VRG Corp. v. GKN Realty Corp.

• Decision Date: 18 May 1994
• Citation: 135 N.J. 539,641 A.2d 519
• Parties: VRG CORPORATION, Plaintiff-Respondent, v. GKN REALTY CORP. and Heather Croft Associates, L.P., Defendants-Appellants, and Golden Reef Corporation, Perlman Enterprises, Inc., and Tilton Square Development Associates, Defendants.
• Court: New Jersey Supreme Court

Page 539

135 N.J. 539

641 A.2d 519

VRG CORPORATION, Plaintiff-Respondent, v. GKN REALTY CORP. and Heather Croft Associates, L.P.,

Defendants-Appellants,

and

Golden Reef Corporation, Perlman Enterprises, Inc., and

Tilton Square Development Associates, Defendants.

Supreme Court of New Jersey.

Argued Oct. 26, 1993.

Decided May 18, 1994.

Anne C. Singer, Cherry Hill, argued the cause for appellants (Blank, Rome, Comisky & McCauley, attorneys; Ms. Singer and Peter J. Boyer, of counsel).

Francis P. Maneri, Cherry Hill, argued the cause for respondent (Jubanyik, Varbalow, Tedesco, Shaw & Shaffer, attorneys).

Steven S. Radin, Newark, argued the cause for amicus curiae International Council of Shopping Centers (Sills, Cummis, Zuckerman, Radin, Tischman, Epstein & Gross, attorneys; Mr. Radin and Jeffrey H. Newman, of counsel; Anthony J. Monaco, on the brief).

Arthur M. Greenbaum, Woodbridge, argued the cause for amicus curiae New Jersey Association of Realtors (Greenbaum, Rowe, Smith, Ravin & Davis, attorneys; Mr. Greenbaum and Bruce D. Greenberg, on the brief).

The opinion of the Court was delivered by

HANDLER, J.

This case arises out of the attempts of a commercial-leasing broker to recover commissions for procuring tenants in a shopping center. The legal issue presented is whether the broker, which earned commissions for obtaining long-term tenants for the shopping-center owner, can impose an equitable lien on the rental income derived from those tenants after the sale of the shopping center to a new owner who, although aware of the broker's claim, had not agreed to be responsible for such commissions.

When the current owner refused to pay the broker's commissions, the broker instituted this suit, seeking a declaration imposing an equitable lien against the shopping center's rental income. The trial court determined that the broker was not entitled to an equitable lien and dismissed the complaint. On appeal, the Appellate Division reversed that judgment. 261 N.J.Super. 447, 619 A.2d 251 (1993). This Court granted certification. 133 N.J. 443, 627 A.2d 1147 (1993). We now reverse and reinstate the judgment of the trial court.

I

Plaintiff VRG Corporation ("VRG") is a real-estate broker specializing in obtaining long-term tenants for commercial property. On October 24, 1985, VRG entered into an Exclusive Agency to Lease Agreement ("agreement") with Golden Reef Corporation ("Golden Reef"), a New Jersey corporation, and Perlman Enterprises, Inc., a Florida corporation authorized to do business in New Jersey, to assist in the development of the Heather Croft Square Shopping Center ("shopping center") in the town of Northfield, New Jersey. The agreement granted VRG an exclusive agency to procure tenants for the shopping center.

Catherine Backos, a licensed New Jersey real-estate broker and a vice-president of VRG, negotiated the agreement with Golden Reef. Initially, Backos attempted to negotiate full payment on a discounted basis of all the commissions due at the time the shopping center opened. However, Stuart Perlman, the principal of Golden Reef, refused.

Paragraphs four and five of the agreement discuss the broker's compensation for procuring tenants. Paragraph four sets VRG's commission at six percent of each monthly rental payment received from the tenants that it procured. Paragraph five provided for the payment of $250,000.00 as an advance on commissions, which was then to be credited against monthly rents at the rate of six percent. VRG also agreed to remove a provision from the original draft agreement that would ensure an accelerated payment of all commissions due from the proceeds of any sale of the property. In addition, the agreement bound the successors and assigns of the parties.

VRG obtained long-term tenants for the shopping center, which opened in December 1986. At that time, Golden Reef paid VRG the $250,000.00 advance payment under paragraph five of the agreement. VRG calculated that the $250,000.00 advance, credited against the six percent commissions from the monthly rentals, would have been exhausted and payment based on the monthly rents would have commenced in March 1992.

Golden Reef, on February 22, 1989, entered into a contract to sell the shopping center to defendant GKN Realty Corporation ("GKN") for $9,800,000.00. That contract was later assigned by GKN to Heather Croft on May 24, 1989 (hereinafter GKN and Heather Croft are collectively referred to as "GKN").

