No Commission from a Stone

If the broker doesn't get paid, neither will you.

February 1, 2009

A Utah court has determined that a real estate salesperson could not claim a portion of a commission that her former brokerage had been unable to collect from a seller.

In the case, Young v. Wardley Corp., Utah Court of Appeals, 2008 (REALTOR.org login required), a salesperson had secured a buyer for a property listed with her brokerage. At closing, however, the buyer and the seller agreed to cut the brokerage's commission in half, despite the salesperson's protests.

The brokerage filed a lawsuit against the seller to collect the remaining commission, but after conducting an asset search, learned that the seller was insolvent. At that point, the brokerage stopped trying to collect the unpaid portion of the commission.

Dissatisfied, the salesperson—who was no longer working with the brokerage—sued the brokerage for her portion of the unpaid commission. She contended that the brokerage had breached an implied covenant of good faith and fair dealing by not taking additional actions to collect the commission.

The case was dismissed by the trial court, but the salesperson appealed. The Utah Court of Appeals upheld the decision of the trial court, rejecting the salesperson's argument for several reasons.

First, the independent contractor agreement between the salesperson and the brokerage provided that the salesperson was entitled only to commissions that the brokerage actually collected. Thus, the brokerage had not breached the agreement by not paying uncollected revenues.

Secondly, the independent contractor agreement gave the brokerage exclusive ownership of the listing, so it was the brokerage's right to decide whether to pursue the collection.

Finally, the brokerage had made an effort to collect the unpaid commission before learning of the seller's insolvency.

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