On certification to the Superior Court, Appellate Division.
For reversal -- Chief Justice Wilentz and Justices Clifford, Handler, Pollock, O'Hern, Garibaldi and Stein. For affirmance -- None. The opinion of the Court was delivered by Stein, J.
[103 NJ Page 336] In this case the trial court awarded a judgment for a brokerage commission in a real estate transaction that was never consummated. The Appellate Division affirmed in an unreported opinion. We granted certification, 102 N.J. 333 (1985), to consider the result in the context of our holding in Ellsworth Dobbs, Inc. v. Johnson, 50 N.J. 528 (1967), that "absent default
by the owner, the contract of sale must be performed by the buyer before liability for commission is imposed upon the owner." Id. at 551. We now reverse because the parties' inability to complete the sales transaction was not caused by the seller's default or wrongful conduct.
Appellant, G.B.R. Fabrics, Inc. (GBR), a textile manufacturer, was the owner of a parcel of real estate located in Rutherford, New Jersey. Because the lot was part of a collateral package provided by GBR as security for a $946,000 flood-disaster loan issued by the Small Business Administration (SBA) in 1979, the property was encumbered by a mortgage held by the SBA.
In February 1979, John Scott, a broker employed by respondent Van Winkle & Liggett (Van Winkle), contacted George Rubin, the principal shareholder of GBR, concerning the listing of GBR's property for sale through Van Winkle. Scott and the president of Van Winkle met with Rubin and his accountant to consider a proposed exclusive-listing agreement. The parties discussed a sales price of $300,000 to $350,000, as well as GBR's willingness to take back a purchase money mortgage. Because GBR had previously entered into an option agreement for the sale of the land that would not expire until June 1979, Van Winkle took no steps to market the property at that time.
In September 1979, at the request of Joseph Baker, another Van Winkle employee, Rubin agreed to sign a non-exclusive listing agreement with Van Winkle. The agreement was a pre-printed form used by Van Winkle and provided that Van Winkle would receive a commission of 6% of the gross sales price, payable when title passed, if Van Winkle was "instrumental in effecting a sale or lease" of the property. Van Winkle posted a sign on the GBR lot indicating that it was for sale. During the next ten months, it exerted what one respondent's witness characterized as its "usual efforts" to attempt to sell the property.
In May 1980, Scott was informed by Latorraca Realty Corp. (LRC) that a partnership known as Columns Enterprises (Columns) was interested in purchasing the property. After brief negotiations, the parties agreed on a purchase price of $325,000, with GBR taking back a short-term mortgage for approximately 90% of the purchase price. On June 3, 1980, Scott and the president of Van Winkle hand-delivered Columns' proposed form of contract to GBR. Although the issue was vigorously contested at trial, the trial court found, and the Appellate Division agreed, that it was on this date that Van Winkle first learned from Rubin of the existence of the SBA mortgage. Following the meeting, Scott immediately sent Rubin a letter confirming the discussion and indicating that both he and Daniel Van Winkle were "very surprised" to learn of the existence of the SBA lien. Nevertheless, Van Winkle continued to use its best efforts to consummate the sale of the lot.
On June 9, 1980, GBR informed Van Winkle that it preferred an all-cash transaction at a price of $315,000. Through Van Winkle, Columns orally accepted the new proposal that same day. Scott confirmed the offer and acceptance in a letter to GBR that stated that the "offer and acceptance is subject to contracts being prepared and approved by both buyer and seller's attorney[s]." The letter also indicated, like the listing agreement, that "[a] commission of 6% will be paid * * * upon closing of title."
Thereafter, the contract negotiations were handled by GBR's attorney, Samuel Bornstein, and Columns' attorney, James Harrison. Harrison prepared a revised contract, which Scott, Rubin, and Bornstein reviewed on June 13, 1980. In addition to other proposed changes, Bornstein inserted the following paragraph with respect to release of the SBA mortgage:
This Contract is expressly conditioned upon the Small Business Administration releasing a mortgage interest which it holds in the premises to secure an indebtedness incurred by the Seller. The parties hereto understand that it is not within the power of the Seller to require that the said interest be released; however, the Seller will use its best efforts to secure such release. In the event that the said release cannot be obtained upon terms which are satisfactory to
the Seller, in its sole discretion, by July 7, 1980, the Seller may void this Agreement and thereafter shall have no further obligation to the Purchaser other than the return of the deposit moneys in the sum of $31,500.00, forthwith.
Scott delivered to Harrison the revised contract signed by GBR.
At trial, Scott insisted that Bornstein did not explain any of the other "legal" aspects of the proposed contract changes to him. Bornstein, on the other hand, testified that each change was explained to Scott.*fn1 The trial court found that neither Scott nor anyone connected with Van Winkle played a role in either negotiating or determining the final provisions of the sales contract.
Before it received a signed copy of the revised contract from Columns,*fn2 GBR tried to obtain the release of the SBA mortgage. On June 13, 1980, Bornstein telephoned William Smyth, an SBA loan officer, to explain the sales contract and the proposed collateral substitution. According to Bornstein's testimony, Smyth "thought it was a good idea" and told him to contact Howard Epstein of the SBA who could advise him how the substitution could be effectuated. In a letter dated June 20, 1980, Bornstein apprised the SBA of the GBR-Columns contract and proposed the following collateral substitution:
We [GBR] propose to sell the property for the stated consideration and to place the proceeds in a tax-free investment portfolio. The only investment purchases made for that portfolio would be in such tax-free instruments as would meet with the approval of the S.B.A. This portfolio would be subject to the same lien as was the real property. Since the instruments would likely include bearer certificates, we would propose that this law office act as escrow agent of the physical certificates. No liquidation of an instrument in the portfolio nor any trade ...