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Leadership Real Estate Inc. v. Harper

Decided: October 15, 1993.


Schwartz, J.s.c.


[271 NJSuper Page 156] Plaintiff seeks to recover from the defendant, Donald Kolpan (hereinafter "Kolpan" or "defendant"), a brokerage commission to which it claims it is entitled under an exclusive listing agreement

in connection with the sale of a dry cleaning and laundry business (hereinafter "the business") and the building and real estate (hereinafter "the property") where the business was operated. The contract of sale was signed and the closing took place after the expiration of the term of the exclusive listing agreement and the six-month extension period contained in that agreement. The matter was tried without jury.

Several issues have been presented which have not been previously addressed by New Jersey courts, including: (1) what is the meaning, for purposes of plaintiff's breach of contract claim, of the word "sold" as used in an extension clause contained in an exclusive listing agreement; (2) whether the doctrine of "efficient producing cause" applies to permit the broker to recover a commission following the expiration of the aforesaid six-month extension period, and (3) if so, whether the doctrine of "efficient producing cause" applies when the broker fails to prove that the buyer was first introduced to the seller or the property and business by the broker. Plaintiff also seeks to recover a commission based upon allegations of bad faith by the seller in reopening negotiations with the buyer during the six-month extension period without giving notice to the broker and in failing to consummate the transaction prior to expiration of that six-month extension period despite reaching a meeting of the minds with the buyer on price, cash and the amount of a purchase money mortgage about nine days before the extension period expired.

When plaintiff filed its complaint in February 1991, it sought to recover damages against not only the defendant, Kolpan, but also against his former partner, Bernard Harper ("Harper"), Sunrise Cleaners ("Sunrise"), the trade name of the business, and Won Yun ("Yun"), the buyer. The complaint pleaded claims of common law fraud, consumer fraud under the New Jersey Consumer Fraud statute, and "efficient producing cause" against each of the defendants. Prior to commencement of trial the court was informed by plaintiff's counsel that plaintiff had entered into a

voluntary dismissal of its claims against the defendants, Harper, Sunrise and Yun.

Although the complaint does not specifically plead a claim for breach of the listing contract, plaintiff asserted such a claim at the time of trial and that claim was tried by consent of the parties. Accordingly, the complaint is deemed amended to assert a claim for breach of the listing contract. R. 4:9-2; Walker Rogge, Inc. v. Chelsea Title and Guar. Co., 254 N.J. Super. 380, 396, 603 A.2d 557 (App.Div.1992); Farese v. McGarry, 237 N.J. Super. 385, 390, 568 A.2d 89 (App.Div.1990); 68th St. Apts., Inc. v. Lauricella, 142 N.J. Super. 546, 561 n. 3, 362 A.2d 78 (Law Div.1976), aff'd o.b. 150 N.J. Super. 47, 374 A.2d 1222 (App.Div.1977), certif. den. 75 N.J. 20 (1977). The claim for consumer fraud was not advanced either at trial or in any of the pretrial or post-trial briefs, and, accordingly, that claim is deemed abandoned.

After assessing the credibility of the witnesses who testified at the trial, I reached the findings of fact set forth below which are pertinent to resolution of the legal issues raised by the parties.


Leadership Real Estate Inc. ("Leadership") is a corporation of New Jersey formed in 1974 by its principal, Sanford L. Schonberger ("Schonberger") who has been licensed as a real estate broker by the State of New Jersey since December 1972. Leadership specializes in commercial and industrial real estate.

Schonberger was customer of Sunrise, which for many years has operated a commercial dry cleaning and laundry establishment at 398 North Livingston Avenue, Livingston, New Jersey. Sunrise was operated through a corporation known as Arlyn, Inc., which was formed by Harper and Kolpan in 1978 to acquire the business. Harper and Kolpan were equal partners. The business was purchased from the Heimowitz brothers, one of whom was Harper's father and the other was Mrs. Kolpan's grandfather. The Heimowitz brothers and their wives also owned the property on which Sunrise was operated. Harper and Kolpan acquired title

to the property as tenants in common in December 1983 from Milton Heimowitz, Gussie Heimowitz and Elsie Heimowitz. The purchase of the property was made subject to a mortgage pursuant to the terms of which the sum of $15,000 a year was to be paid in twelve monthly installments to Gussie Heimowitz for the rest of her life and a like amount was to be paid to Milton Heimowitz and his wife Elsie Heimowitz, and to the survivor of them, for the rest of their lives. This mortgage, intended to secure the purchase price of both the property and business, was signed by Harper and Kolpan individually.

