Bennett v. McCabe, 86-1343
| Decision Date | 09 January 1987 |
| Docket Number | No. 86-1343,86-1343 |
| Parties | John E. BENNETT, d/b/a Bennett Realty, etc., Plaintiff, Appellant, v. James P. McCABE and John M. Zitaglio, Defendants, Appellees. |
| Court | U.S. Court of Appeals — First Circuit |
Alan B. Rubenstein with whom Rackemann, Sawyer & Brewster, was on brief, for plaintiff, appellant.
Barry C. Klickstein, with whom Donna Lannon and Forman, Roberts, Klickstein & Levy, were on brief, for defendants, appellees.
Before COFFIN, BREYER and TORRUELLA, Circuit Judges.
In this case we are called upon to determine whether Massachusetts law permits a broker to recover a commission when he provides a ready, willing, and able purchaser for a commercial property, but the transaction fails due to an unknown defect in the seller's title. Appellant, a real estate broker, filed this diversity action against the sellers of a motel seeking to recover his commission, but the court below held that neither Massachusetts common law nor the express contract entered into by the parties supported his claim. Appellant now seeks review of the district court's order granting the sellers' motion for summary judgment and denying his own cross-motion for summary judgment. We reverse.
The facts of this case are not in dispute. Appellant John E. Bennett is a licensed Massachusetts real estate broker who conducts his brokerage business under the name of Bennett Realty. Appellees James P. McCabe and John M. Zitaglio ("sellers") are the owners of "Ye Old Whaler," a summer motel located in Provincetown. During 1984, pursuant to an informal agreement with the sellers, Bennett succeeded in locating a purchaser for the motel. The sellers accepted the purchaser's $400,000 offer and the two parties entered into a binding purchase and sale agreement on May 15, 1984. In accordance with the terms of the agreement, the purchaser paid a ten percent deposit ($40,000), to be held by Bennett, and the closing was scheduled for June 1, 1984.
A defect in the sellers' title, however, prevented the parties from consummating the transaction. 1 The closing was initially postponed until July 1, 1984, but the sellers were unable to remedy the defect in their title even given this additional time. Recognizing their inability to perform, the sellers instructed Bennett to return the purchaser's deposit. Bennett returned the deposit and then commenced this action in federal district court on July 23, 1984. He claims that, despite the failure of the transaction, he is nevertheless entitled to his six percent commission ($24,000) because only the sellers' inability to convey good title prevented the deal from closing.
It is undisputed that Massachusetts law governs this case and that there are no genuine issues of material fact precluding summary judgment. Furthermore, both parties agree that neither of the sellers had any knowledge of the title defect at the time they entered the agreement to sell the property. Finally, the sellers have admitted that the purchaser located by Bennett was at all times ready, willing, and able to perform and that the sole reason for the failure of the transaction was their own inability to convey good title. Consequently, the only issue we must decide is whether, as a matter of law, Bennett is entitled to receive his six percent broker's commission. 2
In Tristram's Landing, Inc. v. Wait, 367 Mass. 622, 327 N.E.2d 727 (1975), the Massachusetts Supreme Judicial Court adopted the rule originally announced by the Supreme Court of New Jersey in Ellsworth Dobbs, Inc. v. Johnson, 50 N.J. 528, 236 A.2d 843 (1967):
When a broker is engaged by an owner of property to find a purchaser for it, the broker earns his commission when (a) he produces a purchaser ready, willing and able to buy on the terms fixed by the owner, (b) the purchaser enters into a binding contract with the owner to do so, and (c) the purchaser completes the transaction by closing the title in accordance with the provisions of the contract. If the contract is not consummated because of lack of financial ability of the buyer to perform or because of any other default of his ... there is no right to commission against the seller. On the other hand, if the failure of completion of the contract results from the wrongful act or interference of the seller, the broker's claim is valid and must be paid.
Tristram's Landing, 367 Mass. at 629, 327 N.E.2d at 731 (quoting Ellsworth Dobbs, 50 N.J. at 551, 236 A.2d at 855). Relying upon Tristram's Landing, the sellers argue, and the court below held, that Bennett is not entitled to his commission because the failure to complete the contract did not result from conduct on the part of the sellers that amounted to a "wrongful act or interference." Our analysis of the Tristram's Landing decision, the authority on which it relies, and the policy it serves, however, convinces us that Massachusetts law does not restrict a broker's entitlement to receive a commission on a failed transaction only to those cases where a seller's default involves affirmative conduct rising to the level of a wrongful act or interference.
