Business Broker Commission if Transaction Fails; Carolina Business Brokers V. Strickland

In Carolina Business Brokers v. Strickland, Carolina Business Brokers, operating as Sunbelt Business Brokers, sued George C. Strickland to receive a broker's commission based on a listing agreement they had entered. The trial court, called the Master in this case, sided with Sunbelt, awarding them $40,000 in commission and also covering attorney's fees. Strickland then appealed this decision. The South Carolina Court of Appeals reviewed the case and reversed the trial court's decision, disagreeing that Sunbelt was entitled to a commission.

Facts of the Case

Strickland, who owned an insurance agency in Charleston, South Carolina, signed a listing agreement with Sunbelt on May 8, 1985, which was set to expire on November 11, 1985. On November 2, 1985, one of Sunbelt's agents introduced Strickland's agency to Robert Bring, who signed a Confidentiality Agreement. Strickland then agreed to extend the listing agreement until January 1, 1986.

Following this extension, negotiations for the sale of Strickland's agency took place, involving Strickland, Sunbelt agents, and Bring. Bring presented an offer to purchase on December 31, 1985, matching the listing agreement's full purchase price of $650,000. However, this offer included contingencies: Bring's approval of year-end financials, Bring's review and approval of the leasing arrangement, agreement between Bring and Strickland on a management contract, and Strickland's signing a non-compete agreement. Strickland signed the offer on January 3, 1986, and Bring was to draft a management contract.

The management contract and year-end financials became sticking points. Bring, new to the insurance business, considered a management contract with Strickland essential for a smooth transition. On January 28, 1986, a meeting was planned for Bring to present the management contract and Strickland's accountant to present the year-end financial statement, but the meeting was canceled due to the accountant's illness.

Strickland and Bring met to play golf, without Sunbelt's knowledge, where they discussed the potential management contract and the salary Bring would pay Strickland. Strickland stated he wouldn't work for Bring for only $24,000 a year, and when Bring asked if Strickland really wanted to sell his business, Strickland responded, "No, not really." Bring never presented the management contract.

Concerned that they couldn't reach a final agreement, Bring asked for his deposit back, which Sunbelt returned. Strickland then asked Sunbelt to arrange another meeting with Bring to discuss the management contract, but Sunbelt did not participate in further negotiations.

Sunbelt Sues its Client

Sunbelt sued Strickland, demanding its full commission for the failed transaction, alleging breach of contract, quantum meruit (a claim for the reasonable value of services provided), and unfair trade practices. The trial court directed a verdict for Strickland on the unfair trade practices claim but ruled in favor of Sunbelt on the breach of contract claim. The quantum meruit claim was not addressed. Strickland appealed, arguing that he was not in breach of contract and therefore did not owe Sunbelt a commission.

The Appeal

The Court of Appeals of South Carolina reversed the trial court's decision, ruling that Strickland was not liable for a commission to Sunbelt. The court's reasoning was based on several key points:

1. Contingencies. The court found that the offer to purchase signed by both parties contained several contingencies that were never fully met. Specifically, Bring's approval of the year-end financials and the agreement on a management contract were critical to the deal. Because these contingencies were not satisfied, a binding contract was never truly established.

2. Listing Agreement Terms. The court addressed whether the listing agreement between Strickland and Sunbelt was still in effect when Strickland accepted Bring's offer. While the initial agreement expired on November 8, 1985, it was extended until January 1, 1986. Strickland signed the offer to purchase on January 3, 1986, after the extension had expired. Even assuming the agreement was still in force, the court found that Strickland did not breach its terms.

3. No Withdrawal or Refusal to Comply. The listing agreement stated that the commission would become due if the seller canceled the listing, withdrew the property from sale, or refused to comply with the listing terms, preventing the property's disposition. The trial court found that Strickland's statement to Bring about not wanting to sell and his failure to provide year-end financials constituted a withdrawal from the sale and a refusal to comply with the agreement.

The Court of Appeals disagreed, stating there was no evidence to support this. Strickland's comment was made during a golf game and Bring's testimony suggested that Strickland's reluctance did not make completing the contract impossible. Bring requested his deposit back because he did not believe they could finalize the deal at that time.

4. Mutual Agreement. The court concluded that the failure to close the deal resulted from a mutual agreement between Strickland and Bring, as they could not agree on all contingencies, especially the management contract. Strickland never made a unilateral decision to withdraw his property from sale or refuse to comply with the listing agreement.

Carolina Business Brokers v. Strickland (299 S.C. 237, 384 S.E.2d 72 (Ct. App. 1989)) has not been overturned, as the South Carolina Supreme Court denied certiorari to review the Court of Appeals' decision. However, it has been cited in subsequent legal discussions, particularly regarding broker commission disputes and contract contingencies.

The Court of Appeals' ruling clarified that brokers are not entitled to commissions if a sale fails due to unmet contingencies in the purchase agreement, absent explicit contractual language guaranteeing payment regardless of closing. This aligns with earlier cases like Thomas-McCain, Inc. v. Siter and Hamrick v. Cooper River Lumber Co., which the court referenced. This decision underscores the importance of unambiguous contractual terms in broker agreements and the burden on brokers to prove a seller’s unilateral withdrawal from a sale to claim commissions.

Hiring an attorney to represent your interests is imperative when not only selling a business, but also purchasing a business. Remember, business brokers do not have your best interest at heart. As transactional brokers, they have no fiduciary duty to either party. The role of a business broker is to ensure a transaction takes place and taking 10-15% for their commission.

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