View the Code of Ethics
Professional Standards
Procuring Cause
There has been more arbitration hearings having to do with
procuring cause than any other issue.
The following is where you can get the procuring cause information
that may help you stay out of an arbitration hearing. It is
not real easy reading, but it bears considerable weight when
a hearing panel decides your fate on a transaction.
PROCURING CAUSE FACTORS
Whether a broker is the procuring cause
of a sale must be factually determined on a case-by-case basis. Many factors
can impact a determination of procuring cause, but no one factor is by
itself determinative. Procuring cause is in fact the interplay of factors
which together demonstrate that the unbroken efforts of a specific broker
were responsible for the buyer making the decision to consummate the sale
on terms which the seller found acceptable. In other words, a broker who
is the procuring cause of a sale is a sine
qua non of the sale -- the sale
would not have occurred but for the broker's efforts.
When reviewing the factors listed below,
it is important to note that the occurrence of any particular factor in
a fact situation does not necessarily mean that procuring cause does or
does not exist. This is because it is the interplay of factors that is
so important in recognizing procuring cause, not the presence of any one
factor alone. A specific factor can, in fact, cut either way, depending
on its importance compared to the other factors in the case and depending
on when it occurs in the timeline of the case.
Procuring cause factors may be grouped,
for organizational purposes, into nine different categories. These categories
are:
- The nature and status of the transaction
- The nature, status and terms of the
listing agreement or offer to compensate
- The roles and relationships of the
parties
- The initial contact with the purchaser
- The conduct of the broker* or agent
- Continuity and breaks in continuity
- The conduct of the buyer
- The conduct of the seller
Other information
In the analysis that follows, specific
procuring cause factors are grouped by the above categories. In addition,
where there is supporting case law, citations and brief explanations
are provided to offer examples of the interplay of that factor with
other factors and to suggest outcomes. Please note that much of the
case law does not resolve disputes between brokers, but between sellers
and brokers. Likewise, most of the cases involve open listings rather
than exclusive listings. Nevertheless, these cases focus on two issues
which are relevant to fact situations involving exclusive listings
and broker-broker disputes -- that is, what has the broker been promised
(by either the seller or the listing broker) and what must the broker
do to attain his promised commission.
PROPOSED Procuring Cause Factors:
I. The Nature and Status of the Transaction
A. What was the nature of the transaction?
B. Is or was the matter the subject
of litigation?
II. The Nature, Status and Terms
of the Listing Agreement or Offer to Compensate
A. What was the nature of the listing
or other agreement: exclusive right to sell, exclusive agency, open
or some other form of agreement?
B. Was the agreement in writing?
C. Was the agreement in effect at
the time the sales contract was executed?
D. Was the property listed subject
to a management agreement?
E. Is the claimant a party to whom
the listing broker's offer of compensation was extended?
F. If an offer of cooperation and
compensation was made, how was it communicated?
G. Were the broker's actions in accordance
with the terms and conditions of the agreement or offer of cooperation
and compensation (if any)?
The nature, status and terms of the
listing agreement or offer to compensate are the starting points for
any procuring cause analysis. For the broker to be the procuring cause,
however, the agreement need not be exclusive. Farm
Credit Bank of St. Louis v. Miller,
872 S.W.2d 376 (Ark. 1994); Hennessy
v. Schmidt, 384 F.Supp. 1073
(N.D. Ill. 1974); Atkinson
v. S.L. Nusbaum & Co.,
59 S.E.2d 857 (Va. App. 1950). Neither must the agreement be written.
Christo v. Ramada Inns, Inc.,
609 F.2d 1058 (3d Cir. 1979); Ahrens
v. Haskin, 299 S.W.2d 87
(Ark. 1957); Feeley v. Mullikin,
269 P.2d 828 (Wa. 1954); Wilson
v. Sewell, 171 P.2d 647 (N.M.
1946). The critical questions are whether the agreement was in effect
at the time the sales contract was executed and whether the claiming
broker was a party to whom the agreement extended. Farnsworth
Samuel Limited v. Grant,
470 So.2d 253 (La.App. 1985); Winograd,
Inc. v. The Prudential Insurance Company of America,
476 N.Y.S.2d 854, aff'd.
472 N.E.2d 46 (1984); Mohamed
v. Robbins, 531 P.2d 928
(Ariz. App. 1975); Hampton
Park Corporation v. T.D. Burgess Company, Inc.,
311 A.2d 35 (Md. App. 1973); Wright
v. Jaegeris, 427 S.W.2d 276
(Mo. App. 1968).
For instance, in Winograd,
one broker supplied information about the subject space to a second
broker who finalized the transaction. 476 N.Y.S.2d at 856. Neither
activity was dispositive. Id.
