ROBERT TRAENKLE, JAMES MERCANTO et al. v. and ISLAND SPORT YACHTS, INC.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-6758-03T36758-03T3

ROBERT TRAENKLE, JAMES MERCANTO

and ISLAND SPORT YACHTS, INC.,

Plaintiffs-Appellants,

v.

JAMES LA, and L & B TECHNOLOGY,

INC.,

Defendants-Respondents.

________________________________________________________________

 

Argued December 13, 2005 - Decided January 13, 2006

Before Judges Kestin, Lefelt and Hoens.

On appeal from the Superior Court of

New Jersey, Law Division, Atlantic

County, Docket No. L-276-01.

David F. Gould, III, argued the cause

for appellants.

Ronald De Caprio, of the New York Bar,

admitted pro hac vice, argued the cause

for respondents (Fischer, Porter, Masi

& Thomas, attorneys; Arthur L. Porter,

of counsel; Dominick Minervini, on the

brief).

PER CURIAM

This appeal involves an alleged breach of contract that required defendants James La and L&B Technology, Inc. to manufacture, deliver, and sell twelve fiberglass boat sets to plaintiffs Robert Traenkle, James Mercanto and Out Island Sport Yachts, Inc. After untimely delivery and quality problems developed, both parties claimed the other breached the contract, and sued. A jury found both parties had indeed breached and awarded plaintiffs $69,038 and defendants $128,000 in damages. Plaintiffs appeal and seek to reverse the trial court's denial of plaintiffs' motion for a new trial and refusal to mold the jury verdict.

Essentially, plaintiffs claim, on appeal, that because defendants breached the contract, plaintiffs were relieved from further performance under the contract and the verdict should be "molded" to eliminate defendants' recovery. Plaintiffs also contend defendants repudiated the contract by failing to provide adequate assurances that defendants would not violate the contract's exclusivity provision, and that the verdict was inconsistent because defendants fraudulently committed to manufacturing boat sets through the winter when their facility was not capable of meeting such demands. Plaintiffs finally argue that defendants were not entitled to recover the amortization costs of the molds that were used to make the boat sets and therefore the damages must be modified. We reject each of these arguments and affirm.

Plaintiff Out Island Sports Yachts, Inc. is in the business of manufacturing and marketing high quality boats. Plaintiff Robert Traenkle is a principal and director and co-plaintiff James Mercanto is a director and president of Out Island.

Defendant L&B Technology, Inc. fabricates fiberglass boat components and builds boats. Co-defendant James La is the president and principal shareholder of L&B. Specifically, La designed a sport fishing boat, the thirty-six foot Express Fisherman called the Seaview, and manufactured fiberglass boat components from tooling and molds made to the Seaview's design.

Traenkle and Mercanto became interested in building boats based on L&B's Seaview design. The parties therefore entered into a renewable one-year "supply agreement" in which defendants would manufacture and sell fiberglass boat sets to plaintiffs, who were to order and buy twelve fiberglass boat sets over the course of the agreement's first year. Under the contract, defendants were to manufacture fiberglass boat sets exclusively for plaintiffs, with the exception of defendants' already existing contractual commitment to build two boats for the Shore Points Marina. Thus, the parties' agreement contemplated that defendants would provide the component boat parts, with technical support, and plaintiffs would build and assemble the boat, market it, and then sell it.

Each fiberglass boat set included the hull, the deck, and some small component parts. Time frames were established in the contract, which required the delivery of the hull within two weeks and the balance of the set within four weeks of plaintiffs' order.

Plaintiffs were to pay $47,968 for each complete fiberglass boat set. $27,968 per set was due upon placing an order, and the balance of $20,000 upon acceptance of the goods. In the contract, plaintiffs agreed not to "reverse engineer or 'splash' to create molds or tooling for any of the fiberglass parts provided by L&B." The contract also provided that, should L&B be unable "to continue to supply the Fiberglass Sets," plaintiffs had "the right to purchase all rights and interest in the design and all toolings and molds used" by L&B for $200,000.

From the beginning, according to plaintiffs, defendants failed to adhere to the contract by not supplying plaintiffs with the technical support plaintiffs thought would be forthcoming. Nevertheless, on March 7, 2000, plaintiffs placed their first order for a fiberglass boat set by paying defendants the required $27,968. Under the contract, the hull was to be delivered within two weeks and the complete set was to be delivered within four weeks. Plaintiffs claimed, however, that the complete set was not received until late July or early August of 2000. Before receiving the completed set, however, plaintiffs paid the $20,000 balance on April 17, 2000.

