COURT FINDS COMMERCIAL
BROKERAGE FIRM NOT OWED COMMISSION

The plaintiff, Cook & Associates Realty, Inc., a licensed real estate brokerage company in the State of New York, initiated this action for brokerage commissions allegedly due and owing as a result of locating commercial space on behalf of the defendant Christopher Chestnutt, the principal of Teddy’s International d/b/a EL-Teddy.
Plaintiff broker contacted Chestnutt at a restaurant known as EL-Teddy in order to determine whether he might be interested in an alternate restaurant space.  Mr. Chestnutt expressed interest in finding new space as well as a new lease for his EL-Teddy’s restaurant.  When plaintiff learned of space that she thought would be suitable at 64 West 10th Street and was occupied by a company called EL-Ray LLC, the broker called Mr. Chestnutt and the principal of L-Ray to set up an appointment to view the space.  After having viewed the space, Mr. Chestnutt and the principal of L-Ray began discussing the restaurant business and the possibility of entering into a membership purchase agreement for EL-Ray.  The parties hired attorneys to assist them and the plaintiff broker was never present at any of the meetings and played no part in the ensuing transaction.

Mr. Chestnutt and the principal of EL-Ray entered into a membership purchase agreement providing that Mr. Chestnutt purchased a controlling interest in L-Ray, would be the sole manager of EL-Ray and assume EL-Ray’s lease.  Plaintiff initiated this action for breach of contract arguing that it was owed a commission pursuant to the agreement signed between itself and EL Teddy since Mr. Chestnutt obtained a new space and lease for a restaurant.  Plaintiff also argued that Mr. Chestnutt was personally liable for all commissions owed.

The court indicated that the elements of a cause of action for breach of contract are (1) formation of a contract between plaintiff and defendant; (2) performance by plaintiff; (3) defendant’s failure to perform; and (4) resulting damage.  Plaintiff agreed that it was a party to a contract between Cook & Associates Realty, the brokerage firm and EL-Teddy’s, the restaurant.  The commission agreement executed between the parties provided that if plaintiff succeeded in assisting EL-Teddy’s in acquiring new space or purchase of new space plaintiff would receive a commission.  EL-Teddy’s did not acquire a new lease or new space through plaintiff or anyone else for that matter.  The court therefore determined that plaintiff was not owed a commission from EL-Teddy’s, Teddy’s International or Christopher Chestnutt. 

During the course of the trial, the broker argued that even though the commission agreement was between the brokerage firm and EL-Teddy’s, Mr. Chestnutt signed a document and therefore may be held personally liable.  The court did not agree.  The commission agreement was between two corporate entities.  “A corporate officer signing a contract for a corporation cannot be held personally liable, absent direct and explicit evidence of an actual intent to be personally liable.  It is well known in the State of New York that a corporation exists independently of its owners as a separate legal entity and as a result, owners are not normally liable for the deaths of the corporation.  Although the broker did introduce the principal of EL-Ray to Mr. Chestnutt with the hopes that EL- Teddy’s would acquire the EL-Ray lease, no such transaction took place.

At the trial, the broker argued that the membership purchase agreement provided Mr. Chestnutt with a lease for a new space and therefore Mr. Chestnutt owed plaintiff a commission pursuant to agreement with Teddy’s International.  The court countered that Mr. Chestnutt entered into the membership purchase agreement in his individual capacity and not on behalf of Teddy’s International d/b/a EL-Teddy’s.  Mr. Chestnutt purchased controlling shares in L-Ray and by virtue of his purchase, acquired the L-Ray lease.  The lease was and continued to be L-Ray and no other entity.  The court dismissed the action against all defendants finding no real estate brokerage commission was due and owing.

Cook & Associates Realty Inc. v. Chestnutt, Supreme Court, New York County (NYLJ 9/2/2008)

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