The listing agreement, signed by Harper, Kolpan and Schonberger on behalf of Leadership, provides in pertinent part as follows:

To: Leadership Real Estate Co., Inc. hereinafter designated as the listing broker;

In consideration of your listing and endeavoring to procure a purchaser for the property known as 398 North Livingston Avenue in the town of Livingston, N.J. the undersigned, as owner grants you, the Listing Broker, the sole and exclusive right to sell . . . my property for a period of 6 months from the date hereof, which right shall expire on the 14day of March 1989. The proposed purchase price of said property is $1,200,000. There exists an assumable mortgage in the amount of N.A. with a N.A. year term at an interest rate of /--%. The seller will not give a purchase money mortgage. The owner agrees to pay the listing broker a commission of 10% of the gross purchase . . . price which shall be considered earned, due and payable in full upon closing and passing of title . . . Such commission shall be considered to have been earned in the event of a transaction reflecting the above price or any other price or terms to which the owner may consent to in writing.

The owner represents that he has the right to sell . . . said property and that he can and will execute a sales contract, and will deliver possession of said premises within 90 days days [sic] subsequent to the execution of a sales . . . contract. In the event that the property shall be sold . . . within a period of 6 months after the expiration of this agreement to anyone that the listing or cooperating broker has shown said property and registered the name of such prospect by certified mail or by personal service prior to the expiration of this agreement, the undersigned owner agrees to pay the foregoing commission to the listing broker " (emphasis supplied).

Although the listing agreement did not contain any reference to the business operated by Sunrise at the premises, both parties conceded that the agreement was intended to include, and the listing price did include, both the business and the property.

Although the written agreement contained no restrictions on the activities of the broker, Schonberger conceded that Harper and Kolpan did not want him to advertise the business by name or location or to put a sign on the building since they were concerned that such advertising would adversely impact their business. They wanted Leadership to solicit purchasers in a low key manner through soliciting cleaning equipment suppliers for the names of such prospects, having Schonberger talk with his father-in-law who was in the laundromat business, and placing blind ads in local newspapers. Leadership placed advertisements in The Star-Ledger. One such ad, published on Sunday, October 16, 1988, read as follows: "DRY CLEANER -- Prime West Essex loc. Hi vol bus. & prop. $1.2 mil. Call Wkdys. Leadership Brokers, 994-4089."

Leadership ran the above advertisement 2 or 3 times a week for the entire six-month period of the exclusive listing.

Schonberger and one of his employees, Ruth Blau ("Blau"), a licensed real estate salesperson working under Schonberger's supervision, knocked on doors of other dry cleaners, called laundry and dry cleaning equipment suppliers and spoke with a number of other people in an effort to obtain prospects for the purchase of Sunrise. Blau also answered telephone inquiries received in response to the newspaper ad. At Schonberger's request, Blau also contacted several dry cleaners located in Clifton. Blau also made calls to friends of hers in the dry cleaning business, and they suggested others who might be interested. When Blau made those calls, she never revealed the name or location of Sunrise's business. Leadership did not, however, maintain any records identifying the contacts which Schonberger and Blau made in an effort to solicit buyers for the business.

Although there was considerable dispute in the testimony of the parties over Leadership's involvement in locating Yun as a prospective buyer for the dry cleaning business and property, the court finds that Leadership had no role in locating Yun or introducing him to the property or to the sellers. Sometime in

October 1988 Yun appeared at the premises of Sunrise and informed Kolpan that he had been informed that the laundry business was for sale. Kolpan told Yun that the business was under an exclusive listing agreement with Leadership, that Yun would have to contact Leadership and that Kolpan could not negotiate directly with him. Yun learned that Sunrise was for sale through conversations he had had with Steve Bauer ("Bauer"), a salesman employed by Avis Machinery Co., a company engaged in the sale and service of dry cleaning equipment. Bauer had learned that Sunrise was for sale through a conversation he had had with Harper in 1987.

In October 1988 Yun owned a commercial dry cleaning and laundry business located in Edison, New Jersey, which he coincidentally also operated under the name "Sunrise Cleaners." In 1987 and 1988 Bauer serviced Yun's business in Edison, as well as that of Harper and Kolpan in Livingston.

At Kolpan's suggestion, Yun telephoned Leadership and spoke with either Schonberger or Blau to arrange an appointment. He then visited Leadership's office and met both Schonberger and Blau. He 0 was taken by Blau to Sunrise for inspections of the building and equipment on three occasions prior to submitting any offer.

Sometime after the listing agreement was executed, Leadership had obtained from either Harper or Kolpan a real estate appraisal report dated February 10, 1988, which disclosed the appraiser's opinion that the property was worth $300,000. A financial report of Arlyn, Inc., dated September 30, 1987, had also been supplied to Leadership. That report reflected total assets, liabilities and shareholders' equity of approximately $150,000, of which approximately $44,000 represented shareholders' equity. Gross sales for the fiscal year ending September 30, 1987, totaled approximately $691,000, and net profits were reported at approximately $22,000.