Shortly thereafter, allegedly because of defendants' delivery delays, plaintiffs began restructuring the contractually established payment dates. On May 9, 2000, plaintiffs paid defendants $10,000 toward the second boat set and did not pay the balance of $17,968 until May 16. Meanwhile La explained that "he was behind in bills to different vendors" and therefore needed more capital to build parts and assured defendants that "he was going to get back on track."

Because plaintiffs had paid the $27,968 for the second boat set by May 16th, plaintiffs expected to receive the hull within two weeks. However, plaintiffs claimed they did not receive the hull until "the latter part of June" and the remaining component parts until late July or early August. When confronted with the late deliveries, La, according to plaintiffs, became "more and more adversarial." Even though defendants had not delivered the complete second boat set, plaintiffs paid defendants the full purchase price for the second set by June 17, 2000.

On June 28, 2000, plaintiffs advanced $10,000 as partial payment towards boat set three. Plaintiffs paid another $10,000 towards the third boat set on July 17, 2000, and the remaining balance of $23,011 on September 27, 2000. Shortly after plaintiff made its final payment, defendants delivered the remaining parts for the third boat set.

Also on September 27, 2000, plaintiffs paid $10,000 for boat set four. Plaintiffs paid an additional $10,000 on October 9 and the balance of the first installment advance of $5,825 on October 13. At the time of the October 13th payment, according to plaintiffs, work on "the hull was well underway." Work on "[t]he deck had started, and the small parts were in the works." Plaintiffs thus expected to receive the hull within two weeks of October 13, but they did not receive the hull, deck and component parts until approximately November 27, 2000, the date when the remaining balance for boat set four was completely paid.

According to plaintiffs, not only did defendants fail to supply technical support, but they also consistently failed to make timely delivery and delivered substandard or non-conforming goods. Plaintiffs asserted that as they began to build their first boat, they discovered that the workmanship and quality of defendants' fiberglass components were either of poor design and/or of poor quality. Plaintiffs alleged that some parts had insufficient layers of fiberglass or a too thin gel coat. Other defects plaintiffs observed included air voids, dirt, alligatoring, and craters, which required substantial amounts of patch work. Plaintiffs also claimed that certain parts did not fit and required excessive grinding and patchwork.

In early November 2000, Mercanto, on behalf of plaintiffs, met with La because he had heard that defendants were continuing to build Seaviews and erroneously claiming that plaintiffs "had not lived up to their end of the contract." At the meeting Mercanto discussed the quality and delivery problems along with the contract's exclusivity provision. According to plaintiffs, defendants expressed an intent to continue building Seaviews beyond the two that were permitted in the contract to be built for Shore Points. In addition, defendants stated that they would never sell plaintiffs the molds in the event of a default.

Before the meeting ended, defendants asked for a check to start the hull for boat set five. Mercanto responded that unless plaintiffs received "assurance [that La] would honor his prior commitments, acknowledge and accept responsibility for delays and problems . . . caused [by] inferior parts, and negotiate in good faith to extend [the] agreement without competition, [plaintiffs] would have to rethink [their] relationship." By the time of this meeting, according to defendants, they had begun work on the fifth hull. Nevertheless, plaintiffs cancelled the order and threatened to sue if defendants refused to sell their molds to plaintiffs.

On December 21, 2000, defendants notified plaintiffs by letter that their agreement was "terminated." Defendants said that plaintiffs had only ordered four of the agreed twelve boat sets and recently advised defendants that it would "not order the remaining eight boat sets." Defendants expressed an interest in continuing a business relationship with plaintiffs to supply thirty-six foot boat sets but only "on a non-exclusive basis."

After receiving defendants' letter terminating the agreement, plaintiff decided to make their own molds and to modify the fourth boat set into a thirty-eight-foot boat. After making the molds for a thirty-eight-foot design, plaintiffs contracted with another company, Dolphin Industries, to manufacture component parts. At the time of trial, plaintiffs had sold fourteen of these thirty-eight-foot boats.

On January 29, 2001, plaintiffs sued defendants for breach of contract. Plaintiffs claimed defendants breached by failing to make timely deliveries, by delivering non-conforming goods, by indicating that they would not build the boat sets on an exclusive basis, and by refusing to sell the molds to plaintiffs. Defendants answered and counterclaimed that plaintiffs breached the agreement "by not ordering and paying for twelve boats," failing to comply with the payment terms, and by infringing defendants' original design when plaintiffs made their own molds.

The matter came to trial before Judge Perskie and an Atlantic County jury. The jury found, by a vote of seven to zero, that defendants breached the contract. As such, the jury voted six to one to award plaintiffs $69,038 in damages. The jury also found, by a vote of six to one, that plaintiffs breached the contract and by a vote of seven to zero awarded defendants $128,000 in damages.

