Eastern Associates, Inc. v. Sarubin

Smith, J., delivered the opinion of the Court. In accordance with Maryland Rule 871 a, we shall remand this case without affirmance or reversal for further proceedings: A trial judge (Grady, J.) determined that a broker, Eastern Associates, Incorporated (Eastern), which was paid a commission for procuring a tenant for a landlord, Morton T. Sarubin (Sarubin), was not entitled to commissions upon the rent paid under a renewal of the lease pursuant to an option in the lease exercised by the tenant. Eastern and Sarubin entered into a standard listing contract on June 25, 1962, relative to a building owned by Sarubin in the 1300 block of St. Paul Street in Baltimore. The listing was for a period of three months on a printed form entitled “Standard Listing Contract,” said to have been “[p]romulgated by the Real Estate Board of Greater Baltimore,” By the terms of the contract Sarubin agreed to pay Eastern “an amount equal to the commission specified in the Standard Schedule of Rates of the Real Estate Board of Greater Baltimore ... if during the term of th[at] contract, or any extension thereof, said Realtor produce[d] a customer to purchase rent [sic] said property at the last price/rental agreed upon between the owner and the Realtor . . . .” (Emphasis in contract.) The contract recited that “[e]xcerpts from the Standard Schedule of Rates [were] shown on the reverse side of [the] contract.” On the reverse side under “Rates for Procuring Tenants” appeared a sliding scale which began at six percent of “the average annual gross rental over the period of the lease” for the first year and went down to two percent per year after the fifth year.

A further provision read: “Lease Options: Where lease gives tenant an ³⁸⁰ option for an additional period and such option is exercised on the terms stated therein, or on any other terms, or where the tenancy is extended under a new lease, the commission shall be at the rates specified in section 3 (c) of this article (9).” The reference to rates “specified in section 3 (c)” is to the rates to which we have just referred. No tenant was procured by Eastern before the listing agreement expired. However, Eastern continued in its efforts to find a prospective tenant. On October 28, 1963, Eastern brought this building to the attention of the then Director of the State Department of Budget and Procurement, suggesting it as a possible location for the Children’s Division of the Department of Public Welfare of Baltimore City.

On June 29, 1965, the State leased the building for the State Department of Public Welfare for the term of five years at $6,900 per month. The State was “given the option to renew the___Lease for a further term of five (5) years ... subject to the same terms and conditions as in [that] Lease contained.” The option was to be exercised “on or before the expiration of the fourth (4th) year next following the commencement date of ithe] Lease.” David Greenberg (Greenberg) of Eastern testified that he attempted to persuade counsel for Sarubin to insert in the lease with the State a clause by which Sarubin would agree to pay to Eastern for that lease or any renewal thereof the real estate commissions in effect as of the date of the lease as described by the schedule of the Real Estate Board of Greater Baltimore. Later, he made a similar request of Sarubin, who refused. Greenberg said that Sarubin told him that he would be paid a renewal commission if the State exercised its option.

The trial judge explicitly found that Sarubin made no such agreement. A bill in the amount of $16,560 was submitted by Eastern to Sarubin covering the broker’s commission for the original five-year term. This was paid on July 9,1965. Sarubin has since sold the building.

The State exercised its option to renew the lease subsequent to that sale. Eastern sued Sarubin alleging in its second amended ³⁸¹ declaration that Eastern was a licensed real estate broker employed by Sarubin to find a tenant for the office building in question; that it procured such a tenant; that a written lease was entered into between Sarubin and the tenant “for an original term of five years commencing December 4, 1965, and providing for an option to tenant to renew said lease for an additional term of five years, subject to termination by tenant, however, on one year”s notice”; that Sarubin paid Eastern “the usual and customary real estate commission, based upon the original five-year term of said lease; that, pursuant to the provisions of said lease, tenant renewed the same for an additional term of five years ...; that, by reason of such renewal, [Eastern] ha[d] earned and ha[d] become entitled to the usual and customary commission in the amount of $1,656.00 based upon the first year of said renewal term beginning December 1, 1970,” which Sarubin had “failed and refused to pay”; and that since the renewal Eastern had “become entitled to additional commissions in the amount of $3,312.00 based on the second and third years of said renewal term commencing December 1, 1971, and December 1, 1972, respectively, but [Sarubin] ha[d] failed and refused to pay same.” The matter came on for trial in the Superior Court of Baltimore City. Greenberg, by then president of Eastern, testified that he entered the real estate business in 1962, having been licensed as a real estate salesman on April 13 of that year. He said he obtained a license as a broker on May 1, 1964.

