July 28, 2010
JUNG SOOK LEE, PLAINTIFF-APPELLANT,
TENAFLY ASSOCIATES, LLC, DEFENDANT-RESPONDENT.
On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-9328-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued April 28, 2010
Before Judges Payne and Waugh.
Plaintiff, Jung Sook Lee, appeals from an order of summary judgment entered in favor of defendant, Tenafly Associates, LLC, on her action for return of a deposit of $150,000 on a condominium unit to be constructed by defendant and for return of $56,851 paid by plaintiff for extras in connection with the construction. She appeals, as well, from the denial of her motion for reconsideration.
The record reflects the following facts. On October 19, 2005, plaintiff entered into a contract, effective November 2, 2005, for the purchase of a to-be-constructed condominium, located in Teaneck, for a purchase price of $1,500,000. A deposit of $150,000 was given. Paragraph 1.1(d) of the contract provided that:
It is anticipated the closing will take place [in] approximately November 2006 ('Anticipated Closing Date'). For purposes of establishing a date for the closing of title, the Unit shall be deemed completed and ready for occupancy when the Seller has obtained a Certificate of Occupancy pursuant to Paragraph 9.
However, paragraph 7, entitled "Delay of Closing," stated in relevant part:
The Purchaser(s) understands and agrees that if the Unit is not completed and ready for occupancy on the date specified in this Contract for closing of title, the Purchaser(s) will accept the Deed and pay the purchase price on the date when a Certificate of Occupancy pursuant to Paragraph 9 has been issued. The Purchaser(s) agrees that there will be no reduction in the purchase price for this delay. If the Seller is not able, for reasons beyond its control, to deliver the Deed on the date set for closing, the Seller may postpone the closing for up to six (6) months from the date originally scheduled for closing. To exercise this right, prior to the Anticipated Closing Date, the Seller must notify the Buyer in writing that the closing has been postponed. In the event Seller is unable to deliver the Deed to the Purchaser for reasons beyond the Seller's control and the six (6) month period has expired, then, either party may terminate this Agreement by so notifying the other in writing. If this Agreement is so terminated by the one party, the Purchaser will receive the deposit moneys paid plus all extra features paid to the Seller under this Agreement within ten (10) business days.
Paragraph 3.5 required the buyer to make selections for finishes, accessories, fixtures and other items "within thirty (30) calendar days ('Timely Selection') after the expiration of the Buyer's right to rescind or the end of the Attorney Review Period, whichever is last to occur." The paragraph further provided what would take place if timely selection did not occur.
In the event Purchaser(s) fails to make a Timely Selection of any finishes, accessories, fixtures or other item requested by the Seller then, at Seller's option, Seller shall have the right to make the selection(s) for the Purchaser(s) and Purchaser(s) shall have no right to object, seek to reduce the Purchase Price or delay the completion of the project or the closing date. At Seller's option, the closing date shall be extended for a period of time equal to the Purchaser(s) delay in making a Timely Selection plus any other delay caused by the Purchaser(s) failure to make a Timely Selection.
Paragraph 3.5 did not contain a notification provision. However, paragraph 21.1 of a section captioned "Notices" provided:
Any notice, option, election, demand or other communication (collectively a "Communication") required, permitted, or desired to be given under this Agreement, shall be in writing . . . .
Of additional relevance to this matter are provisions in paragraph 10 entitled "Liability/Remedies." They stated:
10.1 In the event the Closing fails to occur by reason of Seller's breach of this Agreement, at Purchaser(s) option, Purchaser(s) shall (a) be entitled to terminate this Agreement and receive the return of the Deposit and thereafter neither party shall have any liability or obligation to the other or (b) have the right of specific performance. . . .
