The Huffines Co., LLC, v. Lockhart: Court Considers Protection Clause
A South Carolina appellate court has decided whether a lower court properly directed a verdict in favor of a brokerage based on a protection clause contained in the listing agreement.
In April 1999, Nancy R. Lockhart ("Owner") listed her property for sale with Calvert Huffines ("Broker") of the Huffines Company, LLC ("Brokerage") for a one year term. The listing agreement ("Agreement") provided that the Brokerage was being retained to "procure a purchaser, ready, willing and able to buy this property at the listed price and terms", for which the Brokerage would be paid a specified commission. Further, the Agreement included a protection clause which provided that if a prospect procured by the Brokerage during the term of the Agreement purchased the property within six months after the agreement's expiration, then the Brokerage would receive a commission from the sale. The protection period ended on October 30, 2000.
The Broker began his efforts to market the property. As part of his efforts to market the property, he wrote a letter to Colleton County School District ("School District") to inform them of the availability of the property, as he had learned that the School District was looking for land on which to build a school. The School District's general counsel contacted the Broker and they had a series of conversations. Eventually, the School District made an offer to purchase the property at $3500/acre in March 2000. The Owner rejected this offer.
In April 2000, the Owner's attorney contacted the School District and informed the School District that all future communications regarding the sale should be directed to him. In May 2000, the parties negotiated a sale price of $4500/acre with a $1000 option ("Option"). The Option lasted for 180 days. Due to a consent decree between the School District and the United States Department of Justice ("Department"), the School District had to obtain the Department's approval before building a new school. The Department's written approval did not come until November 1, 2000. On October 17, the School District's board of trustees formally voted to exercise the Option and purchase the Owner's property, pending approval by the Department.
The School District completed its purchase of the Property on November 16, 2000. The Broker attended the closing, but the Owner refused to pay him a commission from the sale. The Brokerage brought a lawsuit seeking to collect its commission from the Owner. The trial court directed a verdict in favor of the Brokerage, finding that the Brokerage had procured a buyer and that the sale of the property occurred on October 17th. A directed verdict is when the judge rules as a matter of law, the jury could only reach one conclusion, based on the evidence before it. The trial court also awarded the Brokerage its commission. The Owner appealed the trial court's rulings.
The South Carolina Court of Appeals reversed the trial court's directed verdict and sent the case back to the trial court for further proceedings. The Agreement provided two alternative conditions entitling the Brokerage to a commission. The first was if the Brokerage procured a buyer who was "ready, willing and able" to purchase the property. Alternatively, the Brokerage was entitled to a commission if the property was sold to a prospect procured by the Brokerage within six months of the expiration of the Agreement. In order to recover a commission, the Brokerage would have needed to prove it satisfied either of the above conditions.
First, the court looked at whether the Brokerage had procured a ready, willing, and able buyer. A broker has procured a buyer when the broker's efforts are the "efficient cause, but not necessarily the sole cause, of a series of unbroken continuous events" which results in the sale of the property. As the Broker had contacted the School District and started negotiations between the parties, the court ruled that he had procured a buyer for the property.
However, the court found there was conflicting testimony as to whether the Brokerage had produced a ready, willing, and able buyer before the expiration of the listing agreement. A ready, willing and able buyer is one that is able to meet all of the seller's terms. The School District argued that it could not have purchased the property without the Department's approval, while testimony from the School District's general counsel indicated that he believed the School District could have purchased the property without the Department's approval but could not have built a school on the property without such approval. Since a jury could have decided that the School District was not a "ready, willing and able" buyer, the court ruled that the trial court should not have directed a verdict in favor of the Brokerage. Thus, this issue was sent back to the trial court for consideration by a jury.
Next, the court considered whether the sale occurred within six months of the expiration of the listing agreement. The court determined that a "sale or transfer" of the property as described in the Agreement refers to an actual sale of the property, not just the entering into an option contract to purchase the property. The Brokerage argued that the Owner had intentionally delayed the closing by putting her attorney in charge of negotiations and also by commencing an unnecessary lawsuit to clear the property's title. If the seller prevents a condition precedent from occurring, then the broker is entitled to recover a commission. The court found that there was conflicting testimony as to whether the Owner had purposefully delayed the closing, as the Owner claimed the lawsuit to clear title was necessary because her brother had challenged her right to sell the property, but there was no other evidence offered to support the Owner's testimony. Once again, the court ruled that a jury should determine whether the Brokerage had a right to a commission and the trial court had improperly directed a verdict in favor of the Brokerage. Thus, the court sent the Brokerage's protection clause arguments back to the trial court for further consideration by a jury.
The Huffines Co., LLC, v. Lockhart, 617 S.E.2d 125 (S.C. Ct. App. 2005).
Editor's Note: NAR Legal Affairs would like to thank George Cox of the Cox Law Firm, P.C., for alerting us to this decision.