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Commission after contract expires? MA court rules in favor of sales rep.

January 28, 2017

ourt rules in favor of sales representative, allowing payment of commission on expired contract.

Commission agreements are generally contracts made between two parties. One party agrees to sell goods for the other in exchange for a certain percentage of the sale price. This payment is referred to as a commission. In order to be effective, these agreements generally need to include the agreed upon commission percentage, the terms of the agreement and a detailed description of the goods to be sold.

A court in Massachusetts was recently asked to consider what would happen if a commission contract expired but the party that agreed to sell the goods continued to complete sales. In this instance, the agreement in question had been followed for almost 20 years and the business selling the goods alleged representatives from the company producing the goods verbally ensured they would receive commission for continuing to honor the previous, expired agreement.

More on the case behind the controversy

The case dates back to 1990, when the plaintiff, Spectrum Sales, began serving as sales representative for defendant Cobham Defense Electronic Systems. The contract between the two stated that the plaintiff would receive commissions from the sales of Cobham's products. The agreement was terminated and various other agreements were discussed. The plaintiff received a written notice from Cobham stating it should refrain from selling their products. Once this letter was received, the plaintiff contacted sales executives for Cobham that they had worked with on previous occasions, who allegedly stated that the plaintiff should continue their services and they would receive payment. Cobham was then accused of failure to provide commission payments on products sold by the plaintiff for various periods of time spanning from 2011 to 2012.

The defendant countered that the lawsuit should be dismissed since the Statute of Frauds considers sales representatives "brokers" and as such, any "unwritten agreement to pay commissions could not be enforced." The judge presiding over the case disagreed, stating that the Legislature clearly distinguished between brokers and sales representatives when dealing with the licensing of real estate professionals. As a result, the judge concluded that if the "Legislature intended to categorize sales representatives as brokers for Statute of Frauds purposes, it would have included the term 'sales representative' in the statute." Since sales representatives were not included in the language of the statute, they were not considered brokers. As a result, the statute applied.

Implications of the holding

Ultimately, the court ruled in favor of the sales representative, finding that the company could be required to pay sales commissions even though the written contract had expired.

This case provides an example of the many intricacies of business negotiations. In some cases, the terms of contracts may be valid even after expiration. As a result, it is wise for businesses to have any potential contentious issue reviewed by an experienced business lawyer. This legal professional will provide guidance and assist you in better ensuring your business interests are protected.

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