November 20, 2008
FGH REALTY, LLC D/B/A RE/MAX COMMERCIAL REAL ESTATE, PLAINTIFF-APPELLANT,
CENTEX HOMES, LLC A DELAWARE LIMITED LIABILITY COMPANY, DEFENDANT-RESPONDENT.
On appeal from the Superior Court of New Jersey, Law Division, Union County, Docket No. L-3985-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued August 26, 2008
Before Judges Messano and Chambers.
Plaintiff, FGH Realty, LLC, d/b/a/ Remax Commercial Real Estate appeals from two orders entered by the motion judge on August 7, 2007. The first denied plaintiff's motion for summary judgment against defendant, Centex Homes LLC, a Delaware Limited Liability Company; the second granted defendant summary judgment and dismissed plaintiff's complaint. Since both applications were brought before any discovery took place, we rely upon the allegations contained in the respective pleadings, and the supplementary certifications that were filed in support of the motions.
Plaintiff filed its complaint on November 14, 2006 alleging it was a licensed real estate broker that had entered into a commission agreement (the commission agreement) with NYA Associates LLC (NYA), the owner of certain real estate located at 1301 New York Avenue in Trenton. Pursuant to the commission agreement dated October 11, 2004, plaintiff was to earn a real estate commission "in the event of the consummation of the . . . sale" from NYA to defendant "based on a portion of the sales price . . . $2,905,000, and at a commission rate of six and one-half  percent," for a total of $188,825, though the commission agreement did not identify the property to be sold. It was executed by plaintiff's representative, Richard B. Falkan, and NYA's representatives, Steven Grau and Larry Gerber, all of whom represented they had the actual authority to enter into the contract.*fn1
On October 12, 2004, defendant executed an agreement (the purchase agreement) with NYA and 650 Strawberry Associates LLC (Strawberry), to purchase Block 221B, Lot 1014 in Trenton, owned by NYA, and Block 221 Lot 1015, a smaller, apparently contiguous lot for which Strawberry was the contract purchaser from a third-party. The purchase price for the properties was dependent upon the number of lots defendant could ultimately develop, but was to be not less that $2,800,000, or $2,625,000 if the Strawberry piece was not acquired. In its complaint, plaintiff alleged that based upon price adjustments, the total purchase price was ultimately $2,880,000, thus, its commission was $187,500.
We quote at length two relevant portions of the purchase agreement. Paragraph 13, entitled "Broker," provided
The parties certify to each other that [plaintiff] brought about this Agreement and that the real estate commission shall be payable to [plaintiff] entirely by the Seller if closing of title occurs pursuant to a separate agreement between Seller and [plaintiff]. Seller does hereby agree to indemnify and hold [defendant] harmless from and against any and all claims for commissions . . . brought by [plaintiff] . . . . The provisions of this Paragraph 13 shall survive the closing and the delivery of the deed to the Premises . . . .
Paragraph 14, entitled "Buyer's Default," provided,
If [defendant] shall default in the performance of this Agreement, then Seller shall be entitled to retain the Deposit as liquidated damages and Seller's sole and exclusive remedy, it being understood that Seller's actual damages would be difficult, if not impossible to determine in the event of [defendant's] default, and Seller hereby waives its right to seek monetary damages or specific performance, whereupon this Agreement shall be null and void and of no further effect and there shall be no further liability between the parties with respect hereto . . . .
The purchase agreement was signed by defendant's senior vice-president, Robert C. Fecso, and Grau and Garber on behalf of NYA and Strawberry.
In its complaint, plaintiff alleged that all conditions under the purchase agreement were met, but that defendant refused to close the transaction. Alleging "breach of implied contract," "tortious interference with contract rights," and "tortious interference with economic expectation," plaintiff sued defendant. On January 26, 2007, defendant filed its answer and third-party complaint against NYA and Strawberry. While denying any obligation for plaintiff's commission payment, defendant claimed that NYA and Strawberry were obligated to indemnify and hold it harmless if any commission was due to plaintiff, and further alleged that on April 15, 2005, NYA had conveyed its portion of the property to S&G Operating, LLC (S&G) for $1,750,000, thus "defeat[ing] any entitlement that plaintiff may have had to a commission under the [c]ommission [a]greement."
