Tennessee Case Proves that Real Estate Commission Can be Recovered Even Without a Contract

By J. Ross Pepper on December 7, 2012 11:02 AM

The Court of Appeals of Tennessee, in the case of Rocky Top Realty, Inc. v. Young, issued an opinion that is a good reminder that, under Tennessee law, you don't necessarily have to prove a breach of a contract to recover money you are owed for services (or goods). The case was a real estate commission case. Here are the facts of the case:

• The plaintiff ("Plaintiff") acted as a "facilitator" in a real estate transaction
• It was undisputed that the Plaintiff introduced to the sellers ("Sellers") the buyer ("Buyer") who purchased Sellers' property for 2.7 million dollars
• Plaintiff claimed that the Sellers promised a real estate commission of 10% of the sale price
• Sellers denied that Plaintiff had ever been promised any commission or compensation

The Plaintiff filed suit for breach of contract. The Plaintiff alleged, in the alternative, that, if it was not entitled to a real estate commission under its breach of contract claim, it was entitled to that commission based on the Tennessee law of quasi-contract, which is also referred to by the Latin phrase, quantum meruit.

The trial court, the Chancery Court for Knox County, found that there was no contract between the Plaintiff and the Sellers, either oral or written. Although the Plaintiff testified that there was such an oral contract, because the Sellers outright denied that fact, and because the Plaintiff had no corroborating evidence, the trial court held that the Plaintiff could not prove a contract. (In Tennessee, an oral contract for a brokerage commission must be proven by clear, cogent and convincing evidence).

In spite of the fact that the Plaintiff was unable to prove the existence of a contract, and could therefore never win a breach of contract case, the trial court found that the Sellers were liable to the Plaintiff for a real estate commission. How did the trial court reach this result? By applying the law of quasi-contract or quantum meruit.

In order to recover under Tennessee law for quasi-contract or quantum meruit, a plaintiff must prove the following elements: (1) There is no existing contract which is enforceable; (2) the plaintiff provided "valuable goods or services"; (3) the defendant received the goods or services; (4) the circumstances indicate that the plaintiff and defendant reasonably expected the defendant to pay for the goods or services; and (5) it would be unjust for the defendant not to have to pay.

The trial court awarded the Plaintiff a judgment of $135,000.00. How did it get to that number? The Plaintiff offered the testimony of two realtors at trial. They testified that the customary commission for the sale of raw land in Knox County was 10% of the sales price. The trial court found that Plaintiff was not entitled to the full 10%, or $270,000.00, but only to $135,000.00 because the Plaintiff only worked on the sale for three days.

On appeal, the Court of Appeals of Tennessee upheld the trial court's holding that the Sellers were liable to the Plaintiff under the theory of quasi-contract or quantum meruit. It reversed the trial court's holding that the Plaintiff's damages were $135,000.00, and remanded the case back to the trial court so that the trial court could determine the proper amount of damages.

The appeals court reversed the trial court because it found that the award of $135,000.00 was too speculative. Why? It gave a couple of reasons. First, the assumption that Plaintiff's commission would have been 10% was too speculative because the Plaintiff was not acting as a real estate agent for the Seller, but as a facilitator. Second, under quantum meruit, damages are to be awarded for the reasonable value of the goods or services and the customary commission for the Plaintiff's services did not necessarily reflect the value of the Plaintiff's services.

The theories of quantum meruit and quasi-contract are not limited to cases involving real estate commissions or brokers' commissions. For a plaintiff seeking a recovery, those theories can "save the day."