For reversal -- Chief Justice Weintraub and Justices Jacobs, Francis, Proctor, Schettino and Haneman. For affirmance -- None. The opinion of the court was delivered by Francis, J.
[50 NJ Page 534] Plaintiff Ellsworth Dobbs, Inc., a real estate broker, sued John R. Johnson and Adelaide P. Johnson, his wife, and Joseph Iarussi for commissions allegedly earned in a real estate transaction. The Johnsons, as owners of certain acreage in Bernards Township, New Jersey, and Iarussi as purchaser, entered into a written agreement, the former to sell and the latter to buy the property. There is no doubt that Dobbs brought the parties together, and into the signed
contract of sale. Title did not close, however, because of Iarussi's inability to obtain financial backing for his intended development of the property. After Iarussi's failure to perform, the Johnsons released him from the contract under circumstances to be detailed hereafter. Dobbs then brought this action charging the Johnsons with breach of an express agreement to pay a commission due for bringing about the contract of sale, and charging Iarussi with breach of an implied agreement to pay the commission if he failed to complete the purchase and thus deprived the broker of commission from the seller. The trial judge held, as a matter of law, that Dobbs' commission claim against the Johnsons vested upon execution of the contract of sale with Iarussi, and that the right to commission was not dependent upon the closing of title. Consequently, he declined to submit that issue to the jury for determination. Instead he instructed them that plaintiff was entitled to a commission against the Johnsons, and limited their function to a determination of the amount due. The jury found for Dobbs in the amount of $15,000.
As to the defendant Iarussi, the trial judge submitted this issue to the jury: Did the facts as they found them show by a preponderance of the evidence that Iarussi impliedly agreed with Dobbs' representative that if the representative located property satisfactory to Iarussi for residential development purposes, and the owner entered into a contract with Iarussi to sell the property on terms mutually agreeable, Iarussi would perform the contract and thus enable the broker to earn a commission from the owner? The jury found that there was such an implied agreement; further, that the implied agreement was breached by Iarussi's failure to perform his contract to buy the Johnsons' property. Therefore he became liable to the broker for payment of the commission. Since the jury had been charged that the amount of the verdict against Iarussi would have to be the same as that returned against the Johnsons, he was assessed $15,000.
On appeal the Appellate Division reversed the judgment against the Johnsons, holding that there was a jury question as to their liability to pay the commission to the plaintiff, and a new trial was ordered on this phase of the case. The judgment against Iarussi was reversed also, on the ground that the evidence was insufficient to show a contract, express or implied, under which Iarussi made himself liable to pay the commission Dobbs would have received from the Johnsons if Iarussi had performed his agreement to buy their property. On plaintiff's application, this Court granted certification. 48 N.J. 354 (1966).
The Johnsons are the owners of a 144-acre tract of farm land in Bernards Township, New Jersey. They had placed it on the market for sale in 1960. It was listed with Dobbs and other agencies as available.
Prior to 1960, Iarussi had been connected with the building business. He decided to enter the residential development business on his own. Just when this decision was reached is not clear from the record, but it does appear that in early 1960 he consulted Theodore R. Fleming, Vice President of the Dobbs agency, about acquiring land in the area. As Iarussi put it, "I went out looking for land when I went into business for myself." According to Fleming, the gist of their conversation was that Iarussi wished Dobbs to assist him in finding properties on which he could build homes. Fleming was agreeable, and an understanding was reached that if Dobbs found property satisfactory to Iarussi and it could be bought on terms agreeable to him, Iarussi would make and perform an agreement of purchase with the owner, in which event Dobbs would earn its commission from the seller. Iarussi's testimony is somewhat unclear as to precisely what his arrangement was with Dobbs. In his answer to the complaint herein he admitted that he "solicited, obtained and utilized the services of plaintiff in
order to obtain lands which would be suitable for residential development by him." He said also he knew that if Fleming showed him land which he bought, Dobbs would receive its commission from the seller. And he conceded that after his first meeting with Fleming, he utilized Dobbs' services in contracting to buy at least four pieces of property. In each instance he completed the transaction and Dobbs earned the commission, which was paid by the sellers.
Sometime in 1960, Fleming showed the 144-acre Johnson tract to Iarussi. He was interested in it for residential development, but could not finance such a large undertaking personally and had to obtain backing from some source. Satisfactory terms were agreed upon with the Johnsons, and an oral agreement of purchase was made. Iarussi's hopes for financial support were not realized and the deal collapsed.
