JOSEPH MANZO v. AFFILIATED BUILDING CORPORATION, et al.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-6942-03T56942-03T5

JOSEPH MANZO,

Plaintiff-Appellant,

v.

AFFILIATED BUILDING CORPORATION,

a/k/a AFFILIATED BUILDING CORP.,

a Corporation of the State of

New Jersey,

Defendant-Respondent/

Cross-Appellant.

_________________________________

CONSOLIDATED WITH:

_________________________________

JOSEPH MANZO,

Thirty Party Defendant/

Fourth Party Plaintiff

v.

GEORGE B. ATKINSON, AFFILIATED

BUILDING CORPORATION and

JEFFREY MILLER,

Fourth Party Defendants.

_________________________________

 

Argued December 6, 2005 - Decided August 21, 2006

Before Judges Kestin, Lefelt and Seltzer.

On appeal from the Superior Court

of New Jersey, Law Division, Middlesex

County, L-5766-96.

Lee W. Shelly argued the cause for appellant.

Fred S. Dubowsky argued the cause for respondent.

PER CURIAM

Plaintiff, Joseph Manzo, and defendant, Affiliated Building Corporation, cross-appeal from portions of a judgment after a bench trial resolving issues arising from the sale of property from plaintiff to defendant. We affirm the judgment in part and reverse in part on plaintiff's appeal. We affirm the judgment on defendant's appeal.

We consider first the appeals as they relate to the equitable issues. Those appeals concern the judge's determination that plaintiff had breached the covenant of good faith and fair dealing contained in a contract of sale with defendant and the judge's consequent reformation of that contract to postpone the time at which defendant was to pay interest on the purchase price and taxes on the property. Plaintiff appeals those determination in full and defendant appeals the length of the postponement.

This litigation has an extremely complicated procedural history. The relationship of the parties began in 1991 when plaintiff sold nine building lots on Fern Road in East Brunswick to defendant for $1,485,000. The purchase price was paid by the delivery of two notes secured by mortgages. In 1996, plaintiff instituted an action alleging default on the notes. That litigation was settled on December 22, 1997, before Judge Richard Rebeck. The settlement required defendant to recognize a debt to plaintiff in the total amount of $1,960,000. That figure comprised the original debt of $1,485,000, augmented by a $135,000 increase in the purchase price; an additional $125,000 representing settlement of unrelated claims; and an additional loan of $215,000 from plaintiff to defendant. The new debt was to be secured by a mortgage on the Fern Road property and an additional mortgage on other lots owned by defendant in a development known as "Chateau Royale."

During the settlement discussions, the judge found: "plaintiff represented that he had obtained final subdivision approval, installed all improvements then capable of being installed and bonded the remaining improvements." Accordingly,

the settlement required interest to accrue on the $215,000 when it was delivered and on the balance when Manzo delivered a filed subdivision map and the necessary performance bond. Defendant was to pay real estate taxes.

A stipulation of settlement was drafted, and modified, by counsel. On February 26, 1998, plaintiff and defendant met without counsel. They modified the draft agreement as described by the judge in his opinion:

As previously noted, the settlement placed on the record called for the payment of interest on the $215,000 in "new money" to run from the date on which it was received and for the interest on the remainder to run from the filing of the subdivision map. At page 4, the draft stipulation of settlement had modified those terms to the extent that the interest on the bulk of the loan was to run from the recordation of the new mortgage agreement and the issuance of a title binder by the title company. Although that language was not crossed out when the settlement agreement was signed, both parties initialed a statement in the margin to the effect that the interest and taxes would "commence" "as of" February 1, 1998, i.e., 25 days prior to the date on which the document was signed. They also initialed a statement in the margin on page 4 to the effect that [defendant's principal] Miller received the $215,000 in "new money" on February 27, 1998.

On page 8, the signature page, the parties also signed their names under the following handwritten language: "The intent of the within agreement is that the parties [crossed out word illegible] Manzo will deliver to Miller 9 final improved lots as per Twsp. requirement + or bond those items not improved."

