New York Ave. LLC v. Harrison
2016 UT App 240
| Utah Ct. App. | 2016Background
- In 2006 NYA (buyer) and the Harrisons (sellers) signed a Real Estate Purchase Contract (REPC) for ~20 acres at $3,000,000, with two addenda setting deadlines and an extension mechanism.
- Addendum 1 and 2 set a Settlement Deadline (ultimately Oct. 31, 2007) and allowed NYA, "at [its] sole discretion," to extend the Settlement Deadline monthly by paying a nonrefundable monthly extension fee ($6,250) credited to the purchase price; the REPC did not state a limit on the number of extensions.
- NYA repeatedly paid monthly extension fees from Oct. 2007 through July 2009 while pursuing development approvals (notably sewer access); disputes arose about whether indefinite extension was permitted and whether NYA had to close within a reasonable time.
- In Aug. 2009 NYA tendered an extension payment accompanied by a letter explaining its interpretation of the contract (conditioning acceptance on the sellers agreeing that NYA need not close until development was "economically feasible"). The Harrisons refused that tender as conditional but said they would accept unconditional monthly payments.
- District court granted partial summary judgment for NYA, finding NYA could extend indefinitely and that the Aug. 31, 2009 tender was valid (Harrisons breached). The court later awarded NYA damages, interest, and fees. Both parties appealed.
Issues
| Issue | NYA's Argument | Harrisons' Argument | Held |
|---|---|---|---|
| Whether the REPC allowed NYA to extend the Settlement Deadline indefinitely by paying monthly extension fees | Extension clause gives NYA "sole discretion" to extend month-to-month without numerical limit | Unlimited extension would convert the sale into an indefinite option/interest-free seller financing and deprive sellers of their bargain | REVERSED: NYA may not extend indefinitely; unlimited extensions would defeat the contract's primary purpose (sale for lump sum) |
| Whether, given the extension clause, the contract still specifies a time for performance or whether a reasonable-time term should be implied | The contract specifies Settlement Deadline plus each paid extension (so time was specified) | Because the contract does not limit number of extensions, it fails to fix a final closing date and thus performance must occur within a reasonable time | REVERSED: Contract does not fix a final closing date; law implies performance within a reasonable time; fact issue for trial |
| Whether NYA’s Aug. 31, 2009 tender was a valid, unconditional extension payment | The accompanying letter merely explained NYA’s exercise of discretion and did not impose new conditions | The letter made acceptance conditional on assent to NYA’s interpretation (i.e., closing only when development was "economically feasible") | REVERSED: Tender was conditional and invalid; Harrisons were permitted to refuse it; accepting would have forced them to concede NYA’s disputed contractual interpretation |
| Legal effect of the invalid tender and whether NYA breached by not closing after deadline fixed | NYA argued Harrisons breached by refusing tender; later NYA contested damages/fees election | Harrisons argued NYA breached by failing to make further valid extension payments or to close once the deadline became fixed | REMANDED: Because tender was invalid, the last effective extension expired Aug. 2009 and the Settlement Deadline became fixed; whether NYA’s subsequent nonperformance constituted breach and remedies requires factual development and lower-court adjudication |
Key Cases Cited
- Watson v. Hatch, 728 P.2d 989 (Utah 1986) (court may imply a reasonable time only when contract is silent as to time of performance)
- Coulter & Smith, Ltd. v. Russell, 966 P.2d 852 (Utah 1998) (if contract fails to specify time, law implies performance within a reasonable time)
- Markham v. Bradley, 173 P.3d 866 (Utah Ct. App. 2007) (party must not exercise contractual discretion for reasons beyond contemplated risks; good-faith limitation on discretion)
- Kelley v. Leucadia Fin. Corp., 846 P.2d 1238 (Utah 1992) (a tender that imposes new noncontractual conditions is invalid)
- Home Sav. & Loan v. Aetna Cas. & Sur. Co., 817 P.2d 341 (Utah Ct. App. 1991) (construction that contradicts general purpose of contract is presumed unintended)
- Mind & Motion Utah Invs., LLC v. Celtic Bank Corp., 367 P.3d 994 (Utah 2016) (use of mandatory language like "shall" construed as imposing duty)