United States Court of Appeals
For the First Circuit
No. 07-2603
JAMES H. REYELT,
Plaintiff, Appellant,
v.
WILLIAM B. DANZELL and LOUISE BEENKER DANZELL,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. Ronald R. Lagueux, Senior U.S. District Judge]
Before
Boudin, Circuit Judge,
O'Connor,* Associate Justice (Ret.),
and Selya, Senior Circuit Judge.
Dana A. Curhan with whom Brad Bennion was on brief for
appellant.
Marc DeSisto with whom DeSisto Law was on brief for appellees.
July 14, 2008
*
The Hon. Sandra Day O'Connor, Associate Justice (Ret.) of the
Supreme Court of the United States, sitting by designation.
BOUDIN, Circuit Judge. In early September 2003, James
Reyelt and William and Louise Danzell (hereinafter "Danzells")
completed a contract for the sale of Reyelt's waterfront property
in Barrington, Rhode Island to the Danzells. The property had two
houses on a single lot, meaning that the local zoning board had to
approve any changes to the buildings; and the Danzells, anxious to
enlarge the present livable space, were willing to pay more if they
could obtain a variance from the board permitting such renovations.
Accordingly, the parties' contract (set forth in an
addendum to this decision) specified that the Danzells would pay
$1,225,000 at the closing, with the price increasing later
depending on the outcome of their variance application. The
Danzells agreed to apply for a variance within three months of
closing and, if the variance were issued within one year after
application, to pay $200,000 more to Reyelt. Alternatively,
[i]n the event that the Variance is not
granted within one year after application and
the Buyers have been diligent and used good
faith in their processing of said application
for a Variance, or if the Variance has been
denied and any appeal period has expired, then
the Buyers shall pay over to the Seller
$100,000 . . . .
The contract further provided that the Danzells would
deliver, at the closing, a one-year promissory note for $200,000
bearing interest at 5 percent. If the variance were granted within
one year of the application, the note was to be paid immediately
with interest to the point of payment; if instead the application
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were not approved within one year, the $100,000 became payable as
the sole addition to the price of the house and supplanted the
principal of the note (but the full original interest promised in
the note remained due).
The closing occurred on October 30, 2003, so the
application for the variance should have been filed by late January
2004. But despite some prodding from Reyelt's attorney, the
Danzells did not submit an application until August 18, 2004--
apparently due in part to some confusion about whether their
closing attorney would prepare the application. The final
application, prepared by a new attorney in concert with a local
architect, Jay Litman, proposed to double the size of one of the
two houses on the property.
The zoning board held a hearing on October 21, 2004--
about a week short of one year after the closing. Testimony came
from Litman, the Danzells' attorney and local residents who opposed
the project. After discussion, the board unanimously rejected the
application, noting that the expansion would "heighten [the
property's] non-conformi[ng use]" and approach a shared property
line; two members added that the application lacked detail showing
what the completed structure would look like.
The Danzells then offered to pay Reyelt $100,000 plus
interest. Reyelt refused the offer and brought suit to recover the
full $200,000. After a bench trial, the district court awarded
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Reyelt only $100,000 (plus an interest payment that is not disputed
on the appeal). The court ruled that the Danzells' failure to file
for a variance within three months did not warrant a larger award
and their efforts to secure the variance were adequate. This
appeal followed.
Our review of the district court's legal conclusions is
de novo; the court's factual findings are reviewed only for clear
error, Rational Software Corp. v. Sterling Corp., 393 F.3d 276,
276-77 (1st Cir. 2005), but anyway Reyelt does not dispute them.
The parties agree that Rhode Island law controls. Reyelt's first
claim is that the delay in filing the application entitled him to
the $200,000; his second, that the Danzells' application was not an
adequate effort.
The district judge wrote a typically thorough and lucid
decision and the result is intuitively obvious in light of the
court's detailed fact-findings, abbreviated above. We write,
albeit only briefly, because two of the district court's legal
rulings touch on recurring problems and our own imprimatur may be
useful. One of those problems--the significance of the three-month
application period--is especially interesting and we begin with it.
The usual contract contains mutual commitments and this
one, as part of the transaction, explicitly required the Danzells
to file the zoning application within three months of the closing.
Without any adequate excuse, the filing was over six months after
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that deadline. And the three-month deadline obviously mattered in
the sense that it served a useful purpose for Reyelt: it increased
the likelihood of his getting $200,000 rather than $100,000 and
also of getting it promptly.
