It has been the general rule of law that a broker is entitled to his commission when the contract of sale is signed by buyer and seller. In accepting the purchaser, the seller has approved the buyer, and should the latter later refuse to consummate the deal, the burden is upon the seller to enter suit to compel the buyer to perform. A case of great importance, which rejects the premise that the owner is liable to the broker for commission, where the buyer defaults, is the case of Ellsworth Dobbs, Inc. v. Johnson (owner) and larussi (buyer), 50 N.J. 528. In joining the buyer as defendant, the broker charged the buyer with breach of an implied agreement to pay the commission if he failed to complete the purchase and thus deprived the broker of commission from the seller. The trial judge held, as a matter of law, that the broker’s commission vested upon execution of the contract of sole, and the commission was not dependent upon the closing of title. The jury found for the broker in the amount of $15,000 against the owner. Upon appeal, the appellate court said:
“Corbin notes that there has been immense amount of litigation over .e years with respect to the commissions of land brokers I Corbin on Contracts 50 (1963). Almost a century ago, the former Supreme Court ruled that when a broker who hod been duly authorized by the owner to find a buyer for his property produced a willing and able purchaser who entered into a contract to buy on terms agreeable to the owner, the broker had fulfilled his undertaking and his right to commission from the owner was complete …
There can be no doubt that ordinarily when on owner of property lists it with a broker for sole, his expectation is that the money for the payment of commission will come out of the proceeds of the sole. He expects that if the broker produces a buyer to whom the owner’s terms of sole are satisfactory, and a contract embodying those terms is executed, the buyer will perform, i.e. he will pay the consideration and accept the deed at the time agreed upon. Considering the realities of the relationship created between owner and broker, that expectation of the owner is a reasonable one, and, in our view, entirely consistent with what should be the expectation of a conscientious broker as to the kind of ready, willing and able purchaser his engagement calls upon him to tender to the owner.
The present New Jersey rule as exemplified by the cases cited above is deficient as an instrument of Justice. It permits a broker to satisfy his obligation to the owner simply by tendering a human being who is physically and mentally capable of agreeing to buy the property on mutually satisfactory terms, so long as the owner enters into a sale contract with such person. The implication of the rule is that the owner has the burden of satisfying himself as to the prospective purchaser’s ability, financial or otherwise, to complete the transaction; he cannot rely at all on the fact that the purchaser was produced in good faith by the broker as a person willing and able to buy the property. Once he enters into a contract of sale with the broker’s customer, he is considered to have accepted the purchaser as fully capable of the ultimate performance agreed upon. If it later appears that the purchaser is not financially able to close the title, or even that he never did have the means to do so, the owner must pay the broker his commission, so long as he acted in good faith, Such a rule, considered in the context of the real relationship between broker and owner, empties the word “able’. of substantially all of its significant content and imposes an unjust burden on vendors of property. It seems to us that fairness requires that the arrangement between broker and owner be interpreted to mean that the owner hires the broker with the expectation of becoming liable for a commission only in the event a sale of the property is consummated, unless the title does not pass because of the owner’s improper or frustrating conduct …
Thus when the broker produces his customer, it is only reasonable to hold that the owner may accept him without being obliged to make on independent inquiry into his financial capacity. That right ought not to be taken away from him, nor should he be estopped to assert it, simply because he “accepted” the buyer . . . In a practical world, the true test of a willing buyer is not met when he signs an agreement to purchase; it is demonstrated at the time of closing of title, and if he unjustifiably refuses or is unable financially to perform then, the broker has not produced a willing buyer …
Study of the problems involved in this case in light of the above considerations leads us to the following conclusions as to what the controlling rule should be in New Jersey: When a broker is engaged by an owner of property to find a purchaser for it, the broker earns his commission when (a) he produces a purchaser ready, willing and able to buy on the terms fixed by the owner, (b) the purchaser enters into a binding contract with the owner to do so, and (c) the purchaser completes the transaction by closing the title in accordance with the provisions of the contract. If the contract is not consummated because of any other default of his, there is no right to commission against the seller. On the other hand, if the failure of completion of the contract results from the wrongful act or interference of the seller, the broker’s claim is valid and must be paid. In short, in the absence of default by the seller, the broker’s right to commission against the seller comes into existence only when his buyer performs in accordance with the contract of sole . . .
The rules which we have set down above to govern dealings, rights, and duties between brokers and owners are necessary for the protection of property owners, and constitute the public policy of our State …
This Court has held that when a prospective buyer solicits a broker to find or to show him property which he might be interested in buying, and the broker finds property satisfactory to him which the owner agrees to sell at the price offered, and the buyer knows the broker will earn commission for the sale from the owner, the low will imply a promise on the part of the buyer to complete the transaction with the owner. If he fails or refuses to do so without a valid reason, and thus prevents the broker from earning the commission from the owner, he becomes liable to the broker for breach of the implied promise. The damages chargeable to him will be measured by the amount of commission the broker would have earned from the owner.”
-Narello News
This article came from the June 1970 Vol1-2 edition of the bulletin.