In response to a question from his attorney as to what “the usual and customary real estate commissions were in the City of Baltimore in June of 1965 for the leasing of a property such as the property located at 1315 Saint Paul Street,” Greenberg testified as to the schedule printed on the back of Eastern’s contract, to which reference has already been made, based on the schedule published by the Real Estate Board. Melvin Greenwald, a real estate broker “[s]ince the very early ’60’s,” described by Eastern in its brief as “an experienced real estate broker specializing in commercial and industrial real estate,” said that “during the period from the beginning of [his] real estate career until ³⁸² 1965” he was involved in “perhaps fifty or a hundred” transactions in which he had “occasion to lease, or serve as a broker in the listing of commercial and industrial property.” Greenwald testified that the usual and customary commissions of real estate brokers in Baltimore for the leasing of commercial property, such as that here in question, were the rates to which we have previously made reference. In response to a question from the court, he testified that the “recommended procedure and the custom at the time” was that if there were no written listing agreement between the owner and the real estate agent and the agent obtained a lease for the owner the prevailing custom would provide for rates as previously mentioned for an extension of the original lease. Sarubin testified that when they “really knew that the State meant business,” he desired to “know exactly what exposure [he] would have from all viewpoints, architecturally, commissions, real estate commissions . . . and also • construction,” as a result of which he asked Greenberg precisely what compensation he expected.

The record at that point is: “And he said, T worked hard and for three years’ and all, this sort of business, I. said, T appreciate that. However, in this particular instance this was a wrap up. This is where the State picked up the telephone and said we want the building, let’s find the deal. There was no sales job here.’ So we finally agreed upon a figure that worked out to be $16,500.00 and whatever dollars odd change it was.

There was no mention made of renewal commissions. I never in my history paid a renewal commission and I don’t propose to start.” The trial judge made two findings of fact, stating: “Without reviewing the details of all of the testimony, the court finds that the following facts have been proven by the preponderance of the evidence: (1) The Standard Listing Contract of June ³⁸³ 25, 1962, expired by its own terms three months after its execution. Consequently, the renewal provision in that contract was not in force on June 29, 1965, when the property in question was leased to the State of Maryland. (2) At no time preceding the execution of the lease to the State on June 21, 1965, did the defendant expressly agree, either in writing or orally, to pay any renewal commission to the plaintiff.” 1 Eastern relied in the trial court and here relies upon what is now Maryland Code (1974) § 14-105 of the Real Property Article, and which at the time of trial was Code (1957, 1973 Repl.

Vol.) Art. 21, § 14-105, being at the time of trial unchanged from the language appearing in Code (1957) Art. 2, § 17, effective at the time of the lease. It then read: “Whenever, in the absence of special agreement to the contrary, a real estate broker employed to sell, buy, lease or otherwise negotiate real or leasehold estates or mortgages, or loans thereon, procures in good faith a purchaser, seller, lessor or lessee, mortgagor or mortgagee, borrower or lender, as the lease [case] may be, and the person so procured is accepted as such by the employer, and enters into a valid, binding and enforceable written contract of sale, purchase, lease, mortgage, loan or other contract, as the case may be, in terms acceptable to the employer, and such contract is accepted by the employer and signed by him, the broker shall be deemed to have earned the customary or agreed commission, as the case may be, whether or not the contract entered into be actually into [in] effect, unless the performance of such contract be prevented, hindered or delayed by any act of the broker.” ³⁸⁴ The language in then § 17 was unchanged from its original enactment by Chapter 178 of the Acts of 1910. Slight stylistic changes were made when the Real Property Article was enacted in 1974. In entering a judgment in favor of Sarubin for costs, the trial judge relied upon decisions in Griffith v. Seco Company, 410 S.W.2d 691 (Mo.

