What business brokers should know about Texas law and unpaid commissions

Any business broker who has been in the industry long enough has been cut out of a deal in which they should have been paid a commission.  These deals usually follow a familiar pattern – the broker works for months if not years to try to sell a client’s business, then (usually after the listing agreement is terminated) later finds out that one of its contacts has purchased the business, but the broker’s commission has not been paid.  A broker who finds himself in this situation must weigh practical considerations (whether to sue a former/potential future client, the potential recovery, whether the potential defendants have sufficient assets to go after, the uncertainty of litigation, the risk that doing nothing could encourage others to cut the broker out of deals in the future, etc.).  However, once the decision is made by the broker to try to collect unpaid commissions through litigation, the question would be what claims could be brought against the buyer and/or seller of the business.  Fortunately for business brokers, there are a number of claims that are available under Texas law which allow business brokers to recover unpaid commissions against either the buyer or the seller, or both.  The first and most obvious claim that a broker could assert against both the buyer and the seller to recover unpaid commissions would be for breach of contract.

Contract Law requirements

Under Texas law, there are four basic requirements to proving the existence of a legally enforceable contract:

  • an offer
  • an acceptance
  • mutual assent (sometimes called a “meeting of the minds”)
  • consideration from both sides that would support the contract.

Of course, a written agreement is much more desirable than an oral agreement, as it allows the parties to avoid a swearing match as to what the terms of their agreement were. Nonetheless, it is possible for parties to satisfy all four of the elements listed above through an oral agreement.

In the event that the broker did not have the buyer and/or seller sign written agreements, there are other claims which may provide a basis for the broker to recover unpaid commissions.  Quantum meruit (sometimes referred to as unjust enrichment) is a quasi-contractual claim which could be asserted against a buyer and a seller.

Quantum Meruit

To recover under the doctrine of quantum meruit, a plaintiff must establish that:

  1. valuable services and/or materials were furnished,
  2. to the party sought to be charged,
  3. which were accepted by the party sought to be charged, and
  4. under such circumstances as reasonably notified the recipient that the plaintiff, in performing, expected to be paid by the recipient.  Vortt Exploration Co., Inc. v. Chevron U.S.A., Inc., 787 S.W.2d 942, 944 (Tex. 1990).

In the case of a broker who brings suit against a buyer and/or seller, the broker can certainly argue that it provided brokerage services by facilitating the sale of the business, and that the buyer and/or seller both benefitted from the sale and were aware that the broker expected to be paid for these brokerage services.

Non-contractual claims (also known as tort claims) may also provide a broker with a basis for recovery of unpaid commissions against a buyer and/or seller.  Fraud and/or negligent misrepresentation claims might be available in cases where the broker was intentionally misled by the buyer or seller about the status of negotiations between the parties.  For instance, if the broker was told by the buyer or seller that they were not interested in or actively negotiating a deal for the business, when in fact they were, and the broker relied on these statements to terminate a listing agreement with the seller, fraud or negligent misrepresentation claims could be alleged.

Tortious Interference

Tortious interference is also a claim which could apply to require a buyer who purchased a business to pay the broker’s commission.  In Texas, the elements of a cause of action for tortious interference with contractual relations are:

  1. there was a contract subject to interference,
  2. the act of interference was willful and intentional,
  3. such intentional act was a proximate cause of plaintiff’s damage, and (4) actual damage or loss occurred. Armendariz v. Mora, 553 S.W.2d 400, 404 (Tex.Civ.App.— El Paso 1977, writ ref’d n.r.e.).

Depending on the facts of the case, there are other claims that could be used to recover a business broker’s unpaid commissions from a buyer and seller of a business, such as promissory estoppel, conspiracy and fraudulent transfer, but I’ll save those for another day.

About the Author: My name is Josh Borsellino, and I am a Texas trial lawyer that handles business litigation, employment law and personal injury claims.  I worked for many years at one of Texas’ largest and most prestigious law firms, Haynes and Boone, before starting my own firm.  I have successfully represented several business brokers in claims for unpaid commissions, and have handled such claims on either an hourly or a contingency basis.  If you are a business broker and have questions about whether you may be entitled to unpaid commissions, call me at 817.908.9861 for a free consultation.

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