Willful default by seller triggers a broker's commission only if valid sale contract exists.

Can a real estate broker claim commissions on a deal where the seller willfully fails to close? Usually, when a seller and purchaser have a contract of sale, the willful failure by the seller to close will not deprive a real estate broker of his or her commission.

However, in order for there to be a "willful default' by the seller which will trigger the broker's commission, there must be a complete agreement to sell the property to the purchaser. Without an agreement to sell there can be no willful default, and as a consequence, no brokerage commission.

Jacob Gold Realty, Inc., a real estate broker, was engaged by Stefan Sckoczylas to sell his home in Brooklyn. A brokerage agreement was entered into between the parties which provided that a commission of $18,000 will be payable to the broker as, if and when title actually closes and the deed is delivered to the purchaser. Should the deed not be delivered for any reason whatsoever, except for the willful default of the seller, there would be no commission due.

A proposed contract of sale was sent to the prospective purchaser, Luis Quintanilla. The contract provided that the purchaser represented that his annual income was in excess of $85,000 and that he had never declared bankruptcy. When the contract was returned to the seller, these two provisions had been stricken. The seller rejected the revised contract and refused to sign it. The seller later sold the house to someone else.

The broker sued for its commissions, maintaining that the seller's refusal to close the deal constituted a "wilful default" under the brokerage agreement. The broker testified at trial that he was told by the seller that he would not go through with the sale because he received threats from his neighbors about the house being sold to a Latino man.

The seller, however, claimed that the sole reason for him backing out of the deal was that when the proposed contract of sale was sent to the purchaser, the purchaser signed it but sent it back with the financial representations crossed out. The seller claimed that these provisions were important to the transaction, since he did not want to take the property off the market unless he was sure that the purchaser was financially able to close. The seller therefore refused to sign the contract with the purchaser.

New York City Civil Court Judge Rolando T. Acosta, who heard this case without a jury, decided in favor of the defendant Sckoczylas and ruled that no brokerage commission was earned.

Judge Acosta stated that in the absence of an agreement to the contrary, a real estate broker will be deemed to have earned its commission when it produces a buyer who is ready, willing and able to purchase the property on the terms offered by the seller. However, in a case such as this, should a broker produce a purchaser who seeks to alter the terms of the sale, financial or otherwise, offered by the seller, such alteration of the terms would be deemed a counter-offer and the broker would not be entitled to a commission, assuming the seller refuses to accede to the new terms.

Notwithstanding these principals however, a broker s right to receive a commission may be expressly circumscribed by an agreement between the broker and the seller, and the commission may be conditioned upon the actual closing of title or any other event to which the parties agree. However, when the broker's right to a commission is conditioned upon an event which does not take place, the broker would not be entitled to a commission.

In this case, the judge said the broker and the seller circumscribed the broker's rights to a commission in a written brokerage agreement which provided for a commission only when title closed, except if as a result of the willful default of the seller. Judge Acosta held that for two reasons, the broker should be denied its commission.

First, there was no written contract of sale between the seller and the purchaser, Quintanilla. As a result of Quintanilla's attempt to change the terms of the contract offered by the seller, and a result of the seller's refusal to accept those changes, no contract was signed by the seller. Since there was no sales contract, the seller cannot be deemed to have defaulted so as to become liable for the broker's commission.

The judge cited a Court of Appeals decision which held that the rule permitting a broker to recover commission if the seller "willfully defaults" applies only if the seller and the broker's prospective buyer had already entered a sales contract, and the seller's "default" within the meaning of the rule would have reference solely to a breach of that sales contract.

Thus, it is well settled that before a broker may properly rely upon "willful default" language in a brokerage agreement, such as the agreement in this case, the broker must demonstrate that a sales contract existed between the buyer and the seller upon which the seller could be said to have defaulted. Since the seller and Mr. Quintanilla did not enter into an enforceable contract for the sale of the house prior to seller's withdrawal from the deal, there could be no willful default by the seller sufficient to the entitle the broker to a commission.

The second reason that Judge Acosta found no brokerage commission to be due was that he found credible the testimony of the seller that his motivation for refusing to go ahead with the sale to Quintanilla was not fear from neighbors, but fear that the prospective purchaser would not have the financial resources to close.

Accordingly, because the broker failed for legal and factual reasons to meet its burden of proving that it earned a commission, Judge Acosta rendered judgment in favor of the seller and declined to award the commission sought (Jacob Gold Realty, Inc., v. Sckoczylas 679 NYS 2d 499 - NY City Civ. Ct 1998).