Sullivan v. Max Spann Real Estate & Auction Co.
| Decision Date | 09 June 2022 |
| Docket Number | A-57 September Term 2020,085225 |
| 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, v. MAX SPANN REAL ESTATE & AUCTION CO., Defendant-Respondent, and Mengxi Liu, Defendant-Appellant. |
| Court | New Jersey Supreme Court |
Randall J. Peach argued the cause for appellant (Woolson Anderson Peach, attorneys; Randall J. Peach, and Mark S. Anderson, Somerville, of counsel and on the briefs).
Pierre Chwang argued the cause for respondents John C. Sullivan, as Trustee of the Sylvester L. Sullivan Grantor Retained Income Trust, and Sylvester L. Sullivan Grantor Retained Income Trust (Wilentz, Goldman & Spitzer, attorneys; Pierre Chwang, of counsel and on the brief).
Peter G. Verniero argued the cause for respondent Max Spann Real Estate & Auction Co. (Sills Cummis & Gross, and Benbrook & Benbrook, attorneys; Peter G. Verniero, Newark, and R. Michael Riecken, of counsel and on the briefs, and Kevin P. Benbrook, Clinton, on the briefs).
F. Bradford Batcha argued the cause for amicus curiae New Jersey State Bar Association (New Jersey State Bar Association, attorneys; Domenick Carmagnola, President, Morristown, of counsel and on the brief, and F. Bradford Batcha, Freehold, and Martin Liberman, Morristown, on the brief).
Barry S. Goodman argued the cause for amicus curiae New Jersey Realtors® (Greenbaum, Rowe, Smith & Davis, attorneys; Barry S. Goodman, Iselin, of counsel and on the brief, and Conor J. Hennessey, Iselin, on the brief).
In New Jersey State Bar Ass'n v. New Jersey Ass'n of Realtor Boards, we held that a licensed real estate broker or salesperson who prepares a contract for the sale of certain categories of residential real estate does not engage in the unauthorized practice of law, provided that the agreement prescribes a three-day attorney review period during which either party's counsel may cancel the contract. 93 N.J. 470, 471-86, 461 A.2d 1112, modified, 94 N.J. 449, 467 A.2d 577 (1983).
This appeal as of right, based on a dissent in the Appellate Division, raises the question whether our holding in State Bar Ass'n mandates a three-day attorney review clause in a sales contract executed after an absolute auction of residential real estate.
Defendant Mengxi Liu, the successful bidder in a real estate auction conducted by defendant Max Spann Real Estate and Auction Co. (Max Spann), asserted as a defense to the seller's breach of contract action that the contract she signed to purchase the property was void and unenforceable. In her appeal of the trial court's judgment finding her in breach of her contract, Liu argued that the agreement was unenforceable because a licensed real estate salesperson employed by Max Spann wrote her name and address as the buyer and purchase price information on blank spaces in a template sales contract following the auction. Liu contended that this activity constituted the unauthorized practice of law because the contract did not provide for the three-day attorney review period that we mandated in State Bar Ass'n.
In a split decision, the Appellate Division declined to apply State Bar Ass'n to the absolute auction at issue. Sullivan Grantor Retained Income Tr. v. Max Spann Real Est. & Auction Co., 465 N.J. Super. 243, 256-66, 242 A.3d 870 (App. Div. 2020). Noting that Max Spann advised Liu prior to the auction that there would be no three-day attorney review period and that it encouraged her to consult a lawyer, the Appellate Division majority concluded that we did not intend State Bar Ass'n to govern in the circumstances of this appeal. Id. at 260, 242 A.3d 870. The dissenting Appellate Division judge reasoned that because this Court in State Bar Ass'n identified no exception for sales of residential property by auction, the Appellate Division majority exceeded its authority when it excluded auction sales from the attorney review requirement. Id. at 266-73, 242 A.3d 870 (Fuentes, P.J.A.D., dissenting).
