November 20, 2008
CLASSIC HOMES REALTY, PLAINTIFF-APPELLANT,
E.J.G. PROPERTIES, INC. AND ERIC J. GULOTTA, DEFENDANTS-RESPONDENTS.
On appeal from Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-5218-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued September 29, 2008
Before Judges Skillman, Graves and Grall.
Plaintiff Classic Homes Realty, a realty brokerage firm, appeals from a grant of summary judgment in favor of defendants, Eric J. Gulotta and his real estate development company, E.J.G. Properties, Inc. (collectively EJG). The claims at issue on appeal are for commissions due under separate agreements for two of EJG's properties, New Mills Village and Elton-Adelphia.*fn1
We reverse the grant of summary judgment in favor of EJG under the New Mills Village agreement and affirm the grant of summary judgment on the Elton-Adelphia agreement. Because the claims are distinct, we discuss them separately. In both cases, we consider the evidential materials submitted on the motion in the light most favorable to Classic to determine whether EJG is entitled to judgment as a matter of law. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).
On November 17, 2000, Classic, through its owner Gerald Pellegrini, brokered the sale of a forty-two-lot subdivision in Pemberton known as New Mills Village. EJG paid $2,500,000 for the property. Classic accepted a reduced commission on the sale to EJG, approximately $40,000 instead of $100,000, in return for EJG's promise to list the individual lots with Classic after developing the tract. This agreement between EJG and Classic was not memorialized in a writing, and Pellegrini continued to bring additional properties to EJG's attention, as he had prior to the New Mills Village transaction.
EJG gave the listing on the properties in New Mills Village to another broker. Nonetheless, before EJG completed the New Mills Village development, Classic and EJG signed a "commission agreement." EJG promised to pay Classic a total of $30,000 at a rate of $1000 per lot at each closing on the next thirty lots. According to Pellegrini, the $30,000 was offered and accepted to encourage the parties' business relationship and to resolve Classic's grievance about the $60,000 commission Classic waived in reliance on EJG's promise to give Classic the New Mills Village listings. Gulotta characterized his agreement to pay $30,000 as a business accommodation.
EJG sold forty-one of the properties in New Mills Village. EJG paid Classic only $15,000 under the New Mills Village commission agreement.
The trial court granted summary judgment in favor of EJG on the ground that the agreement was unenforceable because it lacked consideration. The court concluded that EJG's prior promise to list the properties with Classic in return for waiver of a portion of its commission on the sale of the property to EJG, which was never reduced to writing, could not constitute "present consideration" for the new agreement. In addition, the court found that this agreement did not obligate Classic to perform a service or give up an enforceable right or other thing of value in exchange for the $30,000 EJG agreed to pay.
"No contract is enforceable, of course, without the flow of consideration - both sides must 'get something' out of the exchange." Cont'l Bank of Pa. v. Barclay Riding Acad., Inc., 93 N.J. 153, 170 (quoting Friedman v. Tappan Dev. Corp., 22 N.J. 523, 533 (1956)), cert. denied, 464 U.S. 994, 104 S.Ct. 488, 78 L.Ed. 2d 684 (1983). The "'bargained-for exchange of promises or performance'" may consist "'of an act, a forbearance, or the creation, modification, or destruction of a legal relation. See Restatement (Second) of Contracts § 71 (1981).'" Martindale v. Sandvik, Inc., 173 N.J. 76, 87 (2002) (quoting Shebar v. Sanyo Bus. Sys. Corp., 111 N.J. 276, 289 (1988)). A "'very slight advantage to one party, or a trifling inconvenience to the other, is a sufficient consideration to support a contract when made by a person of good capacity . . . .'" Id. at 87-88 (quoting Traphagen's Ex'r v. Voorhees, 44 N.J. Eq. 21, 31 (Ch. 1888)). Equivalence is not required. Id. at 87.
Generally, something given "before the promise was made, and, therefore, without reference to it, cannot, properly speaking, be legal consideration." Broad St. Nat'l Bank v. Collier, 112 N.J.L. 41, 45 (Sup. Ct. 1933). It is, however, well-recognized that a promise to surrender or forbear pursuit of a disputed claim is legally sufficient consideration. See Restatement, supra, § 74 & illustration 4. Such consideration need not be recited in the agreement and can be established by other evidence. J.I. Kislak Realty Corp. v. 6051 Boulevard E. Corp., 192 N.J. Super. 280, 283 (App. Div. 1983).
