RIGHTS OF AGENT REGARDING A PRINCIPAL, AN OVERVIEW

RIGHTS OF AGENT REGARDING A PRINCIPAL, AN OVERVIEW

1. Compensation - Performance Required Under Employment Contract

Generally

To be entitled to a commission the broker must (l) produce a buyer ready, willing and able to purchase upon the
terms and at the price stipulated by the seller or (2) secure from the prospective buyer a binding contract upon
terms and conditions which the seller subsequently accepts.

In the first situation, the real estate broker's right to compensation is based upon the broker's written
employment contract (listing). The listing agreement requires that the broker be the procuring cause of an offer
by a buyer ready, willing and able to purchase on the seller's listing terms. A ready and willing buyer generally
denotes one who is prepared to enter into a binding unconditional contract while an able buyer is one who has
the financial ability to obtain the funds necessary to consummate the transaction at the proper time.

From the broker's standpoint, a listing agreement is very much result oriented. The broker's right to a
commission is in no way dependent upon, nor is it affected by, the amount of work put into finding a buyer
ready, willing and able to purchase and in negotiating the "meeting of the minds" of buyer and seller. By the
same token if the broker expends no time and effort on behalf of the principal and yet is able to produce a buyer
who is ready, willing and able to purchase on the terms specified in the listing contract, the broker has earned a
compensation.

Payment of Compensation May Be Dependent on Any Lawful Condition

The payment of a commission under a listing contract may be made dependent upon any lawful condition. A
seller may be relieved from the obligation to pay a commission if it appears from the language of the contract
that the payment of a commission was contingent upon the happening of a condition that did not occur. The
burden is upon the broker to establish that he or she has earned a commission by fulfilling all of the conditions
of the contract. If the fulfillment of a condition is prevented by the fraud or bad faith of the seller, or through
collusion between the seller and other parties, the broker may recover compensation even if the condition has
not been met.

The amount or rate of compensation may not be part of a printed or form agreement for sale of residential real
property comprised of four units or less or the sale of a mobile home. Such agreements must contain a 10-point
boldface type notice that real estate commissions are not fixed by law and may be negotiated. The wording to
be used is set out in Business and Professions Code § 10147.5.

If Broker Performs Within Time Limit Broker is Entitled to Commission

Revocation of a broker's authorization cannot operate to deprive the broker of the compensation contracted for
or its equivalent in damages, for nonperformance of the owner's contract if, within the time specified in the
listing agreement, the broker has found a customer ready, willing and able to purchase upon the price and terms
in such contract. The principal will not be relieved from liability by a capricious refusal to consummate a sale
where the principal's voluntary act precludes the possibility of performance on the principal's part. This is
based upon the familiar principle that no one can avail himself or herself of the nonperformance of a condition
precedent who has occasioned its nonperformance. It is well settled that a principal cannot discharge an agent
pending negotiations by the agent with a prospective customer, then effect a sale to the customer, without
liability to the agent.

When the listing contract is for a definite period, and there is a valuable consideration extending from the
broker, e.g., a promise to use due diligence in locating a person ready, willing and able to purchase, the contract
is binding upon the seller as soon as executed. The agent cannot be prevented from earning a commission
within the period of the appointment by revocation of the broker's authority. However, the distinction must be
made between the power to revoke and the right to revoke.

If the principal no longer desires to have the agent act for the principal, then principal has the power to revoke
the agency at any time. Should the principal revoke the agency, the principal breaches the promises under the

listing contract and may be liable to the broker for the payment of a commission. The principal may revoke the
agency without liability, if it can be proven that the agent failed in the duty to use due diligence, or has breached
the fiduciary duties owed by the agent to the principal.

Agreements Between Brokers

An agreement between brokers cooperating in the sale of real property for a division of the fees or commissions
is neither illegal nor against public policy. It will be construed and enforced the same as other contracts not
required to be in writing, but no partnership or joint venture is created by such an agreement between the
cooperating brokers in their endeavors to sell real property listed with one of them.

In the case where a cooperating broker has been the procuring cause of the sale and this broker's services are
completed, this broker may be entitled to recover the selling broker's share of the commission from the listing
broker. In the case where the original broker fixed the compensation at a certain sum, the original broker
cannot deprive the assisting or cooperating broker of a portion of the commission by settling with the principal
for a lesser sum.

There is an implied warranty that the owner will pay the amount of the commission as specified, and the
original broker is liable to the other broker for the other broker's portion regardless of what the original broker
settles for, unless the consent of the assisting broker is obtained. The listing broker is liable to the cooperating
broker for the payment of the commission only if the listing broker has received a commission from the seller.
If an agreement for the division of a commission has been abandoned by the cooperating broker, the listing
broker may then sell the property without being liable to the other broker for a share of the commission earned.

