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Am. Garment Properties, Inc., v. CB Richard Ellis-El Paso, L.L.C.: Court Rejects Oral Modifications to Agreement

A Texas court has considered whether a broker could raise the statute of frauds as a bar to an alleged oral modification to a commission agreement.

In August 2000, the American Garment Properties, Inc. ("Seller") entered into a brokerage agreement with C.B. Richard Ellis-El Paso, L.L.C. ("Brokerage") for a commercial property owned by the Seller. The agreement stated that it could only be modified in writing. The Brokerage located an interested buyer in May 2001, and the parties entered into a purchase agreement. The purchase agreement set forth a commission amount that the buyer's broker and the Brokerage would split equally.

The Seller submitted evidence to the trial court establishing that in order to help close the transaction, the Brokerage had agreed to reduce its commission by the amount of additional fixed costs the Seller would incur through the granting of a three month extension to the buyer. The Seller stated that it proceeded with the transaction because of the Brokerage's reduction in its commission amount. The Seller sent a letter to the Brokerage setting forth the terms of thE agreement, and the Brokerage never objected to this letter.

Prior to the closing, the Brokerage and the Seller had additional discussions during which the Brokerage tried to renegotiate the earlier commission reduction agreement. No agreement was reached. A legal opinion was requested from the Texas Real Estate Commission on a broker's failure to follow an oral agreement with his/her client to contribute part of his/her commission to allow the transaction to close. The Commission wrote back stating that such actions by a licensee could violate the state's license laws and provided information on how to file a complaint with the Commission.

At closing, the Seller paid half of the commission amount to the buyer's broker but refused to pay the Brokerage anything, claiming that the Brokerage had orally agreed to reduce its commission. The Brokerage filed a lawsuit, seeking payment of the full commission amount. The trial court awarded the Brokerage its commission, and the Seller appealed.

The Court of Appeals of Texas, El Paso, affirmed the ruling of the trial court. The Brokerage argued that the statute of frauds barred the oral modifications to the commission agreement. The statute of frauds requires that certain agreements must be in writing in order to be enforced by a court. In Texas, the state's license law at the time of this transaction required that brokerage agreements must be in writing. The Seller argued that these provisions only applied to a brokerage trying to collect a commission from a real estate transaction and were not intended to be used to protect brokerages who agree to oral modifications of a written commission agreement.

The court rejected the Seller's arguments. The court found that the purchase agreement specified the amount of commission to be paid to the brokerage and also contained a provision barring oral modifications unless such modifications were in writing and signed by the parties. The issue became whether the parties could orally modify such a provision when the statute of frauds also required that the modification be in writing. The court found that the oral modifications were unenforceable because of the statute of frauds, and there was no bar to a brokerage firm raising the statute of frauds as a bar to the enforcement of oral modifications. Thus, the court affirmed the award of the entire commission amount to the Brokerage.

Am. Garment Properties, Inc., v. CB Richard Ellis-El Paso, L.L.C., 155 S.W.3d 431 (Tex. App. 2004)