JOSE CINTRON v. SELECT MODULAR HOMES, INC.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-2770-03T52770-03T5

JOSE CINTRON,

Plaintiff-Respondent,

v.

SELECT MODULAR HOMES, INC.,

Defendant-Appellant.

 

 

Submitted September 12, 2005 - Decided

Before Judges Parrillo and Holston, Jr.

On appeal from the Superior Court of New Jersey, Law Division, Atlantic County, Docket No. ATL-L-3388-02.

Lacovara, Gloeser, Lacovara & Levey, attorneys for appellant (Nicholas T. Lacovara, on the brief).

Leland A. Stanford, attorney for respondent.

PER CURIAM

This is a breach of contract action involving an aborted real estate transaction. After plaintiff, Jose Cintron, was unable to appear at the scheduled closing, defendant, Select Modular Homes, Inc. (defendant or SMH), cancelled the contract and subsequently sold the home to a third party for a price that exceeded the amount anticipated from the agreement of sale between the parties. Even allowing for the additional expenses incurred by defendant in connection with the resale, the trial court determined that there were no losses and ordered defendant to return plaintiff's deposit with prejudgment interest, despite the existence of a liquidated damages and a demurrage clause in the contract. Defendant appeals from the order of judgment in favor of plaintiff in the sum of $13,725 and from the Law Division's subsequent order awarding plaintiff counsel fees in the amount of $500 pursuant to Rule 4:21A-6(c). We affirm.

The facts may be briefly stated. On March 9, 2001, plaintiff entered into a contract with Larry Batchelor for the sale of vacant land in Buena Vista Township, on which plaintiff planned to build a house. The total purchase price of the lot was $21,000. The land contract provided that plaintiff would obtain a construction loan and mortgage commitment in the amount of $149,900, no later than April 9, 2001, and settlement was scheduled to take place on June 23, 2001.

In March, 2001, plaintiff entered into negotiations with SMH to purchase a modular home on the Batchelor property. Under the terms of the original proposal, dated March 9, 2001, plaintiff agreed to purchase a manufactured home from defendant for $58,546, plus $69,800 for site construction costs, for a total cost of $128,746. Plaintiff signed the sales agreement on April 14, 2001.

To complete the purchase of the modular home, plaintiff needed to borrow money. On June 11, 2001, he received a mortgage commitment from Sun National Bank for $149,746. However, because the bank would not secure a construction loan for plaintiff, in December, 2001, defendant agreed to buy Batchelor's property and plaintiff agreed to pay all costs associated with the construction of his home and purchase of the land. The original sales agreement was amended in December to add $21,000 to the purchase price so defendant could acquire the Batchelor property, bringing the original contract price of $128,746 to $149,746.

Under the terms of the sales agreement, plaintiff agreed to pay defendant at least a 10% deposit concurrently with execution of the agreement. Consequently, plaintiff paid defendant a total of $12,697 towards the purchase price, and, at defendant's request, plaintiff also paid directly to Lowes a total of $1,027 for appliances, including a refrigerator, oven, and dishwasher. Thus, plaintiff advanced a total of $13,725 towards the purchase of the modular home and land on which it sits. As to the 10% deposit, the sales agreement further provided, in relevant part:

This deposit will be applied toward the invoice amount. Buyer further agrees to pay the balance of the sales price upon delivery of the unit to the designated point of delivery in cash or certified check. Should Buyer cancel this contract or withdraw his order at anytime [sic] and/or for any reason or should Buyer fail to make any payment of any additional monies as herein mentioned or fail to comply with any of the terms of this contract, then the Buyer shall be in default under this contract and the sum or sums paid on account of the purchase price and/or other extras of other payments shall be forfeited as liquidated damages.

Despite several extensions of the scheduled closing date, plaintiff was unable to satisfy certain contractual contingencies, and defendant was unwilling to extend the contract any further. Consequently, when the closing did not take place on the rescheduled date of August 20, 2002, and the second mortgage commitment expired on September 25, 2002, defendant declared plaintiff in breach of contract and placed the property on the market for sale. Eighty days after the aborted closing, on November 18, 2002, defendant sold the property to a third party for $185,535.

