October 2, 2007
WILLIAM G. FARNELLA AND SHIRLEY C. FARNELLA, PLAINTIFFS-APPELLANTS,
RENEE BRANA, DEFENDANT, AND JOHNATHAN KELLY WILSON, DEFENDANT-RESPONDENT.
On appeal from the Superior Court of New Jersey, Law Division, Somerset County, L-511-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted September 11, 2007
Before Judges Fuentes and Chambers.
In this real estate contract case, the purchasers appeal from the order of judgment entered against them on the counterclaim. They challenge both the adverse determination on liability and the quantum of damages awarded. The purchasers had fixed a closing date, making time of the essence. When the sellers failed to close on that date, the purchasers declared the sellers in breach and terminated the contract. On cross motions for summary judgment, the trial court found that, under the circumstances, the time of the essence closing date fixed by the purchasers was unreasonable. We agree. As a result, the purchasers did not validly terminate the contract; rather they breached the contract when they, thereafter, refused to close. The amount of damages awarded to seller Johnathan Kelly Wilson by the trial court, after holding a plenary hearing, is supported by the law and evidence. We affirm.
This lawsuit arises out of a contract dated July 27, 2003, in which plaintiffs, William G. Farnella and Shirley C. Farnella, (the purchasers) contracted to buy the home of defendants, Renee Brana and Johnathan Kelly Wilson, (the sellers), located at 52 Titus Road, Montgomery, New Jersey. The contract price was $750,000, which included a $75,000 deposit.
Since the purchasers had children of school age, they wanted to close on the transaction by the beginning of the school year. As a result, the purchasers initially wanted a closing date of August 23, 2003. The sellers negotiated for a later date, so that September 5, 2003, was fixed as the closing date in the contract. It was not a time of the essence closing date.
At the time the contract was executed, the sellers, Brana and Wilson, were divorced. Brana was still living in the house; Wilson was not. Under their property settlement agreement, Wilson was obliged to pay to Brana the carrying costs on the home plus alimony, in the amount of $400 per week, until the house was sold and the closing took place.
Prior to the contractual closing date of September 5, 2003, counsel for the parties engaged in correspondence regarding a variety of issues, including the matter of a few dead trees and dead tree limbs on the property. All of the issues were resolved prior to September 5, 2003, with the exception of the dead trees and limbs. The buyers had requested that the dead trees and limbs be removed; by letter dated September 3, 2003, the sellers offered to provide a closing credit of $1,000 for this item.
On September 5, 2003, when the sellers were not ready to close, the purchasers' counsel sent the sellers' attorney a letter fixing September 15, 2003, at 3:00 p.m., as the new closing date and making time of the essence.
As the parties moved toward a September 15, 2003, closing, the dead tree and tree limb issue remained unresolved. The purchasers' attorney sent a fax, dated September 11, 2003, to the sellers' attorney indicating that the $1,000 credit was not satisfactory and that the purchasers wanted the dead trees and limbs removed prior to closing.
By a faxed letter dated September 12, 2003, the sellers' attorney advised the purchasers' counsel that Brana had movers scheduled to begin removing her personal property at 8:00 a.m. on September 15, 2003, and that the house would be fully vacant by the end of that day. As a result, without waiving any right to object to the time of the essence notification, the sellers' attorney requested that the closing be delayed by 24 hours, so that the closing would take place on September 16, 2003. His letter also indicated that the sellers still had not received a final payoff amount for a judgment on the property, that the discharge of a prior mortgage still had not been received from the bank, and that the sellers were contacting a landscaping company to remove the trees and limbs, as requested by the purchasers. The purchasers refused to grant this one day extension.
When the closing did not take place on September 15, 2003, the purchasers, through counsel, sent the sellers' attorney a letter, dated September 16, 2003, declaring that the sellers were in default of the contract for not closing on the 15th, canceling the contract and demanding return of the deposit monies. By letter dated September 16, 2003, sellers' attorney indicated that sellers were ready willing and able to close that day. However, the discharge of the prior mortgage was not obtained until September 17, 2003. On September 18, 2003, sellers' attorney advised the purchasers' attorney by letter that the property had been vacated on September 15, 2003, that all the lien issues were resolved, and that his clients were making every effort to remove the dead trees and tree limbs.
The sellers' attorney then sent out a letter on September 19, 2003, making October 6, 2003, a time of the essence closing date. When the closing did not take place on that date, sellers' attorney sent to purchasers' counsel a letter dated October 7, 2003, declaring the purchasers in breach of the contract.
Subsequently, the sellers were able to sell the property to third parties for $749,900, pursuant to a contract dated March 19, 2004. That closing took place on July 14, 2004. Due to the provisions of the matrimonial property settlement agreement between the sellers Wilson and Brana, Wilson was obligated to continue to pay the carrying charges for the house, including taxes, insurance, mortgage payments, and utilities, as well as the $400 per week alimony payments to Brana, until that closing.
This lawsuit was commenced by the purchasers on April 7, 2005, for the return of the security deposit of $75,000. The two sellers, through separate representation, filed counterclaims against the purchasers for damages sustained due to the purchasers' breach of the contract, as well as cross claims against each other.
