The Law Is Not Always Intuitive; Avoid Learning It At Your Own Peril

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Often, we come across a court decision based on a narrow set of facts and, thus, limited in its effect. The court’s analysis and the case’s result is primarily of interest to the involved parties and a handful of others who might find themselves in the same situation. Sometimes, however, there is a larger lesson to be gleaned, one not even about the narrow subject matter discussed by the court. As we see it, at the very end of January, a Florida District Court of Appeal Court delivered such a decision.

The subject matter before the court was a dispute over the obligation to pay a brokerage commission. Florida law provides that “[i]n the absence of a special contract, a broker is entitled to a commission when that person is the procuring cause of a sale.” We don’t know how many states have a similar law. Our experience is with those whose law requires a written agreement or a specific written substitute for such an agreement. For example, here is the relevant part of New Jersey’s statute [N.J.S.A. 25:1-16]:

c. Except as provided in subsection d. of this section, a business broker is entitled to a commission only if before or after the sale of the business, the authority of the broker is expressed or recognized in a writing signed by the seller or buyer or authorized agent, and the writing states either the amount or the rate of commission.

d. A broker who acts pursuant to an oral agreement is entitled to a commission only if:

(1) within five days after making the oral agreement and before the transfer or sale, the broker serves the principal with a written notice which states that its terms are those of the prior oral agreement including the rate or amount of commission to be paid; and

(2) before the principal serves the broker with a written rejection of the oral agreement, the broker either effects the transfer or sale, or, in good faith, enters negotiations with a prospective party who later effects the transfer or sale.

e.The notices provided for in this section shall be served either personally, or by registered or certified mail, at the last known address of the person to be served.

Now, we return to Florida law and the case. Before we tell the relatively short story, we feel obligated to look at two terms used in that statute: “special contract” and “procuring cause.”

Frankly, we had no idea what “special contract” meant. To us, “special” certainly doesn’t seem to be the same as “ordinary.” Yet, as Charles Lutwidge Dodgson wrote,

“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.” “The question is,” said Alice, “whether you can make words mean so many different things.” “The question is,” said Humpty Dumpty, “which is to be master—that’s all.”

To discern the meaning of “special contract,” the Florida court looked at two sources: its prior case law, and Black’s Law Dictionary. Black’s has the following definition: “ 2. A contract with peculiar provisions that are not ordinarily found in contracts relating to the same subject matter. 3. See express contract.” Jumping to Black’s definition of “express contract,” we learn that it is a “contract whose terms the parties have explicitly set out. – Also termed special contract. CF. implied contract.”

Relevant Florida case law includes this concept: “A special contract is always an express contract, ‘one whose provisions are expressed and not dependent on implication.’”

As to the meaning of “procuring cause,” Florida case law, similar to that everywhere, teaches:

A broker, to be considered the “procuring cause” of a sale, must have brought the purchaser and seller together and effected a sale through continuous negotiations inaugurated by him unless the seller and buyer intentionally exclude the broker and thereby vitiate the need for continuous negotiations.

To be the procuring cause the broker must show that he called the potential purchaser’s attention to the property and it was through his efforts the sale was consummated.

Now, here’s the story.

An owner, seeking to sell its property, executed an exclusive listing agreement with a real estate broker. The agreement’s term expired after a year. The broker was also entitled to a commission if, within the year following that expiration, the owner closed a transaction with any party who had been introduced to it by the broker before the agreement expired. Even though the “protection” period of one year seems a little long to us, the concept of such a period is burned into the concept of brokerage agreements.

No sale took place during either the one-year contract period or the one-year protection period. After the protection period expired, the owner engaged a different broker. That broker “reintroduced” a prospective buyer to the owner, one that the original broker had brought to the property during the first year of its listing agreement. About a year later, the owner leased the property to a school and paid a commission to the second broker. About four years after that, the school bought the property. On account of that sale, the owner paid a second commission to the second broker. That was more than five years after the protection period in the first brokerage agreement had ended.

The first broker alleged that the school was a business owned by the same person it had brought to the owner more than six years earlier. On that basis, it sued for a commission under Florida’s “procuring cause” doctrine. It lost because of the statute’s negation of a “procuring cause” commission where there is a “special” contract. Here, the express one-year “protection period” was held to be a limitation of the broker’s right to forever assert that it was entitled to a commission as the procuring cause of a transaction. Essentially, the listing agreement’s express “protection period” overrode the seemingly unlimited time period within which a broker could claim it was the procuring cause; not the other way around.

Though interesting, this court’s specific decision is probably of narrow application. In New Jersey and in a lot of other states, the case would never have arisen in the absence of situations where an owner or landlord deliberately contrived to “delay” a transaction to take places beyond the end of an agreed-upon protection period. Basically, the rule in such states is that a commission is no longer earned if the lead has become “old and cold.”

More interesting is that the Florida court’s decision highlights an important principle: In almost all cases, a written agreement can override a law that would otherwise provide a “default” provision. For example, last week we wrote about “holdover” damages. Various states have laws that set those damages at fixed levels, such as 200%. But, parties can (and often do) override such laws within their own agreements.

So, how does one go about agreeing to such overriding? “What’s the catch” (and we aren’t thinking of fishing)? Simply speaking, the “catch” is that to override a law, you need to know the law in the first place. We’ve seen too many leases and contracts written by those who knew the law and then “slightly” modified by people who don’t, but think that everything is intuitive. The problem is that we’ve seen these modified agreements “after the fact,” i.e., once a problem arose – one deriving from that “slight” modification.

Familiarity breeds contempt. Our leases and sales contracts live within the “law.” Those who write them without knowing the law do so at the risk of those who engage them to do so. And, this principle applies to lawyers as well as non-lawyers

Diehearts who want to read the relatively short Florida court decision can do so by clicking: HERE.]

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Comments

  1. Hi, Ira. I understand 24 states now give brokers a lien right for procuring leases or sales. Would you happen to know of a compilation of broker lien law and other law relating to brokers?

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