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Coldwell Banker v. Karlock: In Examining a "Best Efforts" Claim in a Commission Dispute, the Seventh Circuit Finds That Producing a Purchaser Is at the Heart of a Listing Agreement

In Coldwell Banker v. Karlock, the Seventh Circuit addressed whether a broker was entitled to a commission where he had allegedly not used his "best efforts" in finding a potential purchaser. The court held that the broker satisfied his requirement of producing a "ready, willing, and able" purchaser. Further, the court refused to enforce an Indiana "closed door" policy which would have denied the broker his commission.

Karlock, an Illinois resident, owned a large ranch in Indiana. Karlock contacted Coldwell Banker (Coldwell) to discuss the possible sale of the land. In May 1979, Karlock met with McGrath, a broker with Coldwell, who was licensed in Illinois but not Indiana. Later that month, Karlock granted Coldwell a three-month exclusive right to sell the ranch. In the contract, which was executed in Chicago, IL, Coldwell agreed to use its best efforts to effect a sale of the ranch. McGrath located Prudential as a potential purchaser and informed Karlock of their interest. Karlock agreed to meet with Prudential, but did not want any Coldwell personnel present. Thereafter, all negotiations were handled exclusively by Karlock. In late July, Coldwell and Karlock executed an extension of the listing agreement and an adjustment of the commission schedule. The agreements were executed in Illinois.

In September 1979, Karlock agreed to sell the ranch to Prudential. The final purchase price of $39.56 million was less than half of the original listing price of $80 million. The closing was held in Indianapolis. On the date of the closing, Coldwell sued Karlock to recover its commission. Karlock asserted Coldwell did not use its "best efforts" in securing a purchaser and that Indiana's "closed door" policy should preclude Coldwell from recovering its commission. The district court granted summary judgment in favor of Coldwell. Karlock appealed.

Regarding Karlock's "best efforts" claim, the Seventh Circuit found that the listing agreement clearly stated that the commission would be paid if Coldwell produced a ready, willing, and able purchaser. The court found that because Coldwell did produce such purchaser, its right to the commission seemed to be beyond question. To supplement its "plain meaning" analysis, the court also reviewed the contract as a whole. The court found that a real estate brokerage contract is normally a unilateral offer to pay a commission if the broker produces a ready, willing, and able buyer. The court held that in this case, producing a purchaser was at the heart of the agreement, and that once Karlock sold the ranch, he received the performance he had bargained for, and the commission was due.

Regarding the "closed door" policy, the Seventh Circuit found that Indiana law barred recovery of a brokerage commission by an unlicensed broker. McGrath was not licensed in Indiana. However, the court achieved an equitable result by characterizing the listing agreement as a contract for personal services rather than a contract conveying an interest in land. The court then applied Indiana's choice of law rules to determine that the laws of the state with the most significant relationship to the transaction would control. The court found that Illinois law should control as both contracts were executed there, Karlock resided there, Coldwell was licensed there, and Prudential was located through McGrath's efforts in Illinois. The only factor favoring Indiana was the location of the property. The court concluded that Illinois law should control, and did not enforce the Indiana "closed door" policy to deny Coldwell its commission.

Coldwell Banker v. Karlock, 686 F.2d 596 (7th Cir. 1982).