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Brokerage Law: Procuring Cause -- Revisited.

A licensed broker hired by a vendor, introduces the vendor to a ready, willing and able purchaser for the purpose of consummating a real estate transaction. The vendor and the purchaser, then, negotiate and complete the transaction to the exclusion of the broker. The broker sues his employer for the commission on the transaction and in the ensuing lawsuit the court finds against the broker.

Why the disparity in the outcome of these two seemingly similar cases? The answer lies in whether the broker was the procuring cause of the transaction.

In this broad examination of procuring cause, we will pick up where our previous article on the subject left off. We will identify what procuring cause is, how courts have defined it and more importantly, what elements a court looks at to determine whether a broker is the procuring cause. In doing so, we aim to introduce the novice and reacquaint the seasoned broker with probably the most important of the three fundamental factors which the courts consider in determining whether a broker is entitled to a commission in a real estate transaction.

Briefly, then, in an action to recover a commission, a broker must prove that (i) it is duly licensed, (ii) that it had either an express or implied contract with the party to be charged with paying the commission, and (iii) that the broker was the pro curing cause of the transaction.

What is Procuring Cause?

The courts have de fined procuring cause as a "broker's efforts" which "directly and proximately" generate "the chain of circumstances that bring the parties together in an amicable frame of mind" to "consummate a mutually agreed upon transaction."

Historically, a broker was not entitled to a commission for unsuccessful efforts. A broker took the risk of bringing the minds of the parties together so as to effect a bargain and the risk of failure was wholly with the broker. The broker might have devoted time and labor, and expended its money with ever so much devotion to the interests of its employer, and yet if the broker failed to effectuate an agreement or a transaction the broker had no right to a commission. The mere fact that its efforts may have led to subsequent negotiations, which under better circumstances may have resulted in a sale, did not alone entitle the broker to the commission.

In the late 1800's courts held that it must affirmatively appear that the purchaser was introduced to the seller through the means employed by the broker. The mere fact that the broker had originally produced the buyer was not in itself enough to establish procuring cause. Therefore, to entitle a broker to compensation, courts offered an assortment of definitions on what efforts constitute procuring cause including: efforts which "effected the sale," efforts which were the "direct and efficient cause of the sale," "efforts and instrumentality through which the transaction was induced," efforts that were "the producing cause" and efforts which were the "predominantly efficient cause and really effective means which effected a sale."

As a result of a number of landmark cases, today, the well-settled and essential feature of earning a commission is to bring the parties together in an amicable frame of mind, with an attitude to wards each other and the transaction at hand, which permits their working out the terms of their agreement.

A Broker Must Create an

'Amicable Atmosphere'

A broker does not make a case for a commission simply by introducing the parties or initially calling the property to the attention of the buyer. The courts require that a broker show that it created the amicable atmosphere in which the negotiations proceeded and that it was the broker who instigated a proper attitude of the vendor and the purchaser toward each other and the transaction. One court identified the broker as a pro curing cause, "when, in bringing the parties together, the broker negotiate[d] in such a way that the parties themselves evolve[d] a plan of procedure as though the broker carried on the discussion."

The Direct and Proximate Link

In addition, the broker must show that the broker was the direct and proximate link, as specifically distinguished from one that is indirect and remote, between the par ties and the consummation of the transaction.

Specifically, the broker must prove that it generated the chain of circumstances that proximately led to the transaction. A broker will not be the procuring cause where nothing results from its efforts or where the broker has absolutely no connection with the agreement that is made between the parties. In a recent case, the court found that the broker was not the proximate link between the parties and the transaction and, therefore, not entitled to a commission, "where it appeared that the lease would have been consummated if the broker never existed and that the efforts of the broker had not the slightest influence" upon the final lease that was entered into.

The Broker's Efforts

It should be noted, however, that merely planting the seeds that lead to the transaction is not a sufficient basis for claiming a commission. It has been long recognized that a broker, absent the benefit of a special agreement to the contrary, does not automatically make out a case for commission simply because it introduces the parties or initially brings the transaction to the attention of the parties.

A broker must do more than just alert the parties to a possible transaction. Courts have refused to find for a broker where the broker, for example, never showed the property, never arranged nor attempted to arrange a meeting between the parties or did anything to excite a practical interest in negotiating the transaction. In a recent the case, the broker was not allowed to re cover a commission where it was shown that he discussed the sale of the property after showing it to the purchaser but never attempted to arrange for a meeting between the parties and only relayed one offer and one counter-offer between the parties. In an other case, the court refused to find for the broker where the vendor negotiated an entirely different deal through a different broker with the purchaser which the plaintiff broker had obtained. The court held that the broker's efforts, in only showing the property to the purchaser and relaying the purchaser's offer to the vendors which was rejected, were minimal and did not rise to the level of procuring cause to entitle the broker to a commission.

Additional Efforts

To determine whether a broker is the procuring cause, courts also scrutinize the broker?s additional efforts in bringing about a transaction. A court may examine whether the broker initiated telephone conversations, maintained written correspondence, or arranged and attended meetings between the parties. One court looked to the broker's discussion of the transaction terms as an important additional consideration in determining whether the broker was the procuring cause. Such additional efforts have been deemed as sufficient actions which "generate the chain of circumstances that ultimately lead to the transaction," hence entitling the broker to a commission.

Procuring Cause Today

Today the courts have adopted an even broader definition of procuring cause. A broker may be recognized as the procuring cause even if it is not the dominant force in the transaction.

A recent case best illustrates the courts' expansion of the procuring cause doctrine. There the broker was awarded a commission in a transaction where he produced the purchaser but did not participate in the sale or the negotiations leading to the sale. Specifically, the broker showed the property to the purchaser and notified the vendors of the purchaser's interest. Approximately a week after the showing, the purchaser contacted the broker and communicated that she was not interested in the property. However, within that period, the purchaser directly contacted the vendors, entered into negotiations and a week later, contracted to purchase the property. When the broker commenced an action to recover his commission, the defendant argued that the broker was not entitled to a commission because he did not participate in the negotiations that led to the sale. The court, however, held that the broker's entitlement to a commission was not effected by his non-participation in the negotiations. Specifically, the court set forth that a broker does not have to participate in the negotiations surrounding a transaction in order to earn a commission, so long as the broker proves that it created the atmosphere or generated the chain of circumstances in which the negotiations proceeded.

In revisiting procuring cause, we have tried to furnish additional guidelines as to what courts look for in deciding brokerage commission cases. Therefore, each fact pattern must be viewed on a case-by-case basis to determine whether a broker was the procuring cause entitling it to a commission.
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Copyright 2001, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Publication:Real Estate Weekly
Geographic Code:1USA
Date:May 23, 2001
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