Fisher Law Corporation’s Frequently Asked Questions

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Notice: The information contained in these articles is designed to provide accurate information in regard to the subject matters covered and is made available with the understanding that the information provided does not constitute the rendering of legal or professional services. All information is of a general nature, is specific to California law only, and is not intended to to replace professional or legal advice. Each person’s situation is unique and the information contained herein cannot be applied to any individual’s situation. If legal advise is required, the services of a professional should be sought.


What is an all-inclusive deed of trust? »

What is CERCLA? »

How does a condominium differ from a house? »

What are Covenants that run with the land? »

What is a deed in lieu of foreclosure? »

What are easements? »

What are Encroachments? »

How does escrow work? »

What is fire and flood insurance? »

How do foreclosures work? »

What are the different forms of doing business? »

What do trade terms mean? »

What are liquidated damages in real property contracts? »

What is a Lis Pendens? »

How do loan modifications work? »

What is a Mechanic’s Lien? »

How does a Multiple Listing Service work? »

What is an off-shore trust? »

How do real property taxes work? »

What is Procuring Cause? »

What is a Quitclaim Deed? »

What is RESPA? »

Who bears the risk of loss during escrow? »

What are second deeds of trust? »

What is the Statute of Frauds? »

What is Statute of Limitations on Debts Secured By a Mortgage? »

Does a buyer’s broker have a duty to inspect? »

What is The Parol Evidence Rule? »

What is Adverse Possession? »

 


Q. What is Procuring Cause?

A. “HE WHO SHAKES THE TREE IS THE ONE TO GATHER THE FRUIT”

Unless the particular terms of the listing or other employment agreement specify otherwise, a broker generally earns his compensation when he has procured a ready, willing and able purchaser who has made an offer to purchase the property on the terms and conditions provided in the listing or on other terms and conditions acceptable to the seller. “Procuring cause” has been defined as the cause originating a series of events that, without break in their continuity, result in the accomplishment of the prime object of the employment. Note that its definition does not require formal consummation of an agreement.

The issue of “procuring cause” arises is several contexts, including (a) when the seller has not entered into a sales contract with the buyer procured by the broker, or a cooperating broker engaged by the listing broker, (b) when the seller terminates the listing or withdraws the property from the market before the expiration of the term of the listing, and (c) when the seller sells the property to a purchaser that the broker introduced to the seller, but the sale occurs after the expiration of the term of the listing agreement. The right of the listing broker to recover compensation under these circumstances depend upon the determination of whether the broker was the “procuring cause” in producing the buyer, and whether the buyer was a “ready, willing and able” buyer. These different scenarios are the subject of this article.

Procuring Cause. The concept of “procuring cause” does not apply to the situation where the property has been sold during the term of an exclusive right to sell listing agreement regardless whether the buyer was “procured” by the listing broker, another agent, or by the owner himself, nor is it applicable to the situation where the property has been sold by an agent other than the listing broker during the term of an exclusive agency listing, since in each case by the nature of the terms of the two listing agreements, the listing broker is entitled to his commission regardless whether he has “procured” the buyer. Thus, the concept is limited in application only to those situations where the broker would not otherwise be entitled to his commission under the terms of the listing agreement.

Disputes over procuring cause tend to arise most frequently in open listings and exclusive agency listings as it is here that the seller is most likely to claim that he, not the broker, procured the buyer. However, since the majority of listings today occur under the exclusive right to sell listing, this article tends to focus on “procuring cause” in the context of exclusive right to sell listings. Under the latter form of listing, the issue of “procuring cause” generally arises when the seller refuses to sell the property to a buyer “procured” by the broker.

In those cases where the listing broker’s right to a commission depends on whether he was the procuring cause of the sale, the broker earns his commission if and when he procures a buyer who is ready, willing and able to purchase the property on the terms and conditions stated in the listing agreement or on such other terms and conditions acceptable to the seller.