Copies of Arlyn's financial statement and the real estate appraisal report were shown or given to Yun by Leadership before Yun made any offer. Yun also made telephone calls to Blau for

information concerning the dry cleaning wholesale accounts held by Sunrise, the number of its employees, the gross payroll, what Harper and Kolpan took home each week in salary, a breakdown of the percentages of gross income generated by the dry cleaning 1 business and the shirt laundry business and some information concerning the apartments located on the second floor of the building occupied by Sunrise. Either Schonberger and/or Blau obtained the requested information from Kolpan and provided it to Yun.

By letter on Leadership's letterhead dated November 30, 1988, and signed by Yun, an offer to purchase the business and property was made to Kolpan and Harper. The offer provided the following two alternative options:

Option 1.

Purchase price: $800,000.00

Cash at Closing: 600,000.00

Purchase Money Mortgage: 200,000.00 -- Seven year term at 10% interest


Option 2.

Purchase price: $900,000.00

Cash at Closing: 450,000.00

Purchase Money Mortgage: 450,000.00 -- Seven year term at 10% interest

The offer further provided that the sale would include the property, the name Sunrise, all equipment presently installed for operation of the business and one van type truck, all of which the sellers were to represent that they owned free and clear. The offer also provided that the purchase was to be subject to the property meeting with ECRA standards and required removal at sellers' expense of all underground fuel tanks. The offer was accompanied 2 by a $1,000 binder check furnished by Yun to Leadership to be held by it in escrow until closing of title.

The offer was hand delivered to Harper and Kolpan at the offices of Leadership on or about November 30, 1988, and was rejected by them at that time. After the offer was rejected, Schonberger had further communications with Yun in an effort to

persuade him to increase his offer. Those negotiations led to an improved offer which was delivered by Schonberger to Harper and Kolpan several days later. Yun increased his offer to a purchase price of $950,000 with $650,000 cash at closing and a $300,000 seven-year purchase money mortgage at 10% interest. This improved offer was also rejected by Kolpan and Harper. In rejecting this second offer, Harper made clear to Schonberger not only that the offer was insufficient but that he insisted upon an all cash offer and that under no circumstances would he accept any offer requiring the sellers to accept back a purchase money mortgage.

In the two weeks following the rejection of Yun's second offer Schonberger made several telephone contacts with Harper and Kolpan to try to get them to change their minds and accept a lower offer which contained 3 terms for purchase money mortgage financing. Harper and Kolpan were not receptive to Schonberger's entreaties and persisted in demanding $1.2 million all cash. Schonberger also communicated with Yun during that two-week period, but Yun indicated that the second offer made by him was his final offer.

On December 16, 1988, Ms. Blau sent Yun a letter returning his $1,000 binder check and advising:

Although we have made our best efforts with these sellers, we were unable to convince them to accept your offer. If you would consider an increase of your offer, we would be happy to re-open negotiations. Also if anything else becomes available, we shall let you know.

Schonberger sent Kolpan and Harper a letter by certified mail also dated December 16, 1988, registering Yun with them. That letter also states:

Please be advised that if our client as shown herein above does successfully consummate a purchase of your property within a 24 month period following the expiration of our listing agreement, this brokerage maintains the claim that we were the causative factor in the transaction and will therefore be entitled to and receive a commission of 10% of the purchase price. This registration 4 will cover Mr. Yun, members of his family, his agents and associates who may act in his behalf.

If Mr. Yun does increase his offer, we will so advise. In the meantime, we are returning his binder check.

The above letter contains an obvious misstatement since the listing agreement provides for only a six-month extension period, not a twenty-four month extension period, during which any sale made by the defendants to Yun would be covered by the listing agreement and entitle plaintiff to a commission.

Plaintiff had no further contacts with Yun in an effort to induce him to increase his offer, nor did plaintiff have any further communications with Harper and Kolpan in an effort to persuade them to reduce their selling price or terms.

On November 4, 1988, Harper suffered a heart attack. He returned to work about a month after his heart attack. In about January or February 1989 Harper spoke to Kolpan about selling his interest in the property and business to Kolpan. Harper had had a fight with Mrs. Kolpan some time prior thereto and could no longer deal with the stress of working on a daily basis with her. Harper told Kolpan that he was desperate to sell and asked Kolpan to buy him out. 5 Kolpan had no money and they agreed to mortgage the property in order to raise the funds necessary for the buyout. Harper insisted that all debts of the business be paid ...

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