Daily Development for Thursday, March 3, 2005
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
dirt@umkc.edu
VENDOR/PURCHASER; CLOSING; EXTENSIONS: Unless parties stipulate that time is of the essence in extending a closing time, the time within which the closing must occur is within “reasonable period” following the extended date. In any event, the seller cannot demand carrying charges for a delayed closing when the contract does not so provide, and to make such a demand will itself be a breach of contract.
DeMattia v. Mauro, 860 A.2d 262 (Conn. App. 2004).
DeMattia, entered into a contract for sale his property to Mauro. Mauro paid a $20,000 deposit upon execution. Closing was scheduled for three months later.
The Contract contained a mortgage contingency clause pursuant to which Mauro was given forty-five (45) days to obtain a mortgage for a term of at least twenty (20) years. Apparently the clause gave eitheer party the right to withdraw if financing had not been obtained. DeMattia gave multiple extensions of the time for obtaining a mortgage, and ultimately DeMattia extended the date to obtain a mortgage until July 31, 2000, provided that Mauro pay an additional sum of $10,000 to DeMattia, which would be nonrefundable but applied toward the purchase price at closing "if the transaction close[d]."
On August 31, 2000, DeMattia's attorney informed Mauro that DeMattia was ready, willing and able to sell the Property and that Mauro's deposits would be forfeited unless a closing took place by October 20, 2000. Mauro's counsel responded by arguing that DeMattia had refused to sign a building permit, which was required for Mauro to secure financing, and thus DeMattia breached the Contract. Apparently this problem got resolved, and the closing then could proceed after the problems from the delayed building permit were worked out.
DeMattia then sent written notice to fix a closing date at September 8, 2000, with time being of the essence, demanding that Mauro pay carrying costs of the Property at $250 per day from September 1, 2000 to the date of closing and stating that the entire $30,000 ($20,000 deposit and $10,000 paid to extend the mortgage contingency period) previously paid by Mauro would be nonrefundable. Later, DeMattia’s counsel argued that Mauro’s counsel had verbally agreed to this, but the contract required that any amendments be in writing.
During the week of October 24, 2000, Mauro took the position that DeMattia was in breach, demanded rescission of the agreement and return of the $30,000 paid by Mauro.
DeMattia and Mauro each brought separate actions against one another, which were consolidated and heard together. The trial court found that Mauro had been ready, willing and able to close the transaction as of July 31, 2000 and that DeMattia had prevented closing by refusing to sign the building permit. The court ordered the return of all moneys paid by Mauro. DeMattia appealed.
On appeal, DeMattia made three claims. First, DeMattia claimed that the trial court improperly found that, as of July 31, 2000, Mauro was ready, willing and able to close. The Court rejected DeMattia's claim, citing evidence that CIT Small Business Lending Corporation ("CIT") had made a commitment to extend a loan to Mauro in excess of the purchase price. The Court concluded that the fact that the commitment contained customary contingencies did not affect its validity, and Mauro could have been found to be a ready, willing and able purchaser, who was entitled to a reasonable amount of time in which to close (citing Romaniello v. Pensiero, 21 Conn. App. 57, 62, 571 A.2d 145 (1990)). The court disagreed with the trial court that DeMattia was in breach by failing to execute the building permit request. But it found it wasn’t necessary to resolve this issue, since by extending the time for the commitment DeMattia had implicitly extended the closing date. Therefore, it was!
not n
ecessary to excuse Mauro’s lateness as of this point in time.
Second, DeMattia claimed that the period between June 15, 2000, the scheduled closing date, and August 31, 2000 was a reasonable period in which to close the transaction and that the trial court improperly found that October 24, 2000 was a reasonable closing date. Consequently, DeMattia contended that he was entitled to carrying charges after August 31, 2000.
