Daily Development for
Monday, June 26, 1995

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

BROKERS; COMMISSION; PROCURING CAUSE: Broker may be the procuring cause of a sale even though the seller sells the property to an intervening third party without the broker's assistance if such third party then sells the property to the purchaser procured by broker. Farm Credit Bank v. Miller, 872 S.W.2d 376 (Ark. 1994). Broker "registered" as a potential buyer the U.S. Fish and Wildlife Service (the "Agency"). The Agency was interested in buying, and broker diligently "worked" the sale to the Agency. But the Agency had limitations on its annual budget, so the Agency reached an understanding with the Nature Conservancy that Conservancy would buy the land and resell it to the Agency when Agency funds became available. When seller, a corporation, became aware of all these arrangements, some parties associated with the seller formed a "shell" corporation and executed a purchase agreement with the corporation. The shell corporation refused to assign its contract to Nature Conservancy, but did agree to a simultaneous "flip" closing. Later, the Conservancy sold to the Agency as planned. The shell corporation, of course, was not a registered buyer of the broker, and seller refused to pay the commission. At trial, jury found for broker.

The Arkansas Supreme Court had little trouble with this one. Stressing that the concept of "procuring cause" is heavily influenced by specific facts of the case, the court upheld the jury's determination. It emphasized that the law requires that broker be a "proximate cause" of the sale, but not that the broker be involved in the final closing. Here, given the court's characterization of the broker's role and the "shell" character of the buyer corporation, the actual result was a foregone conclusion. Undoubtedly the seller characterized the role of the broker and the purpose and legitimacy of the buyer corporation differently, but it failed to convince.

BROKERS; COMMISSION; PROCURING CAUSE: Introduction of buyers to property does not make a broker a procuring cause of the sale. Mollyann, Inc., v. Demetriades, 614 N.Y.S.2d 437 (App. Div. 1994). In this case, the broker was not entitled to a commission because the broker's efforts consisted only of 1) brief contacts with the sellers and 2) showing the prospective purchasers the property. The initial offer from the prospective purchasers was lower than the asking price and the offer was rejected. Later, another broker negotiated a successful sale to the same purchasers.

Comment: In this typically abbreviated New York appellate court decision, we are not informed about the terms of the listing agreement. Most jurisdictions will permit the broker to alter the traditional "procuring cause" requirement by express language in the listing agreement setting forth less stringent conditions for the payment of the commission.

For another New York case indicating that proof of such an agreement may be difficult, see Lancaster International Realty, Inc. v. New York News, Inc., 614 N.Y.S.2d 438 (App. Div. 1994) (broker did not prove alleged oral agreement that buyers would "protect" broker; thus "procuring cause" condition must be satisfied.)

On the other hand, an owner may not "end run" a broker by dealing directly with the broker's prospect while the broker is still actively engaged in negotiations, nor can the owner in bad faith deflect the broker from continuing negotiations and then make a deal directly with the prospect. See, e.g. Shalom & Zuckerbrot Realty Corp. v. 101 Fleet Place Associates, 615 N.Y.S.2d 148 (App. Div. 1994). Also see: Dark v. MRO Mid-Atlantic Corporation, 876 S.W.2d 714 (Mo. App. 1994). (procurement of buyer who signs a conditional obligation to buy is not procurement of a "ready, willing and able buyer.")

Comment on all of the above cases: An earlier Daily Development (June 5) discussed Bear Kaufman Realty v. Spec. Development, 645 N.E.2d 244 (Ill. App. 1994) , where an Illinois court stated a potentially much broader interpretation of the "procuring cause" requirement. There, the broker merely told the buyers of the property and never showed it to them. The court determined that the broker could be viewed as the procuring cause when the buyers cut a deal with the seller after they had stopped working with the broker. But the Illinois case goes on to deny the commission because the seller was an "innocent seller" in that the broker never told the seller the identity of the potential clients.

In Mollyann (the New York case), the seller was aware that the first broker was identified with the buyers in question. So the seller was not "innocent," and the Bear Kauffman case might suggest a different result. But Bear Kauffman did not involve an intervening broker, such as was present in Mollyann. Perhaps the court would view the presence of an intervening broker as blocking the "proximate cause" relationship that the Arkansas court in Farm Credit finds necessary.

What do our broker DIRT participants think? Should "pointing" a buyer be enough? Should it matter when another broker intervenes? Presumably, in residential markets, a lot of these problems are worked out through Multiple Listing Service agreements, but those commercial markets, where the big money is, are less structured and more competitive. What should the controlling principles be?

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