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Gebroe-Hammer Associates Investment Real Estate v. Claremont Towers Company

A-2925-01T1 (N.J. Super. App. Div. 2003) (Unpublished)

BROKERS; COMMISSIONS—A real estate broker, having a fiduciary duty to its customer, may not be entitled to a commission when it obtains a signed offer from a buyer at a price not agreed-to by its customer even if its customer would have accepted such an offer from a different buyer, and the customer may not be obligated to accept the offer.

The owner of a high rise apartment building entered into a brokerage commission agreement. The agreement stated that the broker would receive a certain percentage of the sales price at closing. It also stated that “[y]our commission shall be considered earned if the property is sold or exchanged by anyone during this exclusive period.” The broker procured a potential buyer and a contract was negotiated. The seller’s attorney always submitted draft contracts and even the proposed execution copy of the contract with a notation that submission was subject to the seller’s comment and review. He also pointed out that submission of the execution documents did not constitute an offer to sell and even return of executed agreements by the buyer did not create an obligation to sell. Because of the need to obtain specific consent from one of the buyer’s principals, it took about two weeks for the seller to return a fully executed copy to the buyer. Just before that happened, the buyer rescinded its offer and demanded return of its deposit. The seller resubmitted the fully executed contract, asking the buyer to rescind its revocation. The buyer refused. In the meantime, the broker insisted that an additional brokerage agreement be executed by the seller to cover the transaction that was in progress. For one reason or another, the seller executed that agreement even though the first, now expired, agreement would have protected the broker if the contemplated sale actually closed. Throughout this process, the broker threatened the seller that it would seek to collect its commission if the seller did not proceed with the transaction.

Right after the second commission agreement was signed and right after the original buyer refused to rescind its revocation, the broker photocopied the original contract, substituted a new buyer’s name, and submitted a newly signed contract, in exactly the same form, to the seller. The seller refused to execute this contract with the second buyer. It complained that the broker breached its fiduciary duty by submitting the previously negotiated contract to the second buyer, thereby precluding the seller from negotiating a higher price with the second buyer.

The broker sued for its commission based on the buyer’s refusal to enter into either of the two contracts, asserting that it had provided a ready, willing and able buyer pursuant to the brokerage agreement. The lower court granted summary judgment in favor of the broker and the seller appealed.

The Appellate Division agreed with the seller that the lower court should have taken discovery as to whether either buyer was ready, willing, and able. It also believed that the broker might have breached its fiduciary duty to the seller by offering the second buyer a copy of the confidential purchase agreement that had been negotiated between the original buyer and the seller. Under New Jersey law, a broker generally is not entitled to his commission until the closing takes place. On the other hand, “if the failure of completion of a contract results from the wrongful act or interference of the seller, the broker’s claim is valid and must be paid.” Nonetheless, “absent bad faith or special circumstances, the threshold standard for imposing liability on the seller for a brokerage commission in an aborted real estate transaction is a finding that the seller committed a breach of the sales contract. [But], not every contractual breach by a seller will result in liability for the commission. The seller’s breach may be innocent or unavoidable and therefore not qualitatively sufficient to justify liability for the brokerage commission.”

A broker bears the risk of loss “where he does the leg work to produce a ready, willing and able buyer, but through no fault of the seller, the sale is not completed. This risk is ‘treated as a normal incident of the brokerage business.’” Here, the Court believed that there were numerous factual issues to be explored. An important issue was that once the seller learned of the original buyer’s withdrawal of its offer, “it immediately presented the countersigned Agreements with a request that [the first buyer] reconsider its position.” As to the second buyer, a broker “is required to exercise fidelity, good faith and primary devotion to the interests of his principal.” It is not permitted to take “unfair advantage of [its] position and the use of information or things acquired by [it] because of [its] position as agent or because of opportunities which [its] position affords.” Consequently, the lower court was urged to explore whether the broker pressured the seller to sign an extension agreement knowing that it had already lined up a second buyer and that the seller had been seeking a “higher price from the outset.” Consequently, a “jury should be allowed to consider whether [the broker] was simply performing its duty under the Exclusive Listing Agreement by giving [the second buyer] the Agreements, thus expediting the procuring of a new buyer, or whether, in so doing, it was placing its own interests before that of its principal to accelerate receipt of its commission.” That issue and other issues in the matter bear on the good faith and dealing of the parties and were for a jury to decide.

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