciting that the plaintiff has “acted as [the buyer’s] agent” in the transaction negates the plaintiff’s contention that it was in fact employed as the sellers’ agent.

    Court’s Reasoning

    The Court of Appeals emphasized that a broker must plead and prove employment by the seller to recover a commission. The court relied on the principle that “[a] contract cannot be implied in fact where there is an express contract covering the subject matter involved.” The court found that Fischer’s explicit, signed agreement to act as the buyer’s agent directly contradicted the claim that an implied agreement existed for Fischer to also act as the seller’s agent. The court reasoned that allowing Fischer to recover a commission from the seller would undermine the express agreement with the buyer, creating a conflict of interest and potentially undermining the integrity of real estate transactions. As the court stated, the contract reciting that plaintiff has “acted as [the buyer’s] agent” in the transaction negates plaintiff’s present contention that it was in fact employed as the sellers’ agent.

  • 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.”