Sullivan v. Jefferson, Jefferson & Vaida

• Decision Date: 03 April 1979
• Parties: Vincent SULLIVAN and Monica Sullivan, his wife, Plaintiffs-Respondents, v. JEFFERSON, JEFFERSON & VAIDA, Defendants, and Alice McDermott, Defendant-Appellant. Vincent SULLIVAN and Monica Sullivan, his wife, Plaintiffs-Respondents, v. Ernest W. DOCS, Individually and t/a the Docs Agency, Defendant-Appellant, and Anthony Donato, Individually and t/a the V.I.P. Agency, Defendant.
• Court: New Jersey Superior Court — Appellate Division

Page 282

167 N.J.Super. 282

400 A.2d 836

Vincent SULLIVAN and Monica Sullivan, his wife, Plaintiffs-Respondents, v. JEFFERSON, JEFFERSON & VAIDA, Defendants, and Alice McDermott, Defendant-Appellant.

Vincent SULLIVAN and Monica Sullivan, his wife, Plaintiffs-Respondents, v. Ernest W. DOCS, Individually and t/a the Docs Agency,

Defendant-Appellant,

and

Anthony Donato, Individually and t/a the V.I.P. Agency, Defendant.

Superior Court of New Jersey, Appellate Division.

Argued March 20, 1979.

Decided April 3, 1979.

Harold G. Cohen, Woodbridge, for appellants Alice McDermott and Ernest W. Docs (Wilentz, Goldman & Spitzer, Woodbridge, attorneys).

Gerald M. Zashin, Livingston, for respondents Vincent Sullivan and Monica Sullivan.

Before Judges LORA, MICHELS and LARNER.

The opinion of the court was delivered by

LARNER, J. A. D.

This appeal presents the question of the liability of a listing broker in a multiple listing arrangement for the fraudulent conversion of deposit moneys by the selling broker. After a plenary trial the trial judge held the listing broker Docs and his employee, Alice McDermott, liable to the sellers on two grounds: (1) breach of their fiduciary duty, and (2) the multiple listing mechanism created a joint venture between the two brokers, rendering each liable for the defalcations of the other.

We find that both theories are legally untenable under the facts herein and reverse.

The Docs Agency (Docs), a licensed real estate broker, entered into a multiple listing agreement with the Sullivans (plaintiffs) to sell their home, with plaintiffs' understanding that other brokers in the area would participate in efforts to effectuate a sale. Several months later another licensed broker, Anthony Donato, trading as V. I. P. Agency, produced a purchaser who ultimately submitted an offer which was accepted by the sellers, and a formal sales contract was executed.

The purchaser had delivered a $100 deposit to the selling broker, Donato, upon submission of the offer and subsequently deposited with him an additional deposit of $2,900 upon the signing of the contract. When Docs' employee, Alice McDermott, contacted Donato a few days later, the latter informed her that he had received the full deposit of $3,000. Further contact between the listing broker and selling broker revealed that the mortgage contingency had been met and the deal was ripe for closing.

The closing was accomplished by mail between the attorneys for the sellers and the purchaser, with the sellers' attorney forwarding the deed and accompanying documents on June 24, 1973 in escrow to the purchaser's attorney pending receipt of the sum of $22,522.67, representing the net balance due to sellers after credit for the deposit already paid to the selling broker. Accordingly, on June 27 the purchaser's attorney forwarded to sellers' attorney a trustee's check in that amount and Donato's check for $3,000 representing the deposit received by him from the purchaser.

The sellers' attorney thereupon forwarded these checks to the clients. Donato's check was returned for insufficient funds and a subsequent replacement check was also returned by the drawee bank for the same reason. Donato converted the deposit moneys entrusted to him to his own use and of course is liable to plaintiffs for this unlawful conversion. This appeal, however, does not involve the claim against him or the other defendants named in the litigation. It is limited to the propriety of the judgment against Docs and its agent, McDermott.

The trial judge relied in part upon the fiduciary duty of a real estate broker to the seller who retains him with the concomitant obligation to "exercise fidelity, good faith and primary devotion to the interests of his principal." Ellsworth Dobbs, Inc. v. Johnson, 50 N.J. 528, 553, 236 A.2d 834, 856 (1967). This basic standard governing the relationship between principal and broker cannot be denied. And in light of his holding himself out as a specialist in his field of endeavor, a broker's failure to exercise reasonable skill, care and diligence in performing his undertaking will subject him to any resulting damages either for breach of contract or in tort for negligence or breach of his fiduciary duty, as the facts may warrant. Schustrin v. Globe Indem. Co. of New York, 44 N.J.Super. 462, 466, 130 A.2d 897 (App.Div.1957).

Reasoning from this premise, the trial judge found that Docs breached his duty to the sellers by failing to "oversee the transaction." However, we are unable to discern either in the judge's opinion or in the record any factual foundation for finding a breach of duty by Docs or the existence of a causal connection between Docs' involvement and the loss occasioned through the defalcation of the selling broker. Upon close analysis, it is apparent that the trial judge in effect applied a standard of absolute liability to hold Docs responsible manifestly an erroneous standard even for a fiduciary.

The testimony at trial reveals that Alice McDermott communicated with Donato after the execution of the contract and satisfied herself that the mortgage contingency had been met and that Donato had received the $3,000 deposit from the purchaser. Neither the sellers nor their attorney made a demand upon Docs or Donato for the remittance of the deposit prior to the closing, or proof of its retention in Donato's trust account. And evidence in the record supports the customary practice in the area which sanctions the retention of a deposit by the selling broker pending closing in the absence of a demand for remittance by the seller or his attorney.

Under such circumstances, there was no higher duty on the part of the listing broker to undertake the obligation to secure the deposit moneys for the seller prior to the closing. If the seller was represented by an attorney, who saw no danger in permitting the funds to remain with Donato, a licensed real...