The plaintiff, Horng Technical Enterprise Co., LTD (“Horng”), was a Taiwanese corporation that manufactured computer accessories.  Horng Technical Enterprise Co., LTD v. Sakar International, Inc., No. 10-3648 (3d Cir. June 23, 2011).  The defendant, Sakar International, Inc. (“Sakar”), was an importer and wholesaler of computer accessories.  In 2004, Horng delivered computer accessories worth over $900,000 to Sakar.  A year later, Horng sued Sakar in California state court over its alleged failure to pay for the accessories.  The case was removed to federal court and then transferred to the District of New Jersey.  At some point thereafter, Horng was officially dissolved but a Taiwanese liquidator (“Liquidator”), who was authorized to pursue litigation on Horng’s behalf, continued with the suit against Sakar.  On the third day of trial, the case settled and was dismissed with prejudice.

The handwritten settlement agreement was read into the record before the case was dismissed on June 4, 2010.  It provided that Sakar would pay $250,000 to Horng’s counsel’s trust account in exchange for a dismissal of the case and release of liability.  In addition, the settlement provided that the Liquidator must sign the settlement agreement and release within 30 days.

After the case was dismissed the parties encountered difficulties in memorializing the settlement.  After multiple exchanges, Horng sent Sakar a revised settlement agreement, which included numerous demands of Sakar, on June 29, 2010.  Horng indicated that the Liquidator would sign the agreement and requested that Sakar sign it as well.  However, a day later Sakar made additional demands and stated that it would seek the Court’s intervention if the Liquidator did not agree to the demands.  On July 8, Horng sent Sakar another revised settlement agreement that included Sakar’s latest demands and asked Sakar to sign it.  The next day, Sakar responded by noting that the Liquidator had not signed the agreement within the 30 days period and, therefore, failed to comply with the settlement agreement.  Horng then filed a motion to enforce the settlement agreement.  On August 11, 2010, the Liquidator signed the agreement.

Before the District Court, Sakar argued that the 30-day provision was a “time is of the essence” clause and, because the Liquidator did not comply with the clause, it was excused from performing its obligations under the agreement.  The District Court rejected that argument, as it concluded that not only was the 30-day provision not a “time is of the essence” clause, but that Sakar’s conduct in making additional demands that were not part of the original agreement contributed to the delay.  Thus, the court ordered Sakar to pay the $250,000 settlement within 15 days.

The Third Circuit affirmed.  After reviewing substantive New Jersey law regarding the creation and enforcement of contracts, the court determined that the agreement the parties entered into at trial was an enforceable contract, even though the parties intended to create a more formal agreement.  Moreover, the Third Circuit agreed with the District Court that the Liquidator’s failure to sign the agreement within the 30-day period did not mean that Sakar was excused from performing.

The Third Circuit noted that there were two alternative bases upon which to affirm the District Court.  First, the court explained that the District Court did not err in finding that the 30-day provision was not a “time is of the essence clause”; thus, the Liquidator’s failure to sign within that time was not a material breach of the agreement.  Second, the Third Circuit ruled that it was not error for the District Court to find that Sakar’s demands contributed to the lateness of the Liquidator’s signature.  Specifically, the court pointed out that “[c]onsidering that the Liquidator’s signature as a condition precedent to Sakar’s performance, Sakar would not be excused from performing, since it contributed to the failure of the condition.”