An Explanation of the “Effective Cause”
- Commissions Due in Terms of a Contract
Estate agents need to know precisely what they have to do to secure their commission in a sale as disputes often arise after a sale is concluded or, commonly, where Seller has deliberately or innocently avoided their agents when finalising sales with prospective Buyers.
The law at this point has been defined principally by South African case law as no specific law exists on the subject – only by referring to these cases will you know how to ensure your commission is fairly due and payable.
If you negotiate and conclude a sale between a Seller and Buyer and your contract clearly states that the Seller will be liable for commission on registration of transfer, or on the happening of some other event, or that the Buyer will be liable if he defaults, repudiates the sale, or causes it to be cancelled through his own fault, your commission is secure as it has been contractually negotiated. In the case of the average sale, once all the parties have signed and provided the agent has signed to accept the benefits of the commission clause, the commission becomes automatically payable. Your contract should, in fact, have a clause irrevocably authorising the conveyancer handling the transfer to pay you your commission, either out of the deposit paid or out of the proceeds on registration.
Note: Ensure you get an undertaking out of the Conveyancer to pay your commission on registration of transfer.
Wherever a sole mandate is obtained which includes a clause stating that commission is due to the agent if the property is sold within the mandate period, whether by the agent or by anyone else, the commission again becomes payable in terms of the mandate contract.
Once again, the agent must sign the mandate himself to accept the benefit conferred. It is also important here to be sure that your mandate is worded effectively as Sellers have been known to escape liability in some cases. In Mendes v Ermelo Eindomme end Verhuringsagente 1995(4) SA 821(T) an agent sued for commission after an owner of a property sold it privately to a Buyer despite a clause in a lease agreement drawn by the agent giving him “an irrevocably sole right” to sell the property at any time during the lease “whether or not the owner wishes to sell it.” Despite the obvious effort made to tie the owner up in the contract, it made no mention of what would happen if the owner sold it privately and the agent’s claim for commission failed. The court held the agents “sole right” was to the exclusion of other agents alone.
In another case, however, namely The First Investment v Levy Bros Estates 1984(2) SA 881 (AD) an agent’s mandate gave him “the sole irrevocably authority” to effect a sale on the Seller’s behalf and the Court interpreted this to mean that the Seller had deprived itself as well as anyone else to sell the property during the mandate period. The judge stated that “ the estate agent was not merely given the sole mandate to find a purchaser, he was also vested with the sole authority to sell the property on the principal’s behalf. There appears to be little to choose between the two cases, the one speaking of a sole right and the other of a sole authority but, in the light of the outcome, it seems you need to be sure your mandates give you an ‘irrevocably sole authority’ to sell each property you are given to sell. (In the first case the Court upheld an Agent’s right to commission when he duly found a purchaser even though the Owner had changed his mind since signing the mandate and had decided not to sell his property).
- CausaCausans: The Effective Cause of a Sale
What about other situations, however, where you do not have a signed contract, but you believe you are entitled to commission? There are numerous cases where his can occur, such as the following:
- Where another estate agent has hijacked your deal and signed a contract after you had done all the hard work and we’re about to conclude it.
- Where the Seller has concluded a private deal behind your back with the Buyer to expressly squeeze you out of your commission.
- Where your prospective Buyer has not signed your contract but has got a close relative or friend to sign another one mainly for his own benefit.
- Where a third party puts up part of the purchase price to secure a deal sometime after you have been left out of it.
In all these cases the most important question is whether you were the effective cause of the sale. The expression used herein Latin is causacausans, meaning simply: were you the “causing cause” of the sale?
A judge once defined effective cause in these words: “The Agent’s instrumentality must have been in all the phases from the introduction to the sale consistent, uninterrupted, and a major positive force working towards the successful conclusion of the transaction: In other words, an agent had to be the dominant influence, or what the judge called the overriding factor in the sale. In a recent case, an Agent introduced a prospective Buyer to a Seller but at the time the Buyer could not really afford the property. Nine months later, however, after the Buyer’s financial situation had substantially improved, he again approached the Seller and a private sale was concluded. The Agent was not found to be the effective cause even though he had initially introduced the Buyer to the Seller and the property. This was indeed a factor without which no sale would have been concluded but it was not sufficient to determine the issue. The law looks at the subject like this:
- Causa Sine Qua Non
This simply means what have discussed above – a cause of sale without which the sale could not have been concluded. It is not enough, per se, to earn your commission. However, an introduction of a Buyer to a Seller is causa sine qua non, a ‘cause without which no’ sale could take place but it must be accompanied by further causes, such as fixing the purchase price and settling the terms of payment. There must be an unbroken chain from the introduction to the conclusion of the eventual sale. The law does not recognise an “introducing agent” as a specific category. In Aida Real Estate vs Lipschitz 1971(3) SA873(WLD) the judge stated that the law is usually framed as follows:
The duty of the estate agent, if he is to earn remuneration by way of commission for selling property, is to introduce to his principal (the Seller) a purchaser who is willing and financially able to buy the property, and he earns the commission if a sale is concluded with that purchaser at a stipulated price or price ultimately proved to be acceptable to the seller.
If a new factor intervenes and is the making of the sale but was not affected by the agent the test is simple, the judge goes on to say, whether the introduction was the overriding factor of the sale. He added:
The mere furnishing to the prospective buyer of the principal’s address or the location of the property offered may be sufficient to entitle him to claim commission from the seller, provided a line of cause and effect can reasonably be traced from the introduction to the conclusion of the sale.
