REAL ESTATE SALES PROCURING CAUSE: MCKINNEY V. CITY OF NEWPORT, KY (COA 9/28/2007)

MCKINNEY V. CITY OF NEWPORT, KY
BUSINESS LAW:  REAL ESTATE CONTRACTS and PROCURING CAUSE

2006-CA-001045
PUBLISHED: AFFIRMING
PANEL: THOMPSON PRESIDING; WINE, HENRY CONCUR
COUNTY: CAMPBELL
DATE RENDERED: 09/28/2007

The appellant, Mary Sue McKinney, d/b/a Performance Realty, appeals from a jury verdict in favor of the appellee, City of Newport (Newport), finding that one of McKinney’s agents, Jim McCord, was not the procuring cause of the sales of properties to Newport by property owners living in an area referred to as the Cote Brilliante neighborhood.  A detailed stipulation of facts was entered and this decision is rather fact-specific as to the conduct and actions of the party with this appeal addressing the question of the jury’s verdict finding no procuring cause by McKinney’s agent McCord in the real estate sale.

During his contacts with the property owners in the area, McCord did not represent that he was acting as Newport’s agent and did not negotiate with the property owners on Newport’s behalf. There was no separate agreement with Newport for the payment of commissions to him. 

A real estate broker faces the risk that as a result of his efforts, buyer and seller will be brought together and negotiate yet, either because of the expiration of time or a variety of reasons, the broker will not finalize the sale.  In such situations, the party responsible for payment of the broker’s commission may refuse payment based on the failure to complete the transaction. In response to the inequities of such a result, the courts have adopted the procuring cause rule. In Mattingly-Lusky Realty Co. v. Camper, 228 Ky. 407, 15 S.W.2d 240, 241 (1929).

The doctrine of procuring cause has its basis in the theory that when the owner of property engages the services of a broker to sell his property, and the broker secures a prospective purchaser, and such purchaser and the seller agree upon a price and terms without the further service of the broker, then the latter cannot be deprived of his commission by the act of the owner in concluding the negotiations without the assistance of the broker.   The expression ‘procuring cause’ . . . refers to the cause originating a series of events which without break in their continuity result in the accomplishment of the prime object of the employment of the agent, which, as stated, is the procurement of a purchaser ready, willing, and able to buy the land on the principal’s terms.

The rule will not permit recovery of a commission where there has been a break in the continuity of events leading to sale and purchase of the property. Thus, a broker who abandons his agency will not be permitted to recover under the procuring cause rule

The COA was cognizant that in the typical brokerage contract, the seller employs and pays the commission to the broker; in this case, however, the nature of the proposed development required that the buyer, Neyer, employ McCord. This distinction alone does not defeat the application of the procuring cause rule. Whether the broker works on behalf of the seller or the buyer, the reasoning for its application is the same. However because there is evidence in the record sufficient to support the jury’s finding that McCord was not the procuring cause, COA affirms.

Digested by Michael Stevens

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