Two Simple Words
Procuring cause. Two simple words that often dictate whether a broker is entitled to a commission. Real estate brokers and salespersons hear this phrase all the time and understand its importance, but what does it really mean?
Why It Matters
New York courts, citing back to the 1880s case Sibbald v. Bethlehem Iron Co., 83 NY 378 (1880), have long held that “in order to state a direct claim for a commission, a broker must prove:
- that he or she is duly licensed;
- that he or she had a contract, express or implied, with the party to be charged with paying the commission; and
- that he or she was the ‘procuring cause’ of the sale.” Buck v. Cimino, 243 AD2d 681, 684 (2nd Dept. 1997)(cleaned up).
With the first two elements being fairly straightforward, the definition of “procuring cause” is often the gravamen of most disputes over a commission.
A Meeting of the Minds
Recognizing that a broker does not earn a commission until they were the procuring cause of a transaction, the 1880s Court of Appeals in Sibbald attempted to refine an already age-old debate — when exactly has a broker completed their job and earned a commission? When have they done enough to be considered the procuring cause? Boiled down to its most simple form, “[t]he duty [the broker] undertakes, the obligation he assumes as a condition of his right to demand commissions, is to bring a buyer and a seller to an agreement.” Id. at 381.
This general definition does little to inform the resolution of a dispute, so the Court of Appeals in Sibbald settled on a doctrine that has been the foundation of countless litigations since — “the fundamental and correct doctrine is, that the duty assumed by the broker is to bring the minds of the buyer and seller to an agreement for sale, and the price and terms on which it is to be made, and until that is done his right to commissions does not accrue.” Id. at 382.
Essential Terms
It is obvious that there is no meeting of the minds if the parties cannot agree on price, but other terms can have equal importance to a transaction. In Nesbitt v. Penalver, 40 AD3d 596 (2nd Dept. 2007), the Second Department examined whether a napkin agreement was sufficient to form a contract for the sale of real estate. Referring to the statute of frauds, the court held the agreement must state all of the essential terms of a complete agreement, and that those essential terms include “price, the time and terms of payment, the required financing, the closing date, the quality of title to be conveyed, the risk of loss during the sale period, adjustments for taxes and utilities, etc.” Id. at 598. All terms typically found in a real estate contract in New York, but not all typically negotiated by a broker. Is a broker really required to negotiate all the terms of a contract to earn a commission?
Amicable Atmosphere and Proximate Link
The Court of Appeals does not think so. “That is not to say that, in order to qualify for a commission, the broker in all instances must have been the dominant force in the conduct of the ensuing negotiations or in the completion of the sale. But, however variable the judicial terminology employed to express the requirement that the broker must be the procuring cause, it has long been recognized that there must be a direct and proximate link, as distinguished from one that is indirect and remote, between the bare introduction and the consummation.” Greene v. Hellman, 51 NY2d 197, 206 (1980).
Following the Court of Appeals’ lead, the Second, Third, and Fourth Departments have formed the “Amicable Atmosphere” doctrine which states “[w]here the broker is not involved in the negotiations leading up to the completion of the deal, the broker must establish that he created an amicable atmosphere in which negotiations proceeded or that he generated a chain of circumstances that proximately led to the sale.” Dagar Group, Ltd. v. Hannaford Bros. Co., 295 AD2d 554 (2nd Dept. 2002).
The First Department, despite having previously used an “amicable frame of mind” standard, now subscribes to the self-described more exacting “direct and proximate link” standard first expressed in Greene. See SPRE Realty, Ltd. v. Dienst, 119 AD3d 93, 99 (1st Dept. 2014). The First Department believes the “direct and proximate link” standard is less broad and less amorphous than the amicable atmosphere doctrine. Id. However, there is very little in the way of guidance from the Appellate Division, or the Court of Appeals, as to the distinction between the two.
What Does It All Mean?
A broker earns their commission when they are the procuring cause of a transaction. They are the procuring cause of a transaction when they bring about a meeting of the minds on the terms of a transaction. They bring about a meeting of the minds when they negotiate the essential terms of the transaction, create an amicable atmosphere, generate a chain of circumstances that proximately lead to a sale, or are the direct and proximate link between beyond mere introduction.
Confusing? Yes. There is no neat and simple legal definition a real estate broker can point to. Procuring cause is a fact intensive question unique to each transaction and typically left to the jury to decide. Sibbald, 83 NY at 388.
To illustrate the intensity of the factual inquiry, NAR provides its members with a 17 question worksheet to help arbitrators work through the question.
If you find yourself in a procuring cause dispute, it is essential that you compile compelling written evidence and retain an attorney who knows how to litigate these unique lawsuits.