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Pacilli v. McManus

A-4059-04T3 (N.J. Super. App. Div. 2006) (Unpublished)

CONTRACTS; TIME OF THE ESSENCE—Summary judgment is inappropriate to determine whether parties to a contract intended time to be of the essence because it is necessary to examine not only the language used, but also the surrounding circumstances and the objectives the parties sought to attain.

A buyer wanted to purchase a property in connection with its acquisition of an adjacent property. The buyer claimed that, after negotiating with the seller, it was agreed that the buyer would be given 18 months to obtain necessary governmental approvals following a 60 day due diligence period. The buyer also claimed that the seller agreed that an extension for up to six months would be acceptable.

The contract was executed on April 16, 2003. One provision of the agreement gave the buyer a due diligence period of 60 days from the date of the agreement. Another provided that the agreement was “‘specifically contingent’” upon the buyer gaining approvals within 18 months from the end of the due diligence period. The same provision said: “Time is of the essence.” Yet another section stated that the seller would cooperate with the buyer with the application for, and processing of, the approvals. Another section provided that the buyer could either cancel the agreement or consummate the closing of the property if the buyer could not obtain the necessary approvals. Lastly, a section provided that if the agreement were deemed null and void by reason of the buyer’s failure to complete settlement by the agreed-upon closing date, the seller would keep all monies paid under the terms of the agreement. This provision again reiterated that time was of the essence.

Even though it worked with the seller to gain the necessary government approvals, the buyer did not settle the transaction within 18 months after executing the contract (October 16, 2004). Subsequently, the seller told the buyer that because the buyer had not closed within the 18 month timeframe, the agreement was null and void and the seller was entitled to keep all deposit monies. The buyer sought specific performance of the agreement and filed an action seeking an order requiring the seller to show cause why the seller should not perform. The seller filed an answer and a counterclaim. The seller also moved for partial summary judgment seeking dismissal of the action.

The lower court found that the seller waived its right to declare the agreement null and void because of the buyer’s failure to close by October 16, 2004. The lower also court found that the section of the contract requiring settlement within 18 months after executing the agreement could not be reconciled with other sections that set forth the allowable time within which the buyer could obtain approvals. Finding that the seller was responsible for some of the delay, the lower court reasoned that it would be inequitable to construe the contract as requiring a closing date by October 16, 2004. Lastly, the lower found that the seller’s conduct did not evince an intent to hold the buyer strictly to October 16, 2004 as the closing date. Accordingly, the lower court entered judgment for the buyer and dismissed the seller’s counterclaim. The seller appealed

After considering the principles of granting a motion for summary judgment, the Appellate Division concluded that the lower court erred in granting summary judgment in favor of the buyer. First, it held that there existed a genuine issue of fact as to whether the buyer and seller intended to establish a “time is of the essence” closing date eighteen months after executing the contract. While one section provided for this, other sections were inconsistent with the 18- month window. Invoking a rule of contract construction that calls for determining the intention of the parties by considering the language used and the “surrounding circumstances and the objects sought to be attained by them under their agreement,” the Court concluded that the record was not sufficient to rule that the buyer and seller did not intend to be bound by the section providing for the 18 month time frame until the closing date. The Court reasoned that the lower court based its decision solely on certifications by the buyer, seller, and their respective attorneys. Without the benefit of discovery, the statements alone did not provide a sufficient basis for such a determination. Furthermore, the Court explained, summary judgment is “particularly inappropriate” when a provision is “doubtful” and interpretation of the contract requires the assistance of parol evidence.

Second, the Court held that the lower court erred in finding that the seller’s conduct did not show a desire to proceed swiftly. Reasoning that the delay stemmed from the approval process and not from the seller’s actions or lack thereof, the Court concluded that the record did not demonstrate that the seller delayed the buyer in obtaining its approvals.

Third, the Court held that the lower court erred in finding that the seller’s conduct did not show a desire to hold the buyer to strict compliance with the October 16, 2004 closing date. Finding that the buyer and seller disagreed as to their respective understandings of when the actual closing date was, the Court concluded that there was a genuine issue of fact as to whether the buyer and seller actually agreed that the closing date would be October 16, 2004.

Accordingly, the Court reversed the lower court’s order granting summary judgment and remanded the matter to the lower court.


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