Stiefvater Real Estate, Inc. v. Hinsdale

• Citation: 812 F.2d 805
• Decision Date: 27 February 1987
• Docket Number: D,No. 215,215
• Parties: STIEFVATER REAL ESTATE, INC., Plaintiff-Appellant, v. James G. HINSDALE and Elizabeth M. Hinsdale, Defendants-Appellees. ocket 86-7551.
• Court: U.S. Court of Appeals — Second Circuit

Page 805

812 F.2d 805

7 Fed.R.Serv.3d 56

STIEFVATER REAL ESTATE, INC., Plaintiff-Appellant, v. James G. HINSDALE and Elizabeth M. Hinsdale, Defendants-Appellees.

No. 215, Docket 86-7551.

United States Court of Appeals, Second Circuit.

Argued Oct. 22, 1986.

Decided Feb. 27, 1987.

Neal Schwarzfeld, New York City (Schwarzfeld, Ganfer & Shore, New York City, of counsel), for plaintiff-appellant.

Terrence E. Flynn, Chicago, Ill. (Gessler, Wexler, Flynn, Laswell & Fleischmann, Ltd., Chicago, Ill., Eileen B. Eglin, Wilson, Elser, Moskowitz, Edelman & Dicker, New York City, of counsel), for defendants-appellees.

Before KAUFMAN, NEWMAN, and PRATT, Circuit Judges.

GEORGE C. PRATT, Circuit Judge:

This action by plaintiff Stiefvater Real Estate, Inc. ("Stiefvater"), to recover a $15,900 brokerage commission fee for having produced a purchaser for the house of defendants James G. and Elizabeth M. Hinsdale ("Hinsdale"), was commenced in New York state court and removed by Hinsdale on the basis of diversity of citizenship to the United States District Court for the Southern District of New York. The district judge, Hon. Lloyd F. MacMahon, treating Hinsdale's motion to dismiss the complaint under Fed.R.Civ.P. 12(b)(6) as one for summary judgment under Fed.R.Civ.P. 56, not only granted the motion but, having found Stiefvater's claim to be "frivolous", granted Hinsdale's request for attorney's fees under Fed.R.Civ.P. 11.

A review of the record on appeal demonstrates that the district court misperceived this case as turning upon whether the contract between Hinsdale, as seller, and the purchaser procured by Stiefvater had been lawfully cancelled by Hinsdale. Under that misperception the district court concluded that because Hinsdale rightfully cancelled the contract of sale, Stiefvater was not entitled to collect its commission. The critical issue under New York law, however, is whether Stiefvater produced a purchaser ready, willing, and able to buy on terms agreeable to Hinsdale.

There is no issue as to the purchaser's readiness and willingness to buy; whether the purchaser was financially able to consummate the transaction is in sharp controversy and presents a genuine issue of material fact properly to be determined at trial. Accordingly, we reverse and remand for further proceedings.

BACKGROUND

Stiefvater entered into an exclusive brokerage agreement with Hinsdale on June 20, 1985, regarding Hinsdale's house in Pelham Manor, New York. The agreement provided for a commission of 6% of the selling price, but was silent on precisely how and when that commission would be deemed earned.

On June 26, Hinsdale entered into a contract of sale with Craig and Susan Devonshire, prospective purchasers produced by Stiefvater. The contract established a selling price of $265,000 and a closing date of July 15, 1985. In addition, it contained a standard mortgage commitment clause, which provided that if purchaser could not obtain a written mortgage commitment by July 8, either party could cancel the contract. It is undisputed that the Devonshires did not obtain a written commitment by that date; however, the parties' interpretations of subsequent conversations between James Hinsdale and Craig Devonshire are directly at odds.

Stiefvater, in opposing Hinsdale's motion to dismiss, submitted an affidavit by Devonshire in which he states that during telephone conversations on July 9 and 10 Hinsdale expressly agreed not to exercise the right to cancel the contract of sale if a closing could be scheduled for July 11 at the latest. After confirming that funds would be available from his lender on that date, Devonshire telephoned his attorney, who conferred with Hinsdale's attorney and scheduled the closing for the afternoon of July 11.

The Devonshires drove up from their Washington, D.C., residence to attend the closing, but upon arrival at their lender's offices were informed that Hinsdale had cancelled the contract and was refusing to consummate the transaction. The Devonshires' lender states in its affidavit that it was fully prepared to fund the mortgage loan as of midday on July 11, and would have closed that loan but for Hinsdale's absence from the scheduled closing.

