June 5, 2007
WALTER SZYMANSKI AND NBSF CABINETS & MILLWORK MANUFACTURING, INC., PLAINTIFFS-APPELLANTS,
BERRY SOMERSET, LLC, DEFENDANT-RESPONDENT.
On appeal from the Superior Court of New Jersey, Chancery Division, Somerset County, Docket No. C-12094-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued May 16, 2007
Before Judges Cuff and Baxter.
Plaintiffs Walter Szymanski and NBSF Cabinets & Millwork Manufacturing, Inc.*fn1 appeal from the July 31, 2006 order granting summary judgment to defendant Berry Somerset, LLC, thereby dismissing plaintiff's complaint for specific performance of a commercial real estate contract executed between the parties on January 5, 2004. The motion judge was presented with the question of whether defendant was entitled to unilaterally cancel the agreement on the grounds that plaintiff had abandoned any right to purchase the property. We agree with plaintiff's argument that he was entitled to waive a contingency concerning possible environmental contamination of the property and to proceed to closing without a Letter of Non-Applicability (LNA) from the Department of Environmental Protection (DEP).*fn2 We also agree with plaintiff's argument that he did not abandon his right to purchase the property, and therefore reverse.
Plaintiff operated a cabinet and millwork manufacturing facility in Franklin Township at 59 Berry Street on property he leased from defendant. On January 5, 2004, the parties entered into a contract for the purchase of the property by plaintiff at a price of $675,000, with closing to occur no later than May 1, 2004. The contract afforded defendant the right to subject the closing date to a time of the essence condition if he chose to do so.
The contract terms specifically obligated plaintiff to obtain an LNA from DEP pursuant to the Industrial Site Recovery Act (ISRA). N.J.S.A. 13:1K-6 to -14. The contract provided that if plaintiff was unable to obtain an LNA within 120 days from the conclusion of the attorney review period, he would have the option of canceling the contract or waiving that condition and taking title to the property in an "as-is" condition, thereby subjecting himself to any site clean-up requirements DEP might ultimately impose. The contract made it clear that only plaintiff had the right of cancellation if the LNA letter could not be obtained.
On February 9, 2004, shortly after the execution of the contract, plaintiff applied to DEP for the LNA. As the May 1, 2004 closing date approached, it became clear that he would be unable to secure an LNA prior to closing. Accordingly, the parties amended the terms of their original contract by letter dated April 29, 2004, which they both signed. The letter specifically extended his mortgage contingency date to August 4, 2004, with closing to occur on or about August 20, 2004; extended the plaintiff's lease on the property under the same terms and conditions as the original lease; and, most important, extended the LNA contingency date to August 5, 2004. In the letter, defendant assumed responsibility for providing DEP with the information about its prior tenant that DEP needed before it could decide whether to issue an LNA.
As the revised August 20, 2004 closing date approached, plaintiff again realized that neither the mortgage commitment,*fn3 nor the decision of the DEP on the LNA were likely to be obtained by the August 5, 2004 date specified in the amended agreement. Accordingly, on August 19, 2004, plaintiff sent another letter to defendant, informing him that the only reason the closing had not occurred was because defendant had been "unable to obtain an ISRA clearance letter, and that is the reason for the delay in the transfer of title." In his letter of August 19, 2004, plaintiff proposed to apply all future rent payments toward the purchase price of the property.
In a letter dated August 24, 2004, defendant responded to the August 19 letter by declining to apply the rent payments to the purchase price and reiterating that plaintiff could either "consummate this transaction" without the LNA letter, or else vacate the premises. Defendant's August 24 letter to plaintiff, in pertinent part, read as follows:
[A]ny request by you for application of future rent checks against the proposed purchase price is not acceptable. We are attempting to resolve the environmental problem with the use of all due diligence.
If you wish to wait until this matter is resolved, you are free to do so, provided, however, that the rent which is due on a monthly basis is paid . . . I need not explain to you what will happen in the event the rent is not paid.
It should be further understood and agreed that this letter is not to be construed as an agreement to continue your . . . tenancy after such time as you have been advised by us as to the ultimate disposition of the environmental problem. Should the Landlord be unable to resolve the problem, you will be notified and [you] can thereafter consummate this transaction or vacate the premises.
Three months after sending the August 24, 2004 letter to plaintiff, defendant received a letter from DEP dated November 23, 2004, in which DEP advised defendant that the LNA application on the subject property had been denied and that "this transaction [is] subject to the provisions of ISRA." Defendant never sent a copy of DEP's November 23, 2004 letter to plaintiff. Accordingly, plaintiff remained unaware that DEP had refused to issue the LNA.