The California Courts have been reticent to espouse a clear definition of “procuring cause” and have left the matter to the discretion of the trial court in arriving at a factual determination on a case by case basis. This is somewhat unfortunate because the broker is left to second guess the courts in trying to determine whether to pursue a claim of compensation.

Various courts have attempted to define “procuring cause,” but there is not a uniform definition amongst the courts. One court has artfully, but inadequately, described it as: “He who shakes the tree is the one to gather the fruit.” Although the concept may be somewhat amorphous, what is clear is that a sale does not necessarily have to be consummated in order for the broker to be entitled to his commission. This rule was clearly enunciated in Colwell Co. v. Hubert, 248 Cal.App.2d 567, 577, 56 Cal.Rptr. 753, 760 (1967) (“to be entitled to his commission as the procuring cause, the agent does not necessarily have to consummate the transaction.”).

Brokers Right to Compensation When Owner Does Not Execute Purchase Agreement. As stated above, a broker may be entitled to his commission pursuant to a listing agreement even though the owner of the property does not enter into a contract with a buyer procured by the broker. Unless there are express conditions in the listing agreement to the contrary, the broker earns his commission when he procures a “ready, willing and able” buyer who is willing to purchase the property on the terms of the listing. If the listing agreement is properly drafted to include an adequate description of the property, the seller’s name, the selling price and terms of sale, it contains essential terms for a binding, legal contract.

The clause “ready, willing and able” really encompasses different ideas. When a seller rejects an offer of a buyer procured by the broker, the broker has earned his commission only if the offer is on substantially similar terms as the listing, regardless of the reason why the seller refuses to accept the offer. If there are material differences between the listing and the offer, the buyer is not at that point in time “ready” or “willing” to purchase the property on the terms of the listing. Whether a term is a “material” variation is a question of fact that will vary with the circumstances of each case. An important factor in determining whether a variation in terms is “material” is whether there is a meaningful economic effect between the terms of the listing and the offer. In one case, the listing contract provided for a downpayment of $5,000. The buyer’s offer provided for a downpayment of $1,000 plus an additional $4,000 in 20 days. The court held in this case that there was no substantial variation between the offer and the listing and the broker was entitled to his commission.()

In another case, a real estate broker was employed by a written listing agreement to sell property for a certain price, the balance of which was “to be paid in yearly payments on a 15 year payoff plus interest at 6 percent.” The broker was denied his right to compensation when he obtained a signed deposit receipt which contained all the terms of the listing except that it stated the “balance of the purchase price payable in fifteen equal installments or more plus interest at 6 percent on the unpaid balance.” (Emphasis added). The court held that the words “or more” was a material variation from the listing agreement because the right of the buyer to accelerate his payments could have serious income tax consequences for the seller.

The readiness and willingness of a person to purchase can be shown only by an offer on his part to purchase, and unless he has actually entered into a contract binding him to purchase, or has offered to enter in such a contract, he is not considered to be a ready and willing buyer.

When the buyer’s offer is conditioned upon his ability to finance the purchase of the property, the broker’s entitlement to a commission does not become fixed until the buyer actually obtains a loan. Also, if acceptance of an offer to purchase is conditioned upon the buyer being able to raise money to pay the purchase price, the broker has not procured a ready, willing and able buyer until the condition is fulfilled.

A buyer is “able” when he has the legal capacity and financial ability to purchase the property. Minors cannot purchase real property in their own name as they are legally incapacitated. A person is “financially able” when he has or will have sufficient resources, including sufficient credit, available to him at the time the transaction is schedule to be consummated. The proposed buyer need not have in his immediate possession all of the money needed to close the deal. He is sufficiently able if he can command the necessary funds at the time the deal is scheduled to close.

Broker’s Right To Compensation When The Seller Terminates The Listing Or Withdraws The Property From The Market Before The Expiration Of The Term Of The Listing. In some situations, an owner may without legal recourse terminate a listing; in other situations, premature termination of a listing may give rise to legal action by the broker. In determining the right of an owner to terminate a listing, principles of both agency and contract law must be applied. A listing is generally terminated without further operation of law upon the death or incapacity of the principal, and upon the expiration of the term of the listing. Otherwise, unless the agency is coupled with an interest, the listing may be revoked and terminated without cause at any time. However, the principal’s right to terminate the listing does not excuse his possible liability to the broker for his commission.

