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Hovbilt, Inc. v. Lair

A-3813-08T3 (N.J. Super. App. Div. 2010) (Unpublished)

BROKERS; QUANTUM MERUIT — Even though a real estate broker may be entitled to quantum meruit damages where a written brokerage agreement does not exist, the broker will not be entitled to such a remedy if it had failed to act in good faith even though a benefit was conferred upon its customer.

A real estate developer sought to develop a parcel for residential use and to reconstruct a dangerous intersection adjacent to the parcel with the hope doing so would increase its chances of receiving necessary municipal approvals. To do the reconstruction, the developer had to acquire two other parcels and it had an exclusive broker with whom it had a prior business relationship. The developer asked the broker to acquire title to both properties in its own name, on behalf of the developer and with funds provided by the developer. This was to help minimize acquisition costs. Both understood title would be transferred to the developer upon request, and during the interim the broker would lease an existing house on one of the parcels in order to cover his carrying costs in the interim. Because of the sensitive nature of the undertaking and the parties’ previous business relationship, their agreement was not reduced to writing. The broker negotiated a purchase, closed on one property, and instituted a successful quiet title action for the other.

After the developer obtained the environmental approvals it needed, it asked the broker to call about transferring the properties. A year later, it followed up by email. The broker stalled about transferring the titles and was evasive in responding. Unbeknownst to the developer, the broker had transferred the residential parcel into his own name, and encumbered it with a mortgage. Approximately two and one half years after the developer’s first transfer request, the broker retained counsel and demanded payment as its commission for his strawman services. The requested payment included an amount based on a percentage of the value of the properties. The developer responded by filing a notice of lis pendens for breach of contract, constructive trust, equitable title, and fraud. The developer sought free and clear title to the two properties.

The lower court found in favor of the developer by imposing a constructive trust on the two properties. It also ordered that free and clear title be transferred. Although the Court found that no oral contract existed as to the broker’s compensation, granted the broker compensation for his strawman services under the equitable remedy of quantum meruit. It did this despite the broker transferring one property into his own name, encumbering the property, and evading and ultimately refusing to convey the two properties unless he was paid for the properties.

On appeal, the Appellate Division held the lower court committed reversible error by awarding quantum meruit damages despite the broker’s unethical conduct. The Court explained that the equitable remedy of quantum meruit, granted in instances where a party performs services that benefit another despite the absence of a legal contract, requires the performer to have acted in good faith. The Court observed that the broker had encumbered one property, made outrageous claims for compensation, and had only conveyed title to the properties after the lower court ordered him to do so. In sum, the Court found the broker violated his fiduciary duty to the developer, and could not benefit from an equitable remedy because of his lack of good faith throughout.

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