Hildebrandt v. Anderson

• Decision Date: 13 March 2002
• Citation: 180 Or. App. 192,42 P.3d 355
• Parties: Robert L. HILDEBRANDT, Appellant, v. Harvey G. ANDERSON and Nancy A. Anderson, Respondents.
• Court: Oregon Court of Appeals

42 P.3d 355

180 Or. App. 192

Robert L. HILDEBRANDT, Appellant, v. Harvey G. ANDERSON and Nancy A. Anderson, Respondents.

9907-07507; A111939

Court of Appeals of Oregon.

Argued and Submitted December 20, 2001.

Decided March 13, 2002.

Garry P. McMurry, Portland, argued the cause and filed the brief for appellant.

No appearance for respondents Harvey G. Anderson and Nancy A. Anderson.

Before LANDAU, Presiding Judge, and BREWER and SCHUMAN, Judges.

SCHUMAN, J.

Plaintiff, a real estate broker, found a lessee for property owned by defendants and took his agreed-upon commission in the form of a promissory note from them. When the lessee stopped making lease payments to defendants, defendants stopped making commission payments to plaintiff, who then brought this action to collect. The trial court found in favor of defendants on the ground that plaintiff was not entitled to his commission after the lessee stopped paying. Plaintiff appeals. Because this was an action at law tried to the court, we cannot reject findings of fact if there is any evidence in the record to support them. Illingworth v. Bushong, 297 Or. 675, 694, 688 P.2d 379 (1984). We reverse.

The following facts are not in dispute. In October 1996, plaintiff and defendants entered into an exclusive listing agreement authorizing plaintiff to find a tenant for defendants' used car lot. The agreement provided that, if plaintiff found a lessee "ready and willing to enter into a deal" at the specified terms, defendants would pay plaintiff "in cash for your services in connection with this contract, a commission equal in amount to five percent up to first three years of lease." Shortly thereafter, plaintiff, defendants, and Paramount Automotive, Inc. (Paramount or lessee) all signed an earnest money agreement by which defendants agreed to lease the premises to Paramount for three years at $7,500 per month, with four months' rent paid in advance. The earnest money agreement included a statement that, "for services rendered, [defendants] further agree * * * to pay forthwith to [plaintiff] a commission of five percent first three years ($13,500 per note)."

On December 12, defendants and Paramount followed through on the earnest money agreement and signed a three-year lease at $7,500 per month. At the time of the lease signing, defendants executed two additional documents: a promissory note to plaintiff and a partial assignment of rents. The note stated that defendants would pay plaintiff $13,500, plus interest, in consecutive monthly installments of $485, beginning in March of the following year, until the total sum was paid. The form note also contained an acceleration clause, which provided that, if any installment was not paid, the outstanding balance and interest became immediately due. The partial assignment of rents, signed by plaintiff, defendants, and Paramount, contained explicit recitals stating that defendants "ha[d] executed a promissory note in favor of [plaintiff] in the amount of $13,500 as and for broker's fee due and owing" and that the parties "have agreed that the broker's fee may be paid in monthly installments during the term of the lease." The agreement then assigned to plaintiff defendants' interest in "a portion of the monthly rent, in the amount of $485 per month" and instructed Paramount to pay that portion directly to plaintiff. None of the documents contained any indication that defendants' obligation to make payments ended if defendants did not receive rent from Paramount. Both plaintiff and defendant Harvey Anderson testified that, although they never discussed that issue, they did have numerous discussions before execution of the lease in which plaintiff assured defendants that Paramount could perform under the lease. Nevertheless, less than one year into the lease, Paramount stopped making monthly rent payments to either defendants or plaintiff. Plaintiff then initiated this action seeking to enforce the note against defendants. After a bench trial, the court issued a brief letter opinion concluding that "plaintiff is not entitled to any broker commission" because "[d]efendants rebutted the rebuttable presumption that there was consideration for execution of the installment note." The court also stated in a footnote, "Further, there was no meeting of the minds between the parties. Nor was there any effective acceptance of the offer by the lessee in the first place." Judgment was entered accordingly, and plaintiff appeals.