App. 1966); Mullen & Woods v. 615 West 57th Street, 146 Misc. 599 , 262 N.Y.S. 467 (Sup. Ct., App. T., 1st Dep’t. 1933); and Allwin Realty Co. v. Barth, 161 A.D. 568 , 146 N.Y.S. 960 (Sup. Ct., App. Div., 1st Dep’t. 1914); together with language appearing in 12 Am.Jur.2d Brokers § 237 (1964), and an annotation in 79 A.L.R.2d 1063 (1961). The statement appearing in 12 Am.Jur.2d is: “The right of a broker who procured a tenant for a lessor to recover a commission on a renewal, extension, or renegotiation of the lease, where the arrangements were made directly between the lessor and lessee, ordinarily depends on the presence of contractual provisions for commissions in such a case.

Even where such a provision was included in a brokerage agreement, a broker has been denied commissions where a lessor and lessee, without reference to the renewal or extension provisions of the original lease, made a new lease agreement whose terms differed from those of the renewal option provisions, particularly in respect of the time for which it was to run. A contrary result, however, has been reached in some cases.” Id. at 979. The quotation by the trial judge from Am.Jur.2d was limited to the first sentence. Cited as authority in Am.Jur.2d for that sentence are Dooly v. Embry-Riddle Co., 2 Fla.

Supp. 172 (Cir. Ct. Dade Co., Civil App. 1952), and Cotter v. Naomi, 127 So. 2d 573 (La. App., 3d Cir. 1961). In Dooly a tenant, previously procured by a broker, renewed a lease for office space. The broker then sued the owner to recover a commission on this renewal.

As stated by the court, his “theory was that by contract plaintiff would be ³⁸⁵ entitled to a commission for procuring tenants and also (on a reduced basis) entitled to a commission for any renewals which the tenants might make by election (even though the broker had nothing to do with the renewal).” The defendant “contended that the contract with the broker did not so provide, and that a provision to that effect added to the contract later was without any consideration, and, therefore, that the agreement for commissions on renewals was without consideration, and it was also contended that there was no renewal because the tenant insisted upon giving up some of the space, and on getting some new or different space.” The broker did not negotiate the extension or renewal. As the court put it, “[h]is claim to a commission on the ‘renewal’ [was] based on a contract provision for the broker to become entitled to a commission automatically if such a tenant (given by lease the right to extend or renew on election) renewfed] its lease, even without the broker having anything to do with the renewal.” The court saw no substance in the defense relative to consideration. It held that “to the extent and degree to which there was a renewal or extension of the original lease, by continued occupancy of the same space covered by the first lease, and according to the same terms, without substantial or material changes in terms, the broker would be entitled to recover fractionally or proportionately.” It further held that “it was error ... to strike the pleas which defended on the ground that before they would renew or as a condition of extension or renewal the tenant . . . returned part of their rented space . . . and acquired other and different space of more value . . . and caused a change to be made in the total rental to be paid . . .,” because the “pleas disclosed that to some degree the lease was not a renewal of the original lease, but that in part the new arrangement or ‘lease’ was the result of a negotiation between the owner and the tenant for something different from that which the tenant had or enjoyed under the original lease.” In Cotter a building owner, about to be called into the military service, retained a broker to represent him. Through that broker a lease was negotiated for a term of ³⁸⁶ five years beginning May 1, 1945.

The lease contained an option to renew for a further term of five years expiring April 30, 1955. Although the lease was renewed pursuant to that option, the owner on December 1, 1950, without the aid of the broker, re-negotiated the lease for a term of 173 months from December 1, 1950. The latter agreement provided that landlord and tenant “agreefd] and stipulate^] that [it] supersede^] and replace[d] the lease between the parties dated February 17, 1945 which ha[d] been extended; and that said former lease [was] of no force and effect.” The rent was paid through the broker up through April 30, 1955. He deducted his commissions from the monthly rentals as paid.