Classic's evidence, if believed, is adequate to demonstrate that Classic surrendered a claim. Pellegrini explained the $30,000 agreement as one fostering a mutually advantageous business relationship jeopardized by EJG's failure to honor a promise to list the New Mills Village lots with Classic in return for Classic's acceptance of a commission $60,000 lower than the one due. Gulotta's characterization of their subsequent "commission agreement" as a "business accommodation" is consistent with Pellegrini's explanation.
It is immaterial that Classic would not likely have prevailed in an action to collect commissions on the basis of EJG's oral agreement. See Coldwell Banker Commercial/Feist & Feist Realty Corp. v. Blancke P.W. LLC, 368 N.J. Super. 382, 391-92 (App. Div. 2004) (discussing the statute of frauds and real estate commissions, N.J.S.A. 25:1-16(d)-(e)). The claim Classic alleged it surrendered was based on a theory of promissory estoppel, not enforcement of an oral commission agreement. A finder of fact could conclude the $30,000 "commission agreement" compromised a claim for the $60,000 Classic waived in reliance on EJG's promise. Restatement, supra, at § 74 & illustration 4. Even when there are doubts about the validity of a claim, its surrender is sufficient consideration for a contract. Id. at § 74.
Accordingly, we reverse the grant of summary judgment and reinstate Classic's claim for $15,000 due under the New Mills Village agreement.
Classic's contention that the court erred in dismissing a claim based on promissory estoppel lacks sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E). Classic's complaint does not include a claim based on promissory estoppel; Classic's assertions of detrimental reliance on EJG's promise were relevant to consideration for the $30,000 New Mills Village commission agreement.
Classic's second claim for commissions is based on an exclusive listing agreement executed in August 2005. The property is a sixty-plus-acre tract owned by EJG and located on Elton-Adelphia Road in Freehold. In consideration for Classic's services, EJG gave Classic "the sole exclusive and irrevocable right to sell" the Elton-Adelphia property at a price of $1,900,000. EJG agreed to "assist and fully cooperate in the sale" and "represent[ed] that this property [was] not listed in any manner with any other broker." Classic agreed to "exert [its] best efforts to obtain a purchaser" and to register the property "with all Participants of the Multiple Listing Service."
Classic's exclusive listing commenced on April 22, 2005 and terminated on April 30, 2006. EJG agreed to pay Classic a five percent commission if the real estate was "sold or exchanged" by April 30, 2006, "regardless of who effect[ed] such sale or exchange (including the owner)." In addition and subject to an exception not implicated here, Classic was also entitled to a five percent commission if the property was "sold, leased or exchanged within" 180 days from the expiration of the exclusive listing "to a buyer introduced to the property during the term of the listing agreement." The 180-day extension expired on October 30, 2006.
In December 2005, EJG commenced negotiations with the goal of selling the property to Monmouth County, and in June 2006 the County Park System offered to purchase the Elton-Adelphia property for $2,216,000, "contingent on available county funding [and EJG's] ability to convey" marketable and insurable title and a fee simple absolute interest free of exceptions and encroachments.
EJG accepted the offer on June 7, 2006, and on September 14, 2006, EJG and the County executed an agreement of sale and purchase. The contract of sale gave the County sixty days, until November 13, 2006, to terminate the agreement. In part pertinent, paragraph fourteen of the contract provides:
14. PROPERTY INSPECTIONS. Buyer shall have Sixty (60) days from fully executed contracts (the Due Diligence Period) to conduct investigations, including but not limited to: a Phase I Environmental Assessment, underground or above ground tanks, asbestos, soil samples, septic systems, freshwater wetlands . . . .
In the event that Buyer, in its sole discretion, determines that any of the foregoing tests or any other event or occurrence, for any reason whatsoever, as contemplated hereunder is not acceptable, it shall give notice to Seller by the Sixtieth (60th) day from the date of execution and delivery of this Agreement, . . . and this Agreement shall be deemed terminated and cancelled and neither party shall have any further duty or obligation to the other.
The Elton-Adelphia property was transferred to the County on December 7, 2006, a date 197 days after the expiration of the extension period included in Classic's listing agreement.
A real estate commission is payable upon completion of a sale. Ellsworth Dobbs, Inc. v. Johnson, 50 N.J. 528, 549 (1967). "Liability for the commission only accrue[s] when the transaction [is] complete." Rothman Realty Corp. v. Bereck, 73 N.J. 590, 600 (1977). In this case, the transaction was completed on December 7, 2006. Thus, EJG cannot disclaim liability on the basis of a failed transaction.
