Commission Depends on Procuring Cause

Minnesota Supreme Court; Rosenberg v. Heritage Renovations LLC, 2004

November 1, 2004

Minnesota’s highest court has decided that if a brokerage was the procuring cause of a transaction, the broker is entitled to a commission even though the sale came after the listing agreement had been terminated. In 1997 a developer signed a listing agreement with a brokerage on a 350-home development. Both parties continued to operate under an agreement with no end date until February 2001, when the brokerage received notice from the developer terminating the agreement. The broker received commissions on all sales completed before the termination, but the developer refused to pay for any that closed after that date.

The trial and appellate courts had ruled in favor of the developer on the basis of a state statute that requires an “override,” or protection clause, in the listing. This clause entitles a brokerage to a commission on a sale to people who viewed the property during the listing term. The courts said without an override clause in the listing agreement, there could be no post-termination commissions. They held that the statute creating override clauses eliminated procuring cause.

Looking at the statute, the high court didn’t find evidence that the state legislature intended to eliminate the procuring-cause doctrine. The statute simply sets forth what must be included in a listing agreement if a brokerage wants to claim a commission under an override clause. Consequently, the Supreme Court sent the case back to the trial court.

Husband protected as wife’s agent

California Court of Appeal, First District; Huynh v. Vu, 2003

A California appeals court has decided that although a husband interfered in a third party’s contract negotiations, he was protected from liability because he was acting as his wife’s agent.

On behalf of a buyer, a broker contacted Cuong Tat Vu. The broker believed Vu co-owned an appropriate property. Although Vu managed the property, he had transferred ownership to his wife, but she directed the broker to negotiate with Mr. Vu.

Eventually Vu and the buyer agreed on terms, which required the escrow to close in 90 days. The buyer was unable to obtain necessary documents from Vu in order to secure a loan, and the escrow deadline passed. In part because of pressure to complete a 1031 exchange, the transaction closed but only after the buyer agreed to pay a higher price. The final agreement also didn’t include a commission for the broker.

Subsequently, the broker filed a lawsuit against the buyer for the commission as well as against Vu for intentional interference with the contract. The trial court awarded the broker a commission and punitive and compensatory damages against Vu.

The appellate court reversed the ruling against Vu, finding that he was protected from liability by “manager’s privilege” because he was acting as a management agent for his wife. Manager’s privilege protects an agent who advises a principal to breach a contract when the manager believes such a breach is in the principal’s best interest.

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