Last year, we blogged about a case in which a real estate broker alleged she had a verbal exclusive buyer’s broker contract with clients to represent them in connection with the purchase of a new home. The broker filed suit against the clients after they bought a home using a different brokerage agency.
The Plaintiff, real estate broker Huang, alleges that Defendants Sun and Ma entered into an oral contract with Plaintiff and her wholly owned brokerage firm in connection with Sun and Ma’s efforts to purchase a home in Winchester, MA. Huang alleged that she agreed to serve as their exclusive real estate buyer’s broker for one year in exchange for a commission on the purchase price of their new home. She further alleged Sun and Ma agreed to refer any properties they located to Huang and alert other real estate brokers to their agreement. Huang alleges she performed a substantial amount of work on behalf of Sun and Ma. However, in February 2017, they located a home without assistance of Huang, contacted the seller without informing her or notifying her about the listing, failed to tell the seller’s agent they were represented by a buyer’s broker and ultimately used an agent from the seller’s brokerage firm to purchase the home. After their offer on the home was accepted, Sun and Ma sent Huang an Amazon gift card with an email, thanking her for her efforts and terminated the relationship.
Huang sued Sun and Ma for breach of contract, and Sun and Ma moved for summary judgment on grounds that the parties’ verbal agreement violated the Statute of Frauds was, thus, unenforceable. The Trial Court allowed Sun and Ma’s motion and dismissed the case.
The first stage of the parties’ appeal of that dismissal is discussed here. In that appeal, the Appeals Court vacated the dismissal on grounds that there is an express exemption to the Statute of Frauds for licensed real estate brokers acting in their professional capacity. It also held that the remedy for breach of an exclusive real estate buyer’s broker contract, like other contracts, is the payment of “expectation damages,” which in this case would have been Huang’s lost commission. One judge dissented, arguing that, as a matter of law, a broker may not recover a commission on a sale in which she played no role and, consequently, Huang could only recover the commission if the parties’ agreement explicitly provided that she would receive a commission regardless of whether she played a role in bringing about the transaction.
The Supreme Judicial Court (SJC) granted further appellate review “to clarify the law in cases involving breach of an exclusive real estate broker agreement.” The SJC confirmed that “a real estate brokerage contract need not be in writing to be enforceable.” It concluded that Huang’s claims, if proven at trial, would constitute an enforceable contract and a breach thereof by Sun and Ma and, thus, gave Huang a right to expectation damages. Turning to the issue of damages, the SJC pointed out that “[i]t is a fundamental principle of contract law that, in the event of breach, the injured party should be put in the position they would have been in had the contract been performed, if possible.” In this case, under the principal of expectation damages, if Sun and Ma had not breached the agreement and had notified Huang of the home they intended to purchase, Huang would have earned a commission on the purchase of the home. Thus, her damages for Sun and Ma’s breach would be the lost commission. In addition, the SJC distinguished the cases on which the dissenting Appeals Court justice had relied and specifically declined to adopt a rule that would have precluded such expectation damages unless the parties’ agreement included a clear statement that the broker was entitled to receive a commission regardless of whether she played any rule in the transaction. The SJC reversed the Trial Court’s order granting summary judgment and remanded the case for further proceedings.
This case illustrates the pitfalls that may arise when parties do business without a written contract that clearly defines their respective rights and obligations. For more information about our real estate litigation practice, please visit our real estate litigation page.