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Seaboard Towers Development Company, LLC v AC Holding Corp., II

A-3392-06T1 (N.J. Super. App. Div. 2008) (Unpublished)

CONTRACTS — Where one party’s attorney never leads the other party to believe that his or her signature was intended to bind his client to a contract and the second party is aware that the attorney did not have such authority, the contract is not binding.

A developer entered into an agreement with a property owner for an option to purchase its land. Following negotiations, a manager for the property owner signed the agreement on behalf of the property owner. Consent from the owner’s board of directors which was required for entering into contracts, but the managers did not have such consent. The agreement called for the developer to post an initial deposit. During a ninety-day due diligence period in which the developer was to conduct environmental studies, the developer had the option to terminate the agreement and have its deposit returned. At the end of the due diligence period, if the developer did not terminate the agreement, it was required to make a second deposit, which together with the first deposit, was to be released to the property owner and be non-refundable. After the end of the due diligence period, the developer had thirty days to exercise its option to purchase the property and close. The developer could have up to three, one-month extensions at an additional cost.

During the due diligence period, the developer discovered potential environmental and regulatory problems and sought an extension of sixteen months. The manager for the property owner unilaterally agreed to a one-week extension of the due diligence period since the owner’s executive management was busy with another transaction and was unable to address the developer’s request. An executive of the property owner subsequently approved the one-week extension, but only agreed to a six-month option extension plus three additional one-month extensions each at an additional cost. On the last day of the one-week extension the developer agreed over the telephone to a six-month option extension with the property owner’s transactional attorney. The revised agreement also required board approval for the implementation of the agreement. The developer signed the agreement and faxed its copy to the property owner but the property owner’s general counsel, who responded the day after the one-week extension expired, refused to agree to the due diligence extension without approval from the owner’s board. The property owner then informed the developer that it did not consider itself bound by the revised agreement for the six-month extension and offered the developer five additional days to pay the second deposit and exercise the option to purchase the property under the terms of the option agreement. The developer instead attempted to amend the agreement to allow a two-month due diligence extension. After its attempt failed, the developer brought an action against the property owner. It sought enforcement of the six-month extension, arguing that it was agreed-to by the property owner’s transactional attorney. The lower court would not do so.

On appeal, the Appellate Division found, in agreement with the lower court, that the transactional attorney for the property owner never led the developer to believe that his signature bound the property owner to the six-month extension or that the parties had entered into a binding agreement. It pointed out that a fax sent by the developer to the property owner requesting a countersignature for the six-month extension agreement indicated that the developer was aware that the transactional attorney for the developer did not have the authority to sign the agreement on behalf of the property owner. The Court added that the developer incorrectly relied on the fact that the signature of its owner alone bound the property owner to the extension agreement before getting a countersignature.

The developer’s argument, that the six-month extension agreement was a binding oral agreement as a matter of law because it identified the property and the transferee, was rejected. The Court agreed with the lower court’s finding that based on the extrinsic evidence, there was no evidence that the property owner intended to enter into the extension agreement. It specifically pointed to the fact that the transactional attorney for the property owner directed his secretary to shred the agreement signed by the developer. The Court found no evidence that the property owner explicitly delegated decision-making authority to the transactional attorney or that any actions by owner’s officials led the developer to believe that it had the authority to bind the company to a contract. It held that the since the developer did not accept the five-day extension offered by the property owner, it breached the option agreement by not tendering the second deposit by the last day of the one-week extension period. As a result, the property owner was found to have rightfully considered the agreement terminated.

The lower court’s finding that the property owner was not precluded from relying on the developer’s failure to tender the second deposit on time as grounds for considering the agreement terminated, also was affirmed. The Court rejected the developer’s argument that the offer of the five-day extension induced the developer into believing that it did not have to tender the second deposit by the last day of the one-week extension. In addition, the Court found that the developer could not rely on such an argument because there was no indication that the developer formally agreed to the five-day extension after it received the offer in its communications with the property owner. The developer’s argument that the property owner improperly considered the option agreement terminated on the grounds that it had a duty to specifically request the second deposit following its offer of the five-day extension was also rejected. The Court found that since the due date of the second deposit due was explicitly stated in the option agreement, as amended by the one-week extension, there was no duty on the part of the property owner to remind the developer that the second deposit was due.


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