Q: I have heard the term procuring cause used to determine when a real estate broker is entitled to a commission. Can you explain that term?
A: Entitlement to a commission can be determined by a number of factors. The first factor is any contract between the broker and the party responsible for paying a commission. Terms of that contract can provide for payment of commission upon contract or even introduction of a potential buyer to a seller. Absent contract terms to the contrary, the general rule of entitlement is based on the concept of procuring cause.
The Supreme Court of Florida addressed this issue in the 1944 case of Taylor v. Dorsey. That case ruled that a property owner was obligated to pay a commission where the owner hired a broker to secure a ready willing and able purchaser and the seller accepts the purchaser’s offer. Closing on sale was not required in that case because the seller backed out of the deal.
The Dorsey case also appears to have introduced the doctrine of procuring cause to Florida law. The court explained that where a broker brought the parties together and sale of real estate result from continuous negotiations started by the broker, the broker is entitled to a commission even if the terms of sale change after the initial contract.
There has been little argument that a broker is entitled to a commission when he presents an offer that is accepted by the seller. There have been many court cases arising from claims based upon continuous negotiation, where it is argued that the broker was not involved with those negotiations. In the 1955 case of Shuler v. Allen, Florida’s Supreme Court explained that “continuous negotiations” meant continuous negotiations between a seller and prospective buyer conducted by a broker. Later cases explained that when the broker terminates effort or involvement prior to contact and a contract is formed substantially later, the broker’s abandonment removes him from the transaction and, with that removal, his right to a commission.
Florida courts have often been asked to determine procuring cause since the Dorsey case. In some cases, the buyer and seller have colluded to cut out the broker. If the broker did not withdraw or cease effort voluntarily and is entitled to a commission. In other cases, the court strained to figure out what really happened in review of the procuring cause issue.
In the case of Dawson v. Hadden, the Appellate Court held that if a Broker locates a purchaser, inaugurates negotiations with him, and so informs the seller, he is the procuring cause and is entitled to a commission even if the seller interrupts negotiation or sells on terms different than what the broker was authorize to accept. In that case, the buyer contracted with the broker to assist in locating and acquisition of a radio station. The broker located a station, initiated negotiations between buyer and the owner but ultimately the station was purchased by a separate company affiliated with the original purchaser. The court also ruled that merely because the contract was closed through a substitute entity did not end the original buyer’s obligation to pay.
In the Venture Vest Realty case, a broker brought buyer and seller together and negotiated terms over a two month period, but no sale took place. Five months later, the buyer and seller revisited the transaction with different agent, resulting in contract and sale. The original broker sued for a commission and the court held the parties had excluded him from the later transaction. He first called the property to the buyer’s attention and he was entitled to a commission.
In the case of Earnest & Stewart, the court was not as impressed with the importance of initial introduction. In that case, the broker told the eventual buyer that certain property was for sale. The court held that was insufficient for procuring cause and the broker was not entitled to a commission.
In the case of Stadler Commercial Real Estate Services, the broker wanted a commission because he told another Broker information about a seller and financials, with admonition to keep the information secret. The second broker was unsuccessful in procuring a buyer, but did pass on the information to a third broker, who ultimately found a buyer who bought the property. The first broker sued for a commission and the court rejected his claim, stating he did nothing to bring about the sale.
The court in Edwards v. Branden Realty also felt that a broker must do more than introduce a prospective buyer to property in order to earn a commission. In that case, the broker took a prospective buyer to an orange grove, but no contract resulted. About nine months later, the buyer was reintroduced to the grove by a friend. The buyer did not recognize the grove at first, but before closing realized he had visited the grove nine months earlier. The transaction closed and the original broker sued for a commission. The court held that the broker did not bring the parties together, did not engage in continuous negotiation and was not purposely excluded from the transaction. The broker’s claim was denied.
The concept of procuring cause can be elusive. It apparently requires something more than merely informing a buyer that property is available. If negotiations truly stop, but later begin again, the broker might still be entitled to the commission, but the entitlement may not exist if the broker terminated negotiations and withdrew from the transaction. A seller will not be able to avoid commission by conspiring with the buyer to go around the broker.
The facts of each case will determine the outcome. Interpretation of the evidence by the court may be difficult to predict. In procuring cause cases, experienced legal representation is critical.
William G. Morris is an attorney with offices at 247 North Collier Boulevard. His practice covers a broad range of subjects, including civil litigation, real estate, business and corporate law, estate planning and probate, domestic relations and contracts. He writes this column periodically with respect to legal matters that frequently affect non-lawyers. The information contained in this column is not intended as legal advice and, of necessity, is generalized. For questions about specific circumstances, the reader should consult a qualified attorney.