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Binswanger of Pennsylvania, Inc. v. TSG Real Estate LLC

Supreme Court of Pennsylvania

September 26, 2019

BINSWANGER OF PENNSYLVANIA, INC., Appellee
v.
TSG REAL ESTATE LLC, Appellant BINSWANGER OF PENNSYLVANIA, INC., Appellee
v.
TSG REAL ESTATE, LLC, Appellant

          ARGUED: March 6, 2019

          Appeal from the Judgment of Superior Court entered on December 26, 2017 at Nos. 2372 EDA 2015, 2524 EDA 2015 affirming the Order of the Court of Common Plea of Philadelphia County, Civil Division, entered on June 11, 2015 at No. 000901, February Term 2014.

          SAYLOR, C.J., BAER, TODD, DONOHUE, DOUGHERTY, WECHT, MUNDY, JJ.

          OPINION

          TODD JUSTICE.

         In this appeal by allowance, we consider the entitlement to broker commissions for the sale of commercial property. For the reasons that follow, we affirm the order of the Superior Court.

         TSG Real Estate, LLC ("TSG") is a real estate company that owned a commercial property in Montgomery County at 1400 Welsh Road, North Wales, Pennsylvania (the "Property"). Initially, TSG hired New Hart Corporation d/b/a Hart Corporation ("Hart") as its broker to market the Property. As TSG's agreement with Hart was to expire, TSG began considering replacement brokers, one of which was Binswanger of Pennsylvania, Inc. ("Binswanger"). Two days before TSG informed Binswanger of its decision to hire it as its broker, on September 18, 2013, TSG received a written offer from TWA Holdings, LLC ("TWA") to purchase the Property for $3.7 million. On September 20, 2013, TSG negotiated an agreement with Binswanger culminating in a September 27, 2013 "Exclusive Right To Sell Or. Lease Agreement" ("Broker Agreement") with Binswanger.

         The Broker Agreement permitted TSG to continue using other brokers in connection with any sale to TWA, and provided, inter alia, (1) if Binswanger sold the Property, it would be entitled to a 5% commission; (2) all commissions would be considered to be earned and payable "at the time scheduled for closing on a sale;" (3) a "carve-out period" which allowed that if another broker "completed" a sale, exchange, or transfer of the Property to TWA on or before January 5, 2014, Binswanger would earn no commission; (4) if another broker completed a sale of the Property to TWA after January 5, 2014, the other broker and Binswanger would split a 5% commission; and (5) the duration of the agreement was for one year; however, TSG had the right to terminate the agreement after 6 months with 30 days prior written notice to Binswanger.[1]

         On January 3, 2014, two days prior to the expiration of the carve-out period contained in the Broker Agreement, TSG, via Hart and another broker, Gelcor Realty ("Gelcor"), entered into an Agreement of Sale with TWA, selling the Property for $3.4 million. According to the Agreement of Sale, TWA was to deliver to an escrow agent a deposit of $50, 000 upon the execution of the Agreement of Sale and an additional deposit of $150, 000 at the expiration of a "due diligence period" ― 60 days from the date of execution of the Agreement of Sale. (Agreement of Sale at 1, 8.) In the event TWA failed to fulfill and perform any of the terms and conditions of the Agreement of Sale, TSG was entitled to retain both the deposit and the additional deposit. TSG retained the right to market the Property during the due diligence period; however, it had no right to terminate the Agreement of Sale. The Agreement of Sale further provided that legal title to the Property was to pass to TWA at closing. The Agreement of Sale contained two conditions to closing: a mortgage contingency that required TWA to obtain a mortgage commitment of no less than $2 million prior to the expiration of the due diligence period; and a contingency that permitted TWA to terminate the agreement at any time, and for any reason, during the due diligence period. Finally, the Agreement of Sale identified two brokers, Hart and Gelcor, which would be entitled to commissions at the time of closing; Binswanger was not identified as a broker.

         On January 7, 2014, Binswanger communicated to TSG that it was owed a commission on the sale of the Property to TWA. Nine days later, on January 16, 2014, TSG sent a letter of intent to terminate the Broker Agreement with Binswanger, effective March 26, 2014.

         Thereafter, on February 10, 2014, Binswanger filed a complaint against TSG, which it subsequently amended, seeking declaratory relief, breach of contract, and breach of the duty of good faith and fair dealing, and, ultimately, seeking a 5% commission on the sale of the Property pursuant to the Broker Agreement. On April 24, 2014, TSG and TWA closed on the Property.

