On certification to the Superior Court, Appellate Division, whose opinion is reported at 254 N.J. Super. 502 (1992).
Garibaldi, Wilentz, Handler, Pollock, O'Hern, Stein
The opinion of the court was delivered by
This appeal concerns the legal problems that arise from an attorney's dual representation of both buyer and seller in a real estate transaction. Initially, plaintiffs, the sellers, commenced an action alleging legal and equitable fraud against the attorney, his law firm, and the buyer. Shortly before oral argument, the parties informed the Court that plaintiffs had settled their claims against the attorney and his firm. Therefore, the only issues remaining are, first, whether one client, the buyer, is vicariously liable for the legal and equitable fraud allegedly perpetrated by his attorney against the attorney's other clients, the sellers; and second, whether the sellers are liable for intentional tortious interference with the buyer's prospective economic gain.
In 1982, plaintiffs, Beatrice Baldasarre and Margaret Neumann, inherited from their father, Arthur Santucci, a tract of 40.55 acres of undeveloped land in Warren Township, Somerset County, New Jersey. Plaintiffs retained defendant William B. Butler of the law firm of Hooley, Butler, DiFrancesco & Kelly to act as attorney for their father's estate and for them as co-executrices of the estate. Butler also represented plaintiffs and their spouses in other legal matters. Plaintiffs had first met Butler when their father had consulted him about a legal matter.
Plaintiffs' father's will directed that the Warren property be sold and the proceeds divided between the two daughters. In 1986 and 1987, plaintiffs received several unsolicited offers to purchase the property, ranging in price from $60,000 to $117,000 per lot. Several offers were made by PML Associates, whose owners included Robert Santye, Frank Pasquerello, and Charles Messano. At one time plaintiffs informed Butler that Mrs. Baldasarre and her husband would purchase the property. However, the Baldasarres were unable to obtain financing, and that proposal fell through. Plaintiffs rejected all the other offers for various reasons.
In January 1987, Baldasarre and Newmann met with Butler. The parties disagree about whether plaintiffs solicited Butler's assistance or whether Butler volunteered it, but the three agreed that Butler would help find a buyer for the property. Plaintiffs told Butler that they wanted a price of $110,000 per lot, with no purchase money mortgage and with the contract subject only to preliminary major subdivision approval.
Butler discussed the property with one of his clients, defendant Paul DiFrancesco, a real estate broker and developer, who also was a brother of one of Butler's law partners. DiFrancesco expressed an interest in purchasing the property on the plaintiffs' terms, but added two conditions. DiFrancesco wanted the right to assign the contract and the right to waive the subdivision contingency. He suggested a deposit of $50,000 and asked Butler to represent him in the purchase and the subdivision approval process. Butler alerted DiFrancesco to the potential conflict of interest that could arise from his dual representation. He also told DiFrancesco that he could not represent him unless plaintiffs consented and executed a conflict-of-interest letter. The next day, Butler delivered to DiFrancesco a draft contract and a conflicts letter, and advised him to review both documents with another attorney. DiFrancesco did not do so. The conflicts letter provided in part:
The Sellers have requested that you represent them regarding this matter. I have also asked you to represent me as Buyer. You have pointed out to me potential conflicts. All these matters were discussed in detail at the conference in your office on February 5, 1987. Notwithstanding potential conflicts, I still request that you represent me as Buyer, knowing full well that you will also be representing the Sellers. I feel as though your representation of both the Sellers and the Buyer in this matter will actually facilitate and expedite the obligation of both parties under the aforesaid contract.
Butler then met with plaintiffs. He conveyed DiFrancesco's offer and disclosed his relationship with DiFrancesco. He reviewed and explained the additional conditions sought by DiFrancesco. Butler also informed them that he could not represent DiFrancesco if they objected.
