Avoid Confusion when Relying on Another Party’s Contract

A recent Wisconsin Court of Appeals ruling in January of 2025, highlights the issues that arise when your rights to payment depends on what happens under another party’s contract with a third party. The case involved a co-broker seeking a commission after a tenant exercised an option to purchase a property, based on a listing agreement promising payment if the option was exercised “within three years of the lease term.” Disagreement over this phrase—whether it meant three years from the lease’s start or end—sparked litigation. This scenario isn’t unique to broker-co-broker relationships. It can arise in any situation where one party relies on another’s contract, such as subcontractors, agents, or partners. The following steps can help prevent confusion, which in turn could result in costly litigation.

First, precision in drafting timing provisions is important. Explicitly defining key triggers can prevent disputes when obligations arise.

Second, clearly delineating the collecting party’s duties to the reliant party is critical. If an agreement doesn’t obligate the collecting party to actually take action to collect, it can leave the reliant party exposed. A provision that mandates the collecting party to act on behalf of or pay the reliant party is important to enhance the changes of realization.

Finally, embedding enforcement mechanisms, like lien rights or direct access to proceeds or a right to enforce the underlying contract with the end obligor, offers a solution if the collecting party cannot or will not take action.

Addressing clarity, duties, and recourse in contracts where you rely on another’s collection efforts can avert costly uncertainty.