In re LD Patella Const. Corp.
| Decision Date | 07 May 1990 |
| Docket Number | Bankruptcy No. 89-05829. |
| Citation | 114 BR 53 |
| Parties | In re L.D. PATELLA CONSTRUCTION CORP., Debtor. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
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Barry J. Wendt, Audubon, N.J., for Weichert Realtors.
Arthur H. Miller, Miller & Littman, P.A., New Brunswick, N.J., for debtor.
This matter is before the Court on motion by Weichert Realtors (hereinafter "Weichert"), a real estate brokerage firm, for an order authorizing L.D. Patella Construction Corp., the debtor in possession in this chapter 11 case (hereinafter "debtor"), to retain Weichert nunc pro tunc, and for payment of a commission on the sale of certain real property owned by the debtor. The debtor opposes the motion.
The Court has jurisdiction under 28 U.S.C. §§ 1334 and 157(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B), (K) and (O). This opinion shall constitute the Court's findings of fact and conclusions of law.
The debtor is in the business of house construction. At all relevant times the debtor owned real property known as 3 Miller Farm Road, Somerset, New Jersey. On January 25, 1989 the debtor and Weichert entered into a listing agreement for the sale of the subject property.1 On April 26, 1989 the debtor signed a contract to sell the property to Pramod and Tara Kanetkar for $450,000. The Kanetkars were introduced to the debtor by Weichert. By letter agreement dated April 21, 1989 the debtor and Weichert agreed that if the sale to the Kanetkars closes, Weichert shall receive a commission of 3½% of the sale price at the time of closing.
The debtor filed a petition for relief under chapter 7 of the Bankruptcy Code on July 24, 1989. On the debtor's motion, the case was converted to chapter 11 on November 20, 1989 for the purpose of completing and selling various houses, including the Kanetkars', which were under construction when the petition was filed. No notice of sale or motion for an order authorizing sale of the subject property has since been filed. However, the Kanetkars apparently still wish to proceed. The Court has been informed that negotiations are under way regarding completion of the house and closing.
Weichert's motion for an order authorizing the debtor to retain it nunc pro tunc is opposed by the debtor, which asserts that no further services are required of Weichert. The primary thrust of Weichert's argument is that it has met the standards for nunc pro tunc retention enunciated in In re Arkansas Co., Inc., 798 F.2d 645 (3rd Cir.1986) and F/S Airlease II, Inc. v. Simon, 844 F.2d 99 (3rd Cir.) cert. denied 488 U.S. 852, 109 S.Ct. 137, 102 L.Ed.2d 110 (1988).
Ellsworth Dobbs, Inc. v. Johnson, 50 N.J. 528, 551, 236 A.2d 843, 855 (1967), holds as follows:
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.
When a broker produces a purchaser who signs a contract with an owner to purchase property, the broker's obligation to the owner under their agreement has been fulfilled. Although brokers often render services between contract and closing in various ways, such services are gratuitous. Since the contract between the debtor and the Kanetkars was signed before the debtor's bankruptcy petition was filed, the debtor's argument that no postpetition services are required of Weichert is correct. There is therefore no need for the debtor to retain Weichert in the bankruptcy case.
Weichert's argument also overlooks another basic problem. Code § 327(a) provides that with certain exceptions not pertinent here, "the trustee or debtor in possession under Code § 1107, with the court's approval, may employ one or more attorneys, accountants, appraisers, auctioneers, or other professional persons. . . ." emphasis added. Bankruptcy Rule 2014(a) further provides as follows:
The requirements in Rule 2014(a) regarding the contents of an application for retention indicate the concerns which must be satisfied before retention will be authorized. Essentially, it must be demonstrated that the professional's services are necessary; that the proposed compensation is reasonable; and that there are no conflicts of interest. The requirement that an order approving retention shall be made only on application of the trustee, debtor in possession or creditors committee underscores the role of those fiduciaries in seeing to it that the concerns expressed in Rule 2014(a) and in the Code regarding retention of professionals are satisfied. The argument that a professional can compel a fiduciary to retain him over the objection of the fiduciary ignores the fact that only the fiduciary can make the application, and ignores the concerns underlying that requirement.2
Since the services required of Weichert were completed before the bankruptcy petition was filed, and since the motion for nunc pro tunc retention is opposed by the debtor, the motion must be denied.