The second broker, not the first, was the procuring cause because
the listing agreement did not extend to the first broker. Id.
In Mohamed,
the extension clause of an exclusive listing agreement was a key factor
in establishing that the broker was the procuring cause. 531 P.2d
at 930. Here the broker made contact with an appropriate representative
of the ultimate purchaser during the period of the listing agreement,
initiated negotiations with him and followed up after the listing
agreement expired. Id.
The broker took no part, however, in the final negotiations. Id.
Nevertheless, the broker was the procuring cause of the ultimate sale
because the listing agreement provided that a commission would be
due the broker if the property was sold to any person whom the broker
had negotiated with prior to the expiration of the listing. Id.
1. Were all conditions of the agreement
met?
Where a condition precedent to the payment
of commission is not met, the broker is not the procuring cause --
even though he has produced a buyer/lessee who is otherwise ready,
willing and able and even though the sellor/lessor has acted in bad
faith. The Quadrant Corporation
v. Spake, 504 P.2d 1162 (Wash.
App. 1973). In Quadrant,
the agreement provided that the broker would get a commission if he
produced a lessee who would agree to the terms acceptable to the lessor
and if the lessor was able to secure construction financing necessary
to make improvements to the property. Id.
With regard to the financing, the broker found lenders willing to
take loan applications from the lessor, but the lessor refused to
sign said applications. Id.
at 1164. The court held that the lessor's refusal was in bad faith
and constituted a breach of his agreement with the broker. Id.
Nevertheless, the broker was not the procuring cause because it was
factually unlikely that the lessor would have been approved for the
loans and thus unlikely that the condition precedent to the payment
of the broker's commission could have been met. Id.
at 1166.
2. Did the final terms of the sale
meet those specified in the agreement?
For a broker to be the procuring cause
of a sale, the final agreed-upon price need not be the same as that
specified in the listing agreement. Follman
Properties Company v. Daly,
790 F.2d 57 (8th Cir. 1986); Fanning
v. Maggi et al., 126 N.Y.S.2d
551 (1953); Wilson v. Sewell,
171 P.2d 647 (N.M. 1946). Courts recognize that the buyer and seller
will negotiate and that the seller's agreement to a lesser price than
originally asked for should not negate the broker's efforts. Wilson,
171 P.2d at 649.
It is not, however, sufficient for the
broker to bring the parties to agreement only as to price. Kaelin
v. Warner 267 N.E.2d 86 (N.Y.
App. 1971). There must be agreement as to all essential terms for
the broker to be entitled to receive the commission specified in the
listing agreement. Id.
For instance, in Kaelin,
the listing agreement required the broker to procure a buyer at a
sale price of $100,500, "with terms to be arranged." Id.
at 87. The broker procured an offer of $100,500, but the parties could
not agree as to the terms normally required for a real estate transaction,
including payment terms and closing date. Id.
Since there was no agreement as to all essential terms, the broker
did not earn his commission. Id.
at 88.
In In
re Fox' Will, a broker who
introduced the parties and showed the property to the buyer first
was not the procuring cause where it was another broker who was able
to bring the buyer to the terms specified in the listing agreement.
126 N.Y.S. 158 (1953).
III. Roles and Relationships of the
Parties
A. Who was the listing agent?
B. Who was the cooperating broker
or brokers?
C. Are all appropriate parties to
the matter joined?
D. Were any of the parties acting
as subagents? As buyer brokers? In some other capacity?
E. Did any of the cooperating brokers
have an agreement, written or otherwise, to act as agent or in some
other capacity on behalf of any of the parties?
F. Were any of the brokers (including
the listing broker) acting as a principal in the transaction?
G. What were the brokers' relationships
with respect to the seller, the purchaser, the listing broker, and
any other cooperating brokers involved in the transaction?
In most instances, the broker's relationship
with the parties is a straightforward one that does not in itself
raise questions as to whether or not the broker is the procuring cause
of a sale. At other times, however, the relationship is less straightforward
and courts have had to ask additional questions in order to determine
procuring cause:
1. Was the party to whom the property
was ultimately sold represented by a party with whom the broker had
previously dealt?
Knight v. Hicks,
505 S.W.2d 638 (Tex. App. 1974) demonstrates this kind of relationship
and its effect on determining procuring cause. In Knight,
the broker introduced Herschel Johnson to the seller and showed him
the seller's property. Id.
at 641. The broker also initiated negotiations between the parties,
but was not able to finalize them. Ultimately, Mr. Johnson's son purchased
the property from the seller. Id.
Even though the broker had never shown the son the property or negotiated
with him, the broker was the procuring cause of the sale because the
parties had understood from the beginning that Mr. Johnson had been
interested in the property on behalf of his son. Id.
at 642.
2. Is the primary shareholder of
the ultimate buyer-corporation a party with whom the broker had previously
dealt?