On April 13, 2007, before any discovery occurred, plaintiff moved for summary judgment relying upon a certification filed by Falkin. Along with the commission agreement and the purchase agreement, Falkin's certification included the March 8, 2005, agreement in which NYA assigned its rights under the purchase agreement to S&G which specifically recognized plaintiff's entitlement to a sales commission of $186,000 "as a result of the sale" of the property to defendant.*fn2 Although defendant was not a party to the assignment agreement, the document reflected S&G's consent to NYA's grant of an extension of time for defendant to "file for governmental approvals until April 15, 2005."
Falkin's certification alleged that "all approvals were obtained . . . and all conditions precedent" in the purchase agreement "were satisfied." He claimed that "[w]hen [defendant] failed to agree to a closing date, S&G sent [defendant] a 'Time of the Essence' letter setting a closing date." Falkin alleged that "[a]pparently for business reasons . . . [defendant] made a business decision to refrain from going forward with the purchase." He noted that defendant failed to close on the set closing date, "thus breaching the Agreement." Falkin asserted that S&G was ready, willing and able to close at the time.
Defendant cross-moved for summary judgment and supplied a certification from its senior vice-president and corporate counsel, Robert A. Fourniadis. Noting that defendant's business of developing property "involve[d] many uncertainties and certain risks . . . which ultimately affect [its] decision  to proceed with a transaction," Fourniadis claimed that the purchase agreement was typical of those negotiated by defendant in which "it negotiates for a contractual provision allowing it the option to terminate the agreement if it elects to do so." "[C]onsistent with its normal practice," Fourniadis asserted that defendant "bargained for and obtained a contractual provision which gave it the option to terminate the [a]greement upon releasing . . . all deposit monies," "in which event the [a]greement bec[ame] null and void and neither party ha[d] any further liability to the other," referencing paragraph 14 of the purchase agreement.
Fourniadis further acknowledged that on May 19, 2006, defendant entered into an amendment to the purchase agreement (the amendment), attached to his certification. The amendment between defendant, and S&G and Strawberry as seller, extended the closing date until August 26, 2006, at defendant's election, made the date "Time of the Essence," and provided
If [defendant] shall fail to close title as aforesaid, [defendant] shall be in default, Seller shall retain the Deposit as liquidated damages, and neither party shall have any further obligation one to the other.
The amendment further provided that defendant would execute an assignment of "all permits and approvals obtained . . . as well as a complete set of plans, specifications, and approvals relative thereto," which were to be released to the seller if defendant failed to close title.
Fourniadis further certified that defendant paid $325,000 "in total deposit monies" to the seller "when [defendant] exercised its option not to proceed with the transaction." He also claimed that defendant spent $770,549.37 in fees and costs to secure the required approvals to construct seventy-two single-family residential townhouses on individual lots" on the properties. Despite this expenditure, Fourniadis concluded that "it would not be economically viable to develop the property," and defendant "decided to pay over to [seller] the total amount of deposit monies" and release all approvals, plans and specifications as required by the purchase agreement and the amendment. He asserted that pursuant to the purchase agreement, plaintiff would only obtain a commission "if closing of title occurs," which did not happen because "the [purchase] [a]greement was null and void."
Defendant's cross-motion was also supported by a certification from its counsel, Michael J. Canning. Attached to that was 1) a letter, dated May 19, 2006, from the seller's attorney withdrawing an earlier closing date in May; 2) the April 2005 deed from NYA to S&G conveying its portion of the property; 3) a 1997 deed conveying the property to 1301 NYA Associates, LLC; and 4) a mortgage, dated April 15, 2005, made by S&G in favor of Commerce Bank N.A.
These latter documents became part of defendant's argument in support of its cross-motion that both the commission agreement and the purchase agreement were technically deficient for various reasons. In responding to these claims, Falkin filed a reply certification describing in greater detail his role in securing defendant as a purchaser of the property, his activities during the pre-closing development approval process, and addressing the various claims that the documents were technically deficient. Suffice it to say that the reply certification attempted to show that "[defendant] was fully aware of the S&G transaction, had no objection to it and continued to prosecute the application for approvals of its intended project."
The motion judge heard oral argument on the motion and cross-motion on July 22, 2007. It was plaintiff's essential argument that pursuant to the Supreme Court's holding in Ellsworth Dobbs, Inc. v. Johnson, 50 N.J. 528 (1967), an implied contract existed between it and defendant, that it was entitled to its commission as a result, and that when defendant breached its contract with the seller without valid reason, it also breached this implied contract with plaintiff, entitling plaintiff to damages, i.e., its commission. Plaintiff argued that it was not required to seek its commission from the seller, despite the fact that the deposit monies had been paid over to S&G and Strawberry. In short, even considering Fourniadis' certification, plaintiff argued the documents were unambiguous and it was entitled to summary judgment.
