Can a Real Estate Broker Collect His/Her Commission Without a Written Contract Under New Jersey Statute of Frauds?

By Fredrick P. Niemann, a New Jersey Contract Lawyer

The Barrier Called the Statute of Frauds Under New Jersey Contract Law
The statute of frauds has always been puzzling. Simple in definition it still seems to elude a uniform application under New Jersey contract law. The statue of frauds requires that (in a real estate deal) a broker must memorialize in writing any agreement to be paid a commission for the sale of real estate with his/her customer in order for the agreement to be enforceable. There is a specific statute on point, N.J.S.A. 25:1-16. This section of the statute of fraud deals with real estate brokers. It lists three provisions that govern whether or not a real estate broker is entitled to be paid a commission.

Under the law, a real estate broker who works on behalf of a buyer or seller in the sale of real estate, including any lease must have in place a writing signed by a principal or the principal’s authorized agent”. The “writing must state either the amount of money to be paid or the rate of the commission.”

There is one listed exception and that is when a broker acts pursuant to an oral agreement and the broker immediately serves his/her principal with a written notice stating the terms of the oral agreement including the rate or amount of commission to be paid” within five days after making the oral agreement and before the transfer or sale of the real estate. Provided the foregoing has been accomplished, the broker must then cause the sale to happen, or in good faith enter into “negotiations with a prospective party who later effects a transfer or sale” before the principal provides the broker with any written rejection of the oral agreement between the parties.

N.J.S.A. 25:16(e) specifies the manner in which the notice of the claim must be made under the statute of frauds. The notice must “be served either personally, or by registered or certified mail, to the last known address of the person to be served.”

How can a Real Estate Broker Avoid the Statute of Frauds?

Like all things legal, there are ways to get around the statute of frauds. A broker can file a lawsuit to collect his/her commission based upon contract theories if the broker has made a good faith attempt to comply with the statute.
In one case the broker made a good faith attempt to comply with the statute of frauds. The Appellate Division held that the broker could pursue its commission claim based upon quantum meruit contact law, even though the broker did not satisfy all of the requirement of the statute of frauds.

The Court held that the broker had, in good faith, attempted to meet the requirements of the statute of frauds, even though the broker had not properly served the notice “either personally, or by registered or certified mail,” as the statute requires.

Brokers Can Assert Tort Liability Claims Against a Principal
Tort claims scare the death out of clients and they should. I’ve been involved in several cases where a smooth plaintiff’s attorney created a “conspiracy type” image of the property owner and buyer making it a “good vs. evil” case. In one case it worked and the case settled. In another case it failed but…..it turned into big litigation. The earliest leading case on this issue was Louis Schlesinger Co., vs. Wilson, here there was an oral agreement between the owner and the broker with regard to the sale of the property. The Court held that the broker could not pursue a contractual theory because the broker had not satisfied the statute of frauds. The broker was however permitted to pursue its commission claim based upon a “tortious interference” claim because the owner failed to tell the broker that he had already secured a different buyer not procured by the broker, but and here is the big but….the owner represented that he could still sell to the brokers customer and so relying on this the broker produced a willing buyer. As a result, the broker was entitled to sue the owner for damages resulting from owner’s deceit.
Quasi-Contract Claims are Permitted Against Buyers.

In another case the New Jersey Supreme Court held that the broker did not have to satisfy the statute of frauds and could pursue a claim for quantum meruit relief against the buyer where the buyer, who was not the broker’s principal, had agreed to pay a commission but there was no agreement with regard to the amount of commission to be paid. Although the broker had written to the buyer requesting 10 percent commission, the buyer never agreed to the amount, always acknowledged that the broker would be compensated and accepted the broker’s services knowing commission was expected. So, what’s the tale of this? The answer is…it depends. It depends on the facts, the judge, the personalities involved and to some extent the law. These cases are decided all over the place.

Contact me personally today to discuss your New Jersey contract matter. I am easy to talk to, very approachable and can offer you practical, legal ways to handle your concerns. You can reach me toll free at (855) 376-5291 or e-mail me at fniemann@hnlawfirm.com.