Shands v. Wm R. Winton, Ltd.: Protection Clause Entitles Broker to Commission

A Colorado appellate court has considered whether a protection clause in a listing agreement entitled brokerage to a commission when an entity with whom the broker did not conduct negotiations purchased the property after the expiration of the listing agreement.

Wm. R. Winton Ltd. ("Seller") entered into a listing agreement with David Shands ("Broker"), a licensed real estate broker, for a property owned by the Seller. The listing agreement expired in 1999, but the Seller allowed the Broker to continue marketing the property. In May 2000, an interested buyer, Fred Ziegler ("Ziegler"), contacted real estate salesperson Lou Kinzli ("Buyer's Representative") about his interest in the property. Over the next two months, a number of offers were made by Ziegler to the Seller for the property, with the offers transmitted through the real estate professionals.

In August 2000, an exclusive right-to-sell designated party listing agreement was executed between the Seller and the Broker which expired in December 2000. The "designated party" in the agreement was Ziegler and a corporation controlled by Ziegler ("Corporation"). The second listing agreement also contained a clause ("Protection Clause") which entitled the Broker to a commission if any party with whom the Broker conducted negotiations purchased the property within a year following the expiration of the listing agreement, so long as the Broker provided the eventual purchaser's name in writing to the Seller at the expiration of the listing agreement. The Seller and the Corporation entered into a purchase agreement in August 2000. The Broker was designated as the listing broker in the purchase agreement. However, the sale failed to close before the end of 2000.

In early 2001, Ziegler continued his attempts to purchase the property. The Broker's attorney sent a letter to the Seller stating that the Broker expected to receive a commission if the property sold during the Protection Clause period to either the Corporation or Ziegler. Eventually, Ziegler rescinded the purchase agreement with the Seller because he was unable to secure financing on his own.

In March 2001, Ziegler formed a new corporation ("Buyer") with an investor ("Investor"). The Investor would control 50% of the Buyer, the Corporation 25%, and Ziegler's cousin the other 25%. The Investor purchased the Seller's property in May 2001, and then immediately transferred the property to the Buyer. No commission was paid to the Broker at closing, and the Broker brought a lawsuit seeking payment of the commission. The trial court awarded the Broker a commission, and the Seller appealed.

The Colorado Court of Appeals, Division II, affirmed the ruling of the trial court. The Seller argued that the Protection Clause did not entitle the Broker to a commission because the property was sold to the Investor, not the Corporation. Since the Broker had never identified the Investor as party with whom he had conducted negotiations, the Seller argued that the Broker was not entitled to a commission.

The court looked at the relevant Colorado law. The court found that a broker's right to a commission was dependent on the terms of the listing agreement. However, the court also stated that the purpose of the listing agreement was to compensate a broker who was the procuring cause of the sale and Colorado law had consistently rejected attempts by sellers to circumvent the terms of a listing agreement by using a strawman as a conduit for a sale of real estate. Here, the court found that while the Broker never conducted negotiations with the Investor, the property was ultimately transferred to an entity in which Ziegler had an interest. Since the Broker had conducted negotiations with Ziegler and also submitted Ziegler's name in writing to the Seller upon expiration of the listing agreement, the court ruled that the Broker was entitled to the commission.

The court rejected the Seller's argument that it did not have knowledge of the actions taken by Ziegler and so should not be liable for the commission. Even though the evidence revealed that the Seller did not have an involvement in the actions taken by Ziegler, the court ruled that this fact did not relieve the Seller from paying a commission and so the trial court's ruling was affirmed.

Shands v. Wm R. Winton, Ltd., 91 P.3d 416 (Col. Ct. App. 2003). [This is a citation to a Westlaw document. Westlaw is a subscription, online legal research service. If an official reporter citation should become available for this case, the citation will be updated to reflect this information].

Editor's Note: NAR Legal Affairs would like to thank Richard Clark of Rothgerber, Johnson & Lyons LLP, counsel for the Colorado Association of REALTORS®, for alerting Legal Affairs to this decision. The Colorado Association of REALTORS® filed an amicus curiae brief in favor of the Broker.