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This article is about an actual court case, Business Consulting Services d/b/a Hawkeye Business Brokers, v. Leroy Wicks, 703 N.W.2d 427 (Iowa 2005), and the resulting decision between a business broker (and her firm) and a seller who refused to pay a commission. The seller’s main defense was whether a clause in the firm’s listing agreement was valid, but more importantly whether she, the broker, fulfilled the terms of the agreement and the clause in question. Whether she fulfilled the terms of the agreement brings into question the very important, but often overlooked definition of “Procuring Clause.” “Seller agrees to pay the full commission set forth in this Agreement to the Broker in the event the property described herein is within one year after the termination of this Agreement, sold, traded or otherwise conveyed to anyone referred to Seller by the Broker or with whom Seller had negotiations during the term of this Agreement.” In this case, citing Mellos v. Silverman, 367 So.2d 1369, 1371 n. 1 (Ala.1979), defined procuring cause as: “Procuring cause refers to a cause originating with a series of events which without break in their continuity result in procuring a purchaser ready, willing and able to buy on the owner's terms.” In Chapman Co. v. Western Nebraska Broadcasting, 213 Neb. 322, 329 N.W.2d 107 (1983), the court noted that the requirement for a causal connection was the clear majority rule. Another source, discussing cases from several jurisdictions, notes: [I]n order for a broker to be entitled to a commission, under and in accordance with an extension clause, he must ordinarily be able to establish at least some causal connection between his actions and efforts in regard or relation to the listed property and the ultimate purchaser thereof, and with the sale eventually made to such purchaser." The court in Business Consulting went on to add: “We adopt the majority rule and hold that a broker seeking to recover under an extension clause must establish some causal connection between the broker's efforts and the eventual sale. This might include negotiations between the parties or actual assistance in the closing of the sale. In this case, Hawkeye [the business brokerage firm involved] has not shown it was involved in any negotiations or the closing of the sale. As the Nebraska court said in Chapman, a rule that would allow recovery for merely soliciting a buyer without requiring a causal connection with the sale would burden the owner's right to dispose of his property. 329 N.W.2d at 111. We agree, and we also believe it would be poor public policy to reward brokers who, through such mailings or other forms of mass communication, would receive a substantial commission without diligent effort toward the conclusion of a sale. While the broker in this case did not mass mail to prospects, but rather, limited her contacts to six possible buyers, the point remains that “referring,” as the broker did in this case, without more, is insufficient. As the court observed in Patterson v. Blair, 123 Utah 216, 257 P.2d 944 (1953), ... “*432 although the clause with which we are concerned is perfectly valid and to be invoked for the broker's protection in a proper case, it surely was not intended to benefit a real estate man who has done nothing, by conferring upon him a “windfall” commission because he casually or inadvertently mentioned the listing to someone who thereafter happened to purchase it in the normal course of affairs and quite independent of the broker's activities. If so, he might well content himself with letting everyone possible know of a listing in the hope that some such eventuality would inure to his benefit, instead of really working on selling the property. “Patterson, 257 P.2d at 946. The plaintiff has failed to establish a causal connection between its referral of the buyer and the ultimate sale. We therefore reverse the judgment of the district court and remand for dismissal of the plaintiff's petition.” Comment: As can be seen from the above decision, the business broker lost the case. Procuring cause was the culprit. The court didn’t seem to have any problem with the extension agreement, but rather with the fact that the business broker really didn’t do anything but refer the buyer to the seller and the business – not enough in the court’s opinion to be entitled to a commission. Here are some thoughts on how to avoid this: It’s important that you keep written records of your dealings with buyers. You never know when a deal will take place without your knowledge. And, as veteran business brokers well know, it does happen. Your records should include times, dates and a summary of what happened. Be sure to include telephone conversations with dates, times and a brief description of the call. All emails (both incoming and outgoing) should be kept. The more evidence you can provide demonstrating that you did more than just refer the buyer or that your role in the sale was more than casual, the better chance you have of evidencing procuring cause. In fact, the seller’s attorney might take a look at the broker’s work copy and decide to try to settle the case rather than pursue a court fight. Article courtesy Business Brokerage Press
Are You Driving the Poor Dog Crazy? Looking for that right business is slow arduous and frustrating process that can make you and the dog a little crazy. Doing so without professional help is like hunting with a good bird dog only to miss the bird when it it is flushed. The saying "bad luck to a good hunting dog" comes from having your dog flush the prey only to have you completely miss the shot time and time again. Each time you do the dog turns and looks at you with a look of disappointment and wonders why you missed. Again... Eventually the poor dog loses its enthusiasm for the hunt. If you are seriously seeking the right place to put your money, the right business for you where you can go each day and where you can prosper and realize your dreams you need a good bird dog. But you also need to shoot straight to hit the target. Begin at the beginning by narrowing down the type of business that you would like to own and can afford. Marshall your resources so you can raise the necessary equity capital and debt financing to buy the business and then look for a business intermediary who can with or without a buyer paid fee narrow down the search for you. That intermediary will possess the skills and experience to show only those businesses that meet your criteria and will be able to create the working relationship with the seller or the seller's agent to obtain the items necessary for your due diligence. Choose an intermediary with the internet connections to be able to 'trap' the type of business that you seek though search engine tools to filter out businesses of no interest. Be good to the dog . Shoot straight... |