By contrast, Hinsdale in his reply affidavit below asserts that he explained to Devonshire during their July 9 telephone conversation that he had another offer in hand, that their contract of sale was officially cancelled, and that the cancellation had been put in writing in accordance with the contract. Moreover, when Devonshire proposed a closing date earlier than that prescribed in the contract, Hinsdale responded by saying Devonshire was attempting to act "out of contract". In fact The written cancellation referred to in Hinsdale's affidavit is a letter by his attorney to the Devonshires dated July 8, 1985. Although Hinsdale expressly states that the letter was sent on July 8, his attorney, in an affidavit submitted in support of a motion to stay discovery, states that the "defendants exercised their right under the contract of sale to rescind the agreement * * * by certified mail on July 11, 1985." The affidavit also describes July 11 as "the very same day that defendants rescinded the contract".

Hinsdale subsequently sold his house to a party who was an "excepted buyer" under the brokerage agreement with Stiefvater; Hinsdale, therefore, was not required to pay a commission with respect to that buyer.

In its memorandum and order dated March 27, 1986, the district court mischaracterized the July 8 mortgage commitment date as "the agreed upon closing date." Furthermore, the district court stated that Stiefvater did not deny that Hinsdale had cancelled the contract of sale in writing on July 8, 1985. "Rather plaintiff ignores the written cancellation and instead contends that time for performance--the closing date--was orally extended by defendants' attorney until July 11, 1985." The court concludes that "the entire contract of sale was cancelled by defendants in writing on July 8, 1985, pursuant to the terms of the contract itself", and that "plaintiff has failed to offer any evidence, other than conclusory hearsay, that the buyers were ever ready, willing and able to perform under the contract of sale." In addition, the district court found that because "plaintiff's claim for a brokerage commission is frivolous in light of the undisputed cancellation of the written contract of sale", a sanction under Fed.R.Civ.P. 11 was appropriate.

Stiefvater's motion for reargument was granted, but upon reargument the court adhered to its prior decision and directed the entry of judgment for Hinsdale in the amount of $5,322.82, which represented Hinsdale's attorney's fees and court costs. This appeal followed.

DISCUSSION

Contrary to the implicit assumptions underlying the district court's order and the parties' appellate briefs, the fact that Hinsdale and the prospective purchasers procured by Stiefvater did not close on their realty contract does not determine whether Stiefvater has earned a brokerage commission. Rather, the law of New York--applicable to this diversity action--clearly provides that, in the absence of an agreement to the contrary, a real estate broker earns his commission when he produces a buyer ready, willing, and able to purchase at terms set by the seller. Lane-Real Estate Department Store, Inc. v. Lawlet Corp., 28 N.Y.2d 36, 42, 319 N.Y.S.2d 836, 840, 268 N.E.2d 635, 638 (1971); see Nuvest, S.A. v. Gulf & Western Industries, Inc., 649 F.2d 943, 947 (2d Cir.1981).

At the moment the broker procures an acceptable purchaser with whom the seller agrees on essential terms, the broker has fully performed his portion of the brokerage agreement and his right to a commission becomes enforceable. Hecht v. Meller, 23 N.Y.2d 301, 305, 296 N.Y.S.2d 561, 563, 244 N.E.2d 77, 78 (1968); Williamson, Picket, Gross, Inc. v. Hirschfeld, 92 A.D.2d 289, 460 N.Y.S.2d 36, 39 (1st Dep't 1983) (citations omitted); see Wykagyl Agency, Inc. v. Rothschild, 100 A.D.2d 934, 474 N.Y.S.2d 811, 812 (2d Dep't 1984) (no commission earned when parties failed to agree on price, date of contract, and date of closing). The broker's right to compensation is not dependent or conditioned upon performance of the realty contract or receipt by the seller of the purchase price, unless the brokerage agreement expressly so provides. Geller v. New England Industries, Inc., 535 F.2d 1381, 1385 (2d Cir.1976); Hecht, 23 N.Y.2d at 305, 296 N.Y.S.2d at 563, 244 N.E.2d at 78; see Williamson, Picket, 92 A.D.2d at 293-94, 460 N.Y.S.2d at 40 (commission earned upon agreement on essential terms even if every term and condition in written contract not settled) (citations omitted).

The facts of this case, particularly when viewed in a light most favorable to Stiefvater, the party against whom summary judgment was granted, see Sullivan v. Town of Salem, 805 F.2d 81, 82-83 (2d Cir.1986), undeniably demonstrate the Devonshires' readiness and willingness to purchase Hinsdale's house. Their financial ability to do so, however, is a closer issue, the determination of which requires further proceedings.

The burden lies with the broker to show that its prospective purchaser was financially able to meet the purchase price. Rusciano Realty Services, Ltd. v. Griffler, 62 N.Y.2d 696, 476 N.Y.S.2d 526, 526, 465 N.E.2d 33, 33 (1984) (mem.); Blackmore v. Wigne Land Corp., 97 A.D.2d 889, 470 N.Y.S.2d 713, 714 (3d Dep't 1983) (mem.) (citations omitted). Conclusory oral testimony by a...