Louis Schlesinger Company v. Kresge Foundation
| Decision Date | 12 January 1968 |
| Docket Number | No. 16502.,16502. |
| Parties | LOUIS SCHLESINGER COMPANY, a Corporation of New Jersey, Appellant, v. The KRESGE FOUNDATION, a Michigan Corporation and Kresge Department Store, Inc., a Delaware Corporation. |
| Court | U.S. Court of Appeals — Third Circuit |
Stanley Stern, Robert S. Greenbaum, Greenbaum, Greenbaum & Rowe, Newark, N. J., for appellant.
Julius B. Poppinga, McCarter & English, Newark, N. J., (Julius B. Poppinga, Robert P. Douglass, John R. Drosdick, Newark, N. J., on the brief), for appellee.
Before HASTIE, FREEDMAN and SEITZ, Circuit Judges.
Appellant, Louis Schlesinger Company, a New Jersey corporation licensed as a real estate broker in New Jersey, brought this action against The Kresge Foundation, a Michigan corporation, for additional commissions because the tenant it procured for the Foundation's department store building at 715 Broad Street, Newark, New Jersey, later extended its term of occupancy and acquired additional space in the building.
In 1956 plaintiff brought Western Electric Company to the attention of defendant as a prospective tenant in the building. Before the terms of a lease were fully agreed upon a controversy arose regarding plaintiff's commission. Plaintiff claimed the full commissions customarily paid in Newark, and defendant maintained that plaintiff was only entitled to a finder's fee because it had suggested the name of the prospective tenant. Discussions ensued between the parties in Newark and also by telephone and correspondence between Newark and Detroit. They resulted in the execution of a letter agreement dated December 12, 1956, but actually executed December 31, 1956, which provided for the terms of payment of plaintiff's commission.
Thereafter a lease between defendant and Western Electric Company was executed on February 15, 1957, which provided for the rental of two floors of the building for a term of ten years, and granted the lessee an option to renew for an additional five years and a right of first refusal of any additional space which became available during the term of the lease. A short time later, on April 12, 1957, defendant paid to plaintiff a commission in accordance with the letter agreement in the amount of $81,552.27.
The present controversy arose out of defendant's new lease to Western, dated June 9, 1964, before the expiration of the original ten year term. The new lease was for the original two floors and and three additional floors of the building, for a term of five years, and required major rehabilitation and alteration of the demised premises at a cost of more than one million dollars.
Plaintiff, learning of the negotiations between defendant and Western for the additional space, gave notice of its claim for commission and after the new lease was executed brought suit in the Superior Court of New Jersey. Defendant removed the suit to the United States District Court for the District of New Jersey on the ground of diversity of citizenship.
The district court on consideration of extensive depositions and affidavits of the parties entered summary judgment for defendant and dismissed the complaint.1 The court held:
(1) The letter agreement was executed in Michigan and the statute of frauds of that state2 applied and barred the suit because the letter agreement did not contain all the terms agreed upon but made reference instead to the rates and rules of the Detroit Real Estate Board.
(2) The letter agreement required the payment of only one commission and did not justify a subsequent commission.
(3) In any event the payment of the original commission constituted an accord and satisfaction between the parties which barred the present action.
As a result of these views the district court did not pass upon the defenses that even if plaintiff's interpretation of the brokerage agreement was correct, the new lease did not fall within its terms; and that plaintiff was barred from recovery of commissions in New Jersey because it was not licensed as a real estate broker in Michigan.
The vital part of the agreement, which is in the form of a letter from plaintiff, accepted by defendant, reads as follows: "Louis Schlesinger Company will accept and The Kresge Foundation * * * will pay the real estate commission in accordance with the rates and rules published by the Detroit (Michigan) Real Estate Board, payable in the event of a closed lease with the Western Electric Company, said commission to be due and payable upon execution of the lease."
The applicability of the Michigan statute of frauds may well depend on the circumstances surrounding the execution of the agreement. But even if the Michigan statute of frauds applies, there is no reason why the written rates and rules of the Detroit Real Estate Board which the letter agreement incorporated by reference should be rejected as not part of the agreement. A signed writing which clearly and unmistakably refers to an extraneous document which is incorporated in it by reference satisfies the Michigan statute of frauds.3 This is also the general law in the United States.4
Since the statute of frauds is not a bar to the plaintiff's action, we turn to the defense of accord and satisfaction.
There is nothing in the facts of record to show that any payment was made to plaintiff in settlement of the current dispute. Indeed, the transaction which gave rise to it had not yet come into existence when the payment of $81,552.27 was made. The payment was made under the letter agreement in satisfaction of plaintiff's claim for commission on the original lease.
It is the universal rule in this country, including Michigan and New Jersey, that an accord and satisfaction arises only where both parties intend the payment to terminate a then existing controversy.5 This defense, therefore, is inadequate.
The final ground of the decision of the district court was its interpretation of the letter agreement as providing for only one commission which was the commission which fell due under the original lease. The court arrived at this conclusion by emphasizing that plaintiff did not include in the letter agreement an explicit provision for a commission on renewal, and considered that it was the clear intention of the parties to use the Detroit rates and rules only as a formula for fixing the amount of commission due at the time of execution of the original lease.
As we have already indicated, the agreement must be read to include the rates and rules of the Detroit Real Estate Board which it incorporated by reference. They not only fix a schedule of rates, but also establish a series of rules. The rules equally with the rates are made part of the letter agreement and include the following provision:
The question therefore arises whether the new lease by defendant to Western fell within rule (e) of the Detroit Real Estate Board. If it did, plaintiff would be entitled to an additional commission on the new lease. Because of its view that rule (e) was not incorporated in the letter agreement the district court did not determine whether the new lease for the enlarged space constituted lessee's availing itself of the "privilege of renewal or extension" of the original lease, or the taking on of "additional space under the provisions of the original lease," which by virtue of rule (e) would entitle plaintiff to additional compensation at the rates which applied to the original lease. The decision of this question must be made in the light of the provisions of ¶ 3 of the original lease, which granted to the lessee an "option to renew" the lease for an additional period of five years and also conferred on the lessee "the right of first refusal, to rent any other space in the building," which was available for leasing and had become vacant during the term of the lease.7 The parties to the original lease "terminated" it when they executed the new lease for the enlarged space.
Accordingly, there is presented a factual question whether the new lease terminating the old lease and giving the tenant additional space in the building for a term of different length at a different rent and requiring substantial improvements to be made on the property, considered in the light of the provisions of ¶ 3 of the original lease, fell...
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