Again, the Court rejected DeMattia's claim, explaining that when parties to a real estate contract want to set a specific date for performance, the parties must specify that "time is of the essence," otherwise, performance must be within a "reasonable time." (citing Tulisano v. Schonberger, 74 Conn.App. 101, 106, 810 A.2d 806 (2002)). To determine whether performance occurred within a reasonable time, the court "look[s] to the act requested." (citing Brzezinek v. Covenant Ins. Co., 74 Conn.App. 1, 5-6, 810 A.2d 306 (2002), cert denied, 262 Conn. 946, 815 A.2d 674 (2003)). Here, as stated, the Court affirmed the trial court's finding that the extension of the mortgage contingency necessarily extended the time of closing beyond that set forth in the Contract. And, since August 31 was the contract closing time, it was reasonable for Mauro to plan to close even later than that, time not being of the essence. After looking at the situation in detail, especially the conditio!
ns in
the mortgage commitment, the trial court had found that
October 24 was not unreasonably long after August 31, so Mauro was not in breach
for planning to close by then.
With regards to the carrying charges, the Court concluded that a seller does not have the right to unilaterally change the terms of payment under a contract. Here, the Contract itself required that any amendment be in writing, and Mauro never agreed to the carrying costs in writing. Therefore, DeMattia could not demand these charges as a condition to closing.
Finally, DeMattia claimed that the court improperly ordered him to return all the moneys paid to Mauro, including the nonrefundable $10,000 payment. The Court found that DeMattia breached the Contract when he demanded carrying costs as a contingency to closing. The Court explained that when one party to a contract demands performance to which he has no right and states that unless his demands are met, he will not perform his obligation under the contract, this party has committed an anticipatory breach of contract. (citing 4 A. Corbin, Contracts (1951) § 973, p. 910). Thus, the Court concluded that the trial court was correct in ordering the return of the original $20,000 deposit because the Contract stated that DeMattia could retain the deposit only if Mauro was the one to breach the Contract.
As to the $10,000 payment, the Court held that the parties had made a separate and severable contract regarding the extension of the mortgage contingency period and that both parties had met their obligations under this contract. Therefore, the payment was nonrefundable. Thus, the Court reversed the trial court's order refunding the $10,000 payment.
Comment 1: One can imagine the Seller ranting in his lawyer’s office, demanding a pound of flesh for the outrageous (in his mind) delays that the Buyer had caused. The Seller’s attorney apparently believed that Buyer indeed was ready to close and too far down the road to back out, so he took the opportunity to try to extract a least a few ounces, at least. But Seller’s attorney was wrong. Buyer really was ready to walk away from the deal, and the little extra push put Buyer over the top.
Comment 2:The editor is a bit disturbed by the court’s conclusion that if the buyer’s lawyer had agreed to pay the carrying costs, this could not have been binding in any event because the contract required any changes to be in writing. This is just a little too pat. When courts want to disregard these kinds of requirements, they have no trouble doing so. In the give and take of scheduling and rescheduling closings, formal documentation often is difficult to achieve. Note that there was no formal written extension of the time to close, but the court had no difficulty finding an implicit, unwritten extension when the parties agreed (by written letter exchange) to extend the time for mortgage commitment. Here, the buyer’s lawyer claimed he’d never made such an agreement. If he had, could he ethically have continued as Buyer’s counsel if Buyer had decided to renege? Does Seller have a malpractice claim against his own counsel for failing to document this deal? Are you !
comfor
table with that?
Comment 4: Although insisting on time of essence here might have helped Seller, in the editor's view, the use of such a clause usually is a bad idea for setting closing times. This is the classic Murphy's Law event. Nothing ever happens right - and postponed closings are the norm. Either side can get caught up in a problem, and neither wants to be in default because of some unanticipated and excusable glitch.
Comment 3: Isn’t it interesting that the real bone of contention - the seller’s alleged failure to execute the building permit - fell completely out of the case?
VENDOR/PURCHASER; BUYER’S RIGHTS ON SELLER’S DEFAULT; RESTITUTION: Even when Seller ultimately repudiates its obligation to perform under a contract of sale, and the Buyer has the right to rescission and restitution, if the Seller earlier had agreed to extend Buyer’s period to obtain a mortgage in exchange for a cash payment, Seller is entitled to keep that payment although it must refund any earnest money Seller has paid.
DeMattia v. Mauro, 860 A.2d 262 (Conn. App. 2004). discussed under the this heading. “Vendor/Purchaser; Closing;
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