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Vanguard Property Group, Inc. v. Trocki


February 26, 2009


On appeal from Superior Court of New Jersey, Chancery Division, Atlantic County, Docket No. C-54-07 and F-11428-07.

Per curiam.


Submitted February 4, 2009

Before Judges Stern, Lyons and Waugh.

Defendants, Dr. Ira Trocki and Jack Trocki Development Co., appeal from portions of an order dated December 6, 2007, and from an order dated January 18, 2008. The central issue is whether a broker in a commercial real estate transaction was properly awarded its full commission under the terms of a written Commission Fee agreement and the facts presented.

The judgment at issue was rendered after a trial of two consolidated cases involving a myriad of claims among four main entities. The first case was filed in General Equity by the broker, plaintiff, Vanguard Property Group, Inc. (the Broker), against the owner of the property, defendants, Dr. Ira Trocki and Jack Trocki Development Co. (Trocki); Joseph and Chastity Tucker; Tucker Land Co., Inc.; Tuckers Steak and Seafood House, Inc. (Tucker); and 800 Bay Avenue, LLC, A.R. Fanucci Real Estate, Inc. and Anthony R. Fanucci (Fanucci), seeking damages and injunctive relief arising out of a commercial real estate brokerage agreement. The second case was a foreclosure action commenced by Trocki and later pursued by Fanucci. The following factual and procedural history is relevant to our consideration of the issues advanced on appeal.

In 2004, Trocki was the owner of a bay-front restaurant and marina in Somers Point. Trocki became interested in selling the property, and on January 28, 2004, signed a listing agreement with the Broker. The listing agreement contemplated sale of the property for $4,500,000 or a lease of the restaurant portion of the property for approximately $80,000 to $100,000 per year, and a commission of five percent to be paid at time of settlement. Under the listing agreement, Trocki was not bound to sell the property unless it was "completely satisfied with the terms and conditions that are submitted to" it.

On or before May 4, 2004, Tucker signed an agreement to purchase the property. The purchase price was $3,500,000; $3,375,000 of which was to be paid pursuant to a five-year note and mortgage to be held by Trocki. The agreement required Tucker to lease the marina portion of the property to Trocki for ninety-nine years for one dollar. Tucker was granted a five-year option to purchase or extinguish the lease for $1,000,000.

On the eve of closing, Trocki requested that the Broker reduce its commission from five percent to three percent, stating this was its regular practice. The Broker agreed to reduce its commission. On May 7, 2004, the parties signed a Commission Fee agreement reducing the commission as agreed and specifying:

Vanguard Property Group, Inc. shall be paid by Seller a three (3%) percent commission of the $3,500,000.00 sale of the Restaurant, Liquor License, FFE and Real Estate for a total of $105,000.00 based upon the following structure: $25,000.00 at the initial Closing $1,000.00 per month due on the 1st of each month commencing June 1, 2004 until the PMM is paid off, (up to 60 months) $_______ the balance will be paid immediately upon PMM being paid off by Buyer.

At anytime, for whatever reason the Buyer defaults and does not fulfill his obligations, Vanguard Property Group, Inc. is to be paid a 3% Commission on the sums the Seller has received. In the event the monies received by Vanguard are greater that [sic] a value equal to 3%, than [sic] Vanguard shall reimburse Seller the amount greater than 3%.

Seller acknowledges that Vanguard Property Group, Inc. shall be paid by Seller three (3%) percent at the closing of the Sale of the Marina for $1,000,000.00 for a Commission Fee of $30,000.00.

Tucker purchased the property and operated it until the summer of 2006, when it signed a listing agreement with the Broker to sell the property. The decision to sell was apparently due in part to Tucker's difficulties making mortgage payments to Trocki. Tucker's last payment on the mortgage to Trocki was in September 2006. In February 2007, Tucker obtained a concession from Trocki by which Trocki would accept a lesser amount so long as payment was made within a specific time period. No such payment was ever made.

Soon afterward, Fanucci agreed to purchase the property from Tucker for $5,200,000.

On April 13, 2007, the Broker filed the complaint against Trocki, Tucker and Fanucci seeking damages and injunctive relief on claims of fraud, breach of fiduciary duty and breach of contract. On May 10, 2007, Trocki filed its answer, counterclaim and cross-claim seeking return of the commission already paid. On May 18, 2007, the Broker filed its answer.