On cross motions for summary judgment, the court below issued a written decision which denied the purchasers' motion for summary judgment. This decision was interpreted by the parties and the court as granting summary judgment to the sellers on the issue of liability, and eventually an order was entered dated October 23, 2006, granting partial summary judgment to the sellers on the issue of liability. The cross claims between the two sellers, Wilson and Brana, and all claims regarding Brana were dismissed with prejudice on May 23, 2006. The court below held an evidentiary hearing on June 30, 2006, on the issue of Wilson's damages. He was awarded damages in the amount of $46,046.10. The purchasers' motion for reconsideration was granted, and the trial court adjusted the damage award downward to $34,785.50.
The purchasers raise two points on this appeal. First, they maintain that the sellers breached the contract when the sellers failed to close title on September 15, 2003, the time purchasers had made of the essence. Second, the purchasers contend that they should not be responsible for the carrying costs of the sellers' property from the time of the breach until the actual sale of the property, because those damages were not reasonably foreseeable and because Wilson failed to mitigate his damages. Wilson has submitted no opposition to this appeal.
In reviewing the trial judge's decision on the summary judgment motion, this court must apply the same standard that governs summary judgment motions at the trial level. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). Summary judgment will be granted where the court finds "no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law." Brill v. Guardian Life Ins. Co. of America, 142 N.J. 520, 528-29 (1995) (quoting from R. 4:46-2). Here, the purchasers do not argue that any material fact needs to be resolved at the trial level.
Rather they disagree with the trial judge's determination on the legal effect of the facts.
We note at the outset that the sellers' failure to close on September 5, 2003, the closing date set in the contract, did not represent wrongful or dilatory conduct on their part. The date fixed in a contract of sale is considered a formality, unless the contract provides that time is of the essence. Marioni v. 94 Broadway, Inc., 374 N.J. Super. 588, 603 (App. Div.), certif. denied, 183 N.J. 591 (2005) (citing Paradiso v. Mazejy, 3 N.J. 110, 115 (1949)). This contract did not provide for a time of the essence closing date, so the failure to close on September 5, 2003, did not represent an undue or unexpected delay in the closing.
Once the closing date set in a contract has passed, either party may fix a time of the essence closing date, by making a formal demand that the title close on a specific date, provided the date is reasonable. Ibid. If that time of the essence is reasonable, then the party receiving the notice is obligated to close on that date. If a valid time of the essence notice contains a specific time, it will be strictly enforced, and "performance at that precise time will be required and even a minor delay will cause a forfeiture of a party's right to obtain its benefit of the bargain." Id. at 604.
The long standing rule in this State is that the time fixed in a time of the essence notice must be reasonable. Paradiso v. Mazejy, 3 N.J. 110, 115 (1949).
[W]here time is not of the essence of the original contract, it can be made so by later notice but one of the essentials of such notice is that the time then allowed must be reasonable. The time given in the notice must bear a reasonable relation to the time already elapsed. Where there are defects in the title, the vendor will be allowed a reasonable time to correct them. [Ibid. (citations omitted).]
When considering the reasonableness of the time given in the notice, the courts look at the time that has passed since the contract was made and the harm to the noticing party if the closing is delayed further. Marioni v. 94 Broadway, Inc., supra, 374 N.J. Super. at 604. The party fixing the time of the essence closing date must give reasonable notice of the date for closing and the "date chosen must 'bear a reasonable relation to the time already elapsed.'" Id. at 603 (quoting Paradiso v. Mazejy, supra, 3 N.J. at 115). In making such an analysis, three points in time are placed under scrutiny, "(1) the time originally fixed for performance; (2) the time the notice is given; and (3) the new deadline fixed by the notice." Finn v. Glick, 42 N.J. Super. 514, 518 (App. Div. 1956).
Here, the motion judge correctly found that the notice was unreasonable. The date fixed for the time of the essence closing date of September 15, 2003, was only ten days after the original closing date of September 5, 2003. When the notice was sent on September 5, 2003, a variety of issues still had to be resolved. Agreement still had not been reached on the dead tree and limb issue. It was not until September 11, 2003, that purchasers rejected the sellers' offer of a $1,000 credit and insisted that the sellers remove the dead trees and limbs. At that point, the sellers needed to retain a landscaping firm to accomplish this task. It was not reasonable to expect them to be able to retain a landscaper and have the dead trees and limbs removed on such short notice. Further, the title issues still had to be corrected by the sellers which depended, in part, on timely cooperation from a bank. Defendant seller Brana also needed an additional day to move out. A time of the essence closing date that was reasonable would have provided a reasonable period of time for all of these issues to be resolved.
When a time of the essence closing date is fixed without consultation with the opposing party, the shorter the notice period given the more difficult it is for the recipient of the notice to accommodate the time of the essence schedule. Given the time and coordination with third parties necessary to move out of a home, to clear up title issues, and to remove the dead trees and tree limbs, the purchasers' ten day notice was unreasonable.