Plaintiffs moved for a new trial or to mold the jury verdict. Plaintiffs' primary argument, which is the same argument they advance on this appeal, is that the court should modify the verdict because "defendant[s] had committed an anticipatory breach of the contract . . . . early on in the contract period." As such, "[o]nce the anticipatory breach was established, [plaintiffs] under the law . . . [were] relieved of any performance under the contract." Therefore, according to plaintiffs the jury's finding that plaintiffs had breached the contract should be vacated.

Judge Perskie rejected this argument. He stated "I don't agree that the jury could not have found, as they apparently did find, that both parties were in breach." The judge explained that it was "perfectly possible" that "the jury could have found that the defendant[s] breached by [their] failure to provide in a timely fashion and in a complete fashion all of the parts for the initial series of boats." But the judge also was "satisfied" that the jury could have found that despite the untimely deliveries and defects, plaintiffs "pursued the arrangement in any event and then breached it." Plaintiffs' appeal to this court followed.

Plaintiffs essentially argue that the late deliveries and quality problems constitute substantial impairment of the value of the whole contract, thereby relieving them of any further performance under the contract. See N.J.S.A. 12A:2-612(3); 12A:2-711(1). In accordance with this argument, Judge Perskie instructed the jury on anticipatory breach. N.J.S.A. 12A:2-610. An anticipatory breach occurs "[w]hen either party repudiates the contract with respect to a performance not yet due[,] the loss of which will substantially impair the value of the contract to the other, the aggrieved party may (a) for a commercially reasonable time await performance by the repudiating party; or (b) resort to any remedy for breach . . . ; and (c) in either case suspend his own performance. . . ." Repudiation involves "an overt communication of intention or an action which renders performance impossible or demonstrates a clear determination not to continue with performance." Comment 1 on N.J.S.A. 12A:2-610.

Thus, plaintiffs would be excused from further performance under the contract if the jury found that defendants anticipatorily repudiated their contractual obligation to build a fifth boat set. See N.J.S.A. 12A:2-610; see also Neptune Research & Dev., Inc. v. Teknics Indus. Sys., Inc., 235 N.J. Super. 522, 530 (App. Div. 1989). Under this circumstance, the jury could not have found that plaintiffs also breached the contract because plaintiffs would be entitled to suspend their future performance.

However, the jury had ample reasons to reject the claim by both parties that the other anticipatorily breached the contract by conduct before the early November meeting between Mercanto and La. For example, plaintiffs' performance during the sale of the first four boat sets, until November 27th when plaintiffs made the final payment for the fourth boat set, indicated a willingness to work with defendants through the untimely delivery and alleged quality problems. From defendants' perspective, they continued to work within the contract despite plaintiffs' alteration of the payment schedule. By continuing to perform under the contract until November 27th, both parties thereby signaled to the other that they did not intend to disavow the deal. Consequently, the jury's rejection of the anticipatory breach argument is easy to fathom.

Once the anticipatory breach arguments are rejected, for conduct before the early November meeting, then the record amply supports the jury's determination that both parties breached by conduct after November 27th. For example, plaintiffs could be found to have breached by refusing to order a fifth boat set because defendants alleged they had already begun work on the fifth hull. Defendants could be found to have breached by delivering the fourth boat set late and defective. Plaintiffs testified that the fourth hull was completely unusable and not delivered by defendants until after plaintiffs had paid for the fourth boat set in full. Mercanto testified that upon examination of the fourth hull, "[w]e made a decision not to go forward with the production of the boat because it would . . . never perform [and] . . . never pass survey." In addition, defendants refused to sell the molds and cancelled the contract thereby eliminating any possible credit to plaintiffs for the repair costs incurred by virtue of the previously delivered defective boat sets. Consequently, the record supports the jury's finding that both sides breached this deal.

As justification for its failure to order the remaining eight boat sets, however, plaintiffs invoke N.J.S.A. 12A:2-609, and assert defendants breached the agreement because they failed to provide adequate assurance of performance at the meeting in early November or shortly thereafter. "When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance. . . ." Ibid. Under this statute, if defendants' future performance were uncertain, plaintiffs could have suspended their own performance until the situation was clarified. Comment 2 on N.J.S.A. 12A:2-609. If plaintiffs' reasonable grounds for insecurity were not cleared up within a reasonable time, plaintiffs could have terminated the deal. Ibid. "This is the principle underlying the law of anticipatory breach, whether by part performance or by repudiation." Ibid.