Defendant argued that it had specifically bargained for the contractual provisions in the purchase agreement that gave it the right to terminate the agreement at will, that it had no agreement with plaintiff regarding the commission, and that under the holding in Ellsworth Dobbs, "the only way a buyer faces liability under an implied contract is if [the seller] breached the underlying real estate contract," which defendant asserted it had not done. Defendant argued plaintiff's "implied right" cannot be "greater than the express right" contained in its contract with the seller. This expressed right in the contract allowed the seller to obtain the deposit and the approvals, but it also declared the contract to be "null and void," thereby expressly denying any claims plaintiff was now asserting.
In a thorough written opinion, the motion judge considered the holding in Ellsworth Dobbs, as well as our decision in Atlas v. Silvan, 128 N.J. Super. 247 (App. Div. 1974), and concluded that plaintiff could not prevail on its implied contractual right to a commission from defendant if defendant's "decision to terminate the contract was legally sufficient or authorized by law." Therefore, she rejected plaintiff's argument that the documents themselves were sufficient to impose liability. Citing our decision in Comm'r. of Transp. v. Bakers Basin Realty Co., 138 N.J. Super. 33, 39 (App. Div. 1975), aff'd. 74 N.J. 103 (1977), the judge held that the contractual language was "intended by the parties to supplant completely any obligation to perform," and foreclosed specific performance as an available remedy to the seller. Further relying on Bakers Basin, she noted that despite the actual language of the agreement, it was "the intention of the parties to be derived from the instrument itself by a consideration of its parts, and when that is doubtful, from the circumstances attending it[,]" that controlled. (quoting Bakers Basin, supra, 138 N.J. Super. at 39 (internal citation omitted)).
Finding the circumstances surrounding the purchase agreement and the amendment were not "in dispute," and finding no issue "that the language . . . is doubtful in any way," the judge took note of Fourniadis' certification, and concluded defendant "exercised an express contractual right to terminate its contract with the seller, and therefore it had a valid reason for its nonperformance." Since, "there was no underlying real estate contract upon which  plaintiff could base a claim for commissions," she denied plaintiff's summary judgment motion.
Turning to consideration of defendant's cross-motion, the judge rejected its arguments that plaintiff was not entitled to a commission because the commission agreement violated the Statute of Frauds, because NYA was not the true owner of the property, i.e., 1301 NYA Associate LLC was actually the title-holder, or because NYA had conveyed the property in the interim to S&G. However, based upon her earlier ruling regarding plaintiff's summary judgment motion, she concluded that defendant "had the option to pay the deposit to the Seller and void the Agreement." She granted defendant summary judgment on this ground, and this appeal ensued.
At argument before us, plaintiff and defendant essentially asserted the same contentions. Both parties indicated that further discovery was unnecessary, that no significant factual disputes existed, and they urged us to decide the appeal based upon the legal issues presented. We have considered their arguments in light of the motion record and applicable legal standards. We affirm, though we do so for reasons slightly different from those expressed by the motion judge. El-Sioufi v. St. Peter's Univ. Hosp., 382 N.J. Super. 145, 169 (App. Div. 2005).
Our consideration of the issues raised on appeal must begin with a review of the holding in Ellsworth Dobbs. There the plaintiff/broker sued both the contract sellers and purchaser for its commission. It was undisputed that the broker had arranged for the sale, and that the deal was not consummated because the purchaser, Iarussi, could not obtain financing for the development project. Ellsworth Dobbs, supra, 50 N.J. at 534-35. The trial judge concluded that plaintiff was entitled as a matter of law to its commission from the sellers, but submitted the issue of damages to the jury. Id. at 535. As to Iarussi, the judge submitted the issue of liability to the jury, specifically asking it to find whether there was an implied contract between the plaintiff and Iarussi, and whether that had been breached. Ibid. After returning a verdict for damages in plaintiff's favor as against the sellers, the jury then returned a verdict in favor of the plaintiff against Iarussi, and the judge limited the damages as a matter of law to the amount the jury had previously assessed against the sellers. Ibid. We reversed the judgment as to both the sellers and Iarussi, specifically finding the evidence insufficient to assess liability on the theory of an implied contract between Iarussi and the plaintiff broker. Id. at 536. The Supreme Court then granted certification. 48 N.J. 354 (1966).