O'Brien v. Morgan,
104 A.2d 411 (D.C. App. 1954) offers a good example of the kinds of
complex relationships that can occur and the kinds of procuring cause
questions that are raised when dealing with corporations. O'Brien
is a case involving the sale of interstate motor carrier operating
rights, rather than real estate; the principles, however, are applicable
to the sale of real property as well. In O'Brien,
the broker initiated negotiations between the seller and the Shoe
City Corporation, the sole owner of which was a Mr. Lyons. Id.
at 412. Ultimately, the negotiations broke down, though through no
fault of the broker. Id.
Later, a sale was finalized between the seller and Quinn Freight Lines,
Inc., the controlling shareholder of which was also Mr. Lyons. Id.
The court held that the broker was indeed the procuring cause of the
sale to Quinn Freight Lines because his prior efforts with regard
to the ultimate decision-maker had been sufficient. Id.
at 413.
3. Was a prior prospect a vital link
to the ultimate buyer?
Strout Realty, Inc. v. Haverstock,
555 A.2d 210 (Pa. 1989) shows how a broker's efforts with regard to
one prospect may make her the procuring cause of a sale to a different
prospect -- if the first prospect is the chief conduit to the ultimate
buyer. In Strout,
the broker first showed the seller's property to a Reverend Shafer
and reached the point of discussing price and financing with him.
Id.
at 211. The Reverend then brought Stewardship Consultants, Inc. into
the picture and the seller ultimately and directly negotiated a sale
of the same property with this corporation. Id.
The court held that because Reverend Shafer had conveyed critical
information given to him by the broker to the corporation, the sale
would not have occurred but for the introduction of the property to
Reverend Shafer by the broker. Id.
at 214. The broker, therefore, was the procuring cause of the sale
to the corporation. Id.
IV. Initial Contact with the Purchaser
A. Who first introduced the ultimate
purchaser or tenant to the property?
A broker who makes the initial contact
with the purchaser does not automatically become the procuring cause
of an ensuing sale. Mohamed,
531 P.2d at 931. When and how the initial contact was made can, however,
be important factors in determining procuring cause. United
Farm Agency of Alabama, Inc. v. Green,
466 So.2d 118 (Ala. 1988); Mehlberg
v. Redlin 96 N.W.2d 399 (S.D.
1959); Wilson v. Sewell,
171 P.2d 647 (N.M. 1946). Thus, the following factors must be considered:
B. When was the first introduction
made?
1. Did the ultimate buyer find the
property on his own?
Hampton Park
demonstrates that where a decisionmaker/buyer discovers the subject
property, arrives at his decision and negotiates the terms through
means which are independent of the claiming broker's efforts, the
claiming broker is not the procuring cause. 311 A.2d at 35. In this
case, after negotiations arranged by the broker had broken down between
the owner and one representative of the Post Office, another representative
of the Post Office, who had learned of the property through his own
investigations, independently negotiated a sale with the owner. Id.
at 39. The claiming broker was not the procuring cause because his
introduction of the property was not "the foundation" on
which the sale was ultimately made. Id.
at 41.
2. Was the introduction made when
the buyer had an immediate need for that specific property?
Mehlberg. v. Redlin
establishes how important it can be for a broker to introduce a prospective
buyer to the right property at the right time. 96 N.W.2d 399 (S.D.
1959). In Mehlberg,
the broker told a pastor about a property which was suitable for a
parsonage at the time a church was in immediate need of a parsonage.
Id.
at 400. The broker, however, did not show the property to the officers
of the church; rather the officers viewed the property on their own
from the outside, sought out the seller and negotiated a sale directly
with him. Id.
The court held that the broker was nevertheless the procuring cause
of the sale because he had brought the parties together at a propitious
moment. Id.
at 402.
3. Did the buyer know about the property
before the broker contacted him? Did he know it was for sale?
In Farnsworth
Samuel Limited v. Grant,
the buyer lived across the street from the subject property. 470 So.2d
253 (La.App. 4th Cir. 1985). Yet he did not know it was listed for
sale until the broker informed him. Id.
The broker initiated negotiations between the parties, but was not
able to consummate the deal. Id.
Subsequently, the buyer and seller entered into direct negotiations
with each other. Id.
Curiously, the difference between the original bid submitted via the
broker and the price agreed upon by the parties in their direct negotiations
equalled the broker's commission. Id.
at 254. The court held that the broker was the procuring cause, listing
a number of factors it considered in making its decision: "whether
the prospect who ultimately purchased the property knew about the
property before being contacted by the broker; the relative success
of failure of the negotiations conducted by the broker, including
the continuity or discontinuity of the original and final negotiations;
the length of time elapsing between the broker's negotiations and
the final sales agreement; development of a new, different, or independent
motive for the prospect to purchase; whether or not the broker abandoned
efforts to negotiate the transaction with a particular prospect; and
finally, the good or bad faith of the principal and the broker."