Not having heard anything further from defendant about the results of defendant's effort to supply DEP with the required information about defendant's prior tenant, plaintiff again wrote to defendant on January 4, 2005. Plaintiff was aware that defendant, along with DEP, had inspected the subject property some two weeks earlier, and in his January 4 letter, plaintiff requested defendant to advise him regarding the outcome of that inspection two weeks earlier. Unaware of the previous November 23, 2004 LNA denial by DEP, plaintiff promised in his January 4, 2005 letter that "[o]nce the ISRA matter has been resolved, we will make arrangements to have the title updated and [we] will provide the necessary updates to [our] mortgage lender so that closing may be scheduled in a reasonable time frame."
After receiving no response to that January 4, 2005 letter, plaintiff sent defendant another letter on March 4, 2005, again inquiring about the status of the LNA. Ten days later, on March 14, 2005, defendant unilaterally declared that the original lease on the property and the agreement for sale had expired by its own terms. Defendant's March 14, 2005 letter stated:
[I]t is clear that, at the present time, [plaintiff] is occupying the Premises under a month to month lease, since the January 2004 Lease Agreement has expired. Additionally, the January 5, 2004 Agreement of Sale . . . has similarly expired, due to the Landlord's inability to secure the requisite clearance from the [DEP] and the Purchaser's unwillingness to waive the environmental contingency.
On March 17, 2005, a mere three days after receiving defendant's March 14 letter, plaintiff wrote to defendant, contesting defendant's claim that the contract had expired by its own terms. In his March 17 letter, plaintiff explained that he had simply been waiting for defendant to inform him of the status of the LNA, and that the language of defendant's August 24, 2004 letter had expressly permitted him to remain in the property until the status of the LNA letter could be determined. In the letter, plaintiff also threatened to sue defendant for specific performance and damages if defendant refused to proceed to closing.
Defendant responded to the March 17 letter on April 26, 2005, and stated that "[a]t the present time we are continuing to process the work required by the DEP to secure the issuance of the ISRA Non-Applicability Letter." Defendant's letter also commented upon plaintiff's threat to institute litigation:
[S]hould you wish to institute suit seeking specific performance . . . you are free to undertake such action . . . . Might I point out that a specific performance action only arises when the closing date has passes (sic) and the Seller has failed to convey title. Respectfully, that event has not occurred as of yet.
This was the last piece of correspondence between the parties prior to plaintiff filing suit in the Chancery Division on July 21, 2005. Cross-motions for summary judgment were heard on July 20, 2006, and on July 31, 2006, the judge issued a written decision granting defendant's motion and denying plaintiff's, after which plaintiff appealed.
Before the Chancery Division, and now before us, plaintiff raises the following claims: the contract for sale of the property could not be unilaterally terminated by defendant without the "time of the essence" clause being asserted by defendant; defendant was estopped from repudiating the alleged extension of the closing date until approval was obtained from DEP, or until plaintiff was notified that such efforts had been abandoned by defendant; and the terms of defendant's August 24, 2004 letter obligated defendant to provide plaintiff with notice of the results of defendant's efforts with DEP prior to closing, which had the effect of extending the closing date.
In his written opinion, the judge rejected plaintiff's argument that by its August 24, 2004 letter, defendant had assumed the responsibility to obtain the LNA. The court wrote:
[A]s a matter of law, the responsibility for procuring the ISRA Non-Applicability letter did not shift to the defendant. Under the clear and unambiguous terms of the contract, the plaintiff was responsible for procuring the non-applicability letter from the DEP. The buyer failed to satisfy the contingency to obtain a letter of non-applicability or terminate the contract as it had a right to do.
Plaintiff contends that defendant did not cooperate, which is not supported by the evidence. Defendant voluntarily aided plaintiff, but did not assume plaintiffs' rights and responsibilities in that regard.
Not by [plaintiff's] letter of April 29, 2004, or by [defendant's] August 24, 2004 correspondence.
The court based its ruling in favor of defendant on its conclusion that plaintiff defaulted on its obligation to secure the LNA. The judge wrote:
Plaintiff neglected it[s] responsibilities under the contract, as it did not undertake (or sustain its attempt) to obtain the ISRA letter of non-applicability as it was required to do under the Sales Agreement, nor did it act upon that failure.
. . . [A] plain reading of the [August 24, 2004] letter supports the conclusion that the Sales Agreement was being held open pending the final determination of the buyer as to its course of action upon the failure to obtain the letter from the DEP. Regardless of who undertook the effort, the right (and obligation) to act thereon, remained with plaintiff. However, when the buyer failed to exercise its rights under the contract, both by not pursing a letter of non-applicability from the DEP and failing to decide whether to waive the contingency and consummate the agreement or to terminate the contract, the seller was contractually entitled to terminate the agreement.
The contract unambiguously made plaintiffs' performance contingent on the letter of non-applicability and plaintiffs' decision as to whether to proceed if that contingency failed.
