John Sherman agreed to buy a piece of land in Ogdensburg, New York, from Real Source Charities, Inc. (RSC). The contract called for a $66,000 sale price and a $6,600 deposit, which Sherman was entitled to recover if RSC failed to perform. The closing was to take place "on or before" October 28, 2005, with an option to extend the closing date until November 27, 2005.
RSC was unable to procure the necessary approval of the sale prior to the scheduled closing date. On December 1, 2005, Sherman notified the charity that he no longer wished to purchase the property, and that he sought his deposit returned. After RSC refused, Sherman sued for breach of contract in the St. Lawrence County Supreme Court.
The trial court ruled in favor of RSC, holding that because the contract did not specify that "time was of the essence," RSC was entitled to a reasonable delay of the closing. On Sherman's appeal, the Appellate Division, Third Department, reversed.
The appeal turned on whether the agreement had a "TOE" provision. If a contract does not have such language, then either party is entitled to a reasonable delay of the closing. If such wording does exist, then failure to close on the specified date constitutes a breach, entitling the non-defaulting party to be released from its performance obligations under the agreement.
The confusion in this case arose from the placement of the pertinent TOE language. Paragraph 2 of the contract, which was entitled "Closing Date," specified a closing date and provided an option for its extension. Interestingly, the contract's drafters decided to place the TOE provision in paragraph 12, which was entitled "Commission," and provided: "If the Buyer fails to perform this contract within the time herein provided, time being of the essence, the deposit made by the Buyer shall be forfeited."
RSC argued that paragraph 12, which included the TOE clause, applied only to the Buyer. The AD3 disagreed. It viewed the operative language as "independent and unambiguous" and applicable to both parties. Thus, since RSC failed to timely perform, Sherman was permitted to rescind the contract and receive a refund of his $6,600 deposit.
Clearly, the judges of the AD3 weren't giving at the office.
For a copy of the Appellate Division's decision, please use this link: Sherman v. Real Source Charities, Inc