         In the ensuing legal proceedings, TSG filed an answer and new matter, arguing that Binswanger was not entitled to a commission because the "sale" of the Property was completed at the execution of the Agreement of Sale pursuant to the equitable conversion doctrine. According to TSG, the equitable conversion doctrine provides that, in an enforceable contract, the legal interest in the property remains with the seller, while the equitable interest transfers to the buyer; this divergence remains until the buyer complies with its obligation to pay and the transaction has been completed, at which time both legal and equitable titles belong to the buyer. Thus, TSG stressed that Binswanger could not obtain a commission because the sale of the Property to TWA ― due to the Agreement of Sale being executed on January 3, 2014 ― was complete before the expiration of the carve-out period on January 5, 2014.

         Binswanger filed preliminary objections to TSG's counterclaims arguing that the "sale" of the property occurred on April 24, 2014, the date legal title passed to TWA, and, as such, Binswanger was entitled to a commission. In January 2015, the parties filed cross-motions for summary judgment.

         On July 15, 2015, the Philadelphia County Court of Common Pleas granted summary judgment in favor of Binswanger, finding that execution of the Agreement of Sale did not constitute a completed sale. Specifically, the trial court noted that, when an agreement of sale for real estate is executed and delivered, the purchaser is vested with equitable title to the real estate so long as the sale of land is free from conditions which are beyond the control of the parties. According to the trial court, the Agreement of Sale between TSG and TWA contained a mortgage contingency, and, thus, equitable title did not transfer at the time the Agreement of Sale was signed. The trial court also noted that the doctrine of equitable conversion applies only to the parties to the contract and cannot be extended to others. In that regard, the trial court found that the rights and obligations under the Agreement of Sale involved only TSG and TWA, the signatories thereto; accordingly, the issue of equitable title to the Property under the Agreement of Sale was distinct from issues arising under the Broker Agreement. Based upon these findings, the trial court found that the sale was not completed until April 24, 2014, when TWA obtained a mortgage and closed on the Property; thus, Binswanger was entitled to one-third of a 5% commission pursuant to the commission-splitting provision. TSG appealed to the Superior Court, and Binswanger filed a cross-appeal.

         A three-judge panel of the Superior Court, in an unpublished memorandum opinion, affirmed. Binswanger of Pennsylvania, Inc. v. TSG Real Estate LLC, 2372 EDA 2015 (Pa. Super. 2017). The court noted that, when an unconditional agreement for sale of land is signed, the purchaser becomes the equitable owner under the equitable conversion doctrine. However, the court found that the Agreement of Sale in this case was conditional in that (1) the due diligence period provided TWA with 60 days to terminate the Agreement of Sale, after which TWA was required to pay a deposit of $150, 000, and (2) TWA was required to exercise good faith in obtaining mortgage financing.

         The Superior Court rejected TSG's reliance on Filsam Corp. v. Dyer, 422 F.Supp. 1126 (E.D. Pa. 1976), in which a federal district court found the doctrine of equitable conversion to be applicable, even where a buyer's purchase of property in Pennsylvania was conditional upon seller making repairs and alterations to the property, because such conditions were within the control of the parties. The Superior Court reasoned that, federal decisions were not binding on Pennsylvania courts, and that, at any rate, Filsam was distinguishable, as that case involved minor formalities that did not amount to a condition precedent, whereas, in this case, the due diligence period and the attendant requirements therein as well as the mortgage requirement were conditions precedent to the contractual relationship. Thus, the Superior Court concluded that, in the instant case, because the Agreement of Sale was conditional, and because the sale of the Property was not completed at the time the Agreement of Sale was executed, but at closing, which was after the carve-out period, Binswanger was entitled to a commission.

         We granted allocatur to consider the entitlement of a broker to a commission after an agreement of sale was executed and whether conditions in the agreement preclude the application of the doctrine of equitable conversion.[2] Our review on an appeal from the grant of a motion for summary judgment is well settled: a reviewing court may reverse the order of the trial court only where it is established that the court committed an error of law or abused its discretion. Capek v. Devito, 767 A.2d 1047, 1048 n.1 (Pa. 2001). As such review raises a question of law, our review is plenary. Phillips v. A-Best Products Co., 665 A.2d 1167, 1170 (Pa. 1995).

         TSG focuses exclusively on the equitable conversion doctrine, asserting that it controls Binswanger's entitlement to a commission. TSG initially points out that our Court, in Bauer v. Hill, 110 A. 346 (Pa. 1920), defined a "sale" as "a contract between parties, . . . to pass rights of property for money, which the buyer pays or promises to pay to the seller for the thing bought and sold." Id. at 347. TSG contends that TWA became the equitable owner of the Property upon execution of the Agreement of Sale under the doctrine, despite the mortgage financing and due diligence contingencies; thus, the sale was complete at this time. TSG urges that most, if not all, agreements of sale are conditional, ...


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