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Houston v. American Home Products Corp.

A-2211-96T5 (N.J. Super. App. Div. 1998) (Unpublished)

BROKERS; COMMISSIONS—A real estate broker’s commission depends on the existence of an agreement. No commission is due if the broker is not the efficient procuring cause of a purchase.

A corporation entered into a contract to purchase a particular site for its new headquarters, but eventually terminated the contract. The company anonymously sought other locations through the use of an intermediary who eventually enlisted a broker’s help. After considering numerous other options, the company entered into a new contract for the purchase of the original site. By negotiating directly with the property owner, the company then tried to avoid paying commission to the broker that aided its intermediary. The real estate broker, who was unaware of the prior contract when he rendered services, sued the corporation for loss of commission, tortious interference with prospective economic advantage, and fraud. The Law Division entered summary judgment against the broker. The company argued that it did not tortiously interfere with the broker’s right to a commission since the broker had no such right to collect a commission in the first place. It also claimed the broker was not the efficient procuring cause of its purchase.

The Appellate Division stated that a broker’s right to commission depends on the terms of the broker’s commission agreement. Here, the only possible agreement was in a letter between the intermediary and the broker in which the intermediary stated that, “a showing of a property to me will protect you from any direct negotiation with the owner of that property or any listing broker by me and by our undisclosed principal.” The Court interpreted this language to mean that if the broker showed a property to the intermediary, and the company became interested as a result, the broker would have a reasonable opportunity to persuade the property owner to agree to a commission agreement. The broker’s leverage in such a situation would be its knowledge of a buyer who was unknown to the seller. Accordingly, a necessary element of the broker’s case is proof that if the company had refrained from direct negotiation with the owner for a reasonable time, the owner most likely would have agreed to pay the broker a commission. In other words, the broker had to show that it is reasonably probable that he would have effected the sale and received a commission but for the wrongful acts of the corporation. Here, the broker could not meet this burden. Additionally, a broker is only entitled to commission if it is the efficient procuring cause of the sale or has introduced a ready, willing and able buyer. Fry v. Doyle, 167 N.J. Super. 486 (App. Div. 1979). The Appellate Division concluded that the broker was not the efficient procuring cause of the purchase because it did not introduce the company to the property. The company had already known of the property. Based on these findings, the Court held that the motion judge properly dismissed the broker’s claim against the company for lost commission and tortious interference.

On the other hand, the Appellate Division held that a jury could conclude that the broker was not told that the corporation was already familiar with the property and that the property was the choice of the corporation’s directors unless the broker found a more suitable location. The Court concluded that this information was material to the terms on which the broker agreed to undertake the search for a different location. The broker was under the impression it was working on commission to find a suitable location, not simply conducting due diligence. An associate of the broker testified that due diligence work was done on a fee basis and that had this information been disclosed, the broker would have acted differently. The Appellate Division stated that if the intermediary purposely failed to disclose facts to the broker that would reasonably have made the broker realize that it unlikely would succeed in earning a commission by “producing” it as the buyer, the corporation committed fraud by omission. Even if the omission was merely negligent, it would be actionable because there was a duty to disclose the fact that the site was a preexisting, tentative selection. In remanding the matter to the lower court, the Appellate Division refused to speculate on the measure of damages or whether the corporation would be liable if it was only vicariously liable (i.e., if it was only the intermediary who failed to disclose these facts).


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