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Marioni v. 94 Broadway, Inc.

374 N.J. Super. 588, 866 A.2d 208 (App. Div. 2005)

CONTRACTS; TIME OF THE ESSENCE—A seller cannot simultaneously declare a time of the essence closing while refusing to fully carry out all of its contractual duties.

A buyer contracted to acquire property. The contract stipulated that the property was to be vacant and in “broom clean” condition at closing. The seller had trouble evicting a tenant from the property and, as a result, the property was not vacated until two years later. Once the property was vacant, the seller set a time-of-the-essence closing date of November 7, and advised the buyer that the property was only available “as is.” The buyer refused to close on that date because he was dissatisfied that the property had considerable debris both inside and outside. The seller returned the buyer’s deposit and claimed that the buyer was in breach of contract for failing to close. In turn, the buyer offered the seller a $12,500 escrow to clean up the property, which eventually led to the parties agreeing to a new closing date of January 3.

At the time of these new negotiations, and unbeknownst to the buyer, the seller had already entered into a new contractual agreement with another buyer for sale of the same property. On December 11, the new buyer filed a notice of settlement, and two days later, the original buyer did the same. Additionally, and unbeknownst to the original buyer, the seller and the new buyer closed their sale on December 18. The original buyer eventually learned about the conveyance of the property when he showed up for the January 3 closing. He sued the seller to force it to sell the property as agreed.

The Appellate Division found that: 1) questions of fact surrounded the legitimacy of the seller’s time of the essence closing date; 2) the seller could not simultaneously declare a time of the essence closing while refusing to fully carry out all of its contractual duties; and 3) the seller waived any rights it may have obtained when the buyer failed to appear at the November 7 closing since the seller subsequently agreed to a new closing date.

1) The Legitimacy of the Time of the Essence Closing Date
The Court held that the time of the essence closing date was unreasonable for a number of reasons, the first being that it did not include a place or time for closing, thus precluding the seller from knowing when or where to arrive for the closing. Also, the November 7 closing date was unreasonable was because it was unfair to cause the buyer to forfeit all his contractual rights if he did not meet the closing date since, through no fault of his own, he had already waited two years to acquire the property.

2) The Seller’s Refusal to Fully Perform Its Contractual Duties Invalidated any Benefit of the Time of the Essence Notice.
The Court also held that the buyer was entitled to receive the property in debris-free condition and that there was noting ambiguous about the phrase “broom clean.” It held, by refusing to convey the property in “broom clean” condition and only offering to sell it as is, the seller failed to demonstrate a willingness to fully carry out its contractual obligations. Therefore, the seller forfeited the benefit of its time of the essence notice.

3) The Buyer did not Breach the Contract When He Failed to Appear for the Time of the Essence Closing.
The Court also held that a party who acts in any way inconsistent with the presumption that it continues to hold the other to a time of the essence agreement will be deemed to have waived the agreement altogether. Thus, since the parties continued to act as if the contract remained viable—despite the fact that the buyer failed to meet the time of the essence closing date—the Court held that seller waived its time of the essence requirement.

The Court also held that the new buyer was not a bona fide purchaser because it had actual knowledge and constructive notice of the original buyer’s contract with the seller. Thus, the conveyance of the property to the new buyer did not defeat the original buyer’s entitlement to specific performance. It also held that the new buyer’s actual knowledge of the original buyer’s competing interest in the property precluded it from any protection it may have gained from filing the first notice of settlement; therefore, the recording statutes did not protect him.

Finally, while the Court failed to offer any opinion about whether transferring the property to the original buyer would be oppressive on the new buyer since the new buyer had been in possession of the property for more than three years, the Court did outline the parameters of how the lower court should decide the issue. The Court held that passage of time is only relevant if the property was changed or was altered to such a degree that compelling the new owner to disgorge it would be unduly burdensome. The Court also held that the lower court should decide, on remand, whether or to what degree the original buyer was entitled to any beneficial changes that the new buyer may have made to the property.

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