Before we embark upon an analysis of Tristram's Landing and its effect on Massachusetts law, we note that the basic question of whether a broker should receive a commission when a transaction fails due to an unknown title defect is not an issue of first impression in Massachusetts. It is undisputed that, prior to Tristram's Landing, a seller had to pay a broker's commission whenever the broker provided a ready, willing, and able purchaser, even if the transaction was not consummated due to a technical default by the seller. See LeDonne v. Slade, 355 Mass. 490, 491-92, 245 N.E.2d 434, 435 (1969). The only question before us on this appeal, therefore, is whether Tristram's Landing worked a change in this aspect of the law.
Tristram's Landing involved a default by a prospective purchaser and the Massachusetts Supreme Judicial Court held simply that, absent an explicit contractual provision, a broker whose customer defaults after entering a contract to purchase the property is not entitled to a commission. Likewise, the court's dictum establishes beyond doubt that a broker is entitled to receive a commission if the seller engages in conduct that wrongfully interferes with the completion of the contract. The apparent clarity and breadth of the Tristram's Landing opinion, however, is marred by the Supreme Judicial Court's failure to address the vast gray area of sellers' defaults that do not rise to the level of "wrongful act or interference." In the case at bar, for instance, it is undisputed that the sellers were "innocent," in that they had no knowledge of the technical defect in their title when they entered the purchase and sale agreement. We must therefore look beyond the operative language of Tristram's Landing to determine the scope of the legal regime established by that case.
We begin by analyzing the underlying purpose that animated the Massachusetts SJC to adopt the rule of Ellsworth Dobbs. Most helpful in this regard is the recent opinion of the Massachusetts Appeals Court in Capezzuto v. John Hancock Mutual Life Insurance Co., 18 Mass.App.Ct. 46, 462 N.E.2d 1131 (1984), rev'd on other grounds, 394 Mass. 399, 476 N.E.2d 188 (1985). 3 As that court noted, under the law in effect prior to Tristram's Landing, a broker became entitled to a commission simply by demonstrating that he had produced a ready, willing, and able purchaser. Furthermore, the mere act of entering into a purchase and sale agreement with a prospective purchaser later prevented the seller from showing, as a defense against the broker's claim, that the purchaser was in fact unable or unwilling to close the transaction. Id. at 47, 462 N.E.2d at 1132. This so-called "acceptance rule" led the Massachusetts courts to treat, often inappropriately, the seller's signature on a contract as a binding acceptance of the fact that the broker's purchaser was ready, willing, and able. Id. at 47-48, 462 N.E.2d at 1132-33.
The patent injustice of the "acceptance rule" becomes evident when one considers that the seller remained liable for the broker's commission even if the broker's client later failed to perform the contract. See, e.g., Gaynor v. Laverdure, 362 Mass. 828, 291 N.E.2d 617 (1973) (). As the Appeals Court stated in Capezzuto, the effect of the rule "was to subvert the essential concept that the broker earned his commission only if he found a customer ready, willing, and able to buy the property." Capezzuto, 18 Mass.App.Ct. at 48, 462 N.E.2d at 1133. The Tristram's Landing court, like the Ellsworth Dobbs court before it, recognized the inequity of this rule 4 and sought to remedy its ill effects by crafting a new rule to govern the relationship between sellers and brokers in cases where the broker's customer defaults on its contractual obligations. In Tristram's Landing, therefore, the Massachusetts court overruled the long line of cases culminating in Gaynor and held that a seller need not pay a broker's commission if the broker's customer defaults on a signed purchase and sale agreement. Id. 367 Mass. at 629-30, 327 N.E.2d at 731.
The foregoing analysis demonstrates that both Tristram's Landing and Ellsworth Dobbs sought to remedy an injustice that is not present in the case at bar. The rule established by those cases has little or no impact on cases involving defaults by a seller of real property. Indeed, in its statement of the new rule, the Ellsworth Dobbs court implicitly supports awarding a broker a commission whenever a seller defaults, whether innocently or wrongfully: "In short, in the absence of default by the seller, the broker's right to a commission against the seller comes into existence...
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