On May 2, 2007, Trocki initiated foreclosure proceedings. This prompted Fanucci, who had taken possession of the property with Tucker's consent and made improvements, to become concerned it would be unable to complete its purchase from Tucker.

On June 4, 2007, Fanucci acquired the mortgage given to Trocki by Tucker from Trocki, giving Trocki its note and mortgage for $4,572,000.*fn1 Fanucci then decided to continue the Trocki foreclosure. The various parties continued the litigation and Fanucci continued to occupy and operate the property.

The trial began on October 9, 2007, and ran over the course of seven days. On December 5, 2007, the trial judge rendered his decision dismissing Trocki's claim for a return of commission overpayments and the Broker's claim of duress with regard to the May 6, 2004, agreement. The trial judge ordered Trocki to pay the Broker the full commission for the sale of the property to Tucker and the buyout of the marina lease. On December 6, 2007, the trial judge also entered a final judgment of foreclosure and ordered a sheriff's sale of the property.

The trial judge found in rendering his decision that, in the course of foreclosure proceedings, it was "fair to say . . . that Trocki will in one way or another be paid. . . ." The trial judge first found the Broker had no basis for challenging the May 6, 2004, agreement to reduce its commission to three percent, in that Trocki was selling the property subject to a substantial purchase money mortgage.

The trial judge then found the central question was whether the provision of the May 6, 2004, agreement dealing with default could be interpreted as applying to any single event of default or only where the ultimate obligations due were not paid in full. The trial judge found the agreement more logically contemplated the latter situation, such that Trocki was only excused from paying the full commission in the event that he was unable "to completely divest himself of this property. . . ." The trial judge found this unlikely:

I think that that hypothetical and alternative hypotheticals that one could compose make it clear that the most appropriate interpretation of that commission agreement is, at least in terms of what a reasonable person would understand from the circumstances, that Trocki is excused from paying the full commission only if in the end he has not been able to completely divest himself of this property, which is to say that eventually, because of a default by Tucker, Trocki is required to take the property back and continue to operate it or to sell it to someone else. If that occurred, I think it would probably be appropriate to conclude that there were real limitations on that, but today in this particular circumstance I'm satisfied that is not what has occurred. Tucker has defaulted, but on a realistic basis it strikes me there is no meaningful possibility but for something Dr. Trocki might elect to do that I could not imagine that would be somehow creative, that he will end up taking this property back. He is going to be paid. He's going to be paid before much time goes by, presume there is in fact a foreclosure sale, and I'm satisfied it would be unreasonable to interpret the commission agreement as suggesting he would not be obligated to pay the entire amount of the commission from the proceeds of the foreclosure of the sale. Again, if I thought there was a possibility Trocki was going to buy this property back I would pause with respect to this issue, but I don't see any reason to treat that as a realistic possibility under the circumstances that are presented here, and I don't see any real ambiguities with respect to that analysis. So my conclusion is that this particular agreement shouldn't be interpreted as to give Dr. Trocki the right to limit [the Broker]'s commission under the circumstances that are presented.

The trial judge further found Trocki owed the Broker the full $30,000 commission for the buyout of the marina lease, determining that this amount would be due regardless of whether the buyout resulted from the foreclosure process. The trial judge found it irrelevant whether Fanucci or a third-party bought out the lease, as the entire arrangement stemmed from the original Trocki-Tucker transaction of 2004. He further determined the right to extinguish the marina lease would go to the purchaser of the property at the foreclosure sale.

The trial judge determined then that Trocki owed $135,000 in total commission payments and that he had already paid the Broker $53,500. Trocki was ordered to pay the Broker the difference, $81,500, plus interest from the proceeds of the foreclosure sale, with a lien or trust imposed on these monies to protect the Broker's interests. The trial judge dismissed Trocki's counterclaim for return of commission overpayments.

Approximately two weeks after the trial judge issued his findings on December 18, 2007, Trocki informed Fanucci it had defaulted on its mortgage to Trocki. Trocki, pursuant to its argument with Fanucci, received a reassignment of the Tucker mortgage from Fanucci and told Fanucci it would proceed to foreclose on the property.