That same evening, Miller signed the subdivision map and Marilyn Manzo, who is a notary and an attorney, notarized his signature. Marilyn Manzo retained the now- signed map in her possession after Miller signed it. At trial, Manzo sought to shift the blame for delay with respect to the filing of the map by asserting that Miller did not bother to sign it for two months. In fact, it was Manzo who was responsible for the substantial delay in filing the map, as discussed in more detail below.

Our recitation of the evidence with respect to the subdivision map may be truncated somewhat. Although the intent of the agreement was to provide defendant with "9 final improved lots," and although the map necessary to provide those lots was signed by defendant on February 26, 1998, and by all necessary municipal officials by July 2, 1998, it was not filed until September 18, 1998.

During the period between February 26, 1998 and September 18, 1998, plaintiff and defendant were engaged in disputes respecting the execution of the mortgage required by the settlement, the payment of taxes by defendant and the filing of the map by plaintiff. Ultimately, defendant executed the mortgage encumbering the Chateau Royale property and the accompanying note. Those documents were returned to plaintiff on August 19, 1998 with instructions to hold them "in trust until such time as [defendant] has a filed map representing final approval of the Fern Road property." Despite those instructions, plaintiff recorded the mortgage although he did not file the map.

The municipality had indicated it would not file the map until real estate taxes had been brought current. Accordingly, plaintiff advised defendant that the map would not be filed until defendant paid approximately $11,000, which plaintiff took to be defendant's share of the taxes on the Fern Road property since February 1, 1998. Defendant did not forward those taxes because he felt he was entitled to, but had not received, "good title to the property, and a building permit." As the expiration of the approvals approached, plaintiff paid the taxes in order to get the map filed. The taxes were paid on September 17, 1998, and the map was filed on September 18, 1998. Plaintiff, however, waited until October 26, 1998, to advise defendant that "[t]he maps are filed and building permits can be issued." Defendant finally received a building permit on November 18, 2000.

Defendant did not pay interest or real estate taxes and, in March 1999, moved for specific performance of the settlement and for an order suspending its obligation to pay interest and taxes. After a hearing on the motion, Judge Rebeck determined that defendant was in default of the August 1998 note and mortgage by virtue of a failure to pay taxes and interest. He entered an order denying enforcement of the settlement and restoring the case to the active trial list.

Cross-motions for summary judgment were filed and heard by another judge who denied both motions. That judge found that Judge Rebeck had not resolved all of the issues. Instead, the second judge explained that defendant had recently amended its pleading to assert that plaintiff had fraudulently induced the settlement. That claim had not been before Judge Rebeck. When the matter was finally tried, the trial judge explained his understanding of Judge Rebeck's action: "In my view, Judge Rebeck did not set the settlement aside. He merely determined that it could not then be enforced at that time and that the matter would need to be tried. The issues then become (1) what are the terms of the settlement agreement and (2) which party, if either, breached it."

Those issues were then tried and the judge issued a comprehensive written decision on January 13, 2004, finding that plaintiff had breached the covenant of good faith and fair dealing implied in the settlement agreement. See Sons of Thunder, Inc. v. Borden, Inc., 148 N.J. 396, 420 (1997). Specifically he found that plaintiff's delay in recording the subdivision map was unexplained:

I have received no satisfactory explanation of why Manzo waited until September 19, 1998 to have the subdivision map filed. If Manzo's representations about municipal approvals as of February 26, 1998 were correct, he could have filed the map on or shortly after February 27, 1998. At that time, the unpaid real estate taxes would have been minimal and mostly Manzo's obligation in any event. If the required municipal signatures were merely ministerial acts by that time, the fact that he did not request them until late June demonstrates, at best, extreme dilatoriness. If they were not, then it would appear that Manzo's representations that all municipal approvals had been obtained were not accurate.