Right of Principal to Secure Buyer

Where the listing is an open one, the sale by the owner of the property to a person who has not been referred to
the owner by the broker does not violate the listing agreement and creates no liability to the broker on the part
of the principal. Where there is no termination date in an open listing, the owner may not seek to take
advantage of a failure on the part of the broker to produce the person willing to purchase on the terms of the
listing by attempting to deal directly with the agent's prospect.

An agency contract which provides that the agency is irrevocable for a fixed time does not prevent the owner
from selling the property within that time to a person with whom the agent has had no prior negotiations.

Commission Negotiable Between Principal and Broker

The amount of commission is set out in a broker's contract of employment. In the absence of any evidence of
incapacity to read or any fraud to prevent the reading or understanding of the agreement to employ and pay
compensation, the party signing the written contract is bound by its express terms and conditions. Ordinarily,
the compensation of the broker is negotiated at a certain percentage of the purchase price obtained by the
owner. If no amount of compensation is mentioned in the contract of employment, the law implies a promise
on the part of the owner to pay the usual or customary commission charged in the neighborhood for like
services.

If the owner accepts an offer procured by the broker at a price which is less than the price specified in the listing
agreement, both the listing agreement and the deposit receipt usually expressly provide for the payment of a
commission to the broker.

2. Listing Agreement - No Deposit Receipt Contract. When Agency Is Executed

A broker has earned a commission when, within the life of the contract, the broker has fulfilled the terms of the
agency contract. As stated before, a buyer produced must be ready, willing and able to purchase upon the terms
and conditions specified by the owner. The readiness and willingness of a person to purchase real property may
be shown only by an offer to purchase from that person. Unless such person has made an offer to the seller to
enter into such a contract, this person cannot be considered as a person ready, willing and able to buy. The
buyer and seller must be brought into communication with each other. Merely putting a prospective purchaser
on the track of property which is on the market does not entitle the broker to the commission contracted for and,
even though a broker opens negotiations for the sale of the property, the broker will not be entitled to a
commission if the broker ultimately fails to induce the prospective buyer to make an offer on the property. This

is true even though the owner may subsequently sell the property to the person originally produced by the
broker at the price and upon the terms at which it was originally offered for sale.

The obligation assumed by the broker is to achieve a "meeting of the minds" of the buyer and seller as to the
price and other terms for the transaction. Thus, if a valid contract is executed by seller and buyer, the broker is
entitled to a commission even though the sale is never consummated.

Seller Responsible When Seller Negotiates Contract

A seller who negotiates the terms of the contract bears the responsibility for its form and contents. The broker
does not lose a commission if, after producing a buyer who is ready, willing and able to purchase on the terms
set forth in the listing agreement, an unenforceable contract is entered into through the mistake, inadvertence or
ignorance of the seller. If the seller undertakes alone to complete the contract, the broker is discharged from
any responsibility and the seller is estopped to deny the broker's commission claim on the ground that the
contract is unenforceable. (Business and Professions Code § 10147.5 for Negotiability and Notice
Requirements for commission agreements.)

Broker Who First Produces A Ready, Willing and Able Offeror Is the Procuring Cause

Where the listing is open, the broker who first produces a customer who is ready, willing and able to buy in
accordance with the listing is the procuring cause of the sale, and is entitled to the commission therefor. As
soon as a broker has found a buyer, it is the broker's duty to notify the principal. Where the listing is an open
one, the seller may accept the first satisfactory offer presented.

There is no duty on the part of the seller to ascertain whether the agent who presented the offer was the
procuring cause unless the seller has notice that another broker was the procuring cause. The seller may accept
an offer which does not conform to the terms of the listing agreement and will ordinarily be liable to pay a
commission to the broker who has presented the offer under the terms of the contract executed.

The owner is entitled to a reasonable time within which to investigate the financial responsibility of the
proposed purchaser before accepting the purchaser as such. If the offeror presented by Broker A decides not to
enter into a contract, but is thereafter induced by Broker B or another person to enter into the contract on
substantially the same terms that offeror originally declined, Broker A is not entitled to a commission under the
theory that Broker A is the procuring cause of the sale. On the other hand, Broker A is the procuring cause of
the sale if Broker A has negotiated a "meeting of the minds" of offeror and offeree notwithstanding the fact that
the written contract for the sale of the property is executed through negotiations by Broker B.

Seller Interference With Competing Agents Under Open Listing

Where competing brokers are endeavoring to negotiate a contract under an open listing, the agents must be
permitted to act freely and independently of each other without interference by the owner. Where there is
freedom and independence of action on the part of the agents, the owner is under no obligation to the agent who
was unsuccessful in effecting a contract for the sale of the property. The owner, on the other hand may not
avoid the payment of a commission by personally negotiating a contract with a prospect produced by the agent
on terms and conditions substantially similar to those offered through the agent.

