Lesson # 151 • BROKERS (part 1) This lesson and the next two lessons conclude our discussions of the halachot, (Jewish laws), of agents. These three lessons discuss a special type of agent, the broker. Some of the cases that have come before our Beth Din deal with the relationships of brokers, mostly real estate brokers, to their customers. The laws of brokers are included in the laws of agency since a broker is an agent of the principal. A broker may be employed by the owner of an article of personal property or of real estate to find a buyer for the owner's object. Or a broker may be employed by a buyer to find a parcel of real estate or an article of personal property. Nowadays many of the laws of these lessons may be applied to stockbrokers who receive instructions from their customers regarding the sales and purchases of securities. In Jewish tradition a special type of broker was, and in some communities still is, a person who can put together a suitable marriage. Such a person called a shadchan (a marriage broker) may be employed by the family of the groom or the family of the bride or both families. Both of these types of brokers, the business broker and the marriage broker, are discussed by Rabbi Yosef Karo in Shulhan Aruch Hoshen haMishpat in chapter 185. The name of the chapter as it appears in Shulhan Aruch is "A Broker Who Sold For Less Or For More Than What The Owner Instructed Him; And Other Claims That Arise Between Him And The Owner." Some of the questions discussed are the following: What are the
rights of the broker to compensation? When is it earned? What if the broker
deviates from his authority? What if there is a dispute between the owner and
the broker as to the terms under which the broker is permitted to sell the
goods? What are the liabilities of the broker toward the owner? The broker may be paid (1) a flat fee, such as $100 for bringing about the sale. Or, (2) he may be paid a percentage of the sales price, such as 10% of the sales price. Or, (3) a sliding scale flat fee for bringing about the sale or purchase, for example, the broker will receive 10% of a sale price of up to $10,000 and 7% above the amount of $10,000. Or, (4) any arrangement that is legal and is sanctioned by the community. Some communities and trade organizations disapprove of the owner setting a net sales price and permitting the broker to keep all money received above such price. For example, the owner says that he wants a net of $5,000 for the object he is selling and the broker can keep all moneys in excess of the $5,000. It is feared that even if the broker would receive an offer from a buyer, for let's say $5,500, the broker would not agree to the sale and would not inform the owner of the offer. The reason is that the broker wants to raise the price to at least $6,000 so that the broker would receive $1,000 instead of $500. While it is true that the broker may be talking himself out of a commission of $500 while waiting for a commission of $1,000, both the owner and the potential customer are also losers. Very often there will be local laws or local customs dealing with the role of the broker and his liabilities and compensation. Beth Din should examine such laws and customs and the intent of the parties to see which is controlling and perhaps a combination of them will be controlling. The broker is an agent of the owner and he is not a partner of the owner. (Or he may be the agent of the buyer; many of the laws of these lessons apply equally well to the broker who is employed by the buyer.) He is given merchandise or real estate to sell to a purchaser whom the broker is to find. He is not a partner of the owner even if he is to receive a percentage of the sale's price as his wages for bringing about the sale. The broker must not deviate even in the smallest degree from the instructions given to him by the owner and if he does he is liable for any loss sustained by the owner/principal. He may not deviate even if the instructions of the owner are not reasonable. For example, wheat is selling for 90 cents a bushel. The owner gives the broker instructions to obtain $3 a bushel. The fact that the broker was able to obtain a price of 95 cents a bushel, five cents more than the market price, does not change the fact that the broker deviated from the $3 a bushel instructions. In such case the broker may either return the article to the owner and state that the instructions are not reasonable, or sell at the price stated by the owner. If the broker deviates in any detail from the instructions given to him by the owner, and the third person knows that the broker is not the owner and is selling for the owner, the sale to the third person may be voided by the owner. A well-advised purchaser will ask the broker for the extent of his authority and verify it with the owner. Over the years brokers build up reputations that they can be relied upon to state truthfully the extent of their authority. If the broker has deviated from his authority, and the sale cannot be undone (for example, the goods have been consumed or resold or the buyer has left the community), and the owner suffers a loss because of the deviation by the broker, the broker must compensate the owner for such loss. For example, the owner instructs the broker to obtain $3 a bushel and the market price is 50 cents a bushel. The broker obtains 50 cents a bushel and the sale cannot be undone. The broker owes the owner $2.50 for each bushel sold. In modern times it will be rare that a sale will be undone, for this would stifle all commerce, so much of which is handled through brokers. When the broker deviates from the owner's instructions and the broker concludes a sale with a buyer, if there is a gain, the entire gain belongs to the owner. However, if the gain is more than the market price, the gain is divided equally between the owner and the broker. For example, The market price of wheat is 80 cents a bushel. The owner employs the broker to sell one hundred bushels of wheat at 60 cents a bushel since the owner is in desperate need of cash. The broker sells the wheat at 70 cents a bushel; the owner keeps the 70 cents. The broker obtains 80 cents; the owner gets the 80 cents. The broker obtains 90 cents a bushel: the owner gets 85 cents and the broker 5 cents. The broker get the 5 cents a bushel in addition to the broker's regular fee. In the sales of securities, most contracts between customers and brokers incorporate a procedure for settling disputes through arbitration. Assume a situation where the owner tells the broker to obtain a
purchaser for an object of personal property or real estate. The owner did not
give the broker a price, but rather told the broker that the owner will have to
approve the price before the sale becomes final. Assume the broker tells the
buyer that he has authority to sell on behalf of the owner at a certain price,
and the buyer agrees to that price. The buyer sues to obtain the object at the
price that the broker accepted. At the trial the owner pleads and proves that he
did not set a price, and the buyer should have consulted with the seller as the
scope of the broker's authority. The owner can void the sale since he had not
set a price. Here, too, it will depend upon the degree of stifling of commerce
by permitting rescission in such cases. If it stifles commerce the owner will
not be permitted to rescind the sale. Nowadays it will be a rare case where the
owner will be permitted to rescind a sale made through his broker, unless the
thing that is sold is unique, such as a parcel of real estate or a rare
painting. In most instances the purchaser will ascertain the extent of the
authority of the broker. In most real estate sales, since the owner will have to
sign the contract (which will not be binding upon him until he signs) he will
know if the broker obtained the sales price that the owner sought. [The
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