Owen Wagener & Co. v. U.S. Bank: Broker Cannot Recover Commission From Bank in Foreclosure Situation

A recent Appellate Court of Illinois decision highlights important issues for brokers involved in foreclosure situations. Wagener v. U.S. Bank. In this case, Lewis Kaplan (the “Owner”) owned property located in Crestwood, Illinois. He fell behind on his mortgage payments to U.S. Bank (the “Bank”) and it began foreclosure proceedings. The Owner decided to sell the property, and in June, 1994, he entered into a listing agreement with Owen Wagener & Co. (the “Broker”), a real estate brokerage. The Broker located a couple, the Johnsons, who in December, 1994, entered into a contract with the Owner to purchase the property (the “Contract”). Included as part of the Contract was a rider providing that the Contract was subject to the Bank’s approval, and that if it did not give its approval by April 14, 1995, then the Contract would be null and void.

On March 17, 1995, the Bank told the Owner that it only would agree to the sale to the Johnsons and to release the mortgage lien if the Owner would have a cashier’s check at the closing to pay the additional amount he owed the Bank. Two months later, the Owner was notified that the Bank had determined there would not be sufficient funds available from a sale to the Johnsons, and therefore, it was proceeding with the foreclosure. In August of that year, the Bank obtained title to the property and several months later, the Johnsons purchased the property from the Bank. The Broker filed a lawsuit against the Bank, seeking a commission from its sale to the Johnsons, whom he had found. The Broker first claimed breach of contract, arguing that its commission agreement with the Owner had been incorporated into the Contract between the Owner and the Johnsons and that the Bank had ratified and approved the Contract. To the contrary, the court found that the Bank specifically had withheld its approval of the Contract and that there had not been an express contract between the Broker and the Bank.

Then the Broker argued that there had been an “implied-in-fact” contract between it and the Bank. An implied-in-fact contract is where the agreement of the parties is evidenced by their acts and conduct, as opposed to in an express, written contract. Quoting from a prior Illinois decision, the court stated that “Illinois courts have relied on the procuring cause approach...to imply a contract between the broker and the seller if the broker found a purchaser who was ready, willing and able to perform...However, in the context of implied brokerage contracts, the alleged principal must say or do something which shows it accepted the broker as its agent.” The Wagener court found nothing to show that the Bank had accepted the Broker as its agent and therefore, ruled that there had not been an implied-in-fact contract between the Broker and the Bank. As the court noted, the commission agreement had been between the Broker and the Owner, not between the Broker and the Bank.

The Broker’s third claim was that the Bank owed it payment under the theory of quantum meruit. Quantum meruit, which literally means “as much as he deserves,” is a doctrine based on the concept that one should not be unjustly enriched by the services of another. To recover under this equitable theory, one must show that one provided the other party with a benefit which it would be unjust for him to retain without paying for it. This theory implies a promise to pay for the services, even absent a contract. The Wagener court acknowledged a “surface attraction” to the Broker’s unjust enrichment claim against the Bank, since the Broker initially had found the Johnsons. However, since the Broker’s listing agreement was with the original Owner of the property, and not with the Bank, the court found that the Broker had no expectation of receiving a commission from the Bank’s sale of the property to the Johnsons and ruled in the Bank’s favor.

Note: A licensee involved with a property in a foreclosure situation should not assume that the foreclosing institution will pay the broker a commission if the only compensation agreement is between the broker and the original property owner.

Owen Wagener & Co. v. U.S. Bank, 297 Ill.App.3d 1045, 697 N.E.2d 902 (Ill. Ct. App. 1998).