Broker representations don't survive sale & closing.

Mr. Jacobson wanted to sell his residence and retained Ms. Cherney as his real estate broker to do so. In November 1993, the broker secured a purchase offer from Mr. and Mrs. Bogen, the prospective buyers, and communicated the offer to Jacobson. In doing so, the broker, according to Jacobson, falsely stated that the Bogens were willing to close a month later in December and the Bogens were able to do so, since they already signed a contract to sell their own home.

At about the same time, Jacobson received another offer from a different broker that was higher and which would have netted him $15,000 more on the purchase price. However, a December closing was important to Jacobson and he therefore rejected the higher offer in favor of a December closing with Cherney's purchasers.

Jacobson verbally accepted the Bogens' offer, but shortly thereafter he discovered that a December closing was not possible. Nevertheless, Jacobson entered into a contract of sale with the Bogens providing for a closing on February 1, 1994. Eventually, the closing took take place in late January, 1994 and Ms. Cherney received her brokerage commission.

After the closing, Jacobson sued Cherney, (Jacobson v. Cherney, Supreme Court Nassau County, N. E Law Journal, November 10, 1994) alleging that Cherney lied to him about the Bogens' ability to close in December in order to persuade Jacobson act to accept the higher offer, for which Cherney would not have received a commission. Jacobson claimed that Cherney committed a fraud, a breach of contract, a breach of fiduciary duty and was also guilty of tortious interfering with a possible contract with the higher bidder.

Cherney's position was that she was told by the Bogens that they would like to close in December provided certain events occurred. However, Cherney denied stating that they had a signed contract for their house. In any event, Cherney claimed that Jacobson waived any claim for fraud by entering into a contract well-knowing when the closing would be. Jacobson argued that in order to determine the true facts of who said what to whom it was necessary to conduct discovery proceedings before the trial of this matter. Further, Jacobson claimed that he was not aware of Cherney's deception when he signed the contract of sale, although be did know that the closing would not be held in December as he was told.

Justice Edward T. O'Brien of the Supreme Court of Nassau County reviewed the papers submitted by both sides and held that although there is a dispute as to "who said what to whom," such disputed facts are not dispositive of the issues in this case.

The judge ruled that in order for Jacobson to recover damages for fraud, he must prove that Cherney intentionally misrepresented that the closing could be held in December and that Jacobson relied on that misrepresentation and thereby sustained damage.

Justice O'Brien then analyzed the facts, which were not in dispute. He concluded that when Jacobson signed the contract with Bogens, he already knew the closing would not be in December as he had hoped, but rather on or about February 1, 1994. Therefore Jacobson did not enter into the contract in reliance upon Cherney's alleged misrepresentation that a closing would occur in December. On these facts, Jacobson could not sustain a cause of action for fraud.

The court then addressed Jacobson's claim that Cherney's actions interfered with Jacobson's opportunity to sign a contract for a purchase price of $15.000 more. The judge stated that under New York law, a cause of action for interference with pre-contractual relations is valid only "where a party would have received a contract but for the malicious, fraudulent and deceitful acts of a third party." The essential ingredient of this claim is the use of grossly improper means to prevent the other party from forming a contact with Jacobson.

The judge stated that assuming Jacobson's allegations are true, Cherney's greatest transgression was her misrepresentation that the Bogens would close in December and that they were able to do so because their house was already in contact. The Judge ruled that Cherney's conduct, even if true, falls far short of the malicious and deceitful interference with the consummation of a contract with the higher bidder.

Also, Jacobson alleged no facts indicating that he had any dealings or negotiations with the higher bidder or that but for Cherney's alleged interference, Jacobson would have certainly sold his house to the second bidder. there was no assurance that negotiations would have been successful with the second bidder which would have led to a binding contract of sale with him.

Jacobson also claimed damages because Cherney breached a fiduciary duty to him by inducing him to enter into a contract to sell his house to the Bogens, which they would not have done, but for the misrepresentations of Cherney. Justice O'Brien ruled that the reality of the events however, indicated that Jacobson entered into the contract of sale in November 1993, while represented by counsel. The contact of sale provided for a closing date on or about February 1, 1994 and the title closed in January. if Jacobson chose to perpetuate the reliance upon the representations made by Cherney, he should have insisted that those representations survive the contract of sale. Since this was not done, the representations made to Jacobson by his broker are deemed merged and extinguished by the documents evidencing the transaction.

Moreover, Jacobson's claim for damage is incapable of proof The so-called "second buyer" never became a contract purchaser. The offer which was made by the prospective buyer to enter into a contact for Jacobson's home was at best an agreement to agree. The terms were never negotiated. Such an offer cannot sustain a claim for damages to Jacobson.

Thus, Justice O'Brien dismissed all of plaintiff's claims against Cherney. In order for a client to hold his broker responsible for representations made to him, the client should insist that the representations be in writing and that the broker agree that they will survive the contract of sale and the closing transaction.

(Edward L. Schiff is the senior partner of the New York city law firm of Schiff, Turek, Kirschenbaum, O'Connell, LLP.)