Sullivan as Trustee of Sylvester L. Sullivan Grantor Retained Income Trust v. Max Spann Real Estate & Auction Co.

Citation242 A.3d 870,465 N.J.Super. 243
Decision Date13 November 2020
Docket NumberDOCKET NO. A-5327-18T1
Parties John C. SULLIVAN, AS TRUSTEE OF the SYLVESTER L. SULLIVAN GRANTOR RETAINED INCOME TRUST, and Sylvester L. Sullivan Grantor Retained Income Trust, Plaintiffs-Respondents/ Cross-Appellants, v. MAX SPANN REAL ESTATE & AUCTION CO., Defendant-Respondent, and Mengxi Liu, Defendant-Appellant/ Cross-Respondent.
CourtNew Jersey Superior Court – Appellate Division

Randall J. Peach argued the cause for appellant/cross-respondent (Woolson Anderson Peach, PC, attorneys; Randall J. Peach, of counsel and on the brief).

Pierre Chwang argued the cause for respondents/cross-appellant (Wilentz, Goldman & Spitzer, PA, attorneys; Pierre Chwang, of counsel and on the briefs).

Kevin P. Benbrook argued the cause for respondent (Benbrook & Benbrook, LLC, attorneys; Kevin P. Benbrook, on the brief).

Barry S. Goodman argued the cause for amicus curiae New Jersey Realtors® (Greenbaum, Rowe, Smith & Davis LLP, attorneys; Barry S. Goodman, of counsel and on the brief; Conor J. Hennessey, on the brief).

F. Bradford Batcha argued the cause for amicus curiae New Jersey State Bar Association attorneys; (Evelyn Padin, of counsel and on the brief; F. Bradford Batcha, Alexander Fineberg, Martin Liberman and Lee B. Roth, on the brief).

Before Judges Fuentes, Whipple and Firko (Judge Fuentes dissenting).

The opinion of the court was delivered by

FIRKO, J.A.D.

Defendant Mengxi Liu (Liu) appeals from a July 22, 2019, order entering judgment finding that real estate auction sales contracts prepared by attorneys, licensed real estate brokers or salespersons, need not contain the three-day attorney review clause mandated by N.J. State Bar Ass'n v. N.J. Ass'n of Realtor Boards, 93 N.J. 470, 461 A.2d 1112 (1983), and codified in N.J.A.C. 11:5-6.2(g), when a blank, pre-printed contract is sent to a bidder prior to the auction of a single family home and recommends an attorney review the contract. Liu, the highest bidder at an auction, seeks return of her $121,000 deposit monies after not being able to secure financing. Plaintiff John C. Sullivan, as trustee of the Sylvester L. Sullivan Grantor Retained Income Trust and Sylvester L. Sullivan Grantor Retained Income Trust (Sullivan) and (GRIT), cross-appeal seeking affirmance of the inapplicability of the three-day attorney review period to this residential auction sale and reversal of the trial court's decision to divide the deposit between Sullivan, GRIT, and defendant Max Spann Real Estate & Auction Co. (Max Spann). For the reasons that follow, we affirm.

I.

Many of the pertinent facts are undisputed. The Sullivan GRIT owned the subject property, a single-family residence consisting of five-plus acres, located at 280 Mendham Road in Bernardsville. In spring of 2016, Sullivan decided to auction the home and engaged Max Spann, a licensed real estate brokerage agency, to conduct the auction. The agency is operated by Max Spann, Jr., a licensed real estate broker. Max Spann prepared an auction agreement (Auction Agreement), which required it to:

conduct a public auction ... and shall coordinate marketing efforts in connection with such public auction. Broker is responsible for layout and design of brochure, flyers, newspapers, advertising, and news releases, site selection, qualifying buyers, working with third party real estate agents, and all other work necessary for a successful auction.

Max Spann's commission, payable by the buyer, would equal 10% of the final bid. The section of the Auction Agreement entitled, "Performance by Purchaser," provided:

Broker agrees to use its best efforts to obtain the highest available bid for the Property(s) at the Auction, and to endeavor to have the high bidder submit a written offer in the form of Contract of Sale created and approved by seller's attorney conforming to the highest bid. It is expressly agreed and understood, however that Broker does not guarantee the bid results or performance by the highest bidder, and therefore, shall not be responsible if, for any reason, the high bidder shall refuse to submit a written offer conforming to the bidding at the Auction nor shall Broker be responsible if the highest bidder should fail to perform under his Contract of Sale, or to comply with escrow instructions that may thereafter be executed. In any such event, no commission shall be earned or paid to Broker.
[(Emphasis added).]

