Wednesday, February 28, 2024


            Catalyst Strategic is a consulting firm that advises companies regarding mergers, acquisitions, and similar. Three Diamond Capital is an equipment rental company based in Houston. Three Diamond engaged Catalyst to help with a sale of its company, and executed a contract accordingly. But in October 2018, Three Diamond decided to stop pursuing a sale and ended the agreement. 

            Still, the two companies continued a working relationship. And in 2019, Three Diamond again sought a buyer and executed another engagement agreement with Catalyst. That agreement stated that Three Diamond would pay Catalyst $25k per calendar quarter, plus a commission upon the sale of Three Diamond. The commission was payable if the deal was concluded from the date of the agreement through the 18th month following the date of termination of the agreement. 

            Due to the onset of COVID-19, Three Diamond terminated its contract with Catalyst in March 2020. 

            The rental industry recovered, so the CEO of Three Diamond contacted the CEO of Herc Rentals. Herc had initially been sourced through the efforts of Catalyst during the term of the agreement. This time Herc agreed to purchase Three Diamond for $190 million; the deal closed in August 2021. 

            Three Diamond refused to pay Catalyst the separate fee, even though the transaction took place within 18 months after Three Diamond terminated the contract with Catalyst. So Catalyst sued Three Diamond for breach of contract. 

            The trial court determined that Catalyst substantially performed its obligations, and granted judgment for Catalyst. Three Diamond filed a motion for reconsideration, premised on the ‘procuring cause’ doctrine in Texas. The trial court, unmoved by Three Diamond’s request, awarded Catalyst close to $4 million, plus interest. 

            Three Diamond appealed. 

            The Appellate Court reminded us that the procuring cause doctrine is a ‘settled and plain’ rule in Texas, as announced in a Texas Supreme Court case of 2022. Its function is to credit a broker or agent for a commission-generating sale when a buyer is produced through the efforts of a broker or agent. As a consequence, the commission entitlement vests at the moment of procurement, not when the deal closes. 

            The theory of ‘procuring cause’ is only operational when there is no contract that governs how to handle post-termination commissions. Contractual silence, however, leaves the procuring cause doctrine intact. 

            In this situation, the Catalyst contract contained a ‘robust accounting’ of fees, interim fees, completion fees, and post-termination commissions; there is no claim that the agreement was silent on these points. 

            So, although the procuring cause doctrine is indeed still very much a thing, at least in Texas, it is inapplicable here as the contract is crystal clear. 

            Catalyst must win; Three Diamond will lose. See Catalyst Strategic Advisors LLC v Three Diamond Capital SBC LLC; US 5th Circuit Court of Appeals No. 23-20030; February 22, 2024: 

Questions / Issues: 

1.      Be careful. Although the ‘procuring cause’ doctrine may be alive and well, there are statutes that supplant it. As just one example, it is not enough for a real estate broker or sales agent to be the procuring cause of a deal in many States; strict licensure and other requirements must be met before the agent or broker may assert a lawful claim for commission entitlement. 

2.      Further, and although not addressed in this Opinion because there was no need to do so, most States have adopted statutes of fraud that generally preclude oral agreements above a minimum threshold amount, like $500. Do not make the mistake of concluding that a solid argument for a ‘procuring cause’ entitlement means that a written contract is not needed. 

                                                                        Stuart A. Lautin, Esq.*

 Board Certified, Commercial (1989) and Residential (1988) Real Estate Law, Texas Board of Legal Specialization

Licensed in the States of Texas and New York


Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

Monday, February 5, 2024


             In August 1990 John and Virginia Turcato created separate Living Trusts. John and Virginia each conveyed one-half of their home to each Trust so that title to the residence was owned 50% by John’s Trust and 50% by Virginia’s Trust. 

            John died in 2009. In 2020 Virginia was 94 years old and continued to live at the residence. Virginia wanted to transfer 100% of the home to Darrell Turcato and Robbin Wilkins, two of the grantors’ four children, in recognition of the physical and financial assistance they provided her. 

            A Deed was prepared conveying the home from both Trusts to Darrell and Robbin. Robbin, acting as a Co-Trustee, signed the Deed before a notary. Virginia’s signature was also required, but evidently Virginia signed the Deed out of the presence of a notary since Robbin did not want to take her mother out in public due to COVID and her mother’s frail health. 

            The notary who witnessed Robbin’s signature also acknowledged the deed for Virginia, as the notary had known the family for 20+ years and had previously notarized Virginia’s signature. 

            Virginia died in 2020. Jan Frady and Larry Turcato, the two remaining children of John and Virginia, sought a judicial declaration that the transfer of the home to their siblings was invalid based on the defective acknowledgment and for other reasons. The trial court granted their petition, ruling that the Deed failed and consequently Jan and Larry would become part owners of the property, as provided in the Trusts. 

            Darrel and Robbin appealed, claiming that the Deed was valid and consequently, Jan and Larry have no interest in the residence. 

            To start, the Appellate Court reviewed statutes which require that all deeds must be acknowledged before any notarial officer. Failure to have the instrument properly acknowledged prevents the document from being recorded. And, failure to record it means there is no public record of the transfer. The result is that third parties are unaware of the previous transfer. 

            However, this issue has been litigated previously in many States, as an imperfect acknowledgment or failure to obtain execution by proper witnesses is common. As are other administrative and mechanical errors. 

Consequently, some States have concluded that the failure of parties to follow a statutory requirement like notarization does not always render ineffective a deed or other transfer document as between those who know of its existence, presumably the parties identified in the document. 

            And, depending on the circumstances, perhaps other parties too. 

            The trial court Judgment is reversed; Darrell and Robbin own this property by virtue of the deed signed by all those who are required to sign it, even without a valid notary acknowledgment. See Turcato v. Frady; Wyoming Supreme Court; Case 2024 WY 8; January 23, 2024: 

Questions / Issues: 

1.      This outcome may be a surprise to some of my loyal readers. And for fair reasons, as who can say for sure which parties to an unrecorded instrument know of its existence, except only for those who signed it. And to that point, absent notary acknowledgments and witnesses, all signatures are subject to challenge as forgeries. 

2.      This must be another place where State legislatures responded to a common problem – failure to dot each i and cross each t – but in making it easier to mortgage and transfer properties perhaps worse problems were created. 

3.      If you were a member of your State’s legislature, would you vote for a law that rendered void all important documents (deeds, mortgages, deeds of trust, ground leases, easements, deed restrictions, wills, trusts, oil and gas reservations, &tc) unless those instruments are either witnessed or signed before a notary? Or is this one of the situations where there is no middle ground and any resolution is imperfect because people will always make inadvertent, ministerial mistakes. 

                                                                        Stuart A. Lautin, Esq.*

 Board Certified, Commercial (1989) and Residential (1988) Real Estate Law, Texas Board of Legal Specialization

Licensed in the States of Texas and New York


Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.