Exceptions to Requirement of Signed, Written Real Estate Commission Agreement Are Extremely Narrow

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

Back in October, I wrote a post on this blog discussing the requirement that commission agreements be in writing and signed before they may be enforced by Texas courts.  Since that time, I have received several inquires -- primarily from commercial real estate  brokers --  concerning whether there exist exceptions to this general proposition.  The short answer is:  "Not really, and where they do exist, the exceptions are extremely narrow."

THE LAW

As previously discussed, the Texas Real Estate Licensing Act ("RELA"), which is codified in the Texas Occupations Code 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). This requirement of a writing evidencing the commission agreement is often referred to as RELA's "statute of frauds."

Texas courts have routinely held that 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." 

See 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 mandated 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").

THE EXCEPTION(S)

There do exist a few Texas cases in which courts have applied an exception to the general rule, but in each of those cases, there existed some signed writing between the parties to evidence a commission agreement.  

Notably, an exception has not been employed to excuse the complete absence of a written commission agreement, or to establish the amount of a commission not memorialized in a commission agreement. See Parkinson, 944 S.W.2d at 635 (explaining that statute requires a written commission agreement because "[t]he obligation to pay and the amount of that commission are subject to misrepresentation"). Thus, the exceptions are very narrow in scope.

PARTIAL PERFORMANCE DOCTRINE

In Carmack v. Beltway Dev. Co., 701 S.W.2d 37, 41-42 (Tex. App.-Dallas 1985, no writ) the Dallas Court of Appeals applied the "partial performance doctrine"  in requiring a development company to pay a commission to a broker who located a commercial tenant for a developer-owned property. In that case, the developer had signed a written commission agreement that lacked only a precise identification of the property.  After reviewing the "well-recognized" partial performance exception to the general statute of frauds, the 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. 

The Carmack court expressly noted that "documentary evidence exists establishing the existence and terms of the agreement" between the broker and  developer, and that "the [written] commission agreement, itself, establishes: (1) that the broker fully performed its obligation by procuring a tenant for property, (2) the developer/property owner acknowledged his reciprocal obligation to pay the commission, and (3) the exact amount of commission is determined by reference to the rentals provided in the lease.

Thus, the Carmack court carefully limited its holding to provide only that under the "doctrine of partial performance," a written real estate commission agreement that fails 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. 

Similarly, in Collins v. Beste, 840 S.W.2d 788, 792 (Tex. App.-Fort Worth 1992, writ denied), the Ft. Worth Court of Appeals was confronted with a commission dispute arising from a series of terminated written agreements, whereunder Beste was hired to provide leasing and marketing services for Collins' real estate properties. In that case, Collins contended that the employment/commission contracts violatde the statute of frauds because the commission amounts and the properties' legal descriptions were not contained in a single writing.

Relying on the doctrine of partial performance the Court ruled that Beste had established an exception to the statute of frauds, because: Beste fully performed; Collins accepted the sales and received benefits from them; Collins signed the commission agreement; and the employment agreement specified the commission amount. 

CONCLUSION

Ultimately, an exception to RELA's statute of frauds will only be recognized where there exists evidence establishing the existence of an agreement and its terms, and that the party acting in reliance on the contract would suffer a substantial detriment for which he has no adequate remedy, and the other party, if permitted to plead the statute of frauds, would reap an unearned benefit. An exception will not be recognized in circumstances where no written agreement exists (at all) and/or where an agreement fails to state with reasonable certainty the amount of the commission to be paid.

Brokers are well advised to obtain signed commission agreements with their clients at the outset of the relationship, and to keep those agreement current (through amendments, extensions and otherwise).