Focusing on that portion of the opinion relevant to the issues before us, the Court first observed, "[W]e regard it as a matter of common knowledge that the ordinary prospective purchaser knows when he consults a broker that if he buys a property through the efforts of the broker, customarily the broker will earn a commission on the sale to be paid by the owner-seller out of the purchase price." Id. at 558. The Court then posed the question succinctly.
What, then, should be the responsibility of the buyer to the broker when, through the broker's efforts in negotiations between the parties, the owner (a) expresses his willingness to accept the buyer's offered price for the property, or (b) executes a written contract of sale with the buyer for the agreed price, providing that the broker's commission is to be paid upon closing of title? [Id. at 559.]
Relying predominantly upon its earlier decision in Tanner Assoc. Inc. v. Ciraldo, 33 N.J. 51, 67-68 (1960), the Court held "Iarussi became subject to an implied obligation to [the plaintiff] to complete the purchase, and upon default in completion he became liable to pay the commission which [plaintiff] was thereby deprived of from the [sellers]." Ellsworth Dobbs, supra, 50 N.J. at 561. However, the Court found that while the plaintiff may have asserted a valid cause of action against Iarussi, factual disputes existed that foreclosed the grant of a judgment to the plaintiff. Id. at 562. As the Court posited the issue,
In our judgment, there is a jury question as to the nature of the relationship between [the plaintiff] and Iarussi. A jury should also decide whether [plaintiff] (through [its agent]) knew and agreed, expressly or impliedly, that performance was subject to the financing contingency and that commission would be earned only on satisfaction of that contingency. [Ibid.]
Shortly after its decision in Ellsworth Dobbs, the Court had occasion to further define the elements of a broker's cause of action against a contract purchaser for breach of an implied contract. In Rothman Realty Corp. v. Bereck, 73 N.J. 590, 600-01 (1977), the Court said, "It is only when the buyer fails or refuses to comply with both agreements, the express contract to purchase the land and the agreement with the broker to complete the transaction, without a valid reason for either, that he becomes liable to the broker for breach of the implied promise."
Rothman involved the purchase of residential real estate that was not consummated because of the buyer's sudden and unexpected financial inability to close title. Id. at 596. Noting "[t]he nature of the relationship between the broker and the buyer should be considered in light of all the circumstances[,]" id. at 601, and distinguishing the facts from those in Ellsworth Dobbs in which the buyer was a commercial developer, the Court went on to conclude that [the buyer's] implied promise to the broker to complete the transaction did not encompass a failure to close where they had acted in good faith, and the inability to consummate the deal was not ascribable to any misconduct or wrongdoing, but was due to a circumstance beyond their control. Under these circumstances the buyers are not obligated to pay the broker damages measured by the commission loss. [Id. at 604.]
We have held that the buyer may be liable to the broker based upon an implied contract '[i]f the failure of the sale to close results from the improper or frustrating conduct of the buyer." Kuhn v. Spatial Design, Inc., 245 N.J. Super. 378, 388 (App. Div. 1991). In that case, we concluded the buyer would be liable even though he was financially unable to close because he had materially misrepresented facts to secure mortgage financing that was subsequently withdrawn by the lender. Id. at 381-82. Earlier, in Atlas, supra, 128 N.J. Super. 247, we stated the standard conversely by noting that the buyer is excused from liability to the broker "if there is a valid reason, that is, a reason which is legally sufficient or authorized by law for his nonperformance[.]" Id. at 252.
It is against this decisional landscape that we now consider the issues presented on appeal. Both plaintiff and defendant argue that the documents themselves provide a basis for the respective grants of summary judgment they both sought. We consider defendant's argument in this regard first because it is dispositive of the appeal.
Defendant argues that the language of the purchase agreement and the amendment provided it with the unilateral option to terminate the agreement. Although it does not specifically claim the contractual language provided it with an option per se, defendant contends that it never breached the underlying contract with the seller, and, since this is a sine qua non to plaintiff's claim for breach of an implied contract, plaintiff cannot prevail.
In particular, defendant stresses the language contained in section fourteen that provided that once the deposit was paid over to the seller, "th[e] [purchase agreement] [was] null and void and of no further effect and there [was] no further liability between the parties with respect [thereto]." The amendment, while not using the exact same language, similarly declared that neither party would have any further claims once the deposit monies were tendered.
Both Hamilton v. Mem'l Hosp., 16 N.J. Super. 405 (Ch. Div. 1951), and In re Tatnall, 102 N.J. Eq. 445 (Ch. 1928), cited by defendant as applicable New Jersey precedent interpreting similar language, stand for the undisputed proposition that when such language is used in the contract for sale, the seller has accepted the liquidated damages as its sole remedy for breach of contract, and any attempts to compel specific performance must fail. As such, neither case necessarily provides support for defendant's argument with respect to the claims of plaintiff in this case.
