VRG Corp. v. GKN Realty Corp.

• Decision Date: 27 January 1993
• Citation: 261 N.J.Super. 447,619 A.2d 251
• Parties: VRG CORPORATION, Plaintiff-Appellant, v. GKN REALTY CORP. and Heather Croft Associates, L.P., Defendants-Respondents. and Golden Reef Corporation, Perlman Enterprises, Inc., Tilton Square Development Associates, L.P., and Tilton Square Development Corp., Defendants.
• Court: New Jersey Superior Court — Appellate Division

Page 447

261 N.J.Super. 447

619 A.2d 251

VRG CORPORATION, Plaintiff-Appellant, v. GKN REALTY CORP. and Heather Croft Associates, L.P. Defendants-Respondents and Golden Reef Corporation, Perlman Enterprises, Inc., Tilton Square Development Associates, L.P., and Tilton Square Development Corp., Defendants.

Superior Court of New Jersey Appellate Division.

Argued Jan. 4, 1993.

Decided Jan. 27, 1993.

Francis P. Maneri for plaintiff-appellant (Jubanyik, Varbalow, Tedesco, Shaw & Shaffer, attorneys; Francis P. Maneri, on the brief).

Anne C. Singer for defendants-respondents (Blank, Rome, Comisky & McCauley, attorneys; Anne C. Singer, on the brief).

Before Judges J.H. COLEMAN, SHEBELL and CONLEY.

The opinion of the court was delivered by

CONLEY, J.A.D.

Following a nonjury trial, final judgment was entered in favor of defendant GKN Realty Corp. and Heather Croft Associates (hereinafter collectively referred to as GKN) dismissing plaintiff VRG Corporation's (VRG) claim for an equitable lien upon certain rental income generated by a shopping center, presently owned by GKN, in payment for a brokerage commission owed VRG by bankrupt defendants Golden Reef and Perlman Enterprises. ¹ We reverse.

The pertinent facts are not in dispute. VRG Corporation is a commercial real estate brokerage firm incorporated in New Jersey. Beginning in 1984, VRG assisted Golden Reef, a New Jersey corporation, and Perlman Enterprises, a Florida corporation authorized to do business in New Jersey, with the development of Heather Croft Square, a shopping center. In addition to assisting with the design, financing and necessary zoning approvals for the shopping center, VRG procured tenants for Golden Reef and Perlman pursuant to an Exclusive Agency to Lease Agreement. Entered into in October 1985, the agreement granted VRG an exclusive agency to procure tenants for Heather Croft Square "[i]n consideration of services to be rendered by [VRG]." Paragraph four of the agreement concerning compensation for procuring tenants, provided that VRG:

shall be entitled to a commission for each tenant who enters into a lease for space in the Center during the term of this Agreement equal to six (6%) percent of each monthly gross base rental payment under the initial term of such lease. Each such monthly commission payment shall be paid by [Golden Reef] to [VRG] within ten (10) days after receipt by [Golden Reef] of the subject monthly rental payment....

Provision was made in the agreement for the advance payment of $250,000 of the commission owed:

[Golden Reef] shall pay to [VRG], as advance commissions hereunder, the sum of One Hundred Thousand and No/100 ($100,000.00) Dollars on or before November 1, 1985 and the further sum of One Hundred Fifty Thousand and No/100 ($150,000.00) Dollars on or before the date that the first tenant takes possession of leased space in the Center and commences to pay monthly base rental. Such payments of Two Hundred Fifty Thousand and No/100 ($250,000.00) Dollars shall be credited against the commissions due [VRG] pursuant to paragraph 4 above and [Golden Reef] shall not be obligated to make any payments to [VRG] pursuant to paragraph 4 above until such time as said credit of Two Hundred Fifty Thousand and No/100 ($250,000.00) Dollars has been exhausted.

The agreement, further, bound the successors and assigns of the parties.

Catherine Backos, a licensed New Jersey real estate broker and the Vice President of VRG, negotiated the agency agreement. Originally, she had attempted to negotiate payment on a discounted basis of all commissions due at the time the shopping center opened. However:

what took place was that the then developer-owner of the center, Stuart Perlman, who's deceased, agreed to pay us at the time when the center opened $250,000 on account, which $250,000 would be charged off against each month's rental income stream at six percent.

....

It was--there had been a draft of this contract in Mr. Perlman's hands, okay, which stated that we wanted to be paid off on a discounted basis. That is six percent of the first year, five percent of the second year, and four percent of every year thereafter--

....

... Mr. Perlman came to me and said, no, he said, this is what I wish to do. I don't wish to pay you that large consideration, I believe it was $583,000 which was the discounting.

