N.Y. Ave. LLC v. Harrison

391 P.3d 268

NEW YORK AVE. LLC, Appellee and Cross-appellant,

v.David D. HARRISON and Jan C. Harrison, Appellants and Cross-appellees.

No. 20140719-CA

Court of Appeals of Utah.

Filed December 8, 2016

Jason D. Boren, Emily L. Wegener, and Jackie Bosshardt, Salt Lake City, Attorneys for Appellants and Cross-appellees.

David D. Jeffs and Kevin D. Jeffs, Provo, Attorneys for Appellee and Cross-appellant.

Judge Stephen L. Roth authored this Opinion, in which Senior Judge Pamela T. Greenwood concurred.¹ Judge Gregory K. Orme concurred in the result, with opinion.

Opinion

ROTH, Judge:

¶1 New York Ave. LLC (NYA) entered into a real estate purchase contract to purchase twenty acres of undeveloped land from Defendants David D. and Jan C. Harrison (the Harrisons). The contract provided NYA sole discretion to extend the closing by paying a monthly extension payment, which NYA paid monthly for nearly two years beyond the agreed-upon settlement deadline. Eventually, the Harrisons informed NYA that it was in breach of contract for failing to close within a reasonable time and proposed a firm closing date some months later. NYA asserted that the Harrisons had breached the contract by demanding that NYA close the purchase in derogation of its right to extend. This case ensued, with the parties asking the court, among other things, to interpret the contract and determine whether either party had breached it. In addition, during the litigation, the Harrisons refused to accept NYA's tender of an extension payment, claiming that it was conditional. NYA then asserted that the Harrisons' refusal of the tender was itself a breach of the contract.

¶2 The district court granted partial summary judgment in NYA's favor, concluding that NYA had unlimited discretion under the contract to extend the settlement deadline, that NYA had not breached the contract by failing to close, and that the Harrisons had breached the contract by failing to accept the tendered extension payment. The court subsequently granted partial summary judgment in the Harrisons' favor on the issue of damages, limiting NYA to actual rather than liquidated damages, and limiting NYA's recovery of attorney fees. Each side appeals the district court's ruling. We reverse and remand for further proceedings.

BACKGROUND

¶3 The Harrisons own over twenty acres of undeveloped real property (the Property) in Springville, Utah. Hoping to fund their retirement, in November 2006 the Harrisons entered into a real estate purchase contract with NYA, which planned a residential development. NYA agreed to purchase the Property for $ 3 million, with an earnest money deposit of $ 10,000. The parties executed two addenda to the contract—Addendum 1, signed along with the contract itself on November 10, 2006, and Addendum 2, signed on November 22, 2006. The real estate purchase contract and the two addenda form the complete contract between the parties (together, the REPC),² which became effective with the signing of Addendum 2.

¶4 Under the REPC, the Harrisons were required to provide Seller Disclosures to NYA within fourteen days of the "fully executed contract," including a "property condition disclosure," "a copy of any leases affecting the Property," and "evidence of any water rights and/or water shares." NYA then had the right to cancel the REPC, in the event of any one of a number of contingencies, no later than the "Due Diligence Deadline," specified as "90 days from date of the fully executed contract." If NYA did not cancel the contract or deliver written objections by the deadline, NYA would "be deemed to have approved the Property" and any contingencies to the enforceability of the REPC would be "deemed waived." The Harrisons agreed that between acceptance of the REPC and closing they would not, without the "prior written consent" of NYA, modify any existing leases or enter into any new ones, make "substantial alterations or improvements to the Property," or further encumber the Property financially. They also agreed to continue to cover any costs or expenses associated with the Property during that time, such as taxes, assessments, and utilities. The REPC provided that "time is of the essence" and that "performance under each Section ... which references a date shall absolutely be required by 5:00 PM Mountain Time on the stated date[s]."

