Commercial Division Blog

Posted: March 5, 2014 / Categories Commercial, Contracts

Buyer's Broker Not Third-Party Beneficiary of Real Estate Sales Contract That Refers Only to Commission to Seller's Broker

On February 20, 2014, Justice Pines of the Suffolk County Commercial Division issued a decision in Saunders Ventures, Inc. v. Morrow, 2014 NY Slip Op. 30455(U), holding that a buyer's broker was not a third-party beneficiary of a real estate sales contract.

In Saunders Ventures, the plaintiffs, who alleged that they procured the buyer of real property sold by the trust of which the moving defendants' were successor trustees, sued for unpaid real estate commissions. The moving defendants moved to dismiss on the ground that the only contract relating to commissions to which the trust was a party was the contract with the seller's broker. The plaintiffs opposed the motion, arguing that they were third-party beneficiaries of the contract of sale for the property which referred to the selling broker's commission. The trial court held that the plaintiffs were not third-party beneficiaries, explaining:

One who seeks to maintain an action for breach of contract as a third party beneficiary must establish that: 1) there is an existing and valid binding contract between the signatories; 2) the contract was intended for the third party's benefit; and 3) the benefit to third party is clear and direct as opposed to incidental. It must be established that the language of the subject contract clearly evidences an intent to permit enforcement by the third party; therefore, courts are reluctant to construe an intent to benefit a third party in the absence of clear contractual language evincing such intent.

In the context of claims by an alleged procuring broker, there appears to be no basis for a claim against a seller that contracts solely with the listing broker and makes no commitment to the broker who assisted in procuring the sale. Thus, in Fischer v RSWP Realty LLC d/b/a Prudential Rand Realty et al, 19 AD 3d 540, 798 NYS 2d 72 (2d Dep't 2005), the Second Department held that dismissal of a procuring broker's claim against the vendor was warranted where no express nor implied contract (existed between such broker and the vendors, whose sole brokerage contract was the listing agreement with the listing broker. The same conclusion was reached in a procuring broker's claim against seller in REMAX Homes and Estates, Inc. v Ivan Leist, 308 AD 2d 439, 764 NYS 2d 107 (2d Dep't 2003).

(Internal quotations and citations omitted) (emphasis added). Finding no evidence supporting the plaintiffs' argument that they had established the elements of being a third-party beneficiary, the court dismissed the plaintiffs' claims against the moving defendants.

This decision illustrates the narrow scope of the third-party beneficiary doctrine in New York.