This section is from the book "Practical Real Estate Methods For Broker, Operator & Owner", by Thirty Experts. Also available from Amazon: Practical Real Estate Methods for Broker, Operator, Owner.
At first sight it would appear that this proposition is a very simple one, and about which there ought not to be much dispute. A perusal of the numerous cases reported in the law reports on this subject will readily convince one that the question of employment has been the cause of very fruitful litigation. It may be asked, How does this condition of affairs arise? The answer thereto is that the eagerness of the broker to effect a sale ofttimes makes him lose sight of the first necessary step to be taken to insure his compensation. It is a fundamental and well established rule of law that the employment of a broker in case of a dispute must be proved either by a direct employment or by proof of such circumstances as will imply a contract of employment. It is not enough for a broker to go to an owner and tell him that he has a customer willing to purchase his property, get the terms and price and then proceed to effect the sale. Judge Woodruff, in the case of Pierce vs. Thomas, 4 E. D. Smith, 354, concisely states the legal principles involved: "To entitle a broker to recover commissions for effecting a sale of real estate, it is indispensable that he was employed by the owner to make the sale. A ratification of his act, where original employment is wanting may in some instances be equivalent to an original retainer, but only where there is a plain intent to ratify. An owner cannot be enticed into a liability for commissions against his will. A mere volunteer without authority is not entitled to commissions, merely because he has inquired the price which an owner asks for his property and has then sent a person to him who consents to take it. A broker has no better claim to recover for voluntary service rendered without employment and not received and acted upon by the owner as rendered in his behalf, than any other volunteer."
An interesting case on this subject is one involving the sale of the premises at the northwest corner of Broadway and Thirty-fourth Street, being the small parcel adjoining Macy's. This was sold for three hundred and seventy-five thousand dollars. The broker negotiating the sale called upon the agents of the owner, who was in Europe, and informed the agent that he had a party who was interested in the property and desired to purchase it. He offered three hundred and twenty-five thousand dollars for it, which the agent declined, and told the broker that nothing less than three hundred and fifty thousand dollars would be considered, and for the broker to put his offer in writing, and that upon the owner's return from Europe the offer would be submitted. Upon the owner's return the parties met, and the owner demanded three hundred and seventy-five thousand dollars, and the broker accepted the same and the transaction was consummated and the deed delivered. The owner declined to pay any commission, claiming he had not employed the broker, that the latter acted voluntarily and was the agent of the purchaser. The Higher Courts sustained the contention of the owner, and the broker, through his failure to ask whether the owner would pay commission, which he, no doubt, would have agreed to, was out $3,750.
It is very difficult to define exactly what circumstances will raise the presumption of an implied contract, where an express contract is not shown. If the owner recognizes the claim by offering a less amount, the broker would be entitled to recover, and it may be laid down as a general rule that any act upon the part of the owner recognizing the claim is sufficient to raise the presumption of an implied contract to pay. Proof of a general custom on the part of owners to pay commissions in the absence of an express contract, so to do, is not sufficient to establish the liability of the owner. Such a custom cannot fasten upon a property owner any liability as the employer of a broker simply because he consents to sell his property to someone and is induced to sell it through the agency of the broker without any request express or implied on the part of the owner. This was expressly decided in the case of Brady vs. American Machine Co., 86 App. Div. Rep., 267. You will, therefore, see the importance of the first step in undertaking negotiations to get an unequivocal promise to pay the commissions. Another element of uncertainty has arisen of late which makes the vocation of the broker far from a pleasant one and which impedes his efforts with entanglements and difficulties. Assuming that he has received an express promise, he is met with the further obstacle that the owner never authorized the broker in writing to offer the property. In 1901 an Act was passed making it a misdemeanor for the broker to offer the property of an owner, unless the authority so to do is given in writing, this to apply to cities of the first and second class only and not the rest of the State.
This Act is highly penal in its nature; its enactment was no doubt caused by the numerous suits brought by unscrupulous persons, claiming to have acted for the principal, and by reason of the frequency of false swearing in court, in order to obtain the compensation. There, no doubt, was much reason and provocation for its enactment, but, in my opinion, the prevention of the evil complained of could have been accomplished in a manner much more efficient and without causing the serious consequences entailed, by passing a statute similar to the one existing in New Jersey, where the promise to pay must be in writing.
The Act as it now stands has caused as much litigation as its passage endeavored to prevent. As matters now stand the Appellate Court in the Second Department has declared the Act to be unconstitutional, while the Appellate Division in this Department has declared otherwise. As the Act is a penal one, it will be strictly construed. It is not necessary that the authority required by the Act should be in any prescribed form. Any memorandum from which such authority can be spelled out will be sufficient. A card or other memorandum upon which the owner has set forth the price, terms and dimensions, however informal, will be sufficient, without setting forth in express terms the authorization.