The broker brought suit for commissions accruing subsequent to that date, “contending] that it was the intention of himself and [the landlord] that he be paid a commission on the rental received from the leased premises as long as Franklin Stores Corporation remained a tenant of defendant; that this intent was manifested in the original lease agreement which created the agency.” The court said: “This Court is of the opinion that it is not important in arriving at a decision in this case to determine whether the agreement of December 1, 1955 [sic], is a renewal of the original lease made in 1945, or whether it is a new lease, for the reason that under the terms of the original lease, plaintiff was to receive a stipulated commission for a period not to exceed ten years. Defendant has complied with his agreement, for he has paid plaintiff his commission for the five-year period named in the primary term of the original lease and the five-year renewal period in said lease. If this Court were to hold otherwise, it would mean that defendant would never be relieved of his obligation to pay plaintiff commissions on the leased premises leased by Franklin Stores Corporation as long as it remained in the premises, even though plaintiff had not secured the lease for a portion of the time that Franklin occupied the premises as lessee, as was done in the case at bar.” Id. 127 So. 2d at 576 . ³⁸⁷ The statement appearing in 79 A.L.R.2d is: “In most cases it has been held that a broker who procured a lease for the lessor and who claims commission on a renewal thereof must recover, if at all, on the basis of an express contractual provision for commission on renewals. And, even where such provision was included in a brokerage agreement, most courts have held that the broker was not entitled to commission where lessor and lessee, without reference to the renewal or extension provisions of the original lease, make a new lease agreement which differs in its terms from those of the renewal option provisions, and particularly so in respect of the term for which it is to run.” Id. at 1063.

Cases cited for this proposition include Collom v. Roos Bros., 25 Cal. App. 73 , 142 P. 858 (1st App. Dist. 1914); Dooly; Plumbing Industry Program v. Good, 120 So. 2d 639 , 79 A.L.R.2d 1060 (Fla. App., 3d Dist. 1960); Cotter; Griffith; Comly v. First Camden Nat. Bank & Trust Co., 22 N.J. Misc. 123 , 36 A. 2d 591 (Sup.

Ct. 1944); Allwin; Brown, Wheelock, etc., Co. v. One Park Ave. Corp., 134 Misc. 313 , 235 N.Y.S. 297 (Mun. Ct., Borough of Manhattan, 3d Dist. 1929); Mullen & Woods v. 615 West 57th Street, 146 Misc. 599 , 262 N.Y.S. 467 (Sup. Ct., App. T., 1st Dep’t 1933); Mitchnik v. Brennan, 159 Misc. 287 , 286 N.Y.S. 609 (Mun.

Ct., Borough of Queens, 5th Dist. 1936); William Adam Schulz & Co. v. Realty Associates, 17 N.Y.S.2d 924 (Mun. Ct., Borough of Queens, 2d Dist. 1940); Spivak v. Madison-54th Realty Co., 60 Misc. 2d 483 , 303 N.Y.S.2d 128 (Sup. Ct., Tr. T., Kings Co. 1969); and M. J. Harris Co. v. Buckeye Sheriff Street Realty Co., 35 Ohio L. Abst. 373, 40 N.E.2d 949 (Ohio App., Cuyahoga Co. 1941).

In Collom a judgment for a complaining broker was reversed. A lease involved an option to a tenant to renew for seven years at the end of a three-year term and a provision, assented to by the lessor, that part of the monthly rentals were to be paid to the broker as commission. Suit was ³⁸⁸ against the tenant. The original lessee had split into two corporations with the lease transferred to the new corporation.

The owner had been notified that the lessee would not exercise its renewal privilege. There had been an agreement between lessor and lessee for a new term. The court said that those facts did not sustain the broker’s case in the absence of an affirmative showing that the setting up of the new corporation to which the lease was transferred, the termination of the old, and the making of a new lease, instead of continuing the old by exercising the renewal privilege, were all parts of a fraudulent design on the part of the tenant to avoid its obligations. It further pointed out that the new lease, on its face and standing by itself, could not be considered a renewal of the old since it was for a different term and made to a different lessee.

In Plumbing Industry Program a broker brought together a landlord and a tenant for a three-year lease. Prior to execution of the lease the landlord executed a memorandum in which he agreed to pay the broker for negotiating the lease “brokerage commission in accordance with the schedule of rates of the Miami Board of Realtors, upon signing of lease,” with the further provision that “[sjhould [the] lessee, successors or assigns, exercise its option to renew or extend said lease on the same and/or additional space” there should be due from the landlord to the broker “an additional commission in accordance with the schedule of rates of the Miami Board of Realtors upon Lessee, successors or assigns, exercising said option to renew or extend said lease.” The lease was for a three-year term. An option was granted to the tenant to renew for an additional term of two years before November 30, 1957. On December 15, 1957, prior to the expiration of the original lease, the landlord and tenant entered into a new lease for five years.

