On appeal from the Superior Court, Chancery Division, Somerset County.
Michels, O'Brien and Havey. The opinion of the court was delivered by Havey, J.A.D.
The opinion of the court was delivered by
Plaintiffs Bernice M. Baldasarre and Margaret M. Neumann appeal from a judgment, entered after a bench trial, dismissing their complaint seeking rescission and damages against defendants. Plaintiffs also appeal from the judgment entered in favor of defendant Paul M. DiFrancesco, Jr. (DiFrancesco) on his counterclaim awarding him damages in the amount of $1,530,000, and compelling plaintiffs to convey to him the subject property and an easement on plaintiffs' adjoining property. On appeal, plaintiffs contend that (1) their attorney, defendant William B. Butler, Esq., engaged in a conflict of interest by representing them and DiFrancesco in the subject real estate transaction; (2) Butler's conflict of interest constituted legal and equitable fraud, imputable to DiFrancesco; (3) defendants' fraudulent conduct was sufficient to compel rescission of the agreement and/or an award of compensatory and punitive damages; (4) DiFrancesco's counterclaim for tortious interference with his contractual rights was insufficient as a matter of law, and (5) the trial court erred in ordering plaintiffs to convey to DiFrancesco an emergency access easement over their Watchung property. DiFrancesco cross-appeals from the dismissal of his claim for punitive damages on his counterclaim against plaintiffs.
We reverse and remand for the entry of judgment awarding plaintiffs compensatory damages against defendants, and for a
hearing on plaintiffs' punitive damage claim. We also reverse the judgment awarding him damages on his counterclaim, and affirm the dismissal of his punitive damage claim.
Bernice M. Baldasarre and Margaret M. Neumann are surviving daughters of Arthur Santucci, who died in 1982. Butler and his law firm represented the Santucci estate and also represented plaintiffs and their respective spouses in various real estate transactions and third-party disputes. As beneficiaries of the Santucci estate, plaintiffs inherited a 40.55 acre tract in Warren Township, Somerset County, zoned for single-family residential use, and a contiguous parcel in Watchung Borough.
During the years 1986 and 1987, plaintiffs received offers to purchase the Warren Township tract, ranging from $60,000 to $117,000 per building lot, subject to subdivision approval. In most instances, plaintiffs discussed the offers with Butler, and for a variety of reasons each offer was rejected by plaintiffs. One of the offers was made by PML Associates, a partnership which included a local developer, Charles Messano.
According to Mrs. Neumann, at a meeting in early February 1987, Butler told plaintiffs that his client, DiFrancesco, a local real estate developer and brother of Butler's law partner, had offered to purchase the property at $100,000 per lot. Plaintiffs demanded $110,000 per lot, payable in cash with no mortgage contingency. According to Butler, plaintiffs had asked him to make an inquiry of his clients as to whether there was an interest in acquiring the tract. Also, he testified that he had suggested plaintiffs obtain an appraisal of the property and consider selling the property by public auction.
Butler thereafter discussed plaintiffs' proposal with DiFrancesco, who expressed an interest in purchasing the property at the $110,000 figure. He advised Butler he would pay a $50,000 deposit, and insisted upon the right to assign the agreement. He also asked Butler to represent him during the transaction and in obtaining subdivision approval.
Butler conveyed DiFrancesco's offer to plaintiffs, and explained to them the meaning of a buyer's right to assign the agreement. He also told plaintiffs that he had represented DiFrancesco in the past. According to Butler, he explained that if plaintiffs objected to him representing DiFrancesco, he would not do so. On February 6, 1987, DiFrancesco delivered the $50,000 deposit to Butler and signed the agreement as well as a "conflict of interest" letter prepared by Butler.
On February 9, 1987, Butler again met with plaintiffs and presented the proposed agreement to them. The agreement provided for a purchase price of $2,200,000 computed based on 20 subdivided lots. It was subject to DiFrancesco obtaining preliminary major subdivision approval of at least "15 sewered single family building lots" within six months, and provided that if DiFrancesco "has been moving . . . expeditiously," he was given 90 additional days to obtain approval. This subdivision contingency, however, was waivable by DiFrancesco. The agreement also provided the following:
The Buyer may assign the within contract. In the event of assignment, the Buyer shall remain individually liable to satisfy all the obligations of the Buyer as set forth in this contract.
According to Butler, he explained to plaintiffs each paragraph of the agreement in detail as well as the potential conflicts of interest raised by various terms in the event he represented both plaintiffs and DiFrancesco. He also presented to plaintiffs a conflict of interest letter which disclosed his prior representation of DiFrancesco, his intent to represent DiFrancesco in the transaction and before the planning board, and that DiFrancesco was his law partner's brother. The letter also stated that plaintiffs had instructed Butler to find a purchaser for the property and acknowledged that the $110,000 per lot price was fair and reasonable. Butler testified that he suggested plaintiffs take the agreement and conflict of interest letter to another attorney "for independent advice and consultation" and plaintiffs rejected the suggestion. On February 12, 1987, plaintiffs signed the agreement and conflict of interest
letter. It is undisputed that the purchase price was adjusted to $1,980,000 based on DiFrancesco's application to the planning board for an 18-lot, rather than 20-lot subdivision. It also is stipulated that the $1,980,000 price was "fair and reasonable" as of the date of the agreement.