The purchasers also maintain that a contractual provision allowed them to terminate the contract when sellers failed to present clear title within thirty days. Paragraph 7 of the contract provides in pertinent part: "In the event Seller's title shall contain any exceptions . . . Buyer shall notify Seller and Seller shall have 30 days within which to eliminate those exceptions. If Seller cannot remove those exceptions, Buyer shall have the option to void this Contract or to proceed with closing of title . . . ." The title commitment was dated August 8, 2003, and, hence, purchasers argue that sellers had more than thirty days to clear title by September 15, 2003. However, this provision was never formally invoked by the purchasers. They never provided the sellers with notice that the sellers had thirty days to correct the deficiencies nor did they terminate the contract based on this clause.
Because the essence notice was unreasonable, the purchasers' attempt to terminate the contract was ineffective. The purchasers, thus, breached the contract when they refused to close on the time of the essence date of October 6, 2003, fixed by the sellers. For all of these reason then, summary judgment was properly granted to the sellers on the issue of liability.
We will now address the issues of damages. After conducting an evidentiary hearing on damages, the trial judge issued a letter opinion, dated August 21, 2006, awarding damages of $46,046.10 to Wilson. That sum was later reduced to $34,785.50, upon a motion for reconsideration.
The damage award consisted of the mortgage payments, real estate taxes and insurance payments that Wilson paid from the time of the breach until the house was finally sold, in July, 2004, as well as the lost profits from the sale, consisting of only $100. The trial court did not include in the damage award either the utility costs or the alimony payments that Wilson incurred during that period of time; that portion of the trial judge's decision has not been appealed.
Where the purchasers have breached a residential real estate contract, the sellers are entitled to retain from the deposit an amount representing the compensatory damage they sustained due to the breach. Kutzin v. Pirnie, 124 N.J. 500, 518 (1991). In breach of contract cases, damages are allowed for "the natural and probable consequences of the breach." Pickett v. Lloyd's, 131 N.J. 457, 474 (1993). Implicit in this principle is the notion of foreseeability. Id. at 475. The principles governing the awarding of compensatory damages in a contract case were aptly explained by the Supreme Court as follows:
Compensatory damages are designed 'to put the injured party in as good a position as he would have had if performance had been rendered as promised.'" What that position is depends upon what the parties reasonably expected. It follows that the defendant is not chargeable for loss that he did not have reason to foresee as a probable result of the breach when the contract was made. [Donovan v. Bachstadt, 91 N.J. 434, 444 (1992) (citations omitted).]
The purchasers argue that the carrying costs for the home incurred by Wilson were not losses that they could have reasonably foreseen. Wilson bore those costs due to the provisions of the property settlement agreement he had with Brana, and the provisions of that agreement were not known or foreseeable to the purchasers when they entered into the contract. Indeed, this rationale was accepted by the trial court when it denied Wilson recovery for the support payments he made.
This argument fails with respect to the mortgage payments, taxes, and insurance costs for the property, because it is foreseeable that a seller will have to continue to make those payments if the sale falls through. The fact that the arrangement between the sellers, as to who would pay those costs, was unknown to the purchasers does not relieve the purchasers of those damages. These are the kinds of expenses a purchaser can anticipate will be incurred by a seller if the contract is breached.
The purchasers also argue that Wilson failed to mitigate his damages. A party who has been wronged by a breach of contract has an obligation to take reasonable actions to mitigate damages. McDonald v. Mianecki, 79 N.J. 275, 299 (1979). This obligation requires the party wronged by the breach to take suitable steps to avoid or limit any loss that will otherwise result from the breach. State v. Ernst & Young, LLP, 386 N.J. Super. 600, 618 (App. Div. 2006). However, the burden of proving the failure to mitigate damages falls upon the breaching party. Id. at 618.
The purchasers contend that Wilson should have made a timely application to the Family Part for relief from his obligations to pay the carrying costs of the house for Brana. As the trial court noted, Wilson did make such an application to the family court, but it was rejected. The purchasers contend that Wilson's application was looked upon unfavorably by the family court judge because, by the time he made the application, he was in default on his payments. Whether an earlier application would have been more successful is a matter of speculation. The trial judge's findings on the issue of mitigation of damages must be upheld if supported by "sufficient, credible evidence." Id. at 616. Here the sellers did not sustain their burden of establishing that Wilson failed to mitigate damages, and the trial judge's decision on this issue is supported by the record below.
Purchasers do not object to the inclusion in the damage award of the sum of $100, representing the difference between the $750,000 contract price with the purchasers in this case and the ultimate selling price of the house in July 2004. See Kuhn v. Spatial Design, Inc., 245 N.J. Super. 378, 386 (App. Div. 1991) (where a contract to buy real estate is breached by the purchaser, the seller may recover the difference between the contract price and the resale price and any incidental and consequential damages less expenses avoided due to the breach).
For all of the reasons set forth above, the trial court properly granted summary judgment on the issue of liability in favor of the sellers and the inclusion of the carrying costs for the house in the quantum of damages was supported by the law and evidence.
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