In Joubert and Others v Coster 1982(4) SA 547(CPD) the presiding judge defined effective cause, the causacausans of a sale, very comprehensively. In this case, the prospective Buyer was a woman who had very much wanted the Seller’s farm and had been involved in lengthy negotiations with the relevant Estate Agent to finalise the sale. She could not finance it herself, however, and so got her father to purchase the farm in his own name. In this case, the judge decided emphatically that the Agent had been the cause of the sale, in particular as her original introduction to the property had remained the motivating force that spurred her on to find someone to finance the farm so that she could carry out on it the work she had envisaged. In his final judgement, the presiding judge defined causacausans, the ‘causing cause of a sale,’ in the following words.
To become entitled to the commission, the agent must establish that he has introduced a purchaser able and willing to buy his principal’s property and that a contract of sale has been concluded between such a purchaser and the principal and that the introduction was the effective cause of the sale.
In Edwards v Wynberg Club 1990(2) SA 429(CPD) it was again decided that it is not enough for an Agent to introduce a Buyer to a Seller and his property. This may well be an incident without which the sale may not have taken place (causa sine qua non) but may not be the real and effective cause (causacausans) which brought about the sale.
In conclusion, therefore, it can be said that an Agent will be the effective cause of a sale where he introduces the parties to each other and the property and they thereupon conclude a sale without any other independent factors being the chief cause of the sale.
The principle can be applied as follows:
- Private sales
Where a Seller and Buyer negotiate a private sale after a mandate period has expired, even if many months later, and the terms are basically those which were negotiated by the Agent during the mandate period although the parties in all sincerity did not agree to the sale at the time, the Agent will be the overriding factor in the sale and will be entitled to commission.
Where, however, an Agent introduces a Buyer to a Seller who makes an offer unacceptable to the Seller, and it appears the Buyer is neither willing nor able to pay more for the property, no deciding cause of sale exists. If at a later date the Buyer returns and now agrees to the Seller’s price, having obtained a third party who will subsidise the balance of the purchase price on the strength of a private bond in favour, the Agent is not the effective cause of sale and cannot claim commission.
- Leased premises
An Agent may introduce a prospective Buyer to a Seller but, for various reasons, the sale may not materialise even though the purchase price, occupational rent, etc. were fully negotiated. The Buyer may separately agree to lease the premises, say, at the same amount as the occupational rent and, nine months later, the parties may finally agree to the contract. Even if the final purchase price and terms of payment are slightly different the Agent will be entitled to the commission, being the dominant and overriding factor in the whole transaction. This is the test that will determine the issue in each respective case.
- Effective cause and other estate agencies
There is one last instance where the issue of an effective cause may arise, however, and that is where two agencies compete for the same sale, particularly where one Agent has done all the work in introducing the parties and negotiating the terms, only for another to nip in and close the deal. In such cases, there can be, and there were quite often in times past, claims for double commission. The first agency would sue on the ground that it was the effective cause of the sale while the second would sue on the contractual obligation of the Seller to pay commission. In such cases, a Seller could well be liable for double payment of commission if both sides succeed in proving their case.
The Courts will not interfere in such cases to determine the morality or otherwise of the outcomes. The issue here is purely one of law and it will be faithfully applied. Any Seller who commits himself to an Agent in a sale contract to pay commission will be obliged to do so irrespectively of whether the Agent or another Agent is the overriding cause of the sale. The Agent closing the sale can confidently expect to be protected at law. A case on this point decided that it does not matter how unjust, imbalanced or even ridiculous the consequences may be – the law of contract obliges any party to a written agreement of sale to perform all his obligations in term of it. Very often, when such disputes arise, the offending Agency which hijacked the deal either pleads its right to commission in terms of the contract or argues that the other did not finalise all the terms thereof and was neither the effective cause.
It can be very difficult in such cases for the aggrieved Agency to prove it was the overriding factor in the sale. The matter was dealt with in Wakefield & Sons (Pty) Ltd v Anderson 1965(4) SA 453(N) where it was stated that the first agent will have to show a balance of probabilities in his favour, in particular, that the sale was attributed mainly to his efforts. The judge expressed his opinions as follows:
Where one agency has introduced the property to the purchaser and another agent has finally negotiated the transaction and produced the written offer which the seller accepted, the question of whether the first or second agent’s efforts were the effective cause of the sale is often difficult to answer, but it is obvious that, save in exceptional cases, the first introduction would necessarily be an important factor.
- The estate agents code of conduct
Because of the injustices that occur in such cases, especially where Sellers find themselves facing double commission cases which automatically bring the estate agents’ industry into disrepute, the Estate Agents Board has specifically dealt with the matter in its Code of Conduct for Estate Agents, making the offending agency liable to disciplinary proceedings on the grounds of unprofessional conduct, no matter how legally “correct” its claim for commission may be. The issue here becomes, not one of legal right, but of ethical practice and, if the offending agency is found to have prejudiced and embarrassed the Seller, severe action will be taken against it. The clause states:
8.3 No estate agent shall introduce a prospective purchaser or lessee to any immovable property or the seller or lessor thereof, if he knows, or has reason to believe, that such person has already been introduced to such property or the seller or lessor thereof by another estate agent and that there is a likelihood that his client may have to pay commission to such other, or more than one estate agent, should the sale or lease be concluded through is intervention; provided that the foregoing shall not apply if the estate agent has informed his client of such likelihood and obtained his written consent to introduce such party to the property or the seller or lessor thereof.
It is the duty of every estate agent, on introducing a prospective Buyer to the Seller or his property, to enquire whether he has been introduced to either of them by another agent beforehand. If the client confirms that he has, it is the Agent’s duty to immediately notify the other Agent.