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VRG Corp. v. GKN Realty Corp.

Decided: May 18, 1994.


On certification to the Superior Court, Appellate Division, whose opinion is reported at 261 N.J. Super. 447 (1993).

Wilentz, Pollock, O'hern, Garibaldi, Handler, Stein, Clifford


The opinion of the court was delivered by


This case arises out of the attempts of a commercial-leasing broker to recover commissions for procuring tenants in a shopping center. The legal issue presented is whether the broker, which earned commissions for obtaining long-term tenants for the shopping-center owner, can impose an equitable lien on the rental income derived from those tenants after the sale of the shopping center to a new owner who, although aware of the broker's claim, had not agreed to be responsible for such commissions.

When the current owner refused to pay the broker's commissions, the broker instituted this suit, seeking a declaration imposing an equitable lien against the shopping center's rental income. The trial court determined that the broker was not entitled to an equitable lien and dismissed the complaint. On appeal, the Appellate Division reversed that judgment. 261 N.J. Super. 447 (1993). This Court granted certification. 133 N.J. 443 (1993). We now reverse and reinstate the judgment of the trial court.


Plaintiff VRG Corporation ("VRG") is a real-estate broker specializing in obtaining long-term tenants for commercial property. On October 24, 1985, VRG entered into an Exclusive Agency to Lease Agreement ("agreement") with Golden Reef Corporation ("Golden Reef"), a New Jersey corporation, and Perlman Enterprises, Inc., a Florida corporation authorized to do business in New Jersey, to assist in the development of the Heather Croft Square Shopping Center ("shopping center") in the town of Northfield, New Jersey. The agreement granted VRG an exclusive agency to procure tenants for the shopping center.

Catherine Backos, a licensed New Jersey real-estate broker and a vice-president of VRG, negotiated the agreement with Golden Reef. Initially, Backos attempted to negotiate full payment on a discounted basis of all the commissions due at the time the shopping center opened. However, Stuart Perlman, the principal of Golden Reef, refused.

Paragraphs four and five of the agreement discuss the broker's compensation for procuring tenants. Paragraph four sets VRG's commission at six percent of each monthly rental payment received from the tenants that it procured. Paragraph five provided for the payment of $250,000.00 as an advance on commissions, which was then to be credited against monthly rents at the rate of six percent. VRG also agreed to remove a provision from the original draft agreement that would ensure an accelerated payment of all commissions due from the proceeds of any sale of the property. In addition, the agreement bound the successors and assigns of the parties.

VRG obtained long-term tenants for the shopping center, which opened in December 1986. At that time, Golden Reef paid VRG the $250,000.00 advance payment under paragraph five of the agreement. VRG calculated that the $250,000.00 advance, credited against the six percent commissions from the monthly rentals, would have been exhausted and payment based on the monthly rents would have commenced in March 1992.

Golden Reef, on February 22, 1989, entered into a contract to sell the shopping center to defendant GKN Realty Corporation ("GKN") for $9,800,000.00. That contract was later assigned by GKN to Heather Croft on May 24, 1989 (hereinafter GKN and Heather Croft are collectively referred to as "GKN").

Backos testified that when she learned of the impending sale, she advised GKN's real-estate counsel, Donna Sternberg, that "we had an ongoing commission contract with Golden Reef Corporation and that if the property were being sold, I wanted her to be aware that there was an ongoing obligation by the landlord to pay a six percent commission for these leases that were in that center." Sternberg notified David Nussbaum, a vice-president of GKN, of her conversation with Backos. Subsequently, Nussbaum and Roger Gladstone, another vice president of GKN, met with Backos and Val Galasso, the President of VRG. Backos testified that she advised Nussbaum of the "ongoing obligation by the landlord to pay . . . the six percent commission on each of the leases that [VRG] had obtained."

Following the Discussion with Backos and Perlman, Nussbaum testified that GKN amended the original contract of sale with Golden Reef. Although the initial contract made no reference to any potential liability for commissions owed to VRG, the amended contract included an indemnification provision, which stated that Golden Reef was to be responsible for payment of the broker's commissions.