10.2 In the event the closing fails to occur by reason of Purchaser(s) default of the terms of this Agreement, Seller shall have the right to terminate this Agreement by providing Purchaser(s) with written notice in accordance with the provisions of Paragraph 21 hereof. If the Seller terminates this Agreement, the Purchaser(s) will no longer have any rights under this Agreement, or with respect to the Unit. Upon such termination of this Agreement, the Seller will be entitled to, as its sole and exclusive remedy, liquidated damages in an amount up to ten percent (10%) of the total purchase price for the Unit, plus the cost of the options, extras and supplies which have been ordered. The parties understand that by reason of withdrawal of the property from sale to the general public, at the time when other parties would be interested in purchasing the Unit, the Seller will have sustained damages, which damages will not be capable of determination with mathematical precision. Therefore, the Purchaser(s) and the Seller have agreed to and do hereby estimate the amount of such damages as above set forth which will reasonably compensate the Seller for a default.
Closing did not occur in November 2006, but no notice of the defendant's right to postpone was sent pursuant to paragraph 7. Defendant took the position that no notice was required because plaintiff was in violation of paragraph 3.5, having failed to make her selections by December 4, 2005, thereby delaying construction. Defendant also contended that paragraph 3.5 did not require written notification that it was exercising the option of extending the period of time for closing. Defendant further argued that it was entitled to fifteen months of additional time prior to closing because plaintiff's final selections did not occur until March 15, 2007.
Plaintiff asserted that notice was required as the result of the provisions of paragraph 21.1 and that her selections were timely made. In fact, plaintiff paid for her selections on the following schedule:
$43,902 on December 19, 2005 $1,250 on July 12, 2006 $10,387 on November 11, 2006 $1,312 on March 15, 2007
The record is silent as to when the requests by defendant for selection were made and as to the precise effect of any delays on the construction process.*fn1
In any event, in early June, defendant contacted plaintiff's attorney in an effort to establish a closing date. On June 22, 2006, plaintiff's realtor, Connie Choi, who on occasion acted on plaintiff's behalf, sent a telefax to plaintiff's attorney that stated:
Mrs. Jung Sook Lee has decided not to pursue the purchase of property in 700 Heights, Tenafly, NJ. Please have her get out [of] the contract and get the deposited money back. The amount she deposited is $205,601, which is $150,000 10% deposit plus $55,601 toward upgrades.
On June 25, 2007, plaintiff's counsel sent a letter to defendant, in which he stated:
Pursuant to my client's instructions, please take notice that my client wishes to exercise and she hereby does exercise her contractual right to terminate the Agreement, pursuant to the terms and conditions of Paragraph 7 thereof, effective immediately. The reason for the termination is the fact that the completion of the home has been delayed for a period in excess of six (6) months from the Anticipated Closing Date of November 2006.
Accordingly, the Agreement is hereafter considered null and void. Please instruct the Escrow Agent, Monroe Markovitz, P.A., to promptly refund my client's initial deposit, in the amount of $150,000.00 plus her payment towards options and extras, in the amount of $55,601.00. . . .
By letter dated June 26, 2007, Monroe Markovitz responded by invoking paragraph 3.5 of the Contract of Sale and stating that because of plaintiff's failure to select "all extras, etc." until November 10, 2006, defendant was entitled to an extension of the closing date for a period of one year and seven days.*fn2
Markovitz further stated that the extended date had not yet arrived, and as a result, plaintiff's attempt to terminate the contract was rejected. A certificate of occupancy for the unit was issued on August 2, 2007.
A few days before issuance of the certificate of occupancy, on July 30, 2007, defendant notified plaintiff of a time-of-the-essence closing date of August 14, 2007. The closing did not occur as scheduled. Nonetheless, efforts appear to have been made by plaintiff to close on the property. A title search was ordered, and on August 20, 2007, plaintiff received a preliminary mortgage commitment in a loan amount of $975,000. However, on August 27, 2007, the lender denied approval of the loan unless plaintiff provided verification of income and assets. There is no evidence of compliance by plaintiff.