This much is undisputed. The parties differ, however, as to the additional costs and expenses defendant incurred in connection with the resale, and, therefore, the amount of credit against any sums that might otherwise be owed plaintiff on the return of his deposit. According to defendant, it incurred additional expenses associated with maintaining and re-selling the property, including: the cost of an engineering survey ($950); construction-period interest charges ($2,789.70 as of August 30, 2002, and $1,164.83 from September 1 to November 18, 2002); a loan extension fee ($606); settlement title charges ($635); property taxes ($1,760.81); a real estate commission ($11,100); an insurance extension fee ($1,080); touch-up painting ($525); tree removal; utility costs ($432.84); a builder's warranty ($96); a settlement cancellation fee ($115); the cost of a tub repair; the cost to reinstall a dishwasher and replace ceiling tiles in the basement ($650); interest charges on contractor's construction financing fee ($1,500); the cost of retesting the well water ($175); and transportation expenses associated with daily visits to the property at a rate of $20 per hour for an undisclosed total amount. Because of the additional expenses, defendant claimed that it lost $7,800 in profit from the resale, and, therefore, that plaintiff was not entitled to his deposit monies.

As a result, in October 2002, plaintiff filed a complaint against defendant seeking the return of his deposit as well as monies advanced for appliances. Following defendant's answer and completion of discovery, on July 22, 2003, the matter was submitted to arbitration pursuant to Rule 4:21A-1 to -9. On July 30, 2003, the arbitrator found in favor of plaintiff in the amount of $12,697.94. On August 11, 2003, defendant filed an appeal for a trial de novo.

The matter was tried by Judge Perskie without a jury on October 21, 2003. At the conclusion of the bench trial, the court issued comprehensive findings of fact and conclusions of law, including that defendant properly cancelled the contract - a ruling plaintiff does not dispute on appeal - and validly incurred costs beyond those it would have incurred in the transaction with plaintiff. Specifically, the court allowed the following expenses: a real estate commission ($11,100); real estate taxes ($1,935.64); title company charges attendant to the second sale ($635); a survey attendant to the original temporary acquisition ($950); construction-period interest until August 30, 2002 ($2,789.70); construction-period interest from September 1 through closing in November, 2002 ($1,164.83); a construction extension loan fee ($606.50); insurance to maintain the property after cancellation of the August, 2002, closing ($1,080); utility charges from the cancellation of closing to the resale ($432.84); a title company cancellation fee ($115); a bill for water retesting ($175); changes in warranty "for the main" ($96.51); plumbing repair bills ($650); an additional septic fee ($4,215); extra interest charges ($1,500); and an inspection fee ($4,500). As for the latter two items, the court allowed the extra interest charge of $1,500 even though it was not convinced that such charges were reasonable in amount and circumstance, and also allowed the $4,500 inspection fee although the court raised doubt about its relevance. The court then calculated the total reduction for additional expenses at $31,946.02.

The court, however, disallowed other expenses, with explanation. For example, the judge did not find that plaintiff actually occupied the premises and, therefore, he did not allow the expenses of $525 for painting or $100 for tub repair, supposedly resulting from the asserted occupancy. Additionally, the court did not allow $4,850 for tree removal and other site work because it was not satisfied that such work was contemplated under the original agreement or required for the resale. The court further noted that even if the contract provided that plaintiff was responsible for such work, there should have been some evidence showing the allocation of such costs as contemplated in the original contract and beyond it, and there was none.

Subtracting the $31,946.02 sum legitimately spent in mitigation of damages from the $185,000 resale price, the judge calculated that defendant actually received $153,053.98 upon resale, which exceeded the $149,746 adjusted sales price of plaintiff's agreement. The court, therefore, found that "[t]he net recovery from the second sale, after all of the expenses [are] allowed, exceeds the amount anticipated from the Plaintiff's contract." Because there were no losses, the court found that the contract's liquidated damages clause did not apply, and, instead, the escrow belonged to plaintiff. Specifically, the court concluded:

Now, with respect to the law and the subject of the enforcement of the liquidated damages clause, it's not relevant in this case. Liquidated damages clause, and all of the law attendant to it, relate to circumstances in which it is difficult or impossible to estimate or to find damages, and liquidated damages, when reasonable in scope and amount, are considered as by contractual agreement between the parties to replace that.

In this case, it has not been at all difficult to evaluate with precision the losses incurred because the losses don't exist. There are no losses. The net recovery from the second sale, after all of the expenses allowed, exceeds the amount anticipated from the Plaintiff's contract.

Consequently, the court entered an order of judgment in favor of plaintiff in the amount of $13,725 together with prejudgment interest as of September 30, 2002. Interest was awarded at the rate of 6% per annum from the date the complaint was filed (October 16, 2002) to December 31, 2002, in the amount of $171.47, and at the rate of 3% per annum from January 1, 2003, to October 21, 2003, in the amount of $331.66, together with costs to be taxed.

