United States: Trust But Verify: Failure To Memorialize Anticipated Extension Of Time Of The Essence Closing Date Leads To Loss Of $937,500 Downpayment

Wishful thinking and expectations are not a legally cognizable and enforceable plan. The failure to document the adjournment of a time of the essence closing date recently cost the would be purchasers to lose a substantial million down payment.

Suncore Group SA, LLC sought to purchase real property in New York County from 1660 1st LLC. The purchase did not close on the date specified in the purchase agreement. 1660 took the position that the failure to close constituted a default by Suncore, thereby terminating the contract and entitling 1660 to retain Suncore’s down payment.

Suncore sought a declaratory judgment that 1660 was estopped from enforcing the default provision. And that Suncore was entitled to additional time in which to close on the purchase. 1660 counterclaimed, and sought a declaratory judgment that 1660 properly terminated the agreement, and that it was entitled to retain the downpayment (along with attorney fees and costs). 1660 moved for summary judgment on its counterclaims.

1660 and Suncore entered the agreement on February 8, 2019, for the sale of 1660 First Avenue for $12,500,000. Suncore made a down payment of $937,500 and agreed to pay the balance of $11,562,500, at the time of closing, set for May 6, 2019, no later than 6:00 p.m., with time being of the essence under section 4.1. The parties agreed, pursuant to section 10.1 that, if Suncore defaulted, 1660 would be entitled to terminate the agreement and retain the downpayment as liquidated damages.

The parties further agreed, pursuant to section 17, that the agreement “may not be modified, changed, supplemented or terminated, nor may any obligations hereunder be waived, except by written instrument signed by the party to be charged or by its agent duly authorized in writing or as otherwise expressly permitted herein.”

On May 6, 2019, 1660 was ready to close but Suncore did not pay the balance and, instead, requested an extension of the time-of-the-essence closing date. Suncore declared that it was ready to file a Chapter 11 bankruptcy petition that would automatically extend the closing date by 60 days, regardless of whether 1660 consented to the extension or received additional consideration for the postponement.

Suncore did not file the bankruptcy petition “because it believed that an extension would be obtained based on [1660's] commitment to negotiate the next day.” The parties met to discuss the possibility of an extension on May 7, 2019. But, by the end of that day, 1660 filed a notice, asserting that Suncore had defaulted by failing to pay the balance of the purchase price on May 6, 2019.

Suncore then filed suit. The parties disputed whether 1660 was entitled to have declared Suncore in default (and thus whether 1660 was entitled to retain Suncore’s down payment and collect attorney fees). 1660 moved for summary judgment on its counterclaims. Suncore asserted that 1660 acted in a manner by which it was " equitably estopped" from declaring the default.

1660 argued for summary judgment on its declaratory-judgment counterclaim because, as a matter of law, 1660 was not estopped from enforcing the time-of-the-essence provision. The court agreed. The contract provided that the closing must occur on May 6. And it was undisputed that 1660 was ready to close on May 6, and the reason no closing happened was that Suncore was not ready to tender the balance of the purchase price on that date.

Suncore argued that it reasonably relied on its belief that 1660 would agree to extend the time-of-the-essence closing date—supported by the fact that Suncore refrained from filing the Chapter 11 petition, which would have immediately postponed the time of closing date. Thus, Suncore asserted, 660 was estopped from filing a notice of default pursuant to the time-of-the-essence provision.

Suncore asserted that whether the parties agreed to negotiate an extension raised material issues of fact that must be decided at trial. But, the Court found, any modification of a time-of-the-essence provision of a contract must have been made in accordance with the contract’s terms. Here, the agreement expressly provided that the contract could not be modified—or its obligations waived—except by a signed “written instrument.”

The record suggested that 1660 may have indicated a potential willingness to extend the closing date—including by agreeing to meet the day after the closing date to discuss an extension. It was undisputed, however, that the parties never memorialized their willingness to extend the closing date in writing. Given the contract’s clear language requiring contractual modifications to be both written and signed, the Court found that, as a matter of law, Suncore could not have reasonably relied for estoppel purposes on 1660’s orally expressed willingness to discuss an extension. Thus, no factual dispute existed as to whether 1660 was equitably estopped from enforcing the time-of-the essence closing default.

The court granted summary judgment declaring that 1660 properly terminated the purchase agreement according to its terms, because Suncore failed, without lawful excuse, to close on the date specified in the agreement. 1660 was entitled to retain the down payment and was awarded attorneys' fees as the prevailing party.

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