Plaintiff first assigns error to the trial court's conclusion that the installment note imposed no obligation on defendants because it was not supported by consideration. Plaintiff argues as follows. The promissory note is a negotiable instrument as defined by ORS 73.0104(1). Therefore, Article 3 of the UCC, ORS chapter 73, rather than the common law of contracts, applies to the question of consideration. Schiffer v. United Grocers, Inc., 329 Or. 86, 91, 989 P.2d 10 (1999). Under the UCC, "[i]f an instrument is issued for value * * * the instrument is also issued for consideration." ORS 73.0303(2). An instrument is issued for value if it "is issued or transferred as payment of, or as security for, an antecedent claim against any person." ORS 73.0303(1)(c). The promissory note issued by defendants was issued as payment of an antecedent claim, i.e., plaintiff's claim to his $13,500 in commissions pursuant to the listing agreement and earnest money agreement. Therefore the note was issued for value; therefore it was issued for consideration.¹

The official commentary to the parallel section of the UCC, section 3-303, provides a useful and analogous illustration:

"X owes Y $1000. * * * X issues a note to Y for the debt. Under subsection (a)(3) X's note is issued for value. Under subsection (b) the note is also issued for consideration whether or not, under contract law, Y is deemed to have given consideration for the note."

Defendants attack two steps in plaintiff's reasoning. First, they maintain that their obligation to make payments on the note was conditioned on their continued receipt of rent from Paramount, and that, under ORS 73.0104(1), a negotiable instrument must be "unconditional." However, as we discuss more fully below, no condition appears on the face of the note, and nothing in the record supports the conclusion that the note was conditional. Therefore, the promissory note was a "negotiable instrument" under ORS 73.0104.

Second, defendants contend that, even if the note is a negotiable instrument, no consideration supports it because the claim underlying the note—that is, plaintiff's claim for his commission—is invalid; therefore the instrument was not issued for value because it was not issued for a valid antecedent claim, ORS 73.0303(1)(c), and thus was not issued for consideration, ORS 73.0303(2). Defendants rely on Setser v. Commonwealth, Inc., 256 Or. 11, 470 P.2d 142 (1970), for the proposition that, when a real estate broker arranges a transaction between a lessor and lessee and agrees to be paid from the lessor's proceeds from the property transaction, a default or other subsequent failure to perform by the lessee cancels the lessor's obligation to pay the balance due on the commission. Plaintiff cites Setser as well, arguing that it stands for the proposition that a broker's commission is due in full when the deal he or she arranged closes. We agree with plaintiff. Under Setser and subsequent cases, the commission was due in full at the time the lease documents were executed.

Dictum in Setser suggests that a real estate commission may not be earned on a sales transaction until "the purchaser completes the transaction by closing the title in accordance with the provisions of the contract." 256 Or. at 21, 470 P.2d 142 (quoting Ellsworth Dobbs, Inc. v. Johnson, 50 N.J. 528, 236 A.2d 843 (1967)). That rule was subsequently adopted and applied in a number of real estate cases. See, e.g., Red Carpet Real Estate v. Huygens, 270 Or. 860, 865, 530 P.2d 46 (1974)

("plaintiff is not entitled to a commission unless and until the purchaser has completed the transaction in accordance with the terms of the earnest money agreement"); Ward Cook, Inc. v. B-OK, Inc., 261 Or. 227, 232, 493 P.2d 136 (1972) (same); Gibson Bowles, Inc. v. Montgomery, 51 Or. App. 313, 317, 625 P.2d 670 (1981) ("Ordinarily a broker is not entitled to a commission unless the sales transaction is completed."). Thus, if the sale does not close due to the financial inability of the buyer to perform, "the seller cannot be held for commission" because to do so would contravene the "fundamental intendment of the parties * * * that the owner will sell and the buyer will pay, and the broker will thus earn his commission out of the proceeds." Setser, 256 Or. at 22 n. 8,

470 P.2d 142 (quoting Ellsworth Dobbs, Inc.,

50 N.J. at 552,

236 A.2d 843). Defendants focus on the phrase "out of the proceeds," arguing that once Paramount defaulted there were no longer any proceeds from which defendants were obliged to continue making commission payments.

Defendants' argument misconstrues the principle underlying Setser. That case emphasizes the closing date as the time at which a broker is entitled to payment for his or her...