....

Of all of the leases out over 20 years. He said, I want to pay you $250,000 now and I want you to continue to have a six percent income stream from this property. Will you accept this? And I said, yes, I will. And so we entered into this exclusive agency.

[Emphasis added].

VRG's compensation, then, "was exclusively based on the amount of income generated by [the] leases." Thus, "[i]f a tenant defaults and no longer pays rent then we no longer calculate any six percent income stream from that particular tenant." In addition to agreeing to Perlman's insistence that the commission be paid in the form of the $250,000 initial payment to be credited against monthly rents and thereafter "a six percent income stream from [the] property," Backos also agreed to a removal from the original draft agreement of a provision that would ensure an accelerated payment from the proceeds of any sale of the property of all commissions due. As Backos explained:

when I was negotiating with them my original draft of the contract had a provision in there that in the event--and it's my standard contract--that the property is sold, they then take and pay the commissions off on the discounted basis, okay? Mr. Perlman said to me at the time, Catherine, this is a long-term holding, I'm going to leave this property to my kids, I want to set this up as an annuity for you. You will have six percent going out. Take that language out of the contract.

[Emphasis added].

VRG obtained tenants and Heather Croft Square opened in December 1986. At that time VRG was paid the $250,000 advance payment pursuant to paragraph five of the agreement. Credited against the 6% commissions from the monthly rentals, VRG calculated that the $250,000 advance would have been exhausted and payment from the monthly base rents would have commenced in March 1992.

In June 1989, however, Golden Reef and Perlman sold the shopping center and assigned the leases to GKN. When Backos learned in January 1989 of the impending sale, she initially advised GKN's real estate counsel, Donna Steinberg, that "we had an ongoing commission contract with Golden Reef Corporation and that if the property was being sold, I wanted her to be aware that there was an ongoing obligation by the landlord to pay a six percent commission for these leases that were in that center." Sternberg contacted David Nussbaum, a vice president of GKN Realty, to inform him of Backos' call. Subsequently, Nussbaum and Roger Gladstone, another vice president of GKN Realty, met with Backos and Val Galasso, the President of VRG. Backos testified that she informed Nussbaum and Gladstone of "the services that we had performed and that there was an ongoing obligation by the landlord to pay ... the six percent commission on each of the leases that we had obtained."

After the meeting, GKN requested certain information with respect to the exclusive agency agreement. On February 6, 1989, Backos faxed a letter to Nussbaum and Gladstone indicating that the amount of commissions due VRG from Perlman Enterprises at the closing of the sale of Heather Croft Square to GKN Realty was $309,388.96. Documentation faxed to GKN on February 6, 1989 included a copy of the Exclusive Agency Agreement, the extension of the agreement, VRG's calculations of commissions due, and a copy of VRG's January 10, 1989 letter to Perlman Enterprises concerning commissions due.

Backos attempted to negotiate with Golden Reef and Perlman for a payment of VRG's commission at the time of closing. After some dispute, she agreed to accept $236,919.79 as full payment for all commissions. In her June 12, 1989 letter to Clifford Perlman advising him VRG would accept that amount, she further stated that VRG would attend the closing, scheduled for June 13, and expect full payment at that time. Perlman told her not to attend and that VRG would be paid the following day. Nussbaum also advised Backos not to attend the closing since it might "fall apart" if she were there and demanded payment. Although disputed by Nussbaum, Backos testified that while she agreed not to attend, she told Nussbaum that if the commission obligation was not satisfied at closing, VRG would look to GKN for the commissions. Indeed, although the initial contract between Golden Reef and GKN made no reference to any potential liability for commissions owed VRG, subsection 12(W) under "Seller's Warranties and Representations" ultimately provided:

There are no leasing or brokerage commissions due, unpaid or accruing with respect to the Leases; there are no ongoing obligations to pay any leasing or brokerage commissions under the Leases; and, there are no leasing or brokerage agreements in effect with respect to the Leases; except with respect to certain leasing commissions which may be due VRG Corporation, for which Seller hereby agrees to defend, indemnify and hold Buyer harmless from all liabilities, claims, causes of action, damages, costs, losses and fees (including attorney's fees) incurred by Buyer in connection with any such commission to VRG Corporation.

Nussbaum testified that 12(W) was amended to include the indemnification provision after discussions with VRG and the Perlmans concerning VRG's claim of commissions due.

In rejecting VRG's claim of an equitable lien upon the rental income received by GKN pursuant to the sale and assignment of leases that VRG had procured, the trial judge said:

The law is clear; there must be some manifestation of intention to have some particular property subjected to the payment of a debt. However, in this case, I find no intention by GKN or Golden...