This litigation ensued when defendant refused to return plaintiff's $150,000 deposit plus the selection costs, claiming those amounts were due it as liquidated damages. On April 28, 2009, defendant moved for summary judgment, and on May 18, 2009, plaintiff filed a cross-motion. Defendant's motion was denied without a hearing on May 28, 2009.*fn3 In an order denying defendant's motion, the judge wrote:
There are genuine issues of material fact, i.e., which of the parties breached the contract; whether defendant ever sent plaintiff any written notice regarding the extension of the closing date or that she make selections by a date certain; whether plaintiff was unable to complete the purchase due to defendant seller's failure to finish construction by the closing date of 11/30/06; whether the 6 month adjournment of the closing date was ever invoked; whether plaintiff invoked her rights under paragraph 7 to cancel the contract and if so, when and how.
Upon receipt of the judge's order, defendant moved for reconsideration, arguing that there were, in fact, no issues of material fact in the matter. Following argument, the judge agreed. In a rider to the order of summary judgment, he held:
The sales/construction contract central to the matter sub judice is the controlling document in this case. The contract clearly states that the closing date can be extended at the option of the seller for a period equal to any delay caused by plaintiff in making "option" choices. See clause 3.5 of the contract as well as the provisions of paragraph 22.4 of the parties contract.*fn4 Before discussing the issue further it is imperative to distinguish this clause from clause #7. Clause #7 provides for a postponement of the closing date. The words extension and postponement are critical in distinguishing these two provisions. These terms not having been defined must be given the normal usage definition in accordance with contract law. According to Webster's Ninth New Collegiate Dictionary (1983) an extension is defined as "an increase in length of time." To postpone however is defined as "to put off to a later time."
Id. The closing date in this matter was referenced in paragraph 1(d) of the contract as an "Anticipated Closing Date." The extension of time added to the closing date, resulting from the plaintiff's own delay cannot be considered a postponement and is not subject to the rules governing clause #7. The extension created by the plaintiff resulted in the creation of a newly anticipated closing date rather than a postponed date. As such, it is the opinion of this court that plaintiff breached the contract upon failing to close. In accordance with paragraph 10.2 of the contract, defendant is entitled to summary judgment for the liquidated damages provided therein. Therefore defendant's motion for summary judgment is hereby granted.
Thereafter, plaintiff moved for reconsideration, but the motion was denied. This appeal followed.
Because the issues on this appeal concern contract interpretation, an issue of law, our review of the matter is de novo. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995); see also Celanese v. Essex County Imp. Auth., 404 N.J. Super. 514, 528 (App. Div. 2009); Sealed Air v. Royal Indem. Co., 404 N.J. Super. 363, 375 (App. Div.), certif. denied, 196 N.J. 601 (2008).
In this matter, the motion judge granted summary judgment to defendant, finding that plaintiff had breached the purchase agreement by failing to close at a time when the contract remained in force as the result of the exercise by defendant of its option to extend it pursuant to paragraph 3.5. On appeal, however, plaintiff argues that defendant did not validly extend the closing date on the contract because it did not provide notice of the exercise of its option to extend as required by paragraph 21.1. Defendant argues to the contrary that paragraph 21.1 is inapplicable because its purpose was only to specify the means for notice in circumstances when notice was required, and notice was not required by paragraph 3.5.
It is a general rule of contract interpretation that, when the terms of a contract are clear, it is the function of the court to enforce the contract as written. CSFB 201-CP-4 Princeton Park Corp. Ctr., LLC v. SB Rental I LLC, 410 N.J. Super. 114, 120 (App. Div. 2009) (citing Kampf v. Franklin Life Ins. Co., 33 N.J. 36, 43 (1960)).
Absent ambiguity, the intention of the parties is to be ascertained by the language of the contract. Dontzin v. Myer, 301 N.J. Super. 501, 507 (App. Div. 1997). "If the language is plain and capable of legal construction, the language alone must determine the agreement's force and effect."
FDIC v. Prince George Corp., 58 F.3d 1041, 1046 (4th Cir. 1995). See also Royal Ins. Co. v. Rutgers Casualty Ins. Co., 271 N.J. Super. 409, 416 (App. Div. 1994). [Ibid.]