At the initial hearing on this motion on November 13, 1989 the Court raised the question as to whether the debtor can assume the contract of sale with the Kanetkars without paying Weichert's commission, since the contract of sale notes the debtor's obligation to pay Weichert a commission upon closing, and provides that Weichert shall have a lien against the premises until the commission is paid. If the contract of sale is an executory contract, it cannot be assumed in part and rejected in part; it must be assumed or rejected completely. In re Kennesaw Dairy Queen Brazier, 28 B.R. 535 (Bkrtcy. N.D.Ga.1983). Thus if the agreement to pay Weichert is part of the contract of sale, the debtor could not assume the contract of sale without agreeing to pay Weichert.
An executory contract is generally defined as one "under which the obligations of both the bankrupt and the other party to the contract are so far unperformed that the failure of either to complete performance would constitute a material breach excusing performance of the other." Countryman, Executory Contracts in Bankruptcy, Part I, 57 Minn.L. Rev. 439, 460 (1973). It has been suggested as an alternative that "every contract which requires substantial performance by either party to the agreement other than the payment of money is potentially executory in the bankruptcy context." In re Norquist, 43 B.R. 224, 228 (Bkrtcy.E.D. Wash.1984). Under either definition, it is clear that the contract of sale in this case is an executory contract.3
The issue of divisibility of contracts is a matter of state law. In re T & H Diner, Inc., 108 B.R. 448, 453 (D.N.J. 1989). In New Jersey the issue is primarily determined by the intention of the parties. Id. However, the fact that transactions are set forth in one instrument does not necessarily mean that there is only one contract. In re Gardinier, Inc., 831 F.2d 974, 976 (11th Cir.1987), cert. denied sub nom. Byrd v. Gardinier, Inc., 488 U.S. 853, 109 S.Ct. 140, 102 L.Ed.2d 112 (1988). In Gardinier the court held that if the nature and purpose of a listing agreement and contract of sale are different, the consideration for each is separate and distinct, and the obligations of the parties to the respective agreements are not interrelated, then they are separate contracts even if they are set forth in one instrument. Id. For the reasons stated in Gardinier at page 976, I find that the contract of sale and listing agreement in this case are separate contracts. The reference in the contract of sale to the obligation to pay Weichert merely notes the debtor's obligation to pay Weichert, rather than creating it. The obligation to pay the commission in the event of sale to a buyer produced by Weichert was created by the listing agreement, which was executed by Weichert and the debtor three months prior to, and independently of, the debtor's contract with the Kanetkars.
Most courts that have examined this issue have held that a contract of sale and a listing agreement are separate contracts. In re Gardinier, supra; In re Jones, 98 B.R. 399 (Bkrtcy.C.D.Ill.1988); In re Channel 2 Assoc., 88 B.R. 351 (Bkrtcy.D.N.M. 1988); In re Moskovic, 77 B.R. 421 (Bkrtcy. S.D.N.Y.1987); Van Wagner v. Enz, 75 N.J.Super. 251, 183 A.2d 101 (App.Div.), cert. denied 38 N.J. 497, 185 A.2d 869 (1962). The case of In re Bernstein, 62 B.R. 545, 547 (Bkrtcy.D.Vt.1986) appears to hold to the contrary, without much analysis. To the extent that Bernstein so holds, this Court declines to follow it, and chooses to follow the Gardinier line of cases. Not only is Gardinier correct in concluding that the parties usually intend a listing agreement and a contract of sale to be separate contracts, it also reaches a result which avoids a...
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