Commission Earned
The South Carolina Court of Appeals ruled a real estate broker remained entitled to a commission even though the initial sale was stopped by a foreclosure but then was sold again to the original purchaser. Springs v. AAG, 2009 WL 2025639 (S.C.App.).
AAG entered into a contract with Springs, a brokerage firm, to sell land valued at $1.2 million. The commission was to be 10 percent of the sale price. AAG found a buyer for $1.17 million. Payment was to be $345,000 at closing and the balance pursuant to a promissory note. The parties agreed that Springs would receive $37,000 at closing and the balance of the commission by receiving 10 percent of 10 payments to be made under the note. The buyer defaulted on the first payment and AAG foreclosed on the property. At the public auction, the original buyer repurchased the property. The parties then separately negotiated an agreement covering the deficiency judgment. However, AAG did not pay Springs any additional commission. Springs sued. The case was referred to a master, who entered judgment against AAG for $424,000, comprised of the remaining commission, attorneys’ fees and pre-judgment interest. AAG appealed.
Appellate Court Ruling
The court of appeals stated the general rule to be that a broker’s right to compensation is not defeated by the failure or refusal of the purchaser to consummate the contract. However, the general rule may be modified by agreement. In this case, Springs commission was due upon any one of the following events: (1) sale of the property; (2) a valid contract to sell the property but the seller fails or refuses to complete the sale; (3) the presentation to the seller of a valid written offer to purchase the property that complies with the terms and conditions specified in the contract.
Here, once the contract was signed, Springs was entitled to a commission regardless of whether the buyer completed the purchase. AAG's argument was that the agreement between it and Springs was that Springs agreed to have the commission paid pro rata as the promissory note payments were made and this created a condition precedent so the commission payments were contingent on the buyer making the payments under the promissory note. Springs, on the other hand, argued the letter did not create a condition precedent because no language in the letter shows a meeting of the minds that Springs would not be entitled to a commission until payments were made.
Said the court, "Although Springs did sign the letter, when it did so, it had already done what the contract required it to do to receive its commission because AAG and the buyer had signed a sales contract." Further said the court, "If AAG had wanted to ensure it only owed Springs a commission if and when the buyer made its payments, AAG could have used language stating no commission was due unless payment was made…." The court affirmed the master's ruling.
Real Estate Focus is provided by Somerset’s Real Estate Team for our clients and other interested persons upon request. Since technical information is presented in generalized fashion, no final conclusion on these topics should be made without further review. For additional information on the issues discussed, please contact Michael Fritton, CPA. Whether you are a building owner, building manager, real estate developer, real estate professional or an investor, we hope to provide you with timely information so you may be proactive in making your business decisions.
This article was written by and published herein with the permission from professionals of BDO Seidman, LLP. Alvin Arnold is the editor of the BDO Real Estate Monitor. Somerset is a member of the BDO Seidman Alliance, a nationwide association of independently owned accounting and consulting firms.
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