Backos testified that when she learned of the impending sale, she advised GKN's real-estate counsel, Donna Sternberg, that "we had an ongoing commission contract with Golden Reef Corporation and that if the property were 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 notified David Nussbaum, a vice-president of GKN, of her conversation with Backos. Subsequently, Nussbaum and Roger Gladstone, another vice president of GKN, met with Backos and Val Galasso, the President of VRG. Backos testified that she advised Nussbaum of the "ongoing obligation by the landlord to pay ... the six percent commission on each of the leases that [VRG] had obtained."

Following the discussion with Backos and Perlman, Nussbaum testified that GKN amended the original contract of sale with Golden Reef. Although the initial contract made no reference to any potential liability for commissions owed to VRG, the amended contract included an indemnification provision, which stated that Golden Reef was to be responsible for payment of the broker's commissions.

Nussbaum, who negotiated the purchase of the shopping center for GKN, believed that the commissions would be paid at the closing by Golden Reef. Backos herself testified that she had "expected to be paid off" the outstanding $309,388.96 in commissions by Golden Reef at the settlement and that she had "looked to Golden Reef as the primary party responsible for paying these commissions." Backos acknowledged at trial that Nussbaum never told her that GKN would pay the commissions. In response to a letter dated June 12, 1989, in which Backos stated "she expected to be paid in full at the closing," Perlman advised Backos not to attend the closing. He further stated that he would pay VRG its commission the day after the closing. After her discussion with Perlman, Backos telephoned Nussbaum who also advised her not to attend the closing because it might "fall apart" if she attended and demanded payment. Although disputed by Nussbaum, Backos testified that she advised him that if VRG's commission obligation was not satisfied at the closing, VRG would look to GKN for the commissions. At the closing, Golden Reef assigned to GKN all of its right, title, and interest in the leases procured by VRG.

Golden Reef never made payment to VRG. On July 11, 1989, VRG filed a complaint against Golden Reef and GKN to recover its commissions. Golden Reef then filed a Chapter 11 bankruptcy petition, effectively foreclosing VRG's claim for commissions against it.

II

Although VRG presents its claim in the contemporary setting of brokerage services rendered in connection with the development, completion and management of a modern-day shopping center, the remedy that it seeks--the equitable lien--has its roots in the traditions of equity. The equitable principles that gave rise to the remedy continue to shape it.

An equitable lien is "a right of special nature in a fund and constitutes a charge or encumbrance upon the fund." In re Hoffman, 63 N.J. 69, 77, 304 A.2d 721 (1973). Generally, "[t]he theory of equitable liens has its ultimate foundation ... in contracts, express or implied, which either deal with or in some manner relate to specific property, such as a tract of land, particular chattels or securities, a certain fund, and the like." 4 John N. Pomeroy, A Treatise on Equity Jurisprudence § 1234, at 695 (Spencer W. Symons ed., 5th ed. 1941); see Bergen Co. Welf. Bd. v. Gross, 96 N.J.Super. 472, 478-80, 233 A.2d 389 (Ch.Div.1967). An equitable lien "may be created by express executory contracts relating to specific property then existing, or property to be afterward acquired." Temple v. Clinton Trust Co., 1 N.J. 219, 226, 62 A.2d 690 (1948); see also 53 C.J.S. Liens § 6, at 464 (1987) ("As a general rule, any express executory contract whereby one party clearly indicates an intention to charge or appropriate some particular property, real or personal, therein described or identified, as security for a debt or other obligation, or whereby one party promises to assign, convey, or transfer the property as security for such a debt or obligation, creates an equitable lien on the property so indicated."). It may also be founded on "the dictates of equity and conscience, as where a contract of reimbursement could be implied at law and enforced by the action of assumpsit, or in certain cases where contribution or reimbursement is enforceable in equity, including those involving fraud and mistake." Temple, supra, 1 N.J. at 226, 62 A.2d 690. "The whole doctrine of equitable liens or mortgages is founded upon that cardinal maxim of equity which regards as done that which has been agreed to be, and ought to have been, done." Rutherford Nat'l Bank v. H.R. Bogle Co., 114 N.J.Eq. 571, 169 A. 180 (Ch.1933); see Hadley v. Passaic Nat'l Bank, 113 N.J.Eq. 548, 551, 168 A. 38 (Ch.1933).

Traditionally, New Jersey courts held that a mere promise to pay a debt out of a designated fund does not give rise to an equitable lien on that fund unless the promisor parts with control of the fund. Metropolitan Life Ins. Co. v. Poliakoff, 123 N.J.Eq 524, 529, 198 A. 852 (Ch.1938); Myers v. Forest Hill Gardens Co., 103 N.J.Eq. 1, 141 A. 808 (Ch.1928), aff'd, 105 N.J.Eq. 584, 147 A. 911 (E. & A. 1929); American Pin Co. v. Wright, 60 N.J.Eq. 147, 46 A. 215 (Ch.1900), aff'd, 85 N.J.Eq. 219, 98 A. 1084 (E. & A. 1901). ...