Trocki subsequently filed a motion for reconsideration alleging he might be forced to participate in the sheriff's foreclosure sale and could end up owning the property again, which would affect the Broker's entitlement to the commission. Trocki asserted any proceeds it realized from a foreclosure sale would not be the product of the Broker's efforts and that it would likely be forced to bid on the property to protect its interests. The trial court in the foreclosure judgment had required that bidding at any foreclosure sale of the property was to begin at $3,876,292.50.

On January 8, 2008, the Broker filed its opposition to the motion for reconsideration. The trial judge denied the motion for reconsideration on January 18, 2008, finding:

[T]he landscape that's presented today is so much different than the landscape that was presented when Trocki and the Broker negotiated their fee agreement that I cannot imagine permitting Trocki to say now that with a Fanucci default he's essentially back in the position that he was as if he hadn't made the deal with Fanucci. . . . I'm satisfied that that is not something that affects what was my most fundamental decision which is that [the Broker] had a reasonable right to expect a commission given everything that occurred, which included Tucker's default, the institution of a foreclosure proceeding, and then Trocki having made the deal that he did with Fanucci. When I analyzed the matter in my initial decision I was assuming that there was little chance that Trocki would end up owning this property again. But the bottom line is if he does end up owning the property again under the circumstances that have been described to me now it's not the same thing as if he had simply taken the property back from Tucker because he altered the landscape.

On February 22, 2008, Trocki appealed, arguing it should not be required to pay the full broker's commission and that it was entitled to the return of any commission overpayments.*fn2

On February 28, 2008, the property was offered for sale by the sheriff; however, no bids were received.

On April 3, 2008, Tucker conveyed the property to Trocki by deed in lieu of foreclosure. On April 15, 2008, the Broker filed a motion to lift the stay on the execution of the $81,500 judgment it held against Trocki.

On April 24, 2008, Trocki filed its opposition and a cross-motion to modify the judgment in light of the fact that no bids were received at the sheriff's sale and because Tucker subsequently conveyed the property to Trocki by deed in lieu of foreclosure.

In support of this motion, Trocki filed a certification stating no bids were received at the sheriff's sale and he was forced to reacquire the property to avoid the delay, expense and damages which might result if Tucker filed for bankruptcy. Trocki further stated he was forced to pay $224,246.66 to receive clear title, that he had subsequently leased out the property, and that "there is now no realistic possibility" that he would ever be paid the sale price for the property through the Broker's efforts or through foreclosure.

Trocki simultaneously filed a motion for a limited remand to the trial court to consider the deed in lieu of foreclosure, which motion it later withdrew. On May 5, 2008, the trial judge denied the motion to lift the stay of execution and the cross-motion on the grounds that he lacked jurisdiction.

On appeal, defendants present the following argument for our consideration:*fn3



A. The Broker's Commission Entitlement is a Function of the Production of a Ready, Willing and Able Buyer.

B. Vanguard's Commission Entitlement is Forfeit in Light of its Abject Failure to Produce a Ready, Willing and Able Buyer, and by Virtue of the Unambiguous Language in the Listing Agreement.

The fundamental and paramount issue in this case is the application of the terms of the May 6, 2004, Commission Fee agreement to the facts.

"The polestar of contract construction is to discover the intention of the parties as revealed by the language used by them." Karl's Sales and Serv., Inc. v. Gimbel Bros. Inc., 249 N.J. Super. 487, 492 (App. Div.), certif. denied, 127 N.J. 548 (1991). The language used must be interpreted "in accord with justice and common sense." Ibid. (quoting Krosnowski v. Krosnowski, 22 N.J. 376, 387 (1956)).