Defendant moved for reconsideration, and plaintiff cross-moved for attorney's fees pursuant to Rule 4:21A-6(c)(3). The court denied defendant's motion and awarded plaintiff attorney's fees of $500. In the course of his oral decision, the judge reiterated his finding that defendant sustained no damages from plaintiff's breach, explaining further that he subtracted from the $185,000 resale price all those expenses incurred by defendant that he believed were credibly established by the evidence and reasonably assumed by SMH, and for which plaintiff should bear responsibility, ultimately arriving at a sales price of $153,053.98. Even allowing for the stipulated fact that plaintiff had paid a total of $13,725 (including an initial deposit of $12,697.94 and $1,027.92 for appliances), the court concluded that defendant still came out ahead financially on the resale. The court also concluded that, under the terms of the arbitration rule, plaintiff was eligible for counsel fees at the court's discretion and awarded plaintiff $500.

On appeal, defendant contends that the trial court erred in: (1) calculating its "lost profits" damages by failing to credit all of its expenses in mitigation of damages; (2) failing to enforce the contract's liquidated damages and demurrage clauses; and (3) improperly awarding plaintiff attorney's fees. We disagree with all of these contentions. The trial court's decision was soundly based in law and supported by substantial credible evidence.

I.

Although defendant admits that it made a profit on the resale, it nevertheless claims that it would have made a greater profit if plaintiff had purchased the property, and that its claimed lost profit of approximately $7,800 should be subtracted from the $13,725 awarded to plaintiff. We disagree.

Under New Jersey law, "a party who breaches a contract is liable for all of the natural and probable consequences of the breach of that contract." Pickett v. Lloyd's, 131 N.J. 457, 474 (1993). Compensatory damages are intended to recompense the injured claimant for losses due to the breach by putting "'the injured party in as good a position as he would have had if performance had been rendered as promised.'" Donovan v. Bachstadt, 91 N.J. 434, 444 (1982) (citations omitted). "Lost profits are one measure of compensatory damages that may be recoverable in a breach of contract action, if they can be established with a 'reasonable degree of certainty.'" RSB Lab. Servs., Inc. v. BSI, Corp., 368 N.J. Super. 540, 556 (App. Div. 2004) (quoting Stanley Co. of Am. v. Hercules Powder Co., 16 N.J. 295, 314 (1954) (other citations omitted)). "Anticipated profits that are too remote, uncertain, or speculative are not recoverable." Desai v. Bd. of Adjustment of the Town of Phillipsburg, 360 N.J. Super. 586, 595 (App. Div.), certif. denied, 177 N.J. 492 (2003).

Lost profits must be based on sound facts and not on mere opinions. Desai, supra, 360 N.J. Super. at 596 (finding trial court properly rejected plaintiff's claims for lost profits where, among other things, the lost profits "were based on the mere opinion of plaintiff without any factual support"). To determine the proper elements of damage, it is necessary to examine the particular circumstances surrounding the transaction including the terms, conditions, and nature of the agreement. Donovan, supra, 91 N.J. at 446.

Here, although it is undisputed that defendant did not sustain a loss, defendant nevertheless insists that its "lost profit" was miscalculated because the judge disallowed certain expenses incurred in mitigation of damages. Specifically, defendant argues that the judge failed to credit such additional expenses as: (1) "office overhead including salaries and benefits paid to employees, phones, electric, coping [sic], mailing, etc."; (2) the "man hours" spent to secure a realtor and sell the property; and (3) "the buying of the lot for Mr. Cintron [which] was something that SMH never did before," and erroneously rejected its expenses for "watching and maintaining" the property until its sale to a third party. We find defendant's argument far too speculative and lacking in credible factual support in the record.

Indeed, the trial judge, after allowing for additional expenses incurred in connection with the resale of the property to a third party for $185,000, found that defendant actually received $153,053.98 instead of the $149,746 agreed-upon price in its adjusted sales contract with plaintiff. At the motion hearing, the judge reiterated that defendant incurred no damages, explaining that

through no credit to the plaintiff other than the fortuity of the economic circumstances, the defendant made out better under the second deal than under the first, even after I credited the defendant with all of what I believe were the credible, and some were not, and legally permissible charges against the new purchase price for the expenses that the defendant had undertaken to get there.

