Option Signed Before Agency (commission) Agreement Did Not Extend Period of Agency Agreement

fIn Colburn Hundley, Inc. v West Michigan Developers, Inc., an unpublished Michigan Court of Appeals opinion, a real estate broker sued for a commission based upon an Agency Agreement, which provided that its term would be extended for any period during which the seller granted an option for the property.  The owner of the property granted an option to purchase to a third party (of which the broker was one of the principals) in the morning.  In the afternoon of the same day, the owner of the property signed the Agency Agreement which provided that “in the event” the seller granted an option to purchase, the term of the Agency Agreement would be suspended for the term of the option and automatically recommence for the remainder of the term at the option’s expiration.  The Broker argued that the option, entered into before the Agency Agreement, extended the term of the agency agreement for the duration of the option. The trial court held otherwise, granting summary disposition for the owner on the broker’s claim for a commission.

The Court of Appeals ruled that the words “in the event” used in the Agency Agreement were forward-looking, and could not be construed as to encompass an option agreement entered into before the Agency Agreement.  Because the Agency Agreement expired by its own terms before the property was sold (to a third party), the seller was not liable to the broker for a commission.

The Court of Appeals also rejected the argument that there was a subsequent agreement to pay a commission, finding that there had not been a meeting of the minds sufficient to form a contract.

© Steve Sowell 2017