Of course, when the filing was delayed until August,
Reyelt did not try to undo the sale, nor did he immediately assert
a breach of contract claim; rather, he waited to see the outcome.
The district court might have viewed this as a waiver by Reyelt
but, under the circumstances, the waiver argument would not be
straightforward. Both sides apparently wanted the contract to
succeed, so why should the law put Reyelt to the choice of
forfeiting his objection or torpedoing the contract earlier?
Absent a waiver, the question remains, why Reyelt cannot
now recover based on the Danzells' breach of an express term in the
contract? One part of the answer, emphasized by the district
judge, is that the three-month period should not be read as a
mechanical requirement but as a benchmark for measuring diligence.
Courts are often (although not always) more forgiving of failures
to meet time provisions in contracts than, say, of failures to pay
the price agreed. 2 Farnsworth, Farnsworth on Contracts § 8.18 (3d
ed. 2004).
Rhode Island courts share this view. "Ordinarily
contract provisions relating to time do not by their mere presence
in an agreement make time of the essence thereof so that a breach
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of the time element will excuse nonperformance." Lajayi v.
Fafiyebi, 860 A.2d 680, 688 (R.I. 2004) (quoting Jakober v. E.M.
Loew's Capital Theatre, Inc., 265 A.2d 429, 435 (R.I. 1970)).
Context matters: In a contract for the sale of land, a modest
delay might be tolerable, e.g., Thompson v. McCann, 762 A.2d 432,
438 (R.I. 2000); for deliveries of "just in time" inventory to a
manufacturing plant, a more rigid adherence might be expected.
Still, when the contract was made, Reyelt might well not
have agreed that nine months fell within the target area. Although
the contract allowed a year for approval after filing, the
promissory note was to mature one year after the closing; this
itself indicates that the parties were counting on the zoning
proceeding to be wrapped up by the end of that year. A filing in
three months--easily feasible, it appears--would make that outcome
more likely than a filing in nine.
But although the filing was delayed for six months beyond
the original deadline, the zoning board did render its decision
within one year of the closing. And courts, in assessing contract
claims, tend to look at what happened as well as what the parties
expected to happen. In describing a breach as "material" vel non,
contract case law--unlike evidence law's use of the term--looks
primarily at whether a breach caused harm or significantly impaired
the benefit of the contract. "The question is whether the breach
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is material, not whether there was a breach of a material term."
2 Farnsworth on Contracts § 8.16, at 517 & n.1.1
If eight months after the closing Reyelt had sought to
cancel the contract based on a material default, a court might (or
might not) think that the delay had impaired the prospective value
of the contract.2 By contrast, for Reyelt to demand $200,000 now,
when we know that the zoning board in fact decided within one year
of the closing (and flatly rejected the request on the merits), is
much less attractive--and for good reason. As matters turned out,
the delay, although undue, did not cause the loss of the extra
money.
One can imagine a case where delay did cause harm, for
example, where some small defect doomed the variance application
and, had the application been timely filed, could quickly have been
remedied. But as the district judge explained, the gist of the
board's reason for the rejection was that the double-in-size
1
E.g., Rolscreen Co. v. Pella Prods. of St. Louis, Inc., 64
F.3d 1202, 1212 n.8 (8th Cir. 1995) (failure to comply with
provision in distribution agreement not material where no damage or
prejudice shown); Gibson v. City of Cranston, 37 F.3d 731 (1st Cir.
1994); Qualcomm Inc. v. Texas Instruments Inc., 875 A.2d 626, 628-
29 (Del. 2005). See also Restatement (Second) of Contracts § 241
(1981).
2
See Helgar Corp. v. Warner's Features, Inc., 119 N.E. 113,
114 (N.Y. 1918) (Cardozo, J.) (whether termination of a contract is
permitted depends on whether "the default is so substantial and
important . . . to defeat the essential purpose of the parties").
See also Lajayi, 860 A.2d at 688-89; 2 Farnsworth on Contracts §
8.15, at 510-12.
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building sought by the Danzells was just "too big" in a situation
where having a second house at all already made the property non-
conforming.