The judge held that the contract had expired because of the passage of time. He wrote:
More than six month passed from the August 20, 2004 closing and the March 14, 2005 letter from defendant's counsel confirming the contract had expired. Although the contract did not expire immediately on August 20, 2004, the court cannot find that it was held open for a period of six months. A perpetual contract is not favored by the law and is to be avoided unless there is a clear manifestation that the parties intended it. In re Miller, 90 N.J. 210, 218 (1982). No such clear manifestation exists here. Plaintiff did not have a contract in perpetuity, and the agreement in this case expired sometime prior to March 14, 2005, and was terminated on that date.
To determine whether summary judgment was properly granted to defendant, this court must consider "'whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.'" Liberty Surplus Ins. Corp. v. Amoroso, 189 N.J. 436, 445-46 (2007) (quoting Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 536 (1995)). If not, "when the evidence 'is so one-sided that one party must prevail as a matter of law,' . . . the trial court should not hesitate to grant summary judgment." Brill, supra, 142 N.J. at 540 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S Ct. 2505, 2512, 91 L.Ed. 2d 202, 214 (1986)). When reviewing a trial court's grant of summary judgment, this court uses the same standards as the trial court did and decides first whether there was a genuine issue of material fact, and if not, it then decides whether the trial court's ruling on the law was correct. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998).
Here, both sides moved for summary judgment, demonstrating that there were no genuine issues of material fact. Accordingly, we focus solely on whether the judge's rulings on the law were correct.
The grant of summary judgment to defendant was premised on the Chancery Division's conclusion that by failing to have obtained the LNA between the extended August 20, 2004 closing date and March 14, 2005, when defendant declared that the contract had expired, plaintiff had been so inattentive to his responsibility to secure the LNA letter as to justify a finding that he had abandoned his rights under the contract. We disagree.
The judge's conclusion that the contract expired at some time prior to March 14, 2005, ignores defendant's failure to keep plaintiff apprised of the status of DEP's decision on whether or not to issue the LNA. Defendant's withholding of that critical information is evident from defendant's failure to ever send plaintiff a copy of DEP's letter of November 23, 2004. Further, after January 4, 2005, when plaintiff sent defendant a letter inquiring about the visit by DEP to the premises some two weeks earlier, and expressing a willingness, and indeed a desire, to consummate the purchase of the property, defendant chose to ignore plaintiff's inquiry about DEP, as well as plaintiff's assurances that it would update its title insurance and mortgage applications. Instead, defendant unilaterally and precipitously sent plaintiff the letter of March 14, 2005, declaring the contract null and void.
Had defendant told plaintiff that DEP refused to grant the LNA, plaintiff could have decided to consummate the transaction, thereby waiving the contingency, or could have exercised its right to cancel the contract. Because of defendant's conduct, plaintiff lacked the critical information needed to decide whether or not to waive the LNA contingency.
The court's decision that plaintiff had relinquished any right to purchase the property ignores defendant's conduct: deliberately keeping plaintiff in the dark, consciously deciding not to send plaintiff a copy of the November 23, 2004 letter from DEP, and refusing to respond to plaintiff's January 4, 2005 or March 10, 2005 letters of inquiry. The court did not consider that defendant's behavior lulled plaintiff into a false sense of security. Defendant continued to allow time to elapse, all the while consciously keeping plaintiff ignorant of the true circumstances regarding DEP, and then when defendant decided that enough time had elapsed to potentially justify its declaration that the contract had expired, it sent plaintiff the March 14, 2005 letter.
The court's ruling also ignores the import of defendant's statement in its August 24, 2004 letter that "should the Landlord be unable to resolve the problem, you will be notified and [you may] thereafter consummate this transaction or vacate the premises." Defendant's reference to plaintiff being entitled to "consummate this transaction" if the landlord was unable to resolve the LNA problem, reflects a clear recognition by defendant that the contract entitled plaintiff to proceed to closing without the LNA, to waive the contingency and agree to assume responsibility, as purchaser, for cleaning up the site. The judge also ignored the portion of the August 24 letter in which defendant expressly promised to notify plaintiff if the LNA was not issued, after which plaintiff could "consummate the transaction" or vacate the premises. We hold that such language constituted a relaxation of the August 20, 2004 closing date.
Under these circumstances, we need not consider plaintiff's arguments about whether defendant was entitled to declare the contract expired without defendant invoking a time of the essence clause or whether defendant was estopped from repudiating any alleged extension of the closing date. We conclude that the trial judge committed reversible error by neglecting to consider the impact of defendant's conduct after November 23, 2004 on plaintiff's ability to exercise its right under the contract to waive the LNA contingency.
The grant of summary judgment is reversed. We remand for entry of an order recognizing the continued validity of the contract, and providing plaintiff the option of waiving the LNA contingency and, if he does so, to proceed to closing. We express no opinion on whether plaintiff is entitled to contractual damages for any delay, and leave that issue to be explored further by the parties upon remand.
Reversed and remanded.