Id.
4. Were there previous dealings between
the buyer and the seller?
A broker may be the procuring cause
of a sale even if there were previous dealings between the buyer and
the seller. Mohamed,
531 P.2d at 931; Chamness
v. Marquis, 383 P.2d 886
(Wash. 1963). In Chamness,
the prospective buyer had previously had direct, but unsuccessful
dealings with the seller. Id.
The broker then made substantial contributions by showing the property
to the prospective buyer several times, re-initiating negotiations
and attempting to secure financing. Id.
at 887. Even though the buyer and seller ultimately came to terms
on their own, the broker was the procuring cause because his efforts
were the foundation for the final, successful negotiations between
the parties. Id.
at 888.
C. How was the first introduction
made?
1. Was the introduction made to a
different representative of the buyer?
A broker may be the procuring cause
of a sale even if she introduced the property to one individual and
negotiated final terms with another, so long as both individuals represented
the same buyer and so long as the individual making the ultimate decision
to buy did not arrive at his decision independent of the broker's
efforts. Arthur H. Richland
Company v. Morse, 169 F.
Supp. 544 (Md.), aff'd.
272 F.2d 183 (4th Cir. 1959). Cf.
Hampton Park,
311 A.2d at 35 (where ultimate decision-maker had found property through
his own investigations and did not avail himself of any of broker's
efforts).
2. Was the "introduction" merely a mention that the property was listed?
Merely alerting a buyer to the fact
that a property is available does not usually constitute procuring
cause. United Farm Agency
of Alabama, Inc. v. Green,
466 So.2d 118 (Ala. 1988); Greene
v. Hellman, 412 N.E.2d 1301
(N.Y. App. 1980). But See
Mehlberg,
96 N.W.2d at 402 (where broker brought specific property to the attention
of prospective buyer when buyer had an immediate need for that specific
property, the broker was the procuring cause). For instance, in United
Farm, the sellers had two
properties listed with the broker. Id.
at 119. The broker showed one property to the prospective buyers;
he merely mentioned to the prospects that the second property was
listed. Id.
Shortly thereafter and without the involvement of the broker in the
negotiations, the prospects purchased both properties directly from
the sellers. Id.
at 120. The court held that the broker was the procuring cause as
to the first property. Id.
With regard to the second property, however, he was not the procuring
cause because he had done nothing more than mention that it was listed.
Id.
at 121.
3. What property was first introduced?
In Doyal & Associates, Inc. v. Wilma Southeast, Inc.,
the broker represented the buyer bank. 322 S.E. 24 , 25(Ga. App. 1985).
He showed one property and and made appropriate follow-up efforts.
Id.
The bank and the owner of the first property, however, eventually
and directly finalized a sale of another property, which the broker
had never shown the bank. Id.
The broker was not the procuring cause just because he had introduced
the parties. Id.
The broker needed to prove that negotiations had been pending on the
second property. Id.
V. CONDUCT OF THE BROKER
A. Were all disclosures mandated
by law or the Code of Ethics complied with?
B. Was there faithful exercise of
agency on the broker's part, or was there any breach or failure to
meet the duties owed to a principal?
A broker who breaches his duty to his
principal is not entitled to his commission. Haymes
v. Rogers, 222 P.2d 789 (Ariz.
1950). In Haymes,
the broker was alleged to have breached his duty to the seller by
telling the prospective buyer how much another party had bid and what
he could get the seller's property for. Id.
Subsequently, the buyer and seller finalized the transaction directly
with one another, bypassing the broker. Id.
In determining whether the broker was nevertheless the procuring cause,
the court left it to the jury to decide whether the allegation that
the broker had breached his duty to his principal was true. Id.
However, it noted that if such a breach was found to have occurred,
the broker would not be entitled to his commission. Id.
at 790.
C. If more than one cooperating broker
was involved, was either (or both) aware of the other's role in the
transaction?
Although it is often overshadowed by
other factors, the awareness by one broker of the recent efforts of
another is a factor to be considered in determining procuring cause.
Wright,
427 S.W.2d at 276; Atkinson,
59 S.E.2d at 860. Where one broker is aware of another's continuing
efforts and in bad faith interferes with the transaction, he will
not be the procuring cause.
Wright,
427 S.W.2d at 276. However, where one broker, aware that another broker's
efforts have broken down, steps in and finalizes a sale, his efforts
are legitimate, and he will be the procuring cause of the sale. Atkinson,
59 S.E.2d at 860.
D. Did the broker who made the initial
introduction to the property engage in conduct (or fail to take some
action) which caused the purchaser or tenant to utilize the services
of another broker?
