Procuring cause vs. abandonment.

Brokers generally know that in the typical brokerage transaction, the broker is hired by the seller to procure a ready, willing and able buyer at terms acceptable to the seller.

Assume, however, this fact pattern: the broker introduces a buyer to a seller and the deal goes nowhere for two months. Then, in the third month, the seller contacts the buyer directly and consummates a sale (leaving the broker out of the loop). Is the broker entitled to a commission? The answer to this question depends on whether the court finds that the broker abandoned the deal, or was instead the procuring cause of the sale.

At the outset, it should be noted that the Courts have no precise formula for answering this question. In most cases, whether the broker was the procuring cause of a sale has been answered by the Courts according to the particular fact pattern involved. In some situations, two months' inactivity by the broker might be considered abandonment, while in others, one year's inactivity might not. It really depends on all the other factors involved in that particular situation, including the disposition of the judge on the morning of the trial. We can, however, offer some clues as to how the courts view this problem.

In the words of one court on procuring cause, "The essential feature of a broker's employment is to bring the parties together in an amicable frame of mind, with an attitude toward each other and toward the transaction in hand which permits their working out the terms of their [sales] agreement. They may reach that [sales] agreement without his aid or interference... [a] broker 'negotiates' just as much when he brings 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."

Other courts have found that the broker was the procuring cause when they created "an amicable atmosphere," or instigated a "proper attitude" between the parties such that it generated a "chain of circumstances" which proximately lead to the sale.

On the question of abandonment, another court writes: "If the broker opens negotiations between the parties but then abandons them after failing to bring the prospective buyer to the seller's terms, the seller will not be liable for a commission even if thereafter selling to the same prospective buyer."

While some courts have held that brokers earn their commissions even if they do not participate in negotiations or attend closings, most courts have ruled that the broker abandons the deal and forfeits its commission when, after introducing the parties, it fails to act diligently to bring buyer and seller together on seller's terms. In the latter scenario, the seller frequently completes the sale with the customer directly and refuses to pay the broker, arguing that the broker abandoned the deal.

In a case involving a non-exclusive brokerage agreement, the broker showed the seller's property to its customer four times. The broker obtained the plans, financial information and comparable values for the customer. In addition, the broker had the property appraised. The customer and seller failed to agree on price, but the broker remained in contact with the parties. Thereafter, the customer and seller dealt directly with each other and a sale was finally consummated. The broker sued for its commission. The court held that the broker had earned its commission since the broker's communications with the seller and purchaser were the means that brought them together. In that case, the court found that the broker earned its commission even though it did not complete the negotiations and was not present at the sale.

As the case law makes clear, the broker's continued communications with both the seller and prospective buyers is frequently a critical issue in brokerage fee disputes. To avoid a possible finding of abandonment, brokers should stay in touch with the parties even after their apparent failure to agree on essential terms. Letters, faxes and memos to sellers and customers are the best evidence of continuing communications. Generally, as long as the broker can demonstrate that it did not abandon the deal, subsequent direct dealings between the seller and broker's customer may not preclude the broker's claim for its commission.

(Jay J. Gurfein is senior panner of Gurfein & Graubard. He is a frequent lecturer at brokerage seminars and was on the faculty of New York University School of Continuing Legal Education. Christopher B. Graham is an associate at Gurfein & Graubard.)