A trial judge's findings are considered binding on appeal when supported by adequate, substantial, and credible evidence. Metuchen Sav. Bank v. Pierini, 377 N.J. Super. 154, 161 (App. Div. 2005) (quoting Rova Farms Resort, Inc. v. Investors Ins. Co. of Am, 65 N.J. 474, 483-84 (1974)). Our function is a limited one and, as such, we will not disturb the trial court's factual findings and legal conclusions unless "convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice." Ibid. Here, we are satisfied that Judge Perskie's findings, including his calculation of damages and allowable expenses, are supported by sufficient credible evidence in the record.

II.

Defendant next claims that the court erred by failing to enforce the liquidated damages clause of the contract, which would have allowed it to retain the entire deposit of $12,697.94. We disagree.

A contractual provision for liquidated damages is enforceable if it turns out to be a reasonable approximation of the actual damages that resulted from the breach. Wasserman's Inc. v. Tp. of Middletown, 137 N.J. 238, 250-54 (1994). A court will enforce a liquidated damages clause "only if 'the amount so fixed is a reasonable forecast of just compensation for the harm that is caused by the breach.'" Id. at 254 (quoting Westmount Country Club v. Kameny, 82 N.J. Super. 200, 206 (App. Div. 1964)). A liquidated damages clause "is unreasonable if it does more than compensate plaintiffs for their approximate actual damages caused by the breach." Ibid. (holding township liable to plaintiffs for terminating commercial lease, but remanding issue of whether clause requiring payment of stipulated damages was a valid liquidated damages clause).

In Van Es v. Honeyleaf Props., Inc., 253 N.J. Super. 566, 567 (App. Div. 1992), we addressed the issue of whether plaintiffs who breached a real estate sales contract when they were unable to attend the closing could recover their deposit. In reversing the trial court's grant of summary judgment in favor of the vendor prior to completion of all discovery, we held that "a purchaser of real property who breaches the contract of sale does not automatically forfeit his entire deposit but rather may recover whatever portion of deposit exceeds the seller's actual damages." Id. at 568 (citing Kutzin v. Pirnie, 124 N.J. 500, 511-17 (1991)). We then remanded the matter for further proceedings on such factual issues as: (1) whether the vendor resold the property and if so, the purchase price and date of sale; (2) if the property was not resold within a short time after the breach, what efforts the vendor made to market the property; and (3) how the 15% liquidated damages provision amount was established and whether, at the time of execution of the contract, the sum was a reasonable forecast of damages in the event of a breach. Id. at 569.

Subsequently, in Nohe v. Roblyn Dev. Corp., 296 N.J. Super. 172, 173 (App. Div.), certif. denied, 147 N.J. 36 (1997), we addressed the issue of whether a liquidated damages provision was enforceable in the context of a sale of residential property between a corporate developer and consumers. In that case, the parties signed a contract for construction of a house with a purchase price of $651,488.70 and a deposit of $79,027.40. Id. at 174. After failing to complete construction in a timely fashion, the corporate developer sold the house to another couple for a price that exceeded the plaintiffs' contract price. Ibid. The plaintiffs then sought the return of their deposit on the ground that the seller suffered no damages. Ibid. After reviewing the developer's alleged additional costs, the motion judge found that no loss accrued to the defendants and granted summary judgment in favor of the plaintiffs. Ibid. We affirmed, concluding that the seller could not retain the deposit even in the face of a liquidated damages clause where it suffered no damages and the deposit was a substantial sum. Id. at 178.

Here, the trial judge concluded that the contract's liquidated damages clause did not apply inasmuch as defendant sustained no loss. See Nohe, supra, 296 N.J. Super. at 178. Implicit therein is the finding that the clause was "unreasonable" because it "does more than compensate [defendant] for [its] approximate actual damages caused by the breach."

Wasserman's Inc., supra, 137 N.J. at 254. Under the circumstances, therefore, the trial judge's refusal to enforce the contract's liquidated damages clause was reasonable and soundly based in law.

III.

Likewise, the judge properly refused to enforce the contract's demurrage clause, which provided:

14. DEMURRAGE: Select Modular Homes, Inc. will notify the buyer by phone or in writing when the unit or units purchased will come off the assembly line, and when they are ready for delivery. If for any reason buyer is unable to accept delivery, buyer shall nonetheless be obligated to pay the entire purchase price to seller. Select Modular Homes, Inc. reserves the right, at Select Modular Homes, Inc. option, to sell said unit if not paid for by buyer and if sold by Select Modular Homes, Inc., buyer shall forfeit his entire unit order deposit. If not sold, a demurrage charge of $100.00 per day will be imposed commencing with the day

of said scheduled delivery and continuing until buyer shall pay for such unit.

