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A New Jersey appellate court has considered whether a broker was entitled to receive a commission from a commercial transaction when the broker did not have a written commission agreement.
Poughkeepsie Savings Bank ("Bank"), through a subsidiary, acquired via a foreclosure an ownership interest in an incomplete condominium development ("Development"). In May 1995, John Long ("Broker") of C & J Colonial Realty learned of the Bank's ownership status in the Development and contacted Sten Sandlund ("Sandlund"), who was the individual responsible for the Development at the Bank. The Broker told Sandlund he could market the Development, and Sandlund told him that the Bank had already received a number of inquiries about the Development. Sandlund told the Broker that the Bank was still trying to buy out the other owner and that the Bank would not list the Development with a broker if it successfully acquired the Development because of the unsolicited inquiries about the Development. During the course of the conversation, the Broker learned that the Bank was seeking a minimum purchase price of $3 million and a minimum of $1 million in upfront cash for the Development.
Following this conversation, the Broker began visiting the Development on his own with builders. He also contacted various developers and took out newspaper ads promoting the availability of the Development. The Broker made everyone he showed the Development sign a "notice of showing," in which the other parties acknowledged that the Broker had introduced them to the property and that they would work to protect the Broker's right to a commission. In July 1995, the Broker wrote a letter ("Letter") to the Bank's president stating that he had shown the Development to a number of parties, had quoted a purchase price of $3.5 million, that the purchase price included a $300,000 commission for the Broker, and requested a detailed information packet about the Development from the Bank. The Bank's president responded by telling the Broker that he needed to contact Sandlund, as he was in charge of managing and marketing the development.
One of the parties that the Broker introduced to the Development was Milton Herzberg ("Herzberg"), who stated he and his son had development expertise and substantial capital. Herzberg also contacted Sandlund to inform him of his interest in the Development and introduced Hugh Schull to the Development. Schull was the financial manager for a group of investors ("Investors") from North Carolina who had just completed a real estate development project. One of the Investors was a contractor ("Contractor"), and he visited the Development with the Broker and Herzberg. The Contractor discovered that the Development's infrastructure, such as the sewers, was not complete and would require substantial work to complete, due to the rocky terrain on which the Development was situated. The Contractor also asked the Broker for a copy of his listing agreement, finding it hard to believe that the Bank would pay as a high commission rate as the Broker claimed he was going to receive.
In August 1995, the Bank's attorney wrote a letter to the Broker, stating that the Broker did not have a listing agreement for the Development and that he should cease all marketing activities for the Development. The letter further stated that if one of the parties introduced to the Development by the Broker did purchase the Development, then the Bank would discuss compensation with the Broker. The Broker wrote back to the Bank, stating that he believed he had received authority from Sandlund to market the Development, that his quoted offering price met the price sought by the Bank as well as covered his commission, and identified Herzberg as one of two possible purchasers whom he had introduced to the Development. The Broker also requested a listing agreement for the Development. The Bank's attorney responded in another letter by writing that the Broker did not have a listing agreement for the Development and that he wasn't going to receive one, except for possibly the two potential purchasers identified in his letter.
As the Investors moved forward with their plan to purchase the Development, they learned that Herzberg had inaccurately portrayed both his development experience as well as his financial assets. After negotiations with the Bank, the Investors acquired the Development for $2.71 million. In the purchase contract, the Buyer agreed to indemnify the Bank against any claims made by the Broker. The Investors also reached an agreement with Herzberg, where he would receive a number of fixed payments at various stages of development as compensation for his involvement in the Development. Herzberg also agreed to indemnify the Investors against any claims made by the Broker.
The Broker filed a lawsuit seeking payment of a commission. The lawsuit named the Bank, the Investors, and Herzberg, and made a variety of allegations to support the Broker's commission claims. Due to Herzberg's financial situation, the Investors released him from his indemnification obligations in return for a one-time payment. A trial was held on the Broker's claims, and the trial court ruled that the Broker was entitled to receive a "reasonable commission" in return for its services, and the court fixed that amount at five percent. The Investors appealed.
The Superior Court of New Jersey, Appellate Division, reversed the trial court. The court considered the Investor's argument that the Broker failed to satisfy the New Jersey statute of frauds ("Statute"). In general, the Statute requires that certain types of agreements must be reduced to a writing in order to be enforceable. One section of the Statute in New Jersey requires that real estate commission agreements be reduced to writing in order "to protect the public from fraud, incompetence, misinterpretation, sharp or unconscionable practice[s]" by real estate brokers. Although the Statute changed during the course of this case, the basic provisions of the Statute remained in place. Under either version, a broker could only claim a commission pursuant to an oral agreement if the broker serves upon the principal/seller a written notice stating the terms of the commission agreement, including the commission amounts, within five days of the agreement having been made and before the seller/principal rejects such agreement, the broker effectuates a transfer of the property.
The court found that brokers are required to strictly comply with the terms of the Statute. Looking at the correspondence between the parties, the Letter was the document which came closest to satisfying the Statute. However, the Letter was not clear in its terms, as the Broker claimed a 10% commission in the Letter but also stated he was seeking to receive $300,000 from his proposed sale price of $3.5 million. Thus, the Letter did not satisfy the Statute. The court also found that the trial court's award of a "reasonable" commission did not satisfy the terms of the Statute, as the Statute required the commission amount in exact terms. The court found that there was no support for the trial court's award, and so the court reversed the commission award to the Broker. Further, the court ruled that the Broker had failed to comply with the terms of the Statute and thus was not entitled to a commission.
Next, the court considered the Broker's tortious interference with an economic advantage arguments. The elements for such a claim are: a protectible interest; intentional interference with that interest without justification; a reasonable likelihood that the interest would have been realized but for the interference; and economic damages. The Broker argued that the payments to Herzberg amounted to essentially payments of his commission and were made to weaken the Broker's commission claims. The court rejected this argument, finding that the evidence showed that Herzberg was never a viable purchaser of the Development and was only considered to be a viable purchaser because of inaccurate information that Herzberg gave to the Investors. Thus, the trial court was reversed and the court ordered judgment to be entered in favor of the Investors.
C&J Colonial Realty, Inc. v. Poughkeepsie Sav. Bank, FSB, 810 A.2d 1086 (N.J. Super. Ct. App. Div. 2002).