¶5 Of particular importance to this appeal are the provisions governing the Settlement Deadline, the date by which the parties were to be prepared to complete the sale and finalize purchase of the Property. Addendum 1 provided that the Settlement Deadline was "to be 180 days from the date of the fully executed contract" (i.e., 180 days from November 22, 2006). Central to this appeal, the REPC also provided that NYA "may choose, at [its] sole discretion, to pay an additional amount of non-refundable earnest money to continue the contract monthly after the settlement deadline" and that any such payment would "be a credit towards the purchase price at closing." Initially, the monthly extension payment was set at $ 12,500. However, Addendum 2 altered the details of the settlement extension provision by lowering the monthly extension payment to $ 6,250 and moving the initial Settlement Deadline "until after the harvest season 2007 which will be October 31, 2007." The REPC did not specify any limit on the number of times NYA could extend the Settlement Deadline.

¶6 In January 2007, NYA informed the Harrisons that it had encountered a problem connecting the Property to the Springville City sewer system. As a result, NYA stated that it would not "be able to develop the property until mid-2008 at the earliest." NYA also indicated that, in spite of the logistical problem, it still "want[ed] to continue the contract as it [was] currently written" and that on October 31, 2007, it would "start making the monthly [settlement extension] payments ... until [it] close[d] on the property, which [would] be when the sewer trunk line [was] installed and [it] [could] get the necessary approvals from the city to develop." In September 2007, NYA sent another letter to the Harrisons, notifying them that it had found a potential work-around to the sewer line issue and again stating that it would begin making the settlement extension payments in October, which it did.

¶7 In early 2008, Springville City denied NYA's proposed sewer line alternative. At that point, NYA deemed that it "had exhausted all [its] options" and that it was "through working on [developing the Property] until the sewer was available." NYA continued to make settlement extension payments throughout 2008 and into the summer of 2009.

¶8 In the summer of 2008, however, the Harrisons informed NYA that they did not want to wait any longer to close on the Property, and in December the parties began discussions about options for terminating the contract. They did not reach a resolution, and in March 2009, the Harrisons' attorney sent a letter to NYA asserting that even though the REPC did not contain an "outside Settlement Date," it was "unreasonable to interpret the extension provision in the REPC as allowing the Buyer to extend the Settlement indefinitely." Rather, according to counsel, "when a contract fails to specify a time by which a certain act must be performed, [the] law implies that the act must be done within a reasonable time under the circumstances," and, as it had been over sixteen months "since the original Settlement Deadline, ... any reasonable time for closing ha[d] already passed." The letter explained that, while the Harrisons viewed NYA's "failure to close as a breach of the implied covenant of good faith and fair dealing," they were still "willing to close on or before August 5, 2009." The Harrisons requested that NYA contact them to discuss a final Settlement Deadline.

¶9 In June 2009, NYA sued the Harrisons for rescission, breach of contract, and a declaratory judgment regarding the obligations of both parties under the REPC. The Harrisons counterclaimed for breach of contract and breach of the covenant of good faith and fair dealing, claiming that NYA had failed to close on the purchase of the Property within a reasonable time. NYA continued to make extension payments in June and July 2009, which the Harrisons accepted.

¶10 On August 31, 2009, the last day of the then-current extension, NYA's counsel sent the Harrisons another extension payment along with a letter that, among other things, explained in some detail NYA's understanding of the REPC. Specifically, NYA explained that the agreement to purchase the Property had been "based on the assumption that it could be developed as single family residential that would maximize the development potential of the land" and stated that "[t]he ability to postpone closing on the property until it could be developed to its maximum potential was crucial to [NYA]." NYA asserted that "[w]ith the lack of sewer capabilities, and through further information ... that showed insufficient storm drainage capacity, the property could not (at the time) be developed to its maximum potential." And according to NYA, the Settlement Deadline could be extended at its option "to allow for the property to be developed to its full potential," including "sewer line extension installed to the property, storm drainage readily available, and [the] property being economically feasible to develop under zoning ordinances of Springville [C]ity and existing market conditions." The letter then stated,

By negotiating this $ 6,250 check, you are agreeing with my client that it is entitled under the REPC to make these payments in order to postpone closing in accordance with the express terms of the REPC until it is economically feasible to move forward with a residential development of the property....

¶11 The Harrisons refused to accept the August 2009 extension payment, informing NYA that they considered NYA's letter and the payment to be an "attempt to modify the terms of the [REPC]" by...