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.
A broker employed by the owner of a parcel of real estate, in New York City, secured a purchaser who agreed to buy the property at the owner's price, and made a cash deposit thereon on the 10th day of September, 1902. On the 15th day of September, 1902, when the parties met for the purpose of executing the formal contract of sale, the proposed purchaser asked for a reasonable time in which to examine the title before taking the deed. The owner, who was expected to give a warranty deed, consented to grant the necessary time, but insisted, as the time suggested would extend over the date when the taxes would become a lien on the property, viz., October 6th, 1902, the contract should contain a clause requiring the purchaser to pay such taxes. The purchaser refused to assent to insert such clause, and solely because of such refusal the negotiations were terminated. It was held that the owner was not liable and was justified in demanding the insertion of such clause. The broker is never entitled to commission for unsuccessful efforts. The reward comes only with success. He may have introduced to each other parties who otherwise would never have met; he may have created impressions which under later and more favorable circumstances naturally lead to and materially assist in the consummation of a sale; he may have planted the very seeds from which others reap the harvest, but all that gives him no claim. It is part of his risk that, failing himself and not successful in fulfilling his obligations, others might be left to some extent to avail themselves of the fruit of his labors. In such a case the principal violates no right of the broker by selling to the first party who offers the price asked, and it matters not if the sale is to the very party with whom the broker had been negotiating. This, however, must be taken with one important and necessary limitation. If the efforts of the broker are rendered a failure by the fault of the employer; if capriciously he changes his mind after the purchaser, ready and willing and consenting to the prescribed terms, is produced, or if the latter declines to complete the contract because of some defect of title in the ownership of the seller, then the broker does not lose his commission.
One other principle underlying the relationship of owner and broker is, where no time is fixed for the continuance of the employment, either party is at liberty to terminate it at will, subject only to the ordinary requirements of good faith. Usually the broker is entitled to a fair and reasonable opportunity to perform his obligations, subject to the right of the seller to sell independently. This right having been granted him, the right of the owner to terminate the employment is absolute, except that he may not do so in bad faith and as a mere device to deprive the broker of the fruits of his labor. Thus, if in the midst of negotiations, and while the broker is about succeeding in his negotiations, the seller should revoke his authority, with the view of concluding the bargain himself and avoiding the payment of commissions, it might well be said that the due performance of the contract was prevented by the principal, but acting in good faith as above stated, the right to revoke is absolute, otherwise the contract would be extended indefinitely and no man could know when he was freed from the obligation. The leading case upon this subject is - Sibbold vs. Bethlehem Iron Co., 83, N. Y., 276.
If the owner is willing to sell, and requests the broker to bring the purchaser to him, and the latter declines to negotiate through the broker, is the owner at liberty to negotiate with the same purchaser through another broker? The late case of Sampson vs. Ottinger has decided this question in the affirmative. In that case the broker had conversations with the owners and informed them that he had a party willing to purchase the owners' property. The owners requested the broker to bring the intending purchasers to them, in order to settle the terms of the transaction, as there was a building loan to be made. The purchasers declined to have anything to do with the broker or to enter into any negotiations with the owners through this broker, and the broker never produced his parties, but gave to the owners the names of the intending purchasers. The owners never repudiated the employment of the broker and were willing to have him act if he could bring the parties together. This he failed to do, and the owners subsequently, through the efforts of other brokers, came into negotiations with the purchasers and sold the property. Under these circumstances the court held that it could not be said that the owners interfered with the broker, so that the latter could not accomplish the purpose for which he was employed: having been requested to bring the parties together and having failed to do so without any fault on the part of the owners, he failed to perform his contract, and having so failed, the owners were at liberty to negotiate either personally or through other brokers, the purchasers having failed to agree upon terms or have anything to do with the broker. The employer violates no right of the- broker in negotiating directly with a proposed customer, after the broker has failed to bring such customer to specified terms, nor is he liable for commissions under such circumstances if the owner's independent negotiations result in a sale.
We do not mean to hold that the broker must of necessity be present and an active participator in the agreement of buyer and seller when that agreement is actually concluded. He may just as effectually produce and create the agreement, though absent when it is completed, and taking no part in the arrangements of the final details, but it must be through his efforts that the deal is closed. How far the courts have gone in laying down this principle is aptly illustrated in the case of Sibbold vs. Bethlehem Iron Co. The Iron Company employed the broker to sell steel rails to the G. T. R. R. Co. The broker had several interviews with the company, and negotiations were carried on during a period of four months; the Iron Company during this period had fixed its prices several times. The broker received a telegram from the Railroad Company asking upon what terms the Iron Company would deliver rails (1,000 tons); the broker telephoned to the Iron Company asking its lowest terms. The Iron Company declined to fix a price or to negotiate further through the broker, and the latter thereupon telegraphed to the Railroad Company that the Iron Company declined to name a price. The Iron Company thereupon commenced negotiations through another broker, and subsequently a sale was made by the Iron Company to the Railroad Company through this other broker. Upon the trial of the action for the commissions of the first broker, the Court below held that the Iron Company had no right either in good or bad faith to avail itself of what the first broker had done to make a sale through other agencies. On appeal it was held that the Iron Company had the right to terminate the agency as it did, and, if done in good faith, the first broker had no right to compensation, although his efforts were of benefit to the subsequent successful negotiations
In another case, Wylie vs. The Marine Bank, the bank had its building in the market for sale. The plaintiff, the broker, went to one of the officers of the bank and informed him that he had a purchaser; he was informed that the price asked was $80,000 and that if he sold it they would pay commissions. He reported the price to his customer, who authorized an offer of $75,000. This offer was reported to the bank, a meeting of the directors was called, and it was decided to sell at not less than $80,000. This was communicated to the broker, who reported it to the intending purchaser. The latter declined to raise his bid, and the broker so reported to the bank. The following day the purchaser heard, through other sources, that other parties were after the building, and, hearing that one Pond was a dealer with the bank, they procured him to go to the bank and see how matters stood and what he could do; in the meantime the first broker did nothing further in the matter and was unaware of the intrusion of Pond. The latter reported to the purchaser that there was an offer of $77,500, but that nothing less than $80,000 would buy it. The purchaser then authorized Pond to offer that sum, and the deal was closed. The Court of Appeals held that the first broker was not entitled to any compensation.