Ellsworth Dobbs, Inc. v. Johnson

Brief Fact Summary.

Plaintiff refused to pay commission when the property sale transaction was not completed because Iarussi was unable to obtain necessary financing. Plaintiff sued Defendant and Iarussi, the potential buyer, to collect commission.

Synopsis of Rule of Law.

Absent some wrongful act by the seller, the broker earns his commission when: 1) he produces a purchaser that is ready, willing, and able to buy on the agreed terms; 2) the purchaser enters into a binding contract with the owner; and 3) title is closed.

Facts.

As Johnson’s (Defendant) broker, Ellsworth Dobbs, Inc. (Plaintiff), produced Iarussi to execute a purchase agreement with Plaintiff. Title did not close because Iarussi was unable to obtain the necessary financing. Plaintiff sued Defendant and Iarussi to collect commission. The trial court ruled in favor of Plaintiff, holding that Plaintiff’s right to the commission vested upon the execution of the contract, whether the sale was completed or not. The court of appeals reversed and ordered a new trial before a jury. Plaintiff appealed.

Issue.

Whether absent some wrongful act by the seller, the seller is liable for the broker’s commission in the event the sale is not completed.

Held.

No. Absent some wrongful act by the seller, the broker earns his commission when: 1) he produces a purchaser that is ready, willing, and able to buy on the agreed terms; 2) the purchaser enters into a binding contract with the owner; and 3) title is closed.

Discussion.

Plaintiff has not earned a commission if the transaction fails due to the buyer’s fault. A buyer is truly willing and able, if the sale is completed, not if the buyer signs the contract of sale. If the contract is not completed due to buyer’s refusal or inability to perform, then the broker has not produced a buyer who is willing or able. Moreover, any contract to the contrary violates public policy and is unenforceable if there is also substantial imbalance of bargaining power. However, a prospective buyer impliedly promises to complete the transaction if: 1) he enlists a broker to find a suitable property; 2) the broker does so; 3) the principal agrees to the terms; and 4) the buyer knows the broker will earn commission from the owner. Under those circumstances, if the buyer fails or refuses to complete the contract without a valid reason, he is liable to the broker for breach of an implied promise. Here, Plaintiff is not entitled to a commission because there is no sale and the failure of the transaction was not due to any wrongful conduct on Defendant’s behalf.