The owner’s right to terminate a listing without cause after it has been executed, without liability to the broker, depends upon whether the listing is a unilateral contract or a bilateral contract. Where the listing is a bilateral contract, such as an exclusive right to sell listing, revocation of the listing or withdrawal of the property from the market, or any act that precludes the broker’s performance, subjects the owner to liability to the broker. For example, under an exclusive right to sell listing which contained a promise that the owner would pay the broker a fixed percentage of the sales price if a sale should be made during the listing period, the broker was held to not be limited to an action for damages for breach of contract but was allowed to also sue for his full commission, whether the owner takes the property off the market or otherwise wrongfully deprives the broker of the opportunity to sell the property.

Where the listing is an offer for a unilateral contract, which can be accepted by the broker’s procurement of a ready, willing and able buyer, the listing is terminated by the good faith revocation by the owner at any time before the broker has procured a ready, willing and able buyer. Therefore, where the listing is an open listing which does not contain any specific term, the listing constitutes a mere offer of a unilateral contract and may be revoked by the owner as set forth above.

Thus, a broker is not entitled to compensation for his services if the listing agreement is a unilateral contract and the broker has not procured a ready, willing and able buyer before his employment is terminated. However, if the broker has expended time and effort to sell the property and his efforts are thwarted by the seller in the midst of a sale, the broker can recover his commission.

Brokers Right To Compensation After The Listing Expires. All listing agreements should contain a “safety clause” which provides that the owner agrees to pay the listing broker his commission if the property is sold to someone the broker has shown, introduced or negotiated with the property within a specific period of time after the listing has expired. Since the safety clause is intended to protect the broker, the courts tend to construe the clauses strictly and special care and attention should be given to the drafting of the safety clause.

Some brokers insert in their listing agreements that during the safety clause period, they will be entitled to a commission if they procured a buyer during the term of the listing who ultimately purchases the property after the term expires. In this case, the courts usually require that the broker demonstrate not only that he showed the property to or introduced the buyer to the seller, but that the broker was the procuring cause of the sale. This is an additional burden to the broker, for “introducing” or “showing” are not equivalent to “procuring cause.” However, some courts still require the broker to demonstrate he was the “procuring cause” even though his listing agreement merely states that he will be entitled to a commission under the “safety clause” where he “showed” the property to the buyer or “introduced” the buyer to the seller.

Fortunately, most courts do not require proof of “procuring cause.” These courts recognize the purpose of the “saving clause” to protect the broker when his efforts and activities have alerted the prospective buyer to the availability of the property for sale, and the seller is able to conclude the sale to the buyer which he would not have been able to do without the broker’s participation. Even these courts do however require however that the broker’s efforts and activities must have at least some connection with the ultimate sale of the property. In these courts, the broad interpretation of the “safety clause” has the effect of permitting the broker to obtain his commission even where he was not the procuring cause of the sale. Such a result is justified by denying a collaborating seller and buyer from surreptitiously depriving a broker of his commission in situations where the buyer and seller would not have gotten together but for the efforts of the broker.

Conclusion. The concept of “procuring cause” is not an easy one to put one’s finger on. It sort of follows the adage if it walks like a duck, quacks like a duck and smells like a duck, it must be a duck.

In determining whether the broker is the procuring cause of a sale, careful analysis should be placed in ascertaining the reason for prompting the claim for compensation (i.e., whether it is because the seller failed to enter into a sales contract with a buyer, whether the seller terminated the listing or withdrew the property from the market before the expiration of the term of the listing, or whether the seller sold the property to a purchaser that the broker introduced to the seller after the expiration of the term of the listing agreement). Once this determination has been made, the broker should then apply the relevant principles and precedent set forth above in order to conclude whether further action to obtain his commission is prudent.

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