A broker may cause a buyer to seek the
services of another broker either through estrangement or abandonment.
Levy Wolf Real Estate Brokerage,
Inc. v. Lizza Industries, Inc.,
500 N.Y.S.2d 37 (1986). In Levy
Wolf, one broker did little
more than bring the subject property to the attention of the prospective
buyer and unsuccessfully try to set up a meeting between the parties.
Id.
at 38. He then in essence abandoned his efforts. Id.
The prospect thus sought out the services of a second broker, who
did background research and made inquiries and proposals that ultimately
resulted in a sale. Id.
The second broker was the procuring cause. Id.
E. Did the cooperating broker (or
second cooperating broker) initiate a separate series of events, unrelated
to and not dependent on any other broker's efforts, which led to the
successful transaction -- that is, did the broker perform services
which assisted the buyer in making his decision to purchase?
See
Marathon Realty Corporation
v. Gavin, 398 N.W.2d 689
(Neb. 1987); Atkinson,
supra
V.C.
1. Did the broker make preparations
to show the property to buyer?
Courts examine the prepartory efforts
a broker makes. Farm Credit
Bank, 872 S.W.2d at 378 (broker
sent brochure, made aerial photographs); United
Farm, 466 So.2d at 119 (broker
took pictures of house); Hampton
Park, (broker prepared description,
report).
2. Did the broker make continued
efforts after showing the property?
Likewise, courts consider the continued
efforts a broker makes. Farm
Credit Bank, 872 S.W.2d at
378 (broker who made fifty to sixty follow-up phone calls was procuring
cause); Flamingo Realty, Inc.
v. Midwest Development, Inc.,
879 P.2d 69 (Nev. 1994), cert.
denied, 115 S.Ct. 1999 (1995)(broker
who made continued efforts to secure joint venturer that was prerequisite
to sale was procuring cause; Levy
Wolf, 500 N.Y.S.2d at 38
(broker who abandoned efforts was not procuring cause).
3. Did the broker remove an impediment
to the sale?
A broker's efforts in removing an impediment
to the sale will be considered in determining procuring cause. C.
Myers & Simpson Company v. Feese Real Estate, Inc.,
705 S.W.2d 600 (Mo. App. 1986). For example, in Myers,
one broker showed the property to the buyer first; however, another
broker was responsible for satisfying a prerequisite of the buyer's,
the removal of outdoor advertising signs from the property. Id.
at 602. The court held that the second broker was the procuring cause.
Id.
4. Did the broker make a proposal
upon which the final transaction was based?
A broker's proposal may be critical
in determining procuring cause. Hennessey,
348 F. Supp. at 1073. In Hennessey,
the broker introduced the parties, sent numerous letters to the buyers
and made numerous phone calls to the buyers. Id.
at 1075. However, he did not participate in the negotiations, he did
not assist in the preparation of the final papers and he did not even
attend the closing. Id.
He nevertheless was the procuring cause because his proposal was the
one which the parties adopted in finalizing the transaction. Id.
5. Did the broker motivate the buyer
to purchase?
Courts may even consider various motivational
strategies a broker may employ to bring the buyer to the decision
to purchase. Richland,
169 F. Supp. at 551. For instance, in Richland,
the broker motivated the buyer by letting him know that he had introduced
another serious prospect to the seller. Id.
The court believed that this was one of several important factors
in the buyer's ultimate decision to purchase and that the broker was
thus the procuring cause of the sale. Id.
F. How do the efforts of one broker
compare to the efforts of another?
"When more than one broker competes
for a single commission, these factors have to be carefully examined
by comparing each broker's activities to the activities of the other
brokers involved and by evaluating them in light of the general guidelines."
A.N. Associates, Inc. v. Quotron
Systems, Inc., 159 Misc.2d
515 (C.C. N.Y. 1993).
1. What was the relative amount of
effort by one broker compared to another?
See
Levy Wolf,
supra
V.D., (broker who made greater efforts was procuring cause).
2. What was the relative success
or failure of negotiations conducted by one broker compared to the
other?
See
Farnsworth,
supra IV.B.3., (listing factors relevant to procuring cause: "the relative
success or failure of the negotiations conducted by the broker...").
G. If more than one cooperating broker
was involved, how and when did the second cooperating broker enter
the transaction?
See
Feeley,
infra
VIII.A.3 (second broker entered transaction only after seller acted
in bad faith).
VI. CONTINUITY AND BREAKS IN CONTINUITY
A. What was the length of time between
the broker's efforts and the final sales agreement?
