Real Estate Commission Disputes Frequently Turn on Sufficiency of Written Agreements

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

As a real estate lawyer in San Antonio, Texas who frequently represents Buyers, Sellers, Brokers and Agents involved in real estate transactions, disputes over commissions are commonly encountered in my practice.  Almost always, the outcome of these commission disputes turn on the existence and sufficiency of a written agreement for the payment (or split) of commissions.

Perhaps the most unfortunate of commission dispute cases arise when a broker or agent has, on behalf of a Seller, located and secured a Buyer who closes (i.e. the Broker is the "procuring cause" of the sale) but that broker has never entered into a formal, written commission agreement with the Seller. In those cases, the Seller has willingly accepted, and benefitted from the broker's services; yet, despite this performance, the Seller refuses to pay a commission based upon the absence (or deficiency) of a written agreement. These cases are unfortunate because the unappreciative Seller very likely might get away without paying the broker for his services.

Chapter 1101 of the Texas Occupations Code (the "RELA") speaks directly to the enforceability of commission agreements, and mandates that 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." Tex. Occ. Code Ann. § 1101.806(c). To comply with this provision, the memorandum or agreement 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.). Moreover, the Texas Supreme Court has cautioned that the statutory requirements are "clear and unequivocal" and that courts should construe them strictly. Trammel Crow Co. No. 60 v. Harkinson, 944 S.W.2d 631, 636-37 (Tex. 1997) (construing predecessor statute that was nearly identically worded and warning that if broker proceeds without written agreements, he "does so at his or her own peril"). 

San Antonio's Fourth Court of Appeals has been even more succinct in its interpretation:  "Strict compliance with RELA is required; the agreement to pay a real estate commission must be in writing or it is not enforceable." Brice v. Eastin, 691 S.W.2d 54, 57 (Tex.App.-San Antonio 1985, no writ). But a writing, alone, is generally not sufficient if such writing fails to meet ALL of the RELA's criteria. 

When RELA applies and its requirements are not met, courts have also denied recovery under other, related causes of action, including fraud, conspiracy, deceit, quantum meruit, and breach of contract. McKellar v. Marsac, 778 S.W.2d 573, 575 (Tex.App.-Houston [1st Dist.] 1989, no writ). 

When RELA applies and its requirements are not met, courts have denied recovery for companion claims for fraud, conspiracy, deceit, quantum meruit, and breach of contract. McKellar v. Marsac, 778 S.W.2d 573, 575 (Tex.App.-Houston [1st Dist.] 1989, no writ). Similarly, in Trammell Crow Co. No. 60 v. Harkinson, 944 S.W.2d 631, 634 (Tex.1997) a broker's claim against lessors for tortious interference with an exclusive representation agreement with lessees, was rejected as "wholly derivative of [broker's] unenforceable oral commission agreement" and "translates only into the loss of the expectancy of receiving a commission at the end of the lease negotiations"). A broker "cannot do indirectly what the law says he cannot do directly." 

However, some exceptions have been recognized, but only where a signed, written commission agreement exists and contains only minimal defects.  For example, the Dallas Court of Appeals applied the "partial performance doctrine" in a RELA statute of frauds case where the broker's written commission agreement lacked only a precise identification of the property. After reviewing the "well-recognized" partial performance exception to the general statute of frauds, that Court observed, "When one party fully performs a contract, the Statute of Frauds may be unavailable to the other party if he knowingly accepts the benefits and partly performs." Id. at 40. However, the Court was careful to limit its decision to the holding that under the doctrine of partial performance a written real estate commission agreement that failed to describe the property with precision may be enforced by the broker notwithstanding RELA's statute of frauds when: (1) the broker has fully performed; (2) the other party has knowingly accepted the broker's services by completing the transaction arranged by the broker and receiving benefits from that transaction; (3) the other party has acknowledged in writing his obligation for a commission; and (4) documentary evidence establishes the amount of the commission due. Id. at 41-42; see Collins v. Beste, 840 S.W.2d 788, 792 (Tex.App.-Fort Worth 1992, writ denied). 

These exceptions are not universally recognized. See Harkinson, 944 S.W.2d at 636 ("We consistently have refused to erode [RELA's statute of fraud provision] with the same exceptions as may render oral contracts within the general statute of frauds enforceable."); Boyert v. Tauber, 834 S.W.2d 60, 63-64 (Tex.1992) ("Allowing a broker to recover on the ground of his performance alone would permit enforcement of any commission agreement fully performed by the broker whether or not it complies with [RELA].")

Commission disputes can be (and usually are) highly emotional and  volatile. The outcome of these disputes can be decided on subtle nuances in written documents. 

When confronted with a dispute over who should be paid a commission, and in what amount, a Seller, Buyer, Broker and/or Agent would be well advised to contact a real estate lawyer who is experienced with the RELA, the statutes of fraud, and general real estate litigation.