It seems plain that Iarussi's interest in the project remained high. In early 1961, he and the Johnsons again met in the Dobbs office, at which time Fleming told the Johnsons of Iarussi's renewed interest in acquiring their property. There is a dispute in the testimony as to what was said at the time about Iarussi's financial ability to consummate a deal. The Johnsons said that in view of their previous experience they expressed skepticism on that score at that interview, whereupon Fleming assured them that Iarussi had or would have by the closing date sufficient financial backing to undertake a development of the proportions contemplated. They said further that Fleming told them he was not at liberty to reveal the source of the backing, but he assured them it existed. Moreover, according to the Johnsons, Fleming said if they went along with Iarussi, Dobbs would pay all the legal expenses. Fleming testified he agreed only to pay the legal fee for drawing the contract of sale. As a result of these assurances, on May 1, 1961 the Johnsons entered into a contract to sell their property to Iarussi for $250,000, title to close on September 1, 1961.
According to Iarussi, at this meeting in the Dobbs office he indicated his interest in the Johnson property and
in trying to obtain financial backing to undertake the residential development thereon. He asserted also that thereafter on a number of occasions he discussed with Fleming his hopes of obtaining the necessary support, and that Fleming offered to assist him in any way he could. He denied he ever informed Fleming that he had secured such backing. Nevertheless, he entered into the purchase contract on May 1, 1961, with the closing date fixed at September 1, with the expectation of obtaining the necessary backing in the interim.
On the other hand, Fleming asserted that on the renewal of the negotiations in 1961 Iarussi neither asked for assistance in securing financing nor discussed the matter at all. He said further that Iarussi simply indicated he would go through with the purchase at the original price of $250,000, if the Johnsons would reduce the down-payment to $10,000. When this was agreed upon the contract was signed. In this connection it may be noted that at the time of execution, the contract provided for a down-payment of $10,000. Three days later, however, by an addendum, this was changed to $1,500 on execution of the contract, an additional $1,000 on June 15, and $10,000 on passing of title.
After this addendum was executed, the contract provided for the payment of the purchase price of $250,000 as follows:
"On execution of the contract etc. $1,500
Further, on June 15, 1961 additional 1,000
On passing of title 10,000
On purchase money mortgage, etc. 237,500"
The original agreement provided also that the purchase money note and mortgage would contain a clause releasing one building lot sold from the lien of the mortgage upon payment of each $2,500.
With respect to the broker's commission, the contract provided:
"The commission hereinafter mentioned shall be payable as follows: $5,000.00 when sellers shall have received a total of $25,000.00 on account of the above purchase price ($10,000.00 herewith and $15,000.00 on account of the principal sum of the above mentioned purchase money note and mortgage); an additional $5,000.00 when an additional $25,000.00 shall have been paid on account of the principal sum of purchase money note and mortgage; and the remaining $5,000.00 when an additional $25,000.00 shall have been paid on account of the principal sum of said purchase money note and mortgage. The entire commission of $15,000.00 shall become immediately due and payable upon any sale or assignment by sellers of said purchase money note and mortgage.
And the Seller hereby agrees to pay to Ellsworth Dobbs, Inc. a commission of Six (6) % on the purchase price aforesaid, said commission to be paid in consideration of services rendered in consummating this sale; said commission to become due and payable as above mentioned."
Iarussi made the two payments totaling $2,500, but by September 1 he had not been successful in securing the financial backing necessary for his development project. Consequently, he requested an extension of time from the Johnsons, which, according to their testimony, they granted when he agreed to pay the taxes on the land between September 1 and the closing date, and also to pay interest on the purchase price during that period. Iarussi denied he made any such specific agreement. He testified, however, he did not want to lose the deal, so he made "various statements" to the effect that he "would have to find a backer first and * * * [he] would see what [he] could work out." In an affidavit he filed on the subject, he said he "never denied he would pay the Johnsons something for interest and taxes but at the same time [he] thought [he] could work out something reasonable and fair for all parties" concerning such payment.
After receiving the extension of time, Iarussi continued his search for financing. The Johnsons assisted him in this regard. In fact they were with him at conferences with representatives of three separate groups which were considering the matter. In January 1962 the Johnsons visited
Fleming's office and complained about the lack of progress, as well as his failure to locate financial backing for Iarussi. At that time, they said, Fleming agreed he would reduce the Dobbs' commission from $15,000 to $10,000 if they would send a "time-of-the-essence" letter to Iarussi fixing February 20, 1962 as the closing date. They consented, and on January 31 Fleming wrote them saying Dobbs understood the total commission on the sale of the property "shall be $10,000." Thereafter Fleming had the "time-of-the-essence" letter to Iarussi prepared and it was sent to him on February 9.