However, ambiguities abound in this purchase agreement, whether the paragraphs are viewed individually or in concert. For instance, paragraph 3.5, governing timely selection of various items, clearly expresses the seller's intent that selections be made in such a fashion that they do not delay construction, and it offers two options to the seller when timely selection fails to occur: (1) that the seller select the necessary items; or (2) that the closing date be extended for a period of time equal to the purchaser's delay in making a timely selection. However, the provision is silent as to how that extension is to be measured in a circumstance such as this in which selections, affecting the progress of construction in unknown fashions, were made on four separate occasions. Nor does the provision address what will occur if a choice as to all selections is not offered at the time the contract becomes effective. Of even greater significance, the paragraph does not contain a notice provision, although it would be reasonable in the circumstance for a purchaser to expect notice of a potential default and the period as to which the seller has unilaterally opted to extend the contract. This is particularly true because, broadly read, the paragraph could provide a limitless opportunity for the seller to delay closing, virtually regardless of the nature and timing of the purchaser's default and the effect of that default on the construction process.
Further difficulties arise if paragraph 3.5 is read in conjunction with paragraph 7, permitting the closing date to be extended for an additional six months "[i]f the Seller is not able, for reasons beyond its control, to deliver the Deed on the date set for closing" and requiring that if this paragraph is invoked, notice in writing must be provided of the extension "prior to the Anticipated Closing Date." A question thus arises whether a purchaser's failure to make selections constitutes a "reason beyond [the seller's] control" permitting extension of the closing date if proper notice is provided, and whether paragraph 7 acts as a limitation on the time periods of paragraph 3.5. A further question arises as to whether failure to provide notice under paragraph 7 eliminates the seller's right to seek an extension under paragraph 3.5 - and particularly in circumstances such as these in which no notice was provided pursuant to paragraph 3.5, either. The motion judge resolved this issue by drawing a distinction between the use of the word "extended" in paragraph 3.5 and the use of the word "postponed" in paragraph 7. We do not view the conflict between the two paragraphs as one that can be resolved at this stage of the litigation by resort to dictionaries and without consideration of the intent of the parties. Great Atl. & Pac. Tea Co. v. Checchio, 335 N.J. Super. 495, 500-02 (App. Div. 2000).
Moreover, we note that the motion judge failed to consider the effect of the notice provision of paragraph 21.1 on the right to relief under paragraph 3.5. In construing that paragraph, we regard its free-standing nature as constituting evidence of its general applicability. Further, we note the paragraph's plain language, by which its requirement of a notice in writing is made applicable to "[a]ny option [or] election," a category seemingly encompassing conduct undertaken by the defendant pursuant to paragraph 3.5. Although we recognize that paragraph 21.1 may be interpreted as being ambiguous, we are satisfied that the rules of contract construction as applied to this case require a finding that paragraph 21.1 is applicable to paragraph 3.5, and thus that written notice of defendant's intent to extend the contract was required. Chubb Custom Ins. Co. v. Prudential Ins. Co. of Am., 195 N.J. 231, 238 (2008) (construing ambiguities against the drafter).
But what is the effect of defendant's failure to provide notice? And how should paragraphs 3.5 and 7 be construed in light of the interpretational difficulties that we have raised earlier in this opinion? In our view, this case presents questions as to the meaning and implementation of the purchase agreement governing the transaction at issue that cannot be determined solely by relying on the terms of the writing itself, which may plausibly be interpreted in various ways, depending on circumstances that are not known to us and that are likely subject to dispute. As a consequence, we find that the motion judge was mistaken in granting summary judgment in the case. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995); Celanese, supra, 404 N.J. Super. at 528; Great Atl. & Pac. Tea Co., supra, 335 N.J. Super. at 500-02. We therefore reverse and remand the matter for trial. On remand, we do not foreclose consideration of the issue of whether the contract's liquidated damages clause can be enforced in light of defendant's demonstrated ability to quantify the damages that it allegedly sustained.
Reversed and remanded.