A Brokerage Commission Case, Where the Broker’s Third-Party Beneficiary, Unjust Enrichment, and Quantum Meruit Claims Failed

Pollack v. Quick Quality Restaurants, Inc., ___ N.J. Super. ___ (App. Div. 2017).  The first paragraph of Judge Gibbons Whipple’s opinion for the Appellate Division well encapsulated what this appeal was about.  “In this appeal, as an issue of first impression, we are asked to consider whether a tenant exercising a right of first refusal to adopt terms of a sale contract for certain premises is obligated to pay a commission to a third-party broker that secured a prospective buyer.  Because there was no contractual relationship here between the tenant and the third-party broker, or other basis to impose liability for the commission, we affirm” the grant of summary judgment to the defendant tenant.

In general, a right of first refusal affords the holder of that right the ability to match the terms of a contract.  Here, the broker plaintiffs asserted that the defendant tenant’s “right of first refusal required it to match any and all terms of the Levin [the proposed buyer’s] contract, including the broker’s fees referenced in the contract.”  Importantly, however, though the purchase contract referred to a broker’s commission, the commission itself was subject to a separate agreement between the buyer and the broker, the terms of the commission were not incorporated into the purchase agreement, and the buyer did not sign the separate commission agreement.  Moreover, the tenant’s lease on the premises expressly excluded brokerage commissions.

On cross-motions for summary judgment, the tenant established that there was “no signed writing memorializing an agreement between defendant and plaintiffs that required defendant to comply with a contract it did not intend to become a party to.”  The contract of sale, redacted to omit the names of the buyer and the broker, was provided to the tenant, per its right of first refusal, but without the separate commission agreement.  Thus, the tenant never knew of the commission terms or even (until months later) the identities of the buyer or the broker.  Thus, the Law Division found, plaintiffs were not intended third-party beneficiaries.

Applying the same standard that governed the Law Division on the cross-motions for summary judgment, Judge Gibbons Whipple affirmed that court’s ruling on third-party beneficiary.  “The sellers and Levin may have intended Pollack to benefit from the Levin contract because he was specifically identified as the ‘broker.’  However, the Levin contract did not bind defendant to the separate commission agreement.”  The panel went on to discuss Broadway Maintenance Corp. v. Rutgers, 90 N.J. 253 (1982), the leading third-party beneficiary case, which supported the result here.

In short, “defendant did not intend for plaintiffs to receive a direct benefit from the contract between the sellers (defendant’s landlord) and itself.  Defendant’s right of first refusal was not contingent upon a broker’s involvement in procuring a potential purchaser.  The right of first refusal, instead, was contingent upon the seller’s receiving a bona fide offer for the property, regardless of how the potential purchaser was procured.”  Cases from other jurisdictions buttressed the panel’s result.

The opinion carefully noted that “[t]he question here is not whether a broker could ever be a third-party beneficiary; it is whether these plaintiffs are third-party beneficiaries of this contract between the sellers and defendant.”  By couching its ruling in such fact-specific terms, the panel made it difficult for plaintiffs to obtain Supreme Court review should they seek to do so.

The same facts– defendant’s unawareness of “plaintiffs’ existence or involvement”– defeated plaintiffs’ good faith and fair dealing claim.  Without awareness of plaintiffs’ role, there could be no bad faith by defendant.

Plaintiffs’ quantum meruit argument also failed.  Plaintiffs simply “did not perform services for defendant’s benefit.  The benefit received by defendant, the ability to exercise the right of first refusal, was defendant’s own negotiations [of its lease with the landlord] in 1994, and paid for through a higher rent.  Plaintiffs had no involvement in the 1994 lease agreement and cannot now argue that Pollack bestowed a benefit, by his procurement of Levin as a potential purchaser of [the premises], which unjustly enriched defendant.”

Finally, the statute of frauds defeated defendant as well.  There was no signed commission agreement between plaintiffs and defendant, and an oral agreement between the buyer, Levin, and plaintiffs, did not bind defendant.  As Judge Gibbons Whipple summarized, “[n]o agreement complied with N.J.S.A. 25:1-16(b) or N.J.S.A. 25:1-16(d)(1).”

Defendant had counterclaimed, asserting that plaintiffs had committed consumer fraud.  The Law Division granted summary judgment rejecting that counterclaim, and Judge Gibbons Whipple had no difficulty affirming that ruling.  “Because plaintiffs did not make any knowing misrepresentations that induced defendant to purchase [the premises], the trial judge correctly found defendant’s CFA counterclaim was without merit.”

 

 

 

 

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