In construing a contract, a court first must make the determination of whether the contractual term at issue is clear or ambiguous. That is a question of law. Nester v. O'Donnell, 301 N.J. Super. 198, 210 (App. Div. 1997) (quoting Kaufman v. Provident Life and Cas. Ins. Co., 828 F. Supp. 275, 282 (D.N.J. 1992), aff'd, 993 F.2d 877 (3d Cir. 1992)). An ambiguity in a contract exists if the terms of the contract are susceptible to at least two reasonable alternative interpretations. Id. at 283. To determine the meaning of the terms of an agreement by the objective manifestations of the parties' intent, the terms of the contract must be given their plain and ordinary meaning. Ibid. A court should examine the document as a whole and not torture the language of the contract to create an ambiguity. Ibid. Unless a different intention is manifested, where language has a generally prevailing meaning, it is interpreted in accordance with that meaning. Restatement (Second) of Contracts, § 202(3)(a) (1981).

Viewed in the light of these settled principles, the trial court erred in declaring that the May 6, 2004, agreement entitled the Broker to its full commission. The language of the agreement provides clearly "[a]t anytime, for whatever reason the Buyer defaults and does not fulfill his obligations, [the Broker] is to be paid a 3% Commission on the sums [Trocki] has received. In the event the monies received by [the Broker] are greater, [than] a value equal to 3%, [the Broker] shall reimburse Seller the amount greater then 3%." The terms used here are words which have a generally prevailing meaning.

Default is defined in Webster's New World College Dictionary (4th ed. 2002) as "failure to do something or be somewhere when required or expected; specif., a) failure to pay money due. . . ." The obligations referred to in the language of the agreement clearly refer to the purchase money mortgage which Tucker was in the process of or had signed at the time this Commission Fee letter was executed. That mortgage, in section 7, clearly set forth the events of default under the note and mortgage. Moreover, when reviewed in the context of the transaction, it is clear that Trocki would not have wanted to pay the full commission on the $3,500,000 purchase price up front when he was not going to receive any significant cash at the closing. The mortgage was a five-year balloon mortgage. Obviously, Trocki did not wish to be obligated to pay a full brokerage commission when the transaction would not provide him with the cash value of the "purchase" at closing and there was the attendant risk he would not receive the funds from Tucker at or before the five-year maturity date.

"It is recognized that persons are at liberty to incorporate their own conditions and limitations in their contracts, subject only to the legality of the purpose and the considerations of public policy." Joyce v. Stafford, 72 N.J. Super. 596, 604 (Cty. Ct. 1962), aff'd, 78 N.J. Super. 256 (App. Div. 1963). We find the Commission Fee contract to be clear and unambiguous and there was no room, therefore, for interpretation or construction. Karl's Sales and Serv., supra, 249 N.J. Super. at 493. If that is the situation, a court is to enforce the terms as written. Ibid. A court has no right to rewrite a contract to make a better contract for the parties who may themselves have seen fit to enter into or to alter it for the benefit of one party and to the detriment of the other party. Ibid.

In this case, the trial judge interpreted the contract to provide that a single event of default by Tucker would not trigger a recalculation of the commission. Rather, the trial court found that a default must be broader. The trial court found that the default had to result in Trocki getting the property back and not receiving the full purchase price. That interpretation of default is not supported by the note or mortgage or the plain language of the agreement. Moreover, the trial court found conclusively that Tucker did in fact "not fulfill his obligations" under the note and mortgage by entering a judgment of foreclosure.

Therefore, based on the contractual terms and conditions, the Broker is only entitled to receive three percent of the sums Trocki actually received from Tucker in accordance with the terms of the agreement between them. The later actions of Trocki, Fanucci, and Tucker did not change the fact that Tucker defaulted in his obligation under the purchase money mortgage. Nor did it change the amount of funds received by Trocki from Tucker pursuant to their agreement.

The trial court's interpretation appears to have been premised on a hypothetical or hypotheticals and not the actual facts presented. We are confident that if some of the situations articulated by the trial judge in his hypotheticals had been the facts presented, the court, with its equitable powers and remedies, would have been able to address adequately those situations. Given the fact, though, that those hypothetical situations were not presented, that the contractual language was clear and unambiguous, and guided by the established principles of contract law cited above, we do not agree with the trial judge that his hypotheticals should compel the interpretation at which he arrived.

Accordingly, we reverse the trial's court judgment in favor of the Broker and against Trocki and remand the matter for the trial court to enter judgment for Trocki on his cross-claim against the Broker in the amount of $46,750, representing a refund of the commissions paid by Trocki to the Broker.

Reversed and remanded.

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