We agree with the Appellate Division that a residential real estate sale by absolute auction is distinct from a traditional real estate transaction in which a buyer and seller negotiate the contract price and other terms and memorialize their agreement in a contract. See id. at 259-61, 242 A.3d 870 (majority opinion). In an absolute auction or an auction without reserve, as is the issue here, the owner unconditionally offers the property for sale and the highest bid creates a final and enforceable contract at the auction's conclusion, subject to applicable contract defenses. Panetta v. Equity One, Inc., 190 N.J. 307, 312 n.1, 920 A.2d 638 (2007). Were we to impose the three-day attorney review prescribed in State Bar Ass'n on residential real estate sales conducted by absolute auction, we would fundamentally interfere with the method by which buyers and sellers choose to conduct such sales. We view the notice and template sales contract that Max Spann provided to Liu prior to the auction -- cautioning her that any sale at the auction would be final with no attorney review period -- to serve the consumer protection objectives that we sought to achieve in State Bar Ass'n. We find no unauthorized practice of law in this case and hold that the contract signed by Liu was valid and enforceable.
Accordingly, we affirm as modified the Appellate Division's judgment.
Max Spann is a licensed real estate agency operated by Max Spann, Jr. (Spann), a licensed real estate broker.1 The agency has conducted real estate auctions for more than fifty years.
According to Spann's testimony, Max Spann's standard procedure in advance of a real estate auction is to provide prospective bidders with a detailed Property Information Package about the property to be sold, including "surveys, zoning, title, if we have it, [and the] seller's disclosure." Spann stated that in order to participate in an auction conducted by his agency, a prospective bidder is required to complete a Bidder Registration Form prior to the auction and accept "the terms and conditions of the auction, should they participate." The Bidder Registration Form states that by executing the form, the prospective bidder agrees to review the Property Information Package prior to the auction. Spann testified that a prospective bidder who submits a completed Bidder Registration Form is provided the Property Information Package regarding the auction electronically or in paper form.
In the Bidder Registration Form, Max Spann notifies prospective bidders that "[t]he successful high bidder will be required to sign a contract of sale immediately upon the conclusion of the auction." By signing the form, the bidder agrees to "review the contract of sale prepared by Seller's Counsel" that is included in the Property Information Package. The form also confirms that, as a condition of participating in the auction, the bidder "recognize[s] that this is an auction sale and is not subject to an attorney review period."
A blank template of the Contract for Sale of Real Estate included in the Property Information Package reiterates information provided in the Bidder Registration Form. A notice attached to the contract instructs the buyer and seller to "read this notice before signing the contract." In that notice, Max Spann states that the real estate broker "represent[s] the seller, not the buyer" and that "[t]he title company does not represent either the seller or the buyer." It discloses that the bidder "will not get any legal advice unless you have your own lawyer"; that "[s]igning the contract is a big step"; and that "[a] lawyer would review the contract, help you to understand it, and to negotiate its terms." Max Spann advises prospective bidders on the notice that "[t]he contract is final and binding"; that "[a] buyer without a lawyer runs special risks"; and that "[w]hether you retain a lawyer is up to you."
The contract includes blank spaces for the name and address of the buyer, the bid price, the buyer's premium representing ten percent of the bid price, and the total purchase price.
Spann testified that following a successful bid, the terms of the contract that are left blank in the template would be filled in by hand by a Max Spann employee, by the buyer, or by the seller.
The transaction that gave rise to this appeal was the sale of a residential property in Bernardsville (Property). At the time of the auction, the Property was owned by plaintiff Sylvester L. Sullivan Grantor Retained Income Trust. Plaintiff John C. Sullivan (Trustee) was appointed Trustee of that Trust.
On September 7, 2016, Max Spann and Sylvester L. Sullivan, Grantor of the Trust, entered into a Real Estate Auction Agreement. That Agreement stated that the seller would "sell the Property Absolute, meaning regardless of price, pursuant to the terms of the Contract of Sale as prepared by Seller's attorney." It also provided that Max Spann would collect and hold in escrow an "earnest money deposit from the high bidder" and that, in the event that the highest bidder were to forfeit the earnest money deposit, that deposit would be "divided equally between the parties hereto, one half to the Seller and one half to the Broker, except that the Broker's portion shall not exceed the regular commission due." According to Spann, the Trust's attorney reviewed the template Contract for Sale of Real Estate that was...
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