3. Deposit Receipt Contract - No Listing

On occasion the only written agreement containing a promise to pay a commission to the broker is in the
contract to purchase between buyer and seller. To protect a right to a commission, the broker should attempt to
obtain a separate agreement for the payment of a commission, even if the listing is written up to terminate
within hours after an offer is presented. If a seller refuses to enter into such a separate agreement, the broker
will have to rely upon the deposit receipt and purchase agreement. Where this occurs, a question may arise on
the seller's obligation to pay a commission if the sale of the property is not consummated.

Whether there is an enforceable obligation on the part of the seller will often depend upon the wording of the
commission clause in the deposit receipt and purchase agreement. Business and Professions Code § 10147.5
sets out the form to disclose negotiability of commission amounts which notice must be provided to the
principal at the time commission agreements are executed. Whichever form agreement - listing or deposit
receipt - initially establishes, intends to establish, or alters the terms of a previously established right to

compensation by a licensee, it must contain the specified information regarding the negotiability of commission
amounts.

4. Both Listing Agreement and Deposit Receipt Contract

The broker's recovery of a commission is based upon the employment contract (listing). The execution of the
contract to sell is nevertheless significant in that it evidences the fact that the agent has produced an offer that is
acceptable to the owner.

5. Exclusive Listings

An additional basis for the recovery of compensation by the broker is provided where the listing is either an
exclusive agency or exclusive right to sell. In these cases the broker need not necessarily comply with the
performance requirements set forth under (2), (3), and (4), above. If the broker is prevented from performing
under an exclusive contract as the result of a sale by the owner or through another agent or through the
withdrawal of the property from the market by the owner, the broker will ordinarily be entitled to a commission
under the listing agreement.

6. Sale to Broker's Prospect After Termination of Listing

To recover a commission under a listing contract, the broker must have produced an offer satisfying the terms
of the listing contract within the time limit of the listing. The broker's negotiations during the life of a listing
with a prospect who ultimately purchases the property does not necessarily entitle the broker to a commission.
Special circumstances may nevertheless dictate that the agreed commission be paid to the broker.

For example, where the sale is consummated directly by the buyer and seller after the expiration of the listing
on the same terms as proposed through the broker, or with only a price reduction to the buyer, there is every
reason to believe that the broker was the procuring cause of the sale. Accordingly, the broker should be entitled
to the agreed compensation for these services.

The broker may also protect his or her commission by a so called protective or savings clause in the listing
agreement. Under this clause, the seller agrees to pay a commission to the broker if the property is sold within a
period of so many days after expiration of the listing to a person with whom the broker negotiated while the
listing was in effect. Ordinarily, the terms of a listing contract which includes such a protective clause requires
that the broker furnish the owner of the property with a list of prospective buyers with whom the broker has
negotiated within a prescribed number of days after expiration of the listing.

Even though the broker may not have negotiated with anyone during the term of the listing, the seller may
waive the expiration of the contract by encouraging the broker to continue efforts to find a buyer. If the broker
continues in reliance upon such a waiver and does produce an offeror to whom the property is ultimately sold,
the broker may be entitled to a commission even without literal compliance with the terms of the listing
contract. The broker will face the issue of waiver of the termination date of the listing agreement as compared
to compliance with Business and Professions Code § 10176(f). (See discussion this Chapter regarding Breach
of Contract v. Tort Theory.)

7. Intentional Interference with Prospective Economic Advantage

A broker may be entitled to recover a commission under a tort rather than a contractual theory of liability by
proving that the actions of the owner of the property constituted intentional interference with the prospective
economic advantage of the broker. In one such case, a broker negotiated with a prospective buyer of real
property without any kind of a listing agreement solely on the strength of a sign erected on the property by the
owner which read "FOR SALE - CONTACT YOUR LOCAL BROKER". The broker was aware of the merits
of the property from a previous listing of the property with him. After his discussions with the prospective
buyer, the broker informed the owner of the property in writing that he was the procuring cause should an offer
be made by the group with whom he had discussed the property.

Notwithstanding this notice, the owner sold the property to the group with whom the broker had negotiated
without his participation. While the court denied the broker's right to a commission under a contractual theory
for lack of any written agreement to pay the commission signed by the owner, it upheld the broker's right to sue

for commission under the theory that the owner and buyers had intentionally interfered with his reasonable
expectation of a commission for having negotiated the sale of the property. (See discussion this Chapter
regarding Breach of Contract v. Tort Theory.)

Criteria for Duty of Care

Although an agent's interests in prospective economic advantage may be protected against injury occasioned by
negligent conduct, there are six criteria for determining whether a duty of care is owed: l) the extent to which
the transaction was intended to affect the agent, 2) the foreseeability of harm to the agent, 3) the degree of
certainty that the agent suffered injury, 4) the closeness of the connection between the principal's conduct and
the injury suffered, 5) the moral blame attached to the principal's conduct, and 6) public policy regarding the
prevention of future harm.