There is nothing in the record to demonstrate the accrual of any "demurrage charges" essential to recovery. First, defendant never imposed the $100 daily charge for the eighty days that the house remained unsold. When asked at trial why defendant did not charge plaintiff $8,000, SMH's president Julie Kmiec answered that she "charged [only] what it cost me." Second, at the motion hearing, defendant's counsel argued this issue without any evidence to support its claim that plaintiff's breach ultimately cost defendant approximately $45 or $50 a day until the house was sold. Third, unlike the term's usage in maritime law, there is nothing in the record to suggest that defendant charged rent to store the modular home until its resale to a third party in November, 2002. Fourth, by its terms, the clause only applies if the buyer ultimately "pay[s] for such unit," which plaintiff here never did. Thus, under the circumstances, the court's refusal to enforce the contract's so-called demurrage clause was eminently reasonable.

IV.

Lastly, defendant argues that the court erred in awarding to plaintiff $500 in attorney's fees. We disagree.

Rule 4:21A-6(c) provides:

(c) Trial De Novo. An action in which a timely trial de novo has been demanded by any party shall be returned, as to all parties, to the trial calendar for disposition. . . . A party demanding a trial de novo must tender with the trial de novo request a check payable to the "Treasurer, State of New Jersey" in the amount of $200 towards the arbitrator's fee and may be liable to pay the reasonable costs, including attorney's fees, incurred after rejection of the award by those parties not demanding a trial de novo. Reasonable costs shall be awarded on motion supported by detailed certification subject to the following limitations:

(1) If a monetary award has been rejected, no costs shall be awarded if the party demanding the trial de novo has obtained a verdict at least 20 percent more favorable than the award.

(2) If the rejected arbitration award denied money damages, no costs shall be awarded if the party demanding the trial de novo has obtained a verdict of at least $250.

(3) The award of attorney's fees shall not exceed $750 in total nor $250 per day.

(4) Compensation for witness costs, including expert witnesses, shall not exceed $500.

(5) If the court in its discretion is satisfied that an award of reasonable costs will result in substantial economic hardship, it may deny an application for costs or award reduced costs.

[R. 4:21A-6(c)(emphasis added).]

Thus, "[t]he rule mandates the award of reasonable costs unless the judge finds, in his discretion, that an award of costs will result in substantial economic hardship." Helstoski v. Hyckey, 225 N.J. Super. 142, 148 (App. Div. 1988) (finding no basis to deny defendant's motion for attorney's fees where plaintiff failed to provide full economic disclosure and facts did not establish that imposition of costs would create sufficient hardship). Although the rule expresses a $250 cap on counsel fees for each day of trial, courts may award attorney's fees for trial preparation time as well. Ghazouly v. Benjamin, 251 N.J. Super. 1, 2 n.1 (App. Div. 1991) (noting in dictum that the trial court awarded $750 in attorney's fees including two days of trial and an additional day of preparation).

 
Here, the arbitrator awarded plaintiff $12,697.94 or $1027.06 less than the court's award of $13,750 (including the cost of appliances). Because defendant obtained a verdict less favorable to it than the arbitration award, the trial court had discretion to award attorney's fees to plaintiff under Rule 4:21A-6(c). Moreover, defendant never argued that it would suffer substantial economic hardship upon imposition of the fee. Under the circumstances, we find no abuse of discretion in the court's award of attorney's fees to plaintiff.

Affirmed.

This figure was stipulated to at trial.

Although no one testified as to the cost of tree removal, the record contains an invoice from Freas Contracting, Inc., dated October 30, 2002, in the amount of $4,850 for additional site clean-up costs including tree removal and a driveway apron.

Although no one testified as to the cost of the tub repair, the record contains a copy of a cancelled check for $325.01 made payable to Master Tub Repair, Inc., dated January 24, 2003, alongside of which there is a handwritten note that it cost $100 to repair the tub.

The term demurrage generally refers to "a charge or rent for the storage of the cargo" in maritime law. M.C. Mach. Sys., Inc. v. Maher Terminals, Inc., 164 N.J. 192, 203 (2000).

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A-2770-03T5

September 20, 2005