The problem with this argument is that plaintiffs did not object to the judge's charge on anticipatory breach and did not request that the judge charge N.J.S.A. 12A:2-609 either instead of or in addition to the anticipatory breach instruction. "Ordinarily, the failure to object to jury instructions when given constitutes a waiver of the right to challenge the instruction on appeal." Ewing v. Burke, 316 N.J. Super. 287, 293 (App. Div. 1998). By failing to object, plaintiffs deprived Judge Perskie of the ability to remedy any possible defect in the charge. Consequently, we may reverse only if plain error occurred. R. 2:10-2.

In determining whether plain error occurred, we first note the language of N.J.S.A. 12A:2-609, requiring a "written" demand for assurances. However, whether an oral demand, as occurred in the instant appeal, would suffice is unsettled. See Cumberland County Improv't Auth. v. GSP Recycling Co., 358 N.J. Super. 484, 499 (App. Div.), certif. denied, 177 N.J. 222 (2003).

Assuming the statute would apply, the jury considered, under the anticipatory breach doctrine, those factors plaintiffs argued justified their refusal to order the fifth boat set. These factors are identical to those plaintiffs claim would justify their demand for adequate assurance, pursuant to N.J.S.A. 12A:2-609, at the early November meeting or shortly thereafter. That is, the jury had before it plaintiffs' contentions regarding defendants' late deliveries, poor quality, and threatened disregard of the exclusivity provision. But the jury rejected the anticipatory breach argument based, undoubtedly, upon the parties' continued willingness to recognize the contract, at least until November 27th, and particularly La's testimony that during the contract he never built boats or fiberglass sets for any third party. After November 27th, both parties refused to proceed under the existing contract. Therefore, we cannot find the failure to charge N.J.S.A. 12A:2-609 caused a result that the jury would not have reached had the provision been charged by the judge.

Plaintiffs also argue that the verdict was inconsistent because defendants committed fraud in entering into the contract. Specifically, plaintiffs assert that defendants failed to disclose that their facility was not heated during the winter months and therefore they would be unable to produce fiberglass sets during that period. Here also plaintiffs failed to object when Judge Perskie stated that he was "not going to charge fraud." In addition, plaintiffs never argued before Judge Perskie why the fraud claim gave them "an absolute right to repudiate the contract." Furthermore, defendants testified that during the winter they had "kerosene heaters, that kind of thing[s], and it could be rig[ged] up to get enough heat to do the [work]." Under these circumstances, we find the argument unpersuasive and not properly before us. See Nieder v. Royal Indem. Ins. Co., 62 N.J. 229, 234 (1973).

Finally, plaintiffs contend for the first time on appeal that defendants were not entitled to recover the amortization costs of their molds as damages. Defendants testified that they anticipated a profit of $16,000 to $18,000 per boat. Ultimately, the jury awarded defendants lost profit damages of $128,000, which is equal to $16,000 profit per each of the eight unordered boat sets.

Plaintiffs argue that the amortization costs should not have been included within the lost profit calculation. This issue was also not raised before the trial court. We "will not consider questions not properly presented to the court below when an opportunity to present them was available." Morin v. Becker, 6 N.J. 457, 460 (1951). Accordingly, we decline to consider this issue. However, we indicate that through plaintiffs' breach, as found by the jury, defendants were deprived of the ability to recover the mold costs over the course of the contract for the twelve boat sets. Thus, the amortization figure appears to have been properly counted as lost profits.

 
Consequently, we decline to mold the jury's verdict in the manner requested by plaintiffs. "The verdict may not . . . be molded if the result reached might contravene the jury's intention." Buteas v. Raritan Lodge # 61 F. & A.M., 248 N.J. Super. 351, 366 (App. Div. 1991) (citing Kassick v. Milwaukee Elec. Tool Corp., 120 N.J. 130, 135 (1990)).

Affirmed.

The total purchase price for the third boat set was lower than the contract price of $47,968 because plaintiffs were credited for some deleted parts.

Again, the paid amount of $25,825 is less than the contract first-installment-price of $27,968 because plaintiffs were credited for deleted parts.

The remaining balance of $20,000 for boat set four was paid in increments of $5,000 on October 26, November 3, 17, and 27, 2000.

Plaintiffs argue correctly that defendants' brief missed the thirty-day filing time frame required by R. 2:6-11(a). In addition, defendants also failed to move before this court for an extension, which was the correct procedure that should have been followed by counsel. See Gnapinsky v. Goldyn, 23 N.J. 243, 247 (1957). Nevertheless, because there was no prejudice to plaintiffs, the late brief substantially conformed to R. 2:6-9, and was filed only five days past the due date, we decline to suppress it. Instead, we caution defendants' counsel to pay greater attention to our rules in the future.

(continued)

(continued)

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A-6758-03T3

January 13, 2006