It provided for the cancellation of the unexpired term under the original lease. It included the space covered by the original lease plus additional area, with new obligations upon the landlord. The court held it was “compelled to agree with [the] contention” of the landlord that “because the lease was not renewed, but cancelled, and a new lease was ³⁸⁹ executed covering a different time period, the option was never exercised and therefore no commission [was] due.” In Comly a broker procured a tenant. The lease between landlord and tenant, not executed by the broker, contained a provision by which the landlord agreed with the broker that the broker should be and remain the agent for the landlord and the leased premises “so long as said Lessee [was] a tenant under th[at] lease, or any renewal thereof, or any new lease contracted within one year from the expiration [t]hereof.” A further lease contained similar language.

A third lease did not. During the term of the third lease the landlord conveyed the property to the First Camden National Bank & Trust Company. That corporation executed a fourth lease with no provision in it relative to commissions to the broker. It was held that the period of the broker’s agency had expired and he thus was unable to collect.

In Griffith, relied upon by the trial judge, the landlord promised to pay, “[i]n the event that [the] property [was] leased, [a] leasing commission [of] three per cent on the total amount of the lease.” The court concluded that this applied only to the initial term, and not to a renewal. It said that it had “found no case which holds that a real estate agent is entitled to recover commissions on a renewal or extension of a lease, absent an express provision in the brokerage agreement for same,” citing the annotation in 79 A.L.R.2d. Of the case before it, it said that “respondent secured a lease under which the lessee was bound for a term of only five years. It was paid a commission for that service, and [was] not entitled to further compensation.” In Allwin, also relied upon by the trial judge, a broker procured a tenant for a term from August 1, 1904, to May 1, 1911.

There was an option to the tenant to renew for a further term of seven years to expire May 1, 1918. Commissions were paid for the initial term. The tenant refused to renew under the option. A new lease was executed.

The court said that “[i]f the new lease was not the result of any services performed by the [broker] and for which the [broker] should be entitled to recover a commission, [the broker could] not recover.” ³⁹⁰ In Brown there was a short-term lease (two months) with provision for renewal for one year. It was renewed for one year. The tenant remained in possession for two years thereafter, pursuant to subsequent renewals. The plaintiff alleged that the brokerage agreement fixed a certain commission for procuring a tenant, part of which was to be paid at the time of the execution of the lease “and the balance when and in [the] event the option or options contained in the lease” were exercised.

The court held that when the tenant exercised the renewal right prior to or simultaneously with the execution of the lease, he used up his renewal privilege; that the original lease and the first renewal alone were within the scope of the brokerage agreement; and that if further leases were agreed upon between landlord and tenant, the complaining broker would not be entitled to commissions by reason of his employment contract pursuant to which the first lease was obtained. The facts in Mullen, another case relied upon by the trial judge, are gleaned from the opinion of the trial court appearing in Mullen & Woods v. 615 West 57th Street, 144 Misc. 697 , 259 N.Y.S. 250 (Mun. Ct., Borough of Manhattan, 3d Dist. 1932). The premises in question were leased in 1928 to a tenant procured by the broker for a term expiring May 1, 1931.

The lease contained an option to the tenant to renew for an additional term of 10 years by giving notice prior to January 1, 1931. Notice for the extension was given, but the lease was extended for the term of five years, rather than the ten permitted in the original lease. The broker presented testimony to the effect that prior to the consummation of the original lease an oral promise was made to pay the commission on the extended term when the option contained in the lease was exercised and a new lease signed. The landlord contended that since the promise, if made, could not have been performed within one year, it was unenforceable by reason of the New York statute of frauds.

The trial court agreed with this defense but then went on to permit recovery on a quantum meruit. It was held on appeal in a per curiam opinion: “Although we are in accord with the conclusion of ³⁹¹ the trial court that the defendant’s alleged promise to pay additional commissions was within the statute of frauds, and therefore unenforceable, we do not agree that there was an implied contract to pay such additional commissions in the event that the tenant exercised its option to renew the lease. “In the absence of special agreement, the plaintiff would not be entitled to commissions on subsequent extensions of which it was not the procuring cause. Nor could the plaintiff recover on the theory that by securing the inclusion of the renewal clause in the original lease it performed services which were of benefit to the defendant. On the contrary, by assenting to the clause which gave the tenant the option of renewal, the defendant subjected itself to a liability without corresponding benefit.

Indeed, the plaintiff made no attempt to prove that