A short lapse of time between a broker's
efforts with regard to a particular buyer and the finalization of
an agreement with that buyer is indicative that the finalization is
the result of the unbroken efforts of the broker. United
Farm, 466 So.2d at 120. Thus,
in United Farm,
where the broker had made considerable preparatory efforts, introduced
the parties, and shown the property to the buyer, the court found
the short lapse of time between the broker's efforts and the buyer's
purchase directly from the seller significant. Id.
See
also
Farnsworth,
470 So.2d at 254; Seckendorff
v. Halsey, Stuart & Co.,
182 N.E. 14 (N.Y. App. 1932).
B. Did the original introduction
of the purchaser or tenant to the property start an uninterrupted
series of events leading to the sale (or to any other intended objective
of the transaction), or was the series of events hindered or interrupted
in any way?
1. Did the buyer terminate the relationship
with the broker? Was such termination in good faith?
A buyer or lessee's good faith termination
of his relationship with a broker will defeat that broker's claim
of procuring cause, provided the termination occurs before successful
negotiations are achieved. Aegis
Property Services Corp. v. Hotel Empire Corp.,
484 N.Y.S.2d 555 (1985). In Aegis,
one broker introduced the parties and showed the space to a potential
lessee. Id.
After the broker followed up with the lessee, but before negotiations
were successful, the prospect terminated its relationship with the
broker, refusing to authorize the broker to negotiate on its behalf.
Id.
at 558. The prospect subsequently retained the services of another
broker, who was able to successfully negotiate a lease. Id.
The court found there to be no bad faith on the part of lessee; its
termination of the first broker was not motivated by a desire to escape
payment of a commission. Id.
at 559. The court reasoned that absent bad faith, a prospect's termination
of a broker's efforts is absolute, and held that the second broker,
not the first, was the procuring cause of the transaction. Id.
2. Did negotiations break down?
Hecht Realty, Inc. v. Whisnant
demonstrates that the breakdown of negotiations is a significant factor
in determining procuring cause. 255 S.E.2d 647 (N.C. Ct. App. 1979).
In Hecht,
the broker introduced the parties and showed the subject property
to the ultimate buyers. Id.
Later, after the broker's exclusive listing agreement had expired,
the prospects decided they wanted the property and made an offer.
Id.
The sellers made changes to the contract, but the prospects refused
to accept the counteroffer. Id.
Negotiations broke down and the broker was not able to finalize a
transaction. Id.
Later, a second broker was able to re-initiate negotiations and ultimately
finalize a sale. Id.
The court held that the second broker was the procuring cause of the
sale. Id.
at 648. See
also
Christo v. Ramada Inns, Inc.,
609 F.2d at 1058.
C. If there was an interruption or
break in the original series of events, how was it caused, and by
whom?
1. Did the seller change the listing
agreement from an open listing to an exclusive listing agreement with
another broker?
An example of this situation is Belleau
v. Hopewell, 411 A.2d 456
(N.H. 1980). Here, a broker had a non-exclusive listing agreement.
Id.
at 458. After he had shown the property to a prospective buyer and
had made continued efforts, the seller gave an exclusive agreement
to another broker, unbeknownst to the first broker. Id.
The buyer then sought the services of the second broker who finalized
the transaction. Id.
The new, exclusive agreement did not break the continuity of the first
broker's efforts, and, the court held, the first broker was the procuring
cause of the sale. Id.
at 460.
2. Was there the development of a
new, different or independent motive behind the purchase?
See
Farnsworth
supra IV.B.3., (listing factors relevant to procuring cause: "development
of a new, different, or independent motive for the prospect to purchase").
3. Was there interference in the
series of events from any outside or intervening cause or party?
See VIII. CONDUCT OF THE SELLER
D. Did the broker making the initial
introduction to the property maintain contact with the purchaser or
tenant, or could the broker's inaction have reasonably been viewed
by the buyer or tenant as a withdrawal from the transaction?
See
Levy Wolf,
supra
V.D.
E. Was the entry of any cooperating
broker into the transaction an intrusion into an existing relationship
between the purchaser and another broker, or was it the result of
abandonment or estrangement of the purchaser, or at the request of
the purchaser?
See
Nestle,
infra
VIII.A.4; Levy Wolf,
supra
V.D., Aegis,
supra
VI.B.1.
VII. Conduct of Buyer
A. Did the buyer make the decision
to buy independent of the broker's efforts/information?
See
Hampton Park,
supra
IV.B.1.
B. Did the buyer negotiate without
any aid from the broker?
See
Hampton Park,
supra
IV.B.1.
C. Did the buyer seek to freeze out
the broker?
Neither the buyer nor the seller may
act in bad faith so as to deprive a broker of his commission which
he has otherwise rightfully earned. Sanders
et al. v. Devereux, 189 A.2d
604 (Md. App. 1963). Sanders
demonstrates how a buyer may attempt, for her own gain, to freeze
out a particular broker. Id.