Nussbaum, who negotiated the purchase of the shopping center for GKN, believed that the commissions would be paid at the closing by Golden Reef. Backos herself testified that she had "expected to be paid off" the outstanding $309,388.96 in commissions by Golden Reef at the settlement and that she had "looked to Golden Reef as the primary party responsible for paying these commissions." Backos acknowledged at trial that Nussbaum never told her that GKN would pay the commissions. In response to a letter dated June 12, 1989, in which Backos stated "she expected to be paid in full at the closing," Perlman advised Backos not to attend the closing. He further stated that he would pay VRG its commission the day after the closing. After her Discussion with Perlman, Backos telephoned Nussbaum who also advised her not to attend the closing because it might "fall apart" if she attended and demanded payment. Although disputed by Nussbaum, Backos testified that she advised him that if VRG's commission obligation was not satisfied at the closing, VRG would look to GKN for the commissions. At the closing, Golden Reef assigned to GKN all of its right, title, and interest in the leases procured by VRG.

Golden Reef never made payment to VRG. On July 11, 1989, VRG filed a complaint against Golden Reef and GKN to recover its commissions. Golden Reef then filed a Chapter 11 bankruptcy petition, effectively foreclosing VRG's claim for commissions against it.


Although VRG presents its claim in the contemporary setting of brokerage services rendered in connection with the development, completion and management of a modern-day shopping center, the remedy that it seeks -- the equitable lien -- has its roots in the traditions of equity. The equitable principles that gave rise to the remedy continue to shape it.

An equitable lien is "a right of special nature in a fund and constitutes a charge or encumbrance upon the fund." In re Hoffman, 63 N.J. 69, 77, 304 A.2d 721 (1973). Generally, "the theory of equitable liens has its ultimate foundation . . . in contracts, express or implied, which either deal with or in some manner relate to specific property, such as a tract of land, particular chattels or securities, a certain fund, and the like." 4 John N. Pomeroy, A Treatise on Equity Jurisprudence § 1234, at 695 (Spencer W. Symons ed., 5th ed. 1941); see Bergen Co. Welf. Bd. v. Gross, 96 N.J. Super. 472, 478-80, 233 A.2d 389 (Ch. Div. 1967). An equitable lien "may be created by express executory contracts relating to specific property then existing, or property to be afterward acquired." Temple v. Clinton Trust Co., 1 N.J. 219, 226, 62 A.2d 690 (1948); see also 53 C.J.S. Liens § 6, at 464 (1987) ("As a general rule, any express executory contract whereby one party clearly indicates an intention to charge or appropriate some particular property, real or personal, therein described or identified, as security for a debt or other obligation, or whereby one party promises to assign, convey, or transfer the property as security for such a debt or obligation, creates an equitable lien on the property so indicated."). It may also be founded on "the dictates of equity and conscience, as where a contract of reimbursement could be implied at law and enforced by the action of assumpsit, or in certain cases where contribution or reimbursement is enforceable in equity, including those involving fraud and mistake." Temple, supra, 1 N.J. at 226. "The whole doctrine of equitable liens or mortgages is founded upon that cardinal maxim of equity which regards as done that which has been agreed to be, and ought to have been, done." Rutherford Nat'l Bank v. H.R. Bogle Co., 114 N.J. Eq. 571, 169 A. 180 (Ch. 1933); see Hadley v. Passaic Nat'l Bank, 113 N.J. Eq. 548, 551, 168 A. 38 (Ch. 1933).

Traditionally, New Jersey courts held that a mere promise to pay a debt out of a designated fund does not give rise to an equitable lien on that fund unless the promisor parts with control of the fund. Metropolitan Life Ins. Co. v. Poliakoff, 123 N.J. Eq. 524, 529, 198 A. 852 (Ch. 1938); Myers v. Forest Hill Gardens Co., 103 N.J. Eq. 1, 141 A. 808 (Ch. 1928), aff'd, 105 N.J. Eq. 584, 147 A. 911 (E. & A. 1929); American Pin Co. v. Wright, 60 N.J. Eq. 147, 46 A. 215 (Ch. 1900), aff'd, 85 N.J. Eq. 219, 98 A. 1084 (E. & A. 1901). Our courts today, however, recognize that a contract to pay for services out of a designated fund gives the party performing the services an equitable lien on that fund when it comes into existence. "Where one promises to pay for services rendered out of a fund created in whole or in part by the efforts of the promisee, a lien in favor of the promisee will attach to the fund when it comes into existence." Hoffman, supra, 63 N.J. at 77; see Camden Safe Deposit and Trust Co. v. Atlantic Properties, Inc., 10 N.J. Misc. 59, 59-60, 157 A. 838 (Ch. 1931). Nevertheless, the language purporting to express such an understanding must itself be clear. See Wilson v. Seeber, 72 N.J. Eq. 523, 66 A. 909 (Ch. 1907).

