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Broker Loses Midas Touch
by Ron Davis
Efforts of a Texas loan broker to obtain financing for development of a Dallas shopping center never really got off the ground, much to the dismay of the broker.
The broker is Midas Financials, Inc., and the developer of the shopping center—SCH-Trident, Inc.—apparently needed nearly $10 million for construction of the facility. So SCH-Trident entered into an exclusive loan-brokerage agreement with Midas in hopes that Midas could find a source of the money needed for the project.
The agreement between the broker and the developer stated that Midas must secure the construction money within 60 days. That 60-day period would begin when SCH-Trident “provides to Midas all documents and instruments initially requested by Midas.”
The agreement also stated that once SCH-Trident secures the financing for the project, Midas would get 2 percent of the loan commitment as a broker’s fee. SCH-Trident then gave Midas a $10,000 deposit to be applied to the broker’s fee. That agreement was signed by both parties.
More than five months after the execution of that agreement, SCH-Trident signed another agreement with a second loan broker. Within three weeks that broker received a loan commitment from a local bank.
Midas responded to that arrangement by claiming that SCH-Trident breached the brokerage agreement between the two parties. Midas’ principals pointed out that the 60-day period for their finding financing did not begin until their receipt of all documents they requested. They added that they did not get those documents until three months after signing of the brokerage agreement.
SCH-Trident simply replied that Midas had failed to produce any evidence of securing financing for the development. SCH-Trident also demanded that Midas return the $10,000 deposit that SCH-Trident had received as a payment toward brokerage fees.
A Texas court ruled in favor of the developer, explaining that Midas would not have obtained financing in any time frame. But the judge also concluded that SCH-Trident was not entitled to the return of the $10,000 deposit because SCH-Trident had in fact breached the agreement with Midas.
On appeal, a Texas appellate court upheld the lower court ruling, stating, “The record in this case shows Midas could not or would not have performed regardless of the SCH-Trident’s breach. For Midas to perform, it was required to obtain a loan commitment within the 60-day exclusivity period. As of the date of any extension, Midas had not actually obtained a loan commitment.” The court did, however, agree that SCH-Trident, because of its actions, must surrender the $10,000 deposit paid to Midas. (Midas Financials, Inc. v. SCH-Trident, Inc., 2009 WL 1801038 [Tex.App.-Dallas])
Decision: June 2009
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