He took this to be an example of plaintiff's breach of the covenant of good faith and fair dealing:

I am satisfied from the evidence adduced at trial that Manzo's conduct in a number of areas breached the implied covenant of good faith and fair dealing with respect to the settlement agreement. The primary example of this conduct is Manzo's failure to have the subdivision map recorded in a timely fashion, as discussed at some length above. Because there was no filed map, Affiliated was unable to obtain any building permits on the Fern Road property until 1999, thereby losing an entire building season. As a consequence, his ability to generate cash from the sale of Fern Road properties was impaired, which in turn impaired his ability to pay taxes and interest. Another prime example of the breach was the unauthorized recording of the mortgage sent to Shelley "in escrow" prior to the filing of the subdivision map. It is clear to me that Manzo was seeking to have the benefit of his bargain, while frustrating Affiliated's ability to have the benefits he expected. Manzo also failed repeatedly to provide Affiliated with documentation requested by Dubowsky. Indeed, even after the subdivision map was filed, Manzo failed to give Affiliated a copy despite repeated requests.

He rejected plaintiff's explanations as "not worthy of credence" and described plaintiff as "not a convincing witness at trial." Finally, he explained his determination to reform the settlement agreement to postpone the obligation of defendant to pay taxes and interest:

Affiliated's obligation for real estate taxes and interest on the purchase price was, according to a handwritten change to the settlement agreement, to "commence" "as of" February 1, 1998. However, as explained above, Affiliated was not able to obtain a building permit until the subdivision map was filed, and the ability to do so was a basic premise of the parties' agreement. Although the map was filed on September 18, 1998, Affiliated was not given a copy or even notified that the map was filed at that time. Notice of filing was not given to Affiliated until Shelly's October 26, 1998, letter to Dubowsky (Exhibit P-19). By that time, the building season was over for all practical purposes. Inasmuch as Affiliated entered into the settlement agreement on February 26th, before the 1998 building season began, it would be appropriate to begin the running of interest and real property taxes as of February 26, 1999. By that time, Affiliated had received the benefit of the bargain in that it could obtain building permits on the property.

On appeal, plaintiff asserts:

POINT I

THE COURT'S FINDING THAT THE PLAINTIFF BREACHED HIS OBLIGATION OF GOOD FAITH AND FAIR DEALING WHILE NOT FINDING THE DEFENDANT TO BE IN DELIBERATE BREACH OF THE SETTLEMENT AGREEMENT CONSTITUTES REVERSIBLE ERROR.

POINT II

THE COURT'S REFORMATION OF THE AGREEMENT AND THE NOTE AND MORTGAGE CONSTITUTES REVERSIBLE ERROR; THERE WAS NO CLEAR AND CONVINCING EVIDENCE OF UNCONSCIONABLE CONDUCT BY MANZO.

POINT III

THE COURT ERRED IN FAILING TO APPLY THE LAW OF THE CASE IN ITS DENIAL OF THE PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT.

POINT IV

THE COURT'S AWARD OF $20,000.00 (A CREDIT AGAINST THE AMOUNT DUE MANZO) TO THE DEFENDANT WAS SPECULATIVE AND CONSTITUTES REVERSIBLE ERROR.

We reject plaintiff's argument, in Point III, that he was entitled to summary judgment as a result of Judge Rebeck's determination that Affiliated had breached its obligation to pay taxes. Plaintiff asserts that his entitlement is compelled as a result of the law-of-the-case doctrine. That doctrine requires, that "in some situations during the pendency of a case . . . one court's decision of law be respected by lower or equal courts." A.T.L. Employers v. Chartwell Manor, 280 N.J. Super. 457, 470 (App. Div. 1995) (citing State v. Reldan, 100 N.J. 187, 203 (1985). The doctrine, however, must be "applied flexibly to serve the interests of justice." State v. Reldan, 100 N.J. 187, 203 (1985).

The doctrine is discretionary and no court is "irrevocably bound by its prior interlocutory ruling." Sisler v. Gannett Co., 222 N.J. Super. 153, 159 (App. Div. 1987), certif. denied, 110 N.J. 304 (1988). This is especially true when the judge presiding over the trial has "a newly developed basis in fact, law or context upon which to revisit a ruling made in the pretrial stage." Higgins v. Swiecicki, 315 N.J. Super. 488, 492 (App. Div. 1998) (citing Hart v. City of Jersey City, 308 N.J. Super. 487, 498 (App. Div. 1998)). Given those considerations, we think it evident that there was no violation of the doctrine.