In this case, a broker introduced the parties, showed the property,
followed up and brought the negotations to a point where success seemed
likely. Id.
One of the buyers, a broker herself, then conspired with the seller
to temporarily take the property off the market, place it back on
the market shortly thereafter, and consummate a sale so that she and
a broker with whom her agency had a business association would receive
the commission. Id.
at 605. In holding that the first broker was the procuring cause of
the subsequent sale, the court asserted: "Although it is not
sufficient that the broker has merely planted the seed from which
the harvest was reaped, on the other hand the owner [or buyer] cannot
take advantage of a broker's services and make the sale himself, or
through another broker, so as to deprive the broker of his commission
when he has introduced a prospective buyer to the seller and negotiations
have progressed to a point where success seems imminent." Id.
at 607.
1. Did the buyer seek another broker
in order to get a lower price?
A buyer may not freeze out a broker
who has sufficiently performed by seeking the services of a broker
whom she believes may be able to get a lower price on the subject
property. Wright,
427 S.W.2d at 276. In Wright,
a broker introduced the buyers to the seller, showed them the property
and properly followed up with them. Id.
at 278. The buyers, however, believed that another broker, with whom
they had a long-time acquaintance, could get them the property at
a lower price. Id.
at 279. They thus contacted the second broker and finalized the sale
via him. Id.
The court held that they could not circumvent the first broker and
thereby deprive him of his commission in this way. Id.
at 281.
2. Did the buyer express the desire
not to deal with the broker and refuse to negotiate through him?
A buyer may decide not to negotiate
through a broker and unless the broker has an exclusive right to sell
agreement, the broker will not be the procuring cause of a subsequent
sale. Walker v. David Davies
Inc., 296 N.E.2d 691 (Oh.
App. 1973). In Walker,
the broker had no direct negotiations with the buyer; in fact the
buyer expressed a desire not to deal through the broker. Id.
at 695. Thus, the court held that the broker was not the procuring
cause even though he had incurred expense and spent time trying the
sell the property. Id.
3. Did the contract provide that
no brokers or certain brokers had been involved?
Buyer and seller may contractually provide
that no broker was involved in their transaction. However, where there
is evidence that the parties have not been truthful and that a broker
has performed sufficiently so that he is the procuring cause, the
broker will be entitled to the commission. Risser
v. Hirshhorn, 199 F.2d 917
(2nd Cir. 1952).
D. Did the buyer divulge to the seller
that a certain broker had brought him to the transaction?
Where a broker has been instrumental
in bringing the buyer to the subject property, the buyer must reveal
this to the seller. Risser,
199 F.2d at 917. Indeed, even where the buyer fails to divulge this
information to the seller, the seller is responsible for paying a
commission to the broker if the seller could have ascertained by reasonable
diligence that the broker's role was sufficient. Id.
For instance, the buyer in Risser
discovered the subject property when he was given a brochure the broker
had prepared and forwarded to an associate of the buyer's. Id.
at 918. Because the buyer at first wished to remain anonymous, the
broker reported to the seller that the associate was interested in
the property; he did not mention the ultimate buyer himself. Id.
The buyer, however, eventually negotiated directly with the seller
and the two inserted a statement in the contract which asserted that
no broker had been involved in the transaction. Id.
at 919. The court determined that the purpose of this provision was
to avoid paying the broker a commission. Id.
The court noted that the buyer had a duty to divulge the broker's
role to the seller and that even if he failed to do so, the seller
would be liable for the broker's commission if the seller could have
ascertained the broker's role by reasonable diligence. Id.
at 920.
VIII. CONDUCT OF THE SELLER
A. Did the Seller act in bad faith
to deprive the broker of his commission?
The following scenarios demonstrate
that courts will not allow the bad faith of the seller to negate the
efforts of a broker who would otherwise be the procuring cause of
a sale. In most instances, the same would prove true if it were the
listing broker who acted in bad faith to deprive a subagent or cooperating
broker of her commission.
1. Was there bad faith evident from
the fact that the difference between the original bid submitted and
the final sales price equalled the broker's commission?
See
Farnsworth,
supra
IV.B.3.
2. Was there bad faith evident from
the fact that a sale to a third party was a straw transaction which
was designed to avoid paying commission?
Farm Credit Bank
demonstrates that courts will not allow straw transactions to deprive
a broker of her commission. 872 S.W. at 379. In Farm
Credit, the brokers registered
both the U.S. Fish and Wildlife Service and the Nature Conservancy
with the seller bank under their non-exclusive listing agreement.
Id.at
378. The brokers made extensive efforts to interest the Fish and Wildlife
Service in the subject property. Id.
They wrote letters, made fifty or sixty telephone calls, had aerial
photographs made, advised the agency of the flood plain and kept the
agency informed as to potential buyers. Id.
