Brokerage agreements: what the courts look for.

The following is the second, and concluding part of the series....

3. Procuring Cause

In the typical brokerage transaction, the broker is employed by the seller to procure a buyer ready, willing and able to purchase or lease the seller's property on terms acceptable to the seller.

Often times, after a broker has located a prospect, introduced the principals and commenced the negotiation process, the principals contact each other directly and consummate the deal to the exclusion of the broker.

In response to the broker's claim for commissions, the seller will commonly argue that the broker's minimal role in the transaction precludes the earning of a commission.

It is a well settled rule of brokerage law that in order to recover a commission, the broker is required to prove to be the "procuring cause" of the sale. The proof required to establish this concept requires more than merely introducing the seller and the prospective purchaser. This rule, however, does not mean that the broker has to he involved in every aspect of the deal in order to earn a commission.

As the Courts have held, a commission may still be due, even if the broker did not participate in the negotiations between the parties, was not present at the sale and the owner, was not even aware that the purchaser was located by the broker. As one court emphasized, it must be established that the broker "generated a chain of circumstances" proximately leading to the ultimate sale of the property.

Other courts have held that there must at least be a showing that "the broker created an amicable atmosphere in which negotiations went forward". The rationale for this is that a "broker negotiates just as much when he brings the parties together in such a frame of mind that they can by themselves evolve a plan of procedure as when he himself carries on the discussion and personally induces an agreement to accept a specific provision."

It should be noted, however, that if a broker opens negotiations between the parties but, failing to bring the customer to the owner's specified terms, "abandons" the prospective deal and the owner subsequently sells to the same person, the owner will not be liable to the broker for a commission. Often a seller will rely on this rule of abandonment to successfully defend against the broker's action if sufficient time has elapsed since the broker's last contact with the deal.

Based on these general principles of law, it should come as no surprise that a large number of cases have been commenced where the Courts have been asked to determine whether certain brokerage activities were sufficient to support a finding that the broker was the "procuring; cause" of a sale.

In order to illustrate these broad principles, a sampling of some relevant decisions are discussed below:

In a recent case, a broker sued to recover a commission claiming that it was the procuring cause of the sale of certain property. The Court, focusing on the activities performed by the broker, held that the most that could be said regarding the broker's efforts was that he "alerted the prospective purchaser to the property". In reaching this conclusion, the Court described some of the important activities that the broker failed to perform. Specifically, the Court found that the broker neither arranged nor attempted to arrange a meeting between the buyer and seller, did not participate in any negotiations, did not show the property to the buyer, made no effort to determine the amount of real estate taxes on the property, the value of the property or how payment was to be made on the sale.

The Court, holding that there must be "a direct and proximate link between the bare introduction of the parties and consummation of the deal", decided against the broker and dismissed the Complaint.

In another case, the evidence outlined the services performed by the broker.

The Court rejected the broker's claim holding that the most that could be said of the broker's efforts is that he "alerted the prospect to the availability of the property". Although the broker testified that he had spoken to the prospect and the owner's agent on several occasions after the initial introduction, the Court found that the broker never arranged or attempted to arrange for a meeting between the parties, never showed the prospect property and did nothing "to excite a practical interest in negotiating for the property." Moreover, the broker did not explore on his own, or with the other parties, such questions as the ability of the prospect to make the purchase, whether there was a cure for a potential tax problem regarding the purchase, or the effect of the expected commercial demise of one of the tenants on the property.

The Court concluded that "there was not even the slightest prodding towards any meeting of the minds" until six months after the broker's introduction, at which time the parties independently and directly, without any aid or intervention of the broker, entered into negotiations ultimately resulting in the sale of the property.

In this article we have tried to furnish some guidelines as to what the courts look for in deciding brokerage commission cases.

It should be clear that there is no precise formula for establishing the evidence that is actually required. Each fact pattern must be viewed on a case-by-case basis in order to determine whether a broker's performance was sufficient to result in a duly earned commission.

Future cases will undoubtedly have an impact on the issues that have been addressed in this article.