On April 9, 1987, DiFrancesco entered into a written agreement with Messano Construction Co., Inc. (Messano), Charles Messano's company, to sell the subject property to Messano at a price of $3,600,000, based on $200,000 per subdivided lot. The agreement was contingent upon DiFrancesco closing with plaintiffs and his obtaining preliminary major subdivision approval within 18 months. It also included a "Confidentiality" clause, prohibiting Messano from entering the property and listing or advertising the property for sale during the term of the agreement. The agreement stated that the purpose of the clause was "among other things, not to jeopardize" the subdivision application process. However, according to Messano, the clause was inserted because Butler and DiFrancesco did not want plaintiffs to know that DiFrancesco had assigned the agreement. Messano also testified that Butler said "it would be [Butler's] problem when [plaintiffs] did find out about it." Butler denied he made these statements, and testified that the central purpose of the clause was to prevent the planning board from knowing that someone other than DiFrancesco owned the property.
On various occasions during the spring and summer of 1987, plaintiffs met with Butler to execute planning board documents and to discuss the status of DiFrancesco's subdivision application. The Messano agreement was never mentioned. Butler conceded he never told either plaintiff directly about the Messano agreement at any time because he had no confidence in it. According to Butler, on May 20, 1987, he met with Constant Baldasarre, plaintiff Baldasarre's husband, on an unrelated matter and advised him of the Messano agreement and asked him to "relay" the information to plaintiffs. He testified that he assumed Mr. Baldasarre had conveyed the information to
plaintiffs. Mr. Baldasarre denied that Butler told him about the Messano agreement.
Upon the expiration of the six-month period within which subdivision approval was to be obtained under the plaintiffs/DiFrancesco agreement, the contingency was extended for 90 days, or until November 12, 1987. However, some time in October 1987, DiFrancesco indicated to Butler that subdivision approval could not be obtained within the agreed-upon time period because of difficulties encountered before the various boards. He therefore asked Butler to obtain from plaintiffs an additional six-month extension of the subdivision contingency with an additional 90-day extension, if necessary. In return, DiFrancesco offered to release to plaintiffs the $50,000 deposit held in escrow.
On October 7, 1987, Butler met with plaintiffs to discuss the extension requested by DiFrancesco. Mrs. Neumann testified that plaintiffs resisted the extension because the value of the property "was escalating so fast." Butler admitted he did not tell plaintiffs of the Messano agreement at this meeting because it "didn't occur" to him to tell them. Also, it is uncontradicted that at the meeting Butler did not give plaintiffs advice about whether or not to sign the extension, but did advise them that DiFrancesco could either void the deal or waive the subdivision contingency and close title if the extension was not granted. DiFrancesco testified that if plaintiffs had refused to extend, he was ready and able to close title immediately. Plaintiffs discussed the extension between themselves and agreed to it. The $50,000 was thereupon released to them in consideration for the extension.
In early January 1988, Mrs. Neumann heard a "rumor" that the property had been "resold" by DiFrancesco. She immediately called Butler who again made no disclosure of the Messano agreement but instead recommended that plaintiffs attend a board of health meeting on January 12, 1988 and discuss the matter with DiFrancesco. While Butler was present during a
conversation between Mrs. Neumann and DiFrancesco at that meeting, the Messano agreement was not mentioned.
In the latter part of January 1988, plaintiffs learned that DiFrancesco had sold the property and that Butler represented DiFrancesco in that transaction. 0 plaintiffs thereupon retained new counsel and during a February 11, 1988 meeting with their new lawyer, reviewed the Messano agreement for the first time.
On March 17, 1988, plaintiffs filed the present action against Butler, his law firm and DiFrancesco, seeking a rescission of their agreement with DiFrancesco, and compensatory and punitive damages. The gravamen of the complaint is that Butler and DiFrancesco had committed legal and equitable fraud by wrongfully withholding the existence of the Messano agreement from plaintiffs, thereby inducing them to grant the October 7, 1987 extension. Plaintiffs also claimed that Butler had violated his professional responsibility to plaintiffs and that Butler's law firm was jointly and severally liable for his conduct. DiFrancesco filed an answer and counterclaim seeking specific performance of the agreement and compensatory and punitive damages for plaintiffs' tortious interference with his prospective economic advantage under the Messano agreement.
On April 25, 1988, DiFrancesco's subdivision application was approved and on April 26, 1988, DiFrancesco, through his new attorney, notified plaintiffs' counsel that he was prepared to close on 1 the agreement with plaintiffs, and if plaintiffs refused to do so, plaintiffs would be held "responsible for all damages sustained[.]"
In response to a pretrial motion filed by DiFrancesco, the trial court entered an order on September 19, 1988 compelling plaintiffs to close title on or before October 9, 1988 with the proviso that approximately $1,620,000 (the difference between the purchase price under the plaintiffs/DiFrancesco and DiFrancesco/Messano agreements) be held in escrow. On September 23, 1988, DiFrancesco notified Messano that he was
ready and able to convey title to the property under the DiFrancesco/Messano agreement. Time was made of the essence. On October 4, 1988, we denied plaintiffs' motion for a stay of the September 19, 1988 order, and on October 6, 1988, plaintiffs notified DiFrancesco of their willingness to comply with the trial court's order and close title, provided DiFrancesco tendered the purchase price of $1,980,000. DiFrancesco's attorney responded by stating that plaintiffs had not complied with the September 19, 1988 order because plaintiffs could not deliver "marketable" title. DiFrancesco's title company would not insure title because of the pendency 2 of plaintiffs' rescission complaint. By letter dated ...