On February 20 the parties, including Fleming and an attorney representing Iarussi's long-sought backer, appeared at the time and place of closing. A dispute arose about Iarussi's payment of the taxes and interest the Johnsons said he had agreed upon, and the closing failed. On the same day Iarussi, believing he then had the necessary financial backing for his project, instituted a specific performance suit alleging he was "ready and willing to pay the purchase price and now offers to do so." The Johnsons filed an answer denying they had failed to perform, asserting their continued willingness to do so, and they requested the court to set a time and place for the closing and the payment of the purchase price. They also counterclaimed demanding specific performance and a judgment for the interest and taxes Iarussi had agreed to pay.
Since both parties had indicated their willingness to perform, the trial court, on motion, entered summary judgment for the Johnsons and ordered that the parties agree upon a time and place not later than May 15, 1962 for closing, at which time, upon tender of a deed, Iarussi should complete the transaction. The Johnsons' claims for damages set forth in the counterclaim, including that for the interest and taxes between September 1, 1961 and the date of closing, were ordered transferred to the Law Division for trial.
The closing was set for May 15. According to Iarussi, he received word on May 14 that his backer had withdrawn and
would not provide the necessary financing. On May 15 the parties, including Iarussi, and their respective attorneys, as well as Fleming, appeared at the place of closing. Iarussi announced his inability to complete the transaction. According to his affidavit on the motion for summary judgment in the present action, he realized he was faced with a suit for the taxes and interest on the purchase price from September 1, 1961 and with a court order directing him to complete a purchase contract he was "unable to fulfill." His attorney advised him he was in serious legal trouble. He became upset, left the closing and went home.
There is no doubt that the Johnsons were ready and willing to close the title on that day. When the proceedings were aborted, they were faced with a serious dilemma. The order for specific performance had not been fruitful. The property which they were anxious to sell had been tied up for more than a year by the Iarussi contract. They had been subjected to litigation and other expenses. They were advised by their attorneys that further litigation with Iarussi might well tie up their land for an indefinite period of time. So they concluded they had no choice but to "rescind the contract," since they were interested in selling the land. They were aware that Dobbs alleged "certain claims" for commission even though title had not passed, and that the other various contingencies contemplated by the contract of sale had not occurred through no fault of theirs. Further they assert that they would not have made the agreement to sell if they had not been assured by Fleming of Iarussi's financial capacity to perform. These considerations led to discussion with Iarussi and his attorney concerning disposition of the matter, and apparently later in the day on May 15, 1962, to the execution of written mutual releases between them, discharging each from all obligations to the other under the contract of sale.
The Johnsons had received a $2,500 deposit under the sale contract. According to the release they agreed to repay this sum to Iarussi when, as and if their property was sold and
they received from the buyer not less than $25,000 cash on account of the purchase price. Iarussi agreed to provide them with all maps, surveys, plans and engineering data pertaining to preliminary subdivision approval which were in his possession or control. The pending Superior Court action was to be dismissed. Finally, Iarussi stipulated he would save the Johnsons harmless from any commission claim by Dobbs. Thereafter Dobbs brought this action against the Johnsons and Iarussi claiming $15,000 as earned commission plus interest from May 15, 1962, the date of the mutual releases between the defendants.
At the trial the Johnsons claimed primarily that Dobbs' right to commission was contingent upon closing of title; that such was not only the clear meaning of the language of the sale contract, but it was the understanding of the parties. They contended further that if the court would not hold as a matter of law that the failure of Iarussi to complete the transaction barred the claim for commission, the most that could be said against their position was that the contract was ambiguous as to when the broker's right accrued. Therefore, they urged that parol testimony was admissible to explain the ambiguity and to show the parties' understanding that commission was to be considered earned only upon closing of title. With respect to the so-called "settlement" made with Iarussi after his refusal to close title, they contended they had simply salvaged what they could out of a bargain they wanted to complete, but which was unilaterally frustrated by him. In return for releasing him they received nothing that could possibly be considered as an equivalence for the loss of their bargain. The trial judge disagreed. He held that in light of the established law of this State, the ...