Nor does the holding in Bakers Basin support defendant's argument that the language of the purchase agreement was somehow equivalent to an option. There, the issue presented was whether a contract purchaser, Cortshire, had standing to contest a condemnation action brought by the Department of Transportation, and whether it could sue in lieu of prerogative writs to compel condemnation of certain parcels. Bakers Basin, supra, 138 N.J. Super. at 36-37. We concluded that the answer to the question of whether Cortshire had standing depended upon the nature of its contracts with the various property owners, each of which provided,
In the event of a default hereunder by the Buyer, the Seller shall be entitled to collect the sums as are held as a deposit hereunder and the same shall be deemed as liquidated damages and shall be the sole remedy of the Seller hereunder for any breach by the Buyer. [Id. at 38.]
The State challenged Cortshire's standing by alleging that the contracts were merely options to purchase, and as optionee Cortshire had not acquired an interest in the property. Ibid.
We noted that "[t]he critical difference between an option and a contract of sale is that the option imposes no binding obligation on the option holder to complete the purchase." Ibid. We concluded that the examination of the language limiting the seller's sole remedy to liquidated damages was not dispositive of the issue, and that "the evidence show[ed] that the parties intended that their agreements embodied contracts for the conveyance of real estate." Id. at 40.
In short, we cannot conclude that the purchase agreement and the amendment were the equivalent of an option in favor of defendant, or that the agreements did not evidence an intention to convey the property or impose obligations upon defendant as a result. However, the critical issue is whether defendant ever "breached" its contract with seller, not simply whether it defaulted, because only if defendant breached the underlying contract, and thereafter breached any implied contract with plaintiff, could liability attach. Rothman Realty, supra, 73 N.J. at 600-01. Because defendant defaulted under its agreement with seller, but never breached the agreement, it was entitled to summary judgment and plaintiff's complaint was properly dismissed by the motion judge.
We begin by noting that the express language of both the purchase agreement and the amendment uses the term "default" as the triggering incident entitling seller to retain the deposit monies, and subsequently the approval documents and plans. Contracts for the sale of property frequently define what may be an incident of default and often provide for notice from the non-defaulting party, and a time period during which the defaulting party may cure. Viewed in these terms, a default in the performance of the agreement is not necessarily a breach of the agreement. See 10 Arthur L. Corbin, Corbin on Contracts § 943 (interim ed. 2008) (noting that " [a] breach of contract is always a non-performance of duty; but it is not every non-performance of duty that is a breach of contract").
In this case, the purchase agreement provided for such notice of default and a period during which defendant could cure any default. These notice provisions were subsequently waived by defendant in the amendment. Nevertheless, a default by defendant did not result in a breach of the agreements because the parties had further agreed that in the event of defendant's default, a breach of the contract would not result if defendant tendered the deposit monies, the approvals, and plans. See Ibid. (noting "[t]here are various ways in which a contractual duty can be discharged before any breach of it has been committed. Such a discharge renders any breach of that duty impossible").
It is undisputed that defendant consented to the release of the deposit monies, and the approvals and plans by the escrow agents holding these items, namely seller's attorney and defendant's attorney respectively. Had defendant refused to consent to the release of the monies, or had it directed its counsel not to release the approvals and plans, defendant would have "breached" the underlying contract with seller. But, this never occurred. Since defendant never breached its contract with seller, it cannot be liable to plaintiff for its commission under Ellsworth Dobbs and its progeny. See Van Winkle & Liggett v. G.B.R. Fabrics, Inc., 103 N.J. 335, 347 (1986)(holding "[o]rdinarily, there is no reason to elevate the rights of the broker to a level higher than that of the parties to the contract of sale").
Viewed in this light, the motion judge's consideration of the reasons for defendant's decision to forego the project and not consummate the purchase was unnecessary. The purchase agreement and amendment made it clear that the parties themselves defined the consequences of defendant's default short of any breach. In sum, once defendant tendered the deposit monies and documents as required, the agreement became "null and void and of no further effect," and no breach of the agreements ever occurred.
As a result, defendant's cross-motion for summary judgment was properly granted, though for reasons slightly different than those expressed by the motion judge, and plaintiff's motion for summary judgment was properly denied. In light of our conclusion, we decline the opportunity to consider the alternative arguments defendant raises on appeal.