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Authored - NJ Contract Law Update - Overriding Purpose of a Contract Clause Helps Determine Whether an Ambiguity Exists, and the Meaning of the Ambiguity
MARCH 13, 2013 | Windels Marx - Commercial Litigation

In R.J. Brunelli & Co., Inc. v. Briad Development East, LLC, 2013 WL 490177 (N.J.App.Div. Feb. 11, 2013), a case involving a significant real-estate commission, the Court reversed a trial-court holding--even though there were embedded fact findings from a bench trial, entitled to great deference--to hold (in effect) that the overriding purpose of a clause should help in both the detection of ambiguities and the interpretation of any such ambiguities. The plaintiff broker felt entitled to a commission, 'one way or another', after an exclusive listing agreement (and other actual potential services) by that broker had led to no compensation, despite the following ostensible findings or rulings by the Court:

  1. Exclusive rental agreement.
  2. The broker had also included a 3% commission if the property were sold.
  3. The broker even had enough foresight to say that the 3% would be earned even if the property were "contributed" to a joint venture rather than literally sold. However--and awkwardly--the payment was tied to the date "when the closings on residential spaces commence"; this, because the apparent perception at that time was that the development would be a mixed use of both residential and commercial.
  4. The property owner had substituted another leasing agent for the plaintiff a year before such a step would (the Court implied) have been permissible.
  5. The property was then 'delivered' to a joint venture in a transaction that could have arguably been described as a contribution or sale.
  6. The land was valued at $20 million in connection with the sale/contribution; thus plaintiff felt it had earned at least $600,000, and possibly more due to the interference that it claimed with the leasing arrangements.
  7. Apparently, the proofs as to the latter 'additional-damages' (interference with leasing) were wanting. However, the Appellate Division clearly felt that there was 'no way' the 3% ($600,000) should not have been paid, either as a commission or as damages for breach of contract.

The Court obviously began with the overriding purpose (and equity) that having both (1) developed a project, and (2) tried reasonably to protect itself contractually, the plaintiff would have expected to earn at least 3% in the eventuality described. The Court therefore concluded, in effect, that the transaction had sufficient indicia of a sale, and that the 3% commission was thus earned in that fashion; that the triggering event of the "residential sales" was immaterial to the overall concept of the commission being owed, since a different "reasonable time" could have been implied for the trigger absent any residential sales; and that in any event, the contract had been breached and that the clearest compensation for the breach was the $600,000.

R.J. Brunelli tells us something about contracts, and something about courts. In terms of contract drafting, it tells us that more contingencies have to be considered than the most obvious ones; arguably, the trigger of "residential sales" almost cost the broker its entire commission. In terms of courts, it tells us that an insightful court will first discern the overall purpose of the agreement and then see if the controverted language is ambiguous in light of that purpose (or whether a clause is or is not intended to be exclusive); then use the discerned purpose, further, to help interpret the ambiguity. The case also tells us that the overriding equity of a situation will certainly influence a court; indeed, one can imagine various other legal theories (and parties) that could have led to the same result in R.J. Brunelli.

Contact & Legal Disclaimer

Clark Alpert is the author of Guide to New Jersey Contract Law, published by the New Jersey Institute for Continuing Legal Education, originally published in 2007 and updated in November 2011. His updates on New Jersey contract law are based in recent issues and practical methods for addressing similar situations in your practice or business. They are not intended to serve as legal advice. Clark welcomes your questions and comments.

 




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