Tort/Negligence – Interference with Contract – Condition Precedent – Landlord/Tenant

Even though an asset purchase agreement included a condition precedent that the purchaser obtain a “satisfactory lease” with the defendant-landlord, this did not authorize the landlord to interfere with the asset purchase agreement by attempting to grab some of the asset purchase price for itself.

We reverse the Court of Appeals’ decision, which reversed the trial court’s judgment in favor of the plaintiff-sellers.

Facts

The defendant-landlord’s commercial lease with the plaintiff-sellers included an assignment provision. That provision required the sellers to pay over to the landlord all consideration received in connection with an assignment.

When the sellers’ lease neared the end of its term, the sellers negotiated a sale of their equipment to Brooktenn, LLC, for $70,000, contingent upon Brooktenn obtaining a satisfactory lease of the leased premises from the landlord. The landlord negotiated a lease with Brooktenn.

Before Brooktenn’s lease was signed, the landlord learned of the asset purchase agreement. The landlord asserted that it was entitled to the entire $70,000 purchase price under the assignment provision. When the sellers objected, pointing out that they were not assigning their lease – rather, their lease term was ending – the landlord lowered its demand to $20,000. The sellers continued to object.

The landlord then offered to accept the $20,000 from either the sellers or the buyer. When that tactic failed, the landlord suggested that the buyer could pay the landlord the $20,000 fee, move into the premises, and keep the sellers’ equipment without paying the sellers. The buyer strenuously objected to this scheme and instead walked away from the deal.

The sellers successfully sued the landlord for tortious interference with contract, but our Court of Appeals reversed on the ground that there was no enforceable contract with which the landlord could have interfered.

Analysis

The ability of one party to a contract to avoid it, based on a proper ground, does not mean that any third person is free to tortiously interfere with the parties’ contract for an improper purpose. Defenses to enforcement of a contract, such as the existence of conditions precedent, are for the benefit of the contracting parties, and they do not afford a right to others to engage in tortious interference with impunity.

Brooktenn’s obligation to perform (to purchase the sellers’ assets) was contingent on obtaining a “satisfactory lease,” a circumstance that is subjective. It is a condition precedent to an obligation of performance, not a condition precedent to the formation of a valid contract.

We recognize that the landlord is free to set its own rental prices; it did not simply do that. Rather, the landlord approved a lease application from Brooktenn, and then negotiated a lease, which was reportedly “in place,” but not signed, so Brooktenn apparently had reached some kind of satisfactory point in the negotiations.

Once the landlord became aware of the pending asset sale, however, it essentially devised a plan to grab all ($70,000) or some ($20,000) of the proceeds of the sale for itself by repeatedly and falsely insisting it was entitled to a lease assignment fee under the sellers’ existing lease, despite all evidence to the contrary. In addition, the landlord suggested that Brooktenn could pay them the $20,000 fee, move into the premises, and keep the sellers’ assets without paying the sellers. To his credit, Brooktenn’s principal strenuously objected to this scheme, stating he did not do business that way and would never “stab” the sellers in the back by taking their property without paying for it. Brooktenn did, however, exercise its right under the contract not to purchase the assets when the landlord thwarted Brooktenn’s attempt to procure an independent lease of the premises.

It is abundantly clear that the landlord improperly interfered with the asset purchase agreement and, more precisely, the ability of Brooktenn to satisfy the condition precedent to performance of the contract.

Reversed.

Branco v. Hull Storey Retail Group. LLC (Lawyers Weekly No. 013-001-23, 11 pp.) (Per Curiam) Appealed from Sumter County Circuit Court (Ferrell Cothran, J.) John Simmons and Patrick McFadden Killen for petitioners; Miles Edward Coleman and John Markwalter for respondents. South Carolina Supreme Court (unpublished)