Paragraph 6B continues:

Broker shall collect earnest money deposit from the high bidder which will be held in Broker's escrow account until closing of title. In the case of forfeiture by a prospective Purchaser of any earnest money payment upon the above described properties, said earnest money shall be divided equally between the parties hereto, one-half to the seller and one-half to the broker, except the broker's portion shall not exceed the regular commission due.
[(Emphasis added).]

The Auction Agreement then states: "[T]his agreement may not be modified in any respect unless in writing signed by all parties hereto. TERMS OF SALE ARE CASH, CLOSING WITHIN [THIRTY] TO [FORTY-FIVE] DAYS OF AUCTION SALE DATE." On September 1, 2016, Sullivan and Max Spann signed the Auction Agreement.

Liu and her husband, Liang Wang (Wang), are seasoned real estate investors, having acquired their own home in addition to five other rental properties. A college graduate, Liu's native language is Mandarin Chinese, and she claims to have only basic conversational English skills. Liu and Wang function as a team, with Liu handling the finances and Wang, who is proficient in English, reading and reviewing documents. In the past, Liu and Wang attended four or five Max Spann auctions and bid at one of them.

After attending at least two open houses, including one held on September 25, 2016, Liu indicated that she liked the Bernardsville property. After the open house, Liu believed the property was worth between $700,000 and $800,000. At the September 25, 2016, open house, Liu and Wang completed a bidder registration form that was previously prepared by Max Spann.

The bidder registration form contained several acknowledgements:

1. I hereby agree to sign the contract of sale immediately upon the conclusion of bidding. A 10% deposit of the contract price is required. All bidders must be pre-registered and are required to have bank cashier's check in the amount of $40,000 made payable to yourself and endorsed to escrow bidder after completion of auction. A second check, personal check, is required for the balance of a ten percent deposit. NO EXCEPTIONS, PLEASE.
2. I recognize that this is an auction sale and is not subject to an attorney review period. I will review the contract of sale prepared by Seller's Counsel prior to the auction.
3. I have read the terms of this sale posted on the premises printed on the sale brochures and said terms are incorporated herein by reference as are any public announcements made sale day.
4. I agree to review the property information package prior to attending auction.
[(Emphasis added)].

The bidder registration form also set forth information about the ten-percent buyer's premium, the as-is terms of the sale, and the auction date—October 20, 2016. On September 25, 2016, Wang signed the bidder registration form and submitted it to Max Spann.

Thereafter, a property information package was sent to Liu and Wang, which included a blank template of the Sales Contract contemplated by the Auction Agreement. The Sales Contract was developed by Max Spann and its attorneys over the course of several years. Counsel for Sullivan reviewed and approved the Sales Contract without any requested changes. The blanks in the Sales Contract were to be filled in with the buyer's contact information, the bid price, the buyer's premium, and the total purchase price.

The Sales Contract provided that "[a]ll deposit monies will be held in escrow by [Max Spann] ... until closing. Paragraph fifteen entitled, "PARTIES LIABLE; liquidated damages," reads:

The contract is binding upon all parties who sign it.... Purchaser represents that he/she has sufficient cash available to consummate the within transaction. Unless the conditions of this Contract shall in all respects be complied with by purchaser in the manner provided in the Contract, Purchaser shall lose all rights, remedies, or actions either at law or equity under this Contract. Purchaser shall lose the deposit as liquidated damages, such damages being difficult, if not impossible to ascertain, and Seller shall be released from all obligations to convey said property and retains the right to seek further damages due to Purchaser's default. This contract shall become null and void and neither party shall have further rights against the other.
[(Emphasis added).]

Paragraph twenty-two, entitled "ATTORNEY REVIEW," explains:

This contract was reviewed and prepared by Seller's counsel. While the terms and conditions herein are non-negotiable and will not be altered, it has been made available for review by prospective purchasers and their legal representation prior to Auction Day and on Auction Day itself. Both parties agree that the three-day attorney review period does not apply to this transaction. If this contract relates to a new construction sale, the attached cancellation addendum shall apply pursuant to New Jersey State Law.
[(Emphasis added).]

The Sales Contract also contains a "Notice to Buyer and Seller," which cautions, "Read This Notice Before Signing The Contract." This notice reads:

1. As a real estate broker, I represent the seller, not the buyer. The title company does not represent either the seller or the buyer.
2. You will not get any legal advice unless you have your own lawyer. Neither I nor anyone from the title company can give legal advice to either the buyer or the seller. If you do not hire a lawyer, no one will represent you in legal matters now or at the closing. Neither I nor the title company will represent you in these
...

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