A few days later, Butler delivered to plaintiffs a contract executed by DiFrancesco (the "contract" or "Baldasarre contract"). The total contract price was initially $2,200,000, reflecting an anticipated 20 lots, but was later adjusted to $1,980,000 to reflect a subdivision application for 18 lots. Together with the contract, Butler delivered the $50,000 deposit, DiFrancesco's conflicts letter, and a conflicts letter Butler had prepared for their signature. Their conflicts letter was similar to the one that DiFrancesco had signed. Plaintiffs' letter provided in part:
You have indicated to us that you will be representing Paul M. DiFrancesco, Jr. regarding the Buyer's obligation set forth in the aforesaid proposed contract. You have suggested that we take this contract to other counsel and review it before we sign the same. You have pointed out to us potential conflicts if you represented the undersigned as Sellers and Paul M. DiFrancesco, Jr., the Buyer. Notwithstanding such conflicts, we request that you represent us regarding the sale of the subject property. Your association with this property goes back to the death of our late father, Arthur H. Santucci, on September 23, 1982, at which time you acted as attorney for the estate and attorney for the undersigned as co-executrices.
We have received written offers from third parties to purchase the subject property. We had previously instructed you that we would sell the subject property to a client of yours for a price of $110,000.00 per single family building lot. The aforesaid contract contains that price and we have concluded that the other terms, provisions and conditions set forth in the proposed contract are fair and reasonable.
You discussed all of the above with us in detail at the conference in your office which took place on February 9, 1987.
The contract was contingent on DiFrancesco's obtaining preliminary major subdivision approval within six months, but allowed for a ninety-day extension if he was "moving as expeditiously as practicable" on the extension. The contract also contained an assignment clause that read "The Buyer may assign the contract. In the event of an assignment, the Buyer shall remain individually liable to satisfy all the obligations of the Buyer as set forth in the contract." The contract also contained Paragraph 33, "Professional Associations on Assignment," which provided, in part:
The Buyer has asked William B. Butler, Esq., 190 Elm Street, Westfield, New Jersey to represent him regarding the aforesaid preliminary major sub-division application. In the event the Buyer assigns the within contract pursuant to paragraph 17 above, the assignee shall be required to continue utilizing the engineering services of Fisk Associates and the attorney services of William B. Butler. The purpose of this provision is to insure expediency in the application process so that the applicable dates regarding the obtaining of preliminary major sub-division approval and the anticipated time of closing shall not be interfered with or delayed as a result of the aforesaid assignment.
The contract did not require DiFrancesco to notify the sellers of any assignment. Plaintiffs do not dispute that Butler explained the provisions of the contract and both conflicts letters with them in detail, although they later claimed they had not understood the assignment clause. Plaintiffs also do not dispute that Butler recommended that they review the contract and conflicts letter with another attorney. They did not do so, and on February 12, 1987, plaintiffs signed the contract and the conflicts letter.
In April 1987, DiFrancesco, represented by Butler, entered into a contract (the "Messano contract") to sell the subject property for $200,000 per "approved lot" to Messano Construction Co., Inc., whose principal, Charles Messano, had earlier participated in PML's unsuccessful attempts to purchase the property. DiFrancesco did not assign his rights under the Baldasarre contract to Messano, but rather contracted to sell the property to Messano once he purchased it from plaintiffs. The Messano contract was contingent on DiFrancesco's taking title to the property and obtaining preliminary subdivision approval within eighteen months. The Messano contract contained an "assignment clause" that permitted the buyers to assign only the "whole contract and not part of this contract." The Messano contract also contained a "confidentiality clause" that barred Messano from entering the property, listing it for sale, or advertising it until his closing. The purpose of the confidentiality clause was "among other things, not to jeopardize the seller from obtaining the approvals set forth in paragraph 10," which referred to securing the preliminary major subdivision approval. Butler did not inform plaintiffs of the Messano contract, although Butler testified, and the trial court found, that in May 1987, Butler had informed Bernice Baldasarre's husband of the Messano contract when he was representing him on an unrelated matter and had asked him to relay the information to plaintiffs.
DiFrancesco was unable to obtain preliminary subdivision approval within six months and sought the ninety-day extension provided for in the Baldasarre contract. Plaintiffs agreed to the extension, apparently relying on Butler's assurance that DiFrancesco was "moving as expeditiously as practicable" on the application. Still unable to complete the subdivision process, DiFrancesco sought another extension. Approximately five to six weeks before the subdivision contingency would expire, DiFrancesco requested Butler to ask plaintiffs if they would grant him a further extension in exchange for the release of the $50,000 deposit. Butler conveyed the offer to plaintiffs and explained that DiFrancesco had the options either to terminate the ...