Reyelt's other claim of error relates not to the breach
of the filing deadline but to the Danzells' competence, or lack of
it, in seeking approval. The contract, it will be recalled, said
that $100,000 (plus interest) would satisfy the $200,000 note if
zoning approval were not secured within one year "and the
[Danzells] have been diligent and used good faith in their
processing of said application." Reyelt says that, timing aside,
the application was a half-baked job.
The diligence and good faith requirements might appear to
matter only if the board failed to act within one year; this is
perhaps too narrow a reading, but anyway the district judge read
the Danzells' obligation to include reasonable efforts to secure
the variance. In Rhode Island, as elsewhere, such an implied "best
efforts" obligation is commonly read into agreements that require
a party merely to seek a specific result (rather than promising to
achieve one). Bradford Dyeing Ass'n, Inc. v. J. Stog Tech GMBH,
765 A.2d 1226, 1237 (R.I. 2001); 2 Farnsworth on Contracts § 7.17c.
Reyelt says that the district judge nevertheless misread
the implied obligation solely to require good faith, but the trial
judge explicitly ruled that reasonableness was also required. He
quoted the Rhode Island court in Bradford to this effect, 765 A.2d
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at 1235, and went on to evaluate the reasonableness of the
Danzells' efforts. He noted, but sensibly did not apply, our own
conflation of the two terms in Triple-A Baseball Club Assocs. v.
Northeastern Baseball, Inc., 832 F.2d 214, 225 (1st Cir. 1987),
cert. denied 485 U.S. 935 (1988).
The district court noted that the Danzells had hired a
Rhode Island architect with thirty years' experience and that their
lawyer who assisted in the application process had appeared before
the zoning board over 100 times. He then addressed Reyelt's main
objection to the adequacy of the application, namely, that it was
accompanied by four diagrams indicating the footprints and outlines
of the existing and proposed construction but did not contain what
is referred to as a "schematic design."
The former cost the Danzells $4,700 to prepare; the
latter, which they did not authorize, would have added $24,000 more
to the bill. Apparently no formal requirement existed for
submission of a schematic design, although two board members'
comments suggested that a better sense of the new building's
appearance would have been helpful. However, taking the board
comments as a whole, the district court found that the basic and
conclusive objection was to a major enlargement of an already non-
conforming structure, and we agree.
Reyelt's brief does not attack this finding but,
returning to diligence, suggests that a timely application would
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have given the Danzells time to submit a revised proposal seeking
a smaller structure. But a major enlargement was seemingly the
Danzells' aim from the outset; its approval was a condition of the
extra $100,000 payment; and a reasonable effort does not entail one
side's giving up a main objective or spending disproportionately to
achieve it.
Reyelt did not bargain for any restriction on the size of
the proposed enlargement. Nor is there proof that the Danzells
submitted the proposal in bad faith, expecting it to be rejected
and planning later to submit a more modest proposal. Each side
assumed a risk--the Danzells that they would not get the
enlargement they sought and Reyelt that he would get only $100,000
more--and that is just what happened.
Affirmed.
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ADDENDUM
The parties hereby agree to the following:
1. The Buyers agree to execute a promissory
note as part of the purchase price at the time
of the closing in the amount of $200,000 @ 5%
interest due and payable one year from the
closing date, or any written extension signed
by the parties.
2. The Buyers intend to file for a Variance
with the Town of Barrington seeking to remove
the present house, building a new house and/or
reconstructing the house with a new
configuration. The Buyers agree that they
will file for a Variance within three months
of the date of the closing date and the Seller
agrees that if the Variance is filed prior to
the closing, that he will sign the Variance as
the owner of the property and cooperate with
the buyers as long as he is the owner.
3. In the event that the Variance is granted
within one year of the date of application,
then the Buyers shall forthwith pay the
promissory note of $200,000 in full with
interest thereon @ 5% per annum in arrears,
meaning from the date of closing to the date
of payment to the Seller.
4. In the event that the Variance is not
granted within one year after application and
the Buyers have been diligent and used good
faith in their processing of said application
for a Variance, or if the Variance has been
denied and any appeal period has expired, then
the Buyers shall pay over to the Seller
$100,000 and %5 per annum interest on the full
value of the note of $200,000 at the time of
the denial or at the expiration of any appeal
that is processed, together with the interest
thereon. The price of the house will be
reduced if this provision comes into existence
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to $1,325,000 plus interest on the face value
of the note and all other obligations of the
parties shall cease.
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