Homeowner Neil Bradford signed a listing agreement under which Coldwell Banker would market and sell his Boston condo for $1.35 million.
The total commission Bradford agreed to pay under the agreement would be 5 percent of the purchase price.
Under the agreement, Coldwell Banker would pay half the commission to its own listing agent and the other half — 2.5 percent — to the buyer’s broker or agent, according to court records (see: Zang v. NRT New England Inc.).
Once the home was on the market, a Coldwell Banker agent (other than the listing agent) held the home open. Buyer Jonathan M. Zang, who had already called and spoken about the property directly with the seller, attended the open house.
Zang contacted the agent who had held the home open once again, and that agent provided him with access to view the property once more.
Zang made an offer of $1.2 million and gave Coldwell Banker a $1,000 deposit, which the brokerage took from Zang but didn’t deposit, according to court records.
Negotiations ensued for three days, eventually coming to an impasse because Coldwell Banker refused Zang’s demand to reduce their commission to close the gap between the seller’s counteroffer and Zang’s final offer.
Zang contracted with another broker to represent him thereafter; the new broker agreed to work for $100 per hour (with a $3,000 minimum), and to rebate any excess commission earned back to Zang.
This new agent submitted a revised offer from Zang to the listing agent.
In response, the Coldwell Banker agent who had previously been working with Zang, reportedly left Zang voice-mail messages to the effect that the new agent "may have a great deal of difficulty collecting any commission at all from Coldwell Banker."
Bradford and Zang negotiated a sale price of $1.23 million directly.
Bradford and Zang executed a purchase agreement containing escrow instructions designating Coldwell Banker as the escrow holder and expressly instructing Coldwell Banker to pay itself (as listing broker) one-half of the commission and to pay the other half to Zang’s new buyer’s broker, when the deed transferred from Bradford to Zang.
Coldwell Banker did not sign the purchase agreement, court records show. Zang submitted total deposit funds of $122,500 to Coldwell Banker, which Coldwell Banker accepted and deposited.
When the transaction closed, Coldwell Banker disbursed the entire 5 percent commission to itself out of Zang’s deposit, transferred the remainder of the deposit to the seller, and paid nothing to Zang’s new buyer’s broker.
Zang sued Coldwell Banker, alleging that the company had breached its fiduciary duties to him as escrow holder by failing to follow the express escrow instructions that had been signed by both Zang and the seller.
At trial, Zang moved for summary judgment in his favor, arguing that there was no material issue of fact concerning whether Coldwell Banker had breached its duty to him.
The trial court denied Zang’s motion, on grounds that Zang and Bradford had no power to interfere with the listing agreement that had already been signed between Bradford and Coldwell Banker.
On appeal to the Massachusetts Court of Appeals, the trial court decision was reversed.
The appellate court referenced well-settled Massachusetts law holding that escrow holders do owe a fiduciary duty to the parties in the underlying transaction to adhere strictly to the terms of the escrow instructions.
Coldwell Banker’s acceptance of Zang’s deposit funds — after the company was fully aware of the probable commission dispute — activated Coldwell Banker’s duty to both Zang and Bradford as the escrow holder, to fully comply with the escrow instructions.
"Although Coldwell Banker did not sign the purchase and sale agreement, it did accept and hold the deposit made to it by the buyer pursuant to the purchase and sale agreement with knowledge of the dispute," the court explained.
"Therefore, the terms of the purchase and sale agreement applied to Coldwell Banker as escrow agent."
The court went on to state that if Coldwell Banker did not agree to the terms of the purchase agreement, it should have expressly and in writing conditioned its acceptance of the escrow on the parties’ adherence to the terms of the listing agreement.
The court rejected Coldwell Banker’s argument that Zang’s new buyer’s broker did not earn the commission because he was not the procuring cause of the sale.
The court found that Coldwell Banker’s responsibility to pay the commission to the buyer’s broker arose not out of its brokerage role, but out of its acceptance of the fiduciary duties of an escrow holder to follow the express escrow instructions of the parties.
No dispute existed, the court found, on the issue of whether Coldwell Banker ignored the express instructions of the parties to pay Zang’s new buyer’s broker a commission of 2.5 percent of the purchase price.
Accordingly, Zang’s motion for summary judgment should have been granted, and the Massachusetts Court of Appeal reversed the trial court ruling and remanded the matter back to the trial court for the case to be handled in accordance with the appellate court’s opinion.