The trial involved considerations not present when the motion for summary judgment was decided. At trial, the parties were focused on whether defendant's admitted failure to pay taxes and interest was excused by virtue of plaintiff's action. The pleadings before the trial judge included an amended counterclaim asserting that plaintiff "fraudulently induced [defendant] to enter into the settlement," a claim that was not before Judge Rebeck. Moreover, the trial judge did not disagree with Judge Rebeck's finding that defendant had not breached the contract; rather, he found only that the breach was justified. The motion for summary judgment was properly denied.

Our review of the record in light of the arguments raised convinces us that plaintiff's contentions with respect to the reformation do not warrant our intervention. The judge's factual findings are well supported by substantial credible evidence in the record and the conclusions that he drew from those findings are appropriate. There is no basis for us to disturb either his findings or his conclusions. Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 483-84 (1974).

Defendant argues that there was no basis to reform the contract by delaying the clear contractual provisions respecting time for payment of interest and taxes. His reliance on the language in Rudbart v. Water Supply Com'n, 127 N.J. 344, 366 (1992) (the principle of fair dealing "will not alter the terms of a written agreement [.]") is misplaced. That language was not intended to suggest that the breach of the covenant cannot support reformation. Reformation is a recognized remedy to correct prejudice visited on a contracting party by virtue of a unilateral mistake accompanied by unconscionable conduct by the other party. St. Pius House of Retreats v. Diocese of Camden, 88 N.J. 571, 577 (1982). The trial judge was well within his discretion to reform the contract.

On its cross-appeal, defendant argues that its obligation to pay interest and taxes should have been further delayed. We disagree. By commencing that obligation one year after the map should have been filed, the judge placed defendant in the position it should have occupied had plaintiff acted in good faith; defendant cannot reasonably expect more. The judge's equitable resolution of the problem was both within his discretion and well-conceived. We affirm the judge's resolution of the equitable issues substantially for the reasons set out in his January 13, 2004, written decision.

We believe, however, that the judge erred in awarding the credit for grading. Plaintiff was responsible for grading the property. When he failed to do so, defendant graded the property and sought a credit for his expense. The parties agreed that defendant had done the work. Defendant testified that he had done the work at a cost of approximately $40,000. The work involved moving 8,500 cubic yards or 500 truckloads of dirt, which plaintiff asserted should have cost no more than $1,200 to $1,300. The judge awarded $20,000. Although Affiliated was not required to prove damages with exactitude, Bor. of Ft. Lee v. Banquenat'l de Paris, 311 N.J. Super. 280, 291 (App. Div. 1998), there must be some evidential basis for a damage award. McConkey v. Aon Corp., 354 N.J. Super. 25, 58 (App. Div. 2002), certif. denied, 175 N.J. 429 (2003). Here, the judge was faced with testimony indicating the cost of grading was either $40,000 or $1,300- $1,800. There was simply no evidential support for finding of damages in the amount of $20,000. We believe that award may not stand.

The July 15, 2004 judgment is affirmed in all respects other than the award of $20,000 contained in paragraph 5 of the judgment, as to which it is reversed.

 

The Appellate brief filed by Joseph Manzo designated Manco, Inc. as a plaintiff-appellant but neither the Complaint, the Amended Complaint, nor the Notice of Appeal identify Manco, Inc. as a party.

While this suit was pending in Middlesex County, a separate action was instituted in Monmouth County. That action ultimately included a fourth-party complaint by plaintiff against defendant relating to notes executed by defendant. The fourth-party action was severed from the balance of the Middlesex litigation and consolidated here. The record does not clearly reveal the resolution of all issues raised in the fourth-party action and it is possible that not all issues as to all parties have been resolved. That would render this appeal interlocutory. Nevertheless, given the minimal nature of the possibly unresolved claims, we have determined, to the extent necessary, to grant leave to appeal. See Mango v. Pierce-Coombs, 370 N.J. Super. 239, 245 n.1 (App. Div. 2004).

This appears to be a reference to the time at which defendant might apply for permits. The first permit was actually issued on November 18, 2000.

(continued)

(continued)

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A-6942-03T5

 

August 21, 2006