Although the agency wanted to acquire the property, it did not have
such an appropriation in its budget that year. Id.
Ultimately, however, a sale was consummated to a corporation which
had been set up to resell the land to the Nature Conservancy which
resold the land to the Fish and Wildlife Service when it could afford
to make the purchase. Id.
at 379. The court refused to let such straw transactions deprive the
brokers of the commission they had earned. Id.
See
also
Flamingo Realty,
879 P.2d at 70 (where seller sold property to corporation which in
turn immediately sold property to broker's prospect).
3. Was there bad faith evident from
the fact that the seller told the broker he wouldn't sell under certain
conditions, but did so via another broker?
In Feeley
v. Mullikin, the broker introduced
the buyers to the seller, showed them the property, initiated negotiations
and properly followed up. 269 P.2d at 828-29. When he attempted to
finalize the sale, however, the seller told him that he had decided
not to sell the property before June 1. Id.
On May 1, nevertheless, a sale was consummated between the buyers
and the seller via another broker who accepted a lesser commission
than that stated in the first broker's listing agreement. Id.
The court held that the seller had acted in bad faith by attempting
to deprive the first broker of his earned commission. Id.
at 831. The first broker, not the second, was the procuring cause.
Id.
4. Did the owner freeze out the broker
to avoid a commission dispute?
Where a broker showed the property and
would have finalized negotiations but for the interference of the
owner, he is the procuring cause of the transaction -- even though
another broker did in fact finalize the negotiations. Nestle
Company, Inc. v. J.H. Ewing & Sons,
265 S.E.2d 61 (Ga. App. 1980). In June of 1976, agents from J.H. Ewing & Sons brokerage showed the subject property to the potential
lessee, Scripto, whom they represented. Id.
at 63. Scripto, however, was not interested in the property at that
time. Id.
Subsequently, in August of 1977, a second brokerage, Coldwell Banker,
showed the same property to Scripto. Id.
Less than six weeks later, one of the Ewing agents informed the lessor,
Nestle, that Scripto was now a "hot prospect" and initiated
negotiations which appeared to be moving towards completion. Id.
at 64. Nestle, realizing that a commission dispute was imminent, stopped
the Ewing agent from going further and placed the transaction in the
hands of Coldwell Banker. Id.
The court held that Ewing was the procuring cause. . .that Nestle
should not have interfered with Ewing's imminently successful negotiations.
Id.
5. Did the seller freeze out the
broker to avoid paying a commission at all?
Even where there is a non-exclusive
listing agreement, a seller may not avoid paying a deserved commission
by negotiating directly with a buyer. Richland,
169 F. Supp. at 549-50. In Richland,
the broker did everything possible -- he introduced the parties, began
negotiations and followed up. Id.
at 546-47. The seller, however, froze him out of important meetings
and finalizing negotiations. Id.
at 548. The court nevertheless held that the broker was the procuring
cause, saying: ". . .it is not requisite, where the [broker's]
evidence is otherwise sufficient, that the broker should have been
present at the final consummation of the sale, or to have directly
and immediately have been the final negotiator therefor. Thus, where
the broker has introduced to the seller a prospective interested buyer
and negotiations have progressed to a point where success seems imminent,
the broker cannot be deprived of his commissions because the seller
in effect bypasses the broker by direct negotiations with the buyer,
in effect freezing the broker out of the case." Id.
at 549-50.
B. Did the seller not authorize the
broker to accept an amount the seller ultimately accepted?
A seller may not deny a broker his commission
where the broker could have finalized the transaction but for the
seller's refusal to authorize the broker to settle for an amount that
he himself ultimately accepted. Ahrens,
299 S.W.2d at 48. In Ahrens,
the broker introduced the parties, showed the property and began negotiations.
Id.
at 47. He was prepared to pursue the transaction to its conclusion;
however, the seller refused to authorize him to offer the property
at the price that the seller in later direct negotiations accepted.
Id.
at 48. The court held that the broker was nevertheless the procuring
cause. Id.
IX. OTHER INFORMATION: Is there any
other information that would assist the Hearing Panel in having a
full, clear understanding of the transaction giving rise to the arbitration
request or in reaching a fair and equitable resolution of the matter?
NON-CONCLUSIONS:
As the cases summarized above demonstrate,
there are a great number of factors to consider when determining procuring
cause. However, it is just as important to remember that no automatic
conclusions should be drawn from the presence or absence of any one
factor. Procuring cause is not always achieved by introducing the
parties. It is not always achieved by finalizing the transaction.
No preconceived formula or rule should be used to determine procuring
cause. Rather each factor should be weighed in conjunction with the
other factors relevant to the case. In short, arbitration panels must
remember that the above factors are simply considerations, not conclusions.
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