The question in this case is different. The issue is when Classic acquired a right to demand a commission under this listing agreement in the event a contract of sale closed. On these facts and this agreement, Classic was entitled to a commission if and only if the County was introduced to the Elton-Adelphia property before April 30, 2006 and the property was "sold" to the County before October 30, 2006.
The date of introduction is not in dispute. EJG commenced negotiations with the County in December 2005, and thus the County was "introduced to the property" before April 30, 2006.
The legal issue is whether the Elton-Adelphia property was "sold" to the County before October 30, 2006. The trial court concluded that the property was not "sold" until November 13, 2006, because EJG could not enforce the contract of sale until the County's due diligence period expired.
In Leadership Real Estate, Inc. v. Harper, 271 N.J. Super. 152, 170 (Law Div. 1993), Judge Schwartz concluded that "even though [a] sale is not consummated and title is not closed until after expiration of [an] extension period, the broker will be entitled to commission if a binding written contract is executed by buyer and seller prior to expiration of the extension period." "[A] sale means the making of an executory binding agreement by which the property is to be sold to the purchaser . . . ." Ibid. (internal quotations omitted). Although a contract of sale had not been executed in Leadership, the judge explained that a "binding contract" is one that gives "the buyer . . . an equitable remedy of specific performance and the seller a remedy of damages for breach by the buyer." Ibid.
In this case, Classic could not enforce the County's agreement to buy until expiration of the due diligence period on November 13, 2006. Paragraph fourteen of the contract of sale reserved the County's right to terminate the contract if "for any reason whatsoever, as contemplated hereunder [the property] is not acceptable," to the County. Whether that phrase is read narrowly to permit the County to cancel for any reason contemplated by paragraph fourteen or broadly to permit termination for any reason contemplated by the contract, the result is the same. EJG could not obtain damages for breach by the County until expiration of the sixty-day period. See ibid.
On this appeal Classic provides no authority or persuasive argument in support of its claim that this property should be deemed "sold," within the meaning of the commission agreement, as of the date of the contract's execution rather than the date upon which the County's right to terminate expired and EJG's right to enforce accrued. The rule stated in Leadership is based on the conclusion that a property is "sold" when there is an enforceable contract of sale indicating the buyer is ready, willing and able to proceed. See id. at 169-70 (relying on and quoting Klipper v. Schlossberg, 96 N.J.L. 397, 399-401 (Sup. Ct. 1921)).
Where, as here, a contract of sale includes a right to terminate if the property does not meet conditions important to the buyer, the conclusion that the buyer is willing to proceed is unwarranted. That is so because the buyer has reserved the right to make further inquiry before deciding whether to proceed.
Our research discloses that some jurisdictions take a different view in order to prevent "connivance" to avoid payment of the commission. See, e.g., Covino v. Pfeffer, 276 A.2d 895, 897 (Conn. 1970) (concluding that when a contract of sale executed during the period covered by an exclusive listing agreement has closed after the period expires, the fact that the contract of sale was not specifically enforceable during the term of the listing agreement is irrelevant to the seller's obligation to pay commission due for a "sale" within the period). Connivance, however, may be addressed without adopting a rule that presumes a property is "sold" upon execution of a contract of sale that reserves a right of termination for a buyer. Under decisions of our courts, a remedy is available in an action based on breach of the seller's obligation to deal with the broker fairly and in good faith. See Ellsworth Dobbs, Inc., supra, 50 N.J. at 547-48. Moreover, sophisticated real estate developers and professional brokers are in a position to draft a contract that addresses the accrual of a broker's claim for a commission, which will be payable upon closing, as they see fit.
Based on the arguments presented by Classic, we see no reason to conclude the Elton-Adelphia property was "sold" before November 13, 2006, the date on which EJG could enforce the County's agreement to purchase. Leadership, supra, 271 N.J. Super. at 170. For that reason, we affirm the grant of summary judgment on the Elton-Adelphia contract.
The additional argument raised that the court erred in proceeding when discovery was not complete lacks sufficient merit to require more than the brief comment that follows. See R. 2:11-3(e)(1)(E). Classic filed a cross-motion for summary judgment and did not ask for an adjournment based on EJG's failure to provide complete discovery; accordingly, Classic is not in a position to assert that summary judgment was granted prematurely. See Neider v. Royal Indem. Ins. Co., 62 N.J. 229, 234 (1973).
Paragraph one of the order, which grants summary judgment in favor of defendants on Classic's claim for $15,000 owed pursuant to the commission agreement on the New Mills Village property, is reversed and the claim is reinstated and remanded for further proceedings; the order is otherwise affirmed.