Fourth Court of Appeals Upholds Requirement for Written Commission Agreement
On May 26, 2021, the Texas Fourth Court of Appeals issued its opinion in a case that explored the requirement that a real estate broker’s commission agreement be written and signed. The opinion was authored by Justice Irene Rios in a case entitled Stephen W. Mabery and Damon Thorpe v. MORANI RIVER RANCH HOLDINGS LP, Morani GP LLC, Morani River Ranch LLC, Kevin L. Reid and Stewards of Wildlife Conservation Inc.
The opinion considered the propriety of the Bexar County District Court’s grant of summary judgment against the brokers under section 1101.806(c) of the Texas Occupations Code. This provision is part of the Texas Real Estate License Act (“TRELA”) and states:
A person may not maintain an action in this state to recover a commission for the sale or purchase of real estate unless the promise or agreement on which the action is based, or a memorandum, is in writing and signed by the party against whom the action is brought or by a person authorized by that party to sign the document.
The facts of the case are a little convoluted, but (in my opinion) can be distilled down to the following summary:
- a commercial farm and ranch real estate brokerage that specializes in recreational and hunting properties and/or its individual principals was orally promised a 5% commission if they were able to find a buyer ready, willing and able to purchase it upon terms acceptable to the Ranch’s principal.
- the brokers introduced an individual to the Ranch principal. That individual was interested in purchasing the Ranch through a non-profit organization, but would only be able to do so if a significant contribution was made by a trust..
- A draft contract was issued, and the brokers and ranch principal discussed potential real estate commissions over email. According to the Court “These emails were exchanged prior to, and in contemplation of, the execution of the contract to sell the Ranch to” the non-profit.
- Eventually, the non-profit and Ranch entered into a contract that had attached to it a written brokerage fee/ commission agreement.
- The trust never made the contribution that the non-profit buyer required, and parties failed to close on the contract.
- 3 years later, a majority interest in the Ranch was sold to an entity controlled by the trustee of the trust that didn’t make the contribution to the non-profit under the prior contract.
- upon learning of the sale, the real estate brokers sued the Ranch seeking a 5% brokerage commission on the sale.
The Bexar County District Court denied the brokers’ suit for commissions and granted summary judgment in favor of the Ranch.
The brokers appealed and argued that they produced several writings to satisfy section 1101.806. These writings included the emails, and the commission agreement related to the contract that never closed.
The Court of Appeals began with an analysis of the plain language of the statute.
Next, the Court cited several Texas court holdings interpreting the requirement that a commission agreement be written and signed.
“To comply with this section, an agreement or memorandum must: (1) be in writing and must be signed by the person to be charged with the commission; (2) promise that a definite commission will be paid, or must refer to a written commission schedule; (3) state the name of the broker to whom the commission is to be paid; and (4) either itself or by reference to some other existing writing, identify with reasonable certainty the land to be conveyed.” Lathem v. Kruse, 290 S.W.3d 922, 925 (Tex. App.—Dallas 2009, no pet.); see also Levenson v. Alpert, 399 S.W.2d 955, 956 (Tex. App.—San Antonio 1966, no writ) (holding same requirements to comply with section 1101.806(c)’s predecessor statute). “The essential elements of a commission agreement cannot be supplied by parol evidence.” Boyert v. Tauber, 834 S.W.2d 60, 62 (Tex. 1992).
A defendant moving for summary judgment based on section 1101.806(c) must prove: (1) the plaintiff’s suit is for the recovery of a commission for the sale or purchase of real estate, and (2) the defendant signed no written promise, agreement, or memorandum to pay a commission. See TEX. OCC. CODE ANN. § 1101.806(c); Neary v. Mikob Props., Inc., 340 S.W.3d 578, 584 (Tex. App.—Dallas 2011, no pet.); McKellar v. Marsac, 778 S.W.2d 573, 576 (Tex. App.—Houston [1st Dist.] 1989, no writ). Thus, “[a] seller may defeat a claim seeking payment of a real estate commission by establishing that the seller did not sign an agreement to pay the commission.” NLD, Inc. v. Huang, 615 S.W.3d 444, 450 (Tex. App.—Houston [1st Dist.] 2019, pet. denied).
The court further analyzed the original contract (that never closed) and found that such contract and its attached commission agreement did comply with the statute of frauds.
However, because the original contract did not close, and also because the transaction that closed involved a different (albeit related) buyer, the court determined that the original contract was not controlling.
The case at bar is distinguishable because the buyers are not the same in the 2014 Contract and the 2017 Contract. In this case, the buyer in the 2014 Contract is BFWC. The buyer in the 2017 Contract is Stewards. Ultimately, it was Stewards and Morani River Ranch Holdings, LP that closed on the 2017 Contract. Because the commission agreement in the 2014 Contract was contingent upon a closing between Morani River Ranch Holdings, LP and BFWC, the 2014 Contract does not entitle Appellants to a commission on the 2017 sale to Stewards.
For many years I have urged all real estate brokers and agents to obtain written commission agreements prior to performing any work for a buyer or seller. Unfortunately, real estate professionals frequently fail to do so. Instead, they rely on “trust,” a handshake, a verbal promise, or the MLS.
This case is a fine example of the perils of a broker not securing a concise commission agreement that is signed by the party against whom a commission is to be charged.