Reflecting the notion that the primary basis for the imposition of an equitable lien is contractual, such a lien may arise through an assignment. Thus, where a contract itself creates the basis for a lien, a court may impose an equitable lien if the contract is assigned with notice of that lien. See McCann v. Biss, 65 N.J. 301, 313, 322 A.2d 161 (1974); Masten Realty Co. v. James, 125 N.J.L. 529, 530, 16 A.2d 464 (S. Ct. 1940).

Further, it is generally recognized that the intent of the parties controls in the creation of an equitable lien.

Equity looks at the final intent and purpose rather than at the form. If an intent to give, charge, or pledge property, real or personal, as security for an obligation appears, and the property or thing intended to be given, charged, or pledged is sufficiently described or identified, then the equitable lien or mortgage will follow as of course.

[Rutherford Nat'l Bank, supra, 114 N.J. Eq. at 574 (citations omitted).]

Hence, "while the form which an agreement shall take in order to create an equitable lien or mortgage is quite immaterial, . . . [discerning] the final intent and purpose" is critical in equity. Id. at 571; see also Eisenhardt v. Schmidt, 27 N.J. Super. 76, 98 A.2d 698 (Ch. Div. 1953) (noting that important element in whether to impose equitable lien is not form of agreement, but parties' intentions).

Additionally, unjust enrichment may constitute a ground for imposing an equitable lien. See Callano v. Oakwood Park Homes Corp., 91 N.J. Super. 105, 108, 219 A.2d 332 (App. Div. 1966). An equitable lien may be created "where property of one person can by a proceeding in equity be reached by another as security for a claim on the ground that otherwise the former would be unjustly enriched." Restatement of Restitution § 161 (1937); see Copeland v. Claflin, 12 N.J. Super. 10, 14, 78 A.2d 827 (App. Div.), certif. denied, 7 N.J. 347 (1957).



We consider initially whether under the circumstances an equitable lien arises based on the express or implied intention of the parties. Courts use a number of interpretive devices to discover the intention of parties to a contract. "'These include consideration of the particular contractual provision, an overview of all the terms, the circumstances leading up to the formation of the contract, custom, usage, and the interpretation placed on the disputed provision by the parties' conduct.'" Jacobs v. Great Pacific Century Corp., 104 N.J. 580, 582, 518 A.2d 223 (1986) (quoting Kearny PBA Local No. 21 v. Town of Kearny, 81 N.J. 208, 221, 405 A.2d 393 (1979)).

The trial court held that "there is no equitable lien enforceable against GKN" and entered final judgment dismissing VRG's claim. The court concluded:

The law is clear; [in order to create an equitable lien] there must be some manifestation of intention to have some particular property subjected to the payment of a debt. However, in this case, I find no intention by GKN or Golden Reef that the rental payments serve as security for the payment of VRG's rental commissions.

The Appellate Division disagreed, believing that Golden Reef, as well as VRG, had the intent necessary to create the equitable lien:

It is uncontroverted that VRG desired full payment upon the opening of the shopping center but that Perlman wished to pay part in advance with the remainder coming from the "stream" of rental income. Given these circumstances there can be no question but that it was the rental monies that both parties intended to be the source of payment once the advance was exhausted.

[261 N.J. Super. at 456.]

The contract itself does not express the intent found by the Appellate Division. VRG and GKN did not explicitly agree that the broker's commission would be paid out of the rental income generated by tenants of the shopping mall. Paragraph two of the agreement states that "in consideration of the services to be rendered by Broker, Owner grants to VRG the exclusive agency to procure tenants for the Center." "As compensation for Broker's acceptance of this agency and its diligent efforts to procure tenants for the Center," paragraph four provides,

Owner agrees that Broker shall be entitled to a commission for each tenant who enters into a lease for space in the Center during the term of this Agreement equal to six (6%) percent of each monthly gross base rental payment under the initial term of such lease.

The terms of the agreement thus specify only that VRG's compensation is both contingent on and measured by the rental income received by Golden ...

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