JOHN MCLAUGHLIN AND EMMY HSU MCLAUGHLIN v. BATRA CREATIVE HOMES, INC.

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0210-08T30210-08T3

JOHN MCLAUGHLIN AND

EMMY HSU MCLAUGHLIN,

Plaintiffs-Appellants,

v.

BATRA CREATIVE HOMES, INC.,

a New Jersey Corporation,

Defendant-Respondent.

 

Argued October 19, 2009 - Decided

 
Before Judges Lisa and Alvarez.

On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-3756-05.

Xiaosong Li argued the cause for appellants (Shain, Schaffer & Rafanello, attorneys; Marguerite Schaffer, of counsel, Nancy Stewart and Mr. Li, on the brief).

Stacy A. Santola argued the cause for respondent (Dell'Italia, Affinito & Santola, attorneys; Mr. Santola, of counsel and on the brief).

PER CURIAM

Plaintiffs John McLaughlin (McLaughlin) and Emmy Hsu McLaughlin, appeal from the May 9, 2008 judgment rendered in favor of defendant Batra Creative Homes, Inc., in the amount of $188,457 following a six-day bench trial completed in the months of November and December 2007. Plaintiffs also appeal the trial judge's decision to deny their motion for a new trial. When he denied the motion, the judge reduced the total award to $179,957. We conclude that the matter must be tried anew because the court failed to engage in necessary factfinding, and reached its legal conclusions in a factual void.

A lengthy discussion of the testimony developed during the trial is necessary. This despite our conclusion that the interests of justice would not be served were we to exercise our authority to make findings of fact "pursuant to the constitutional grant of necessary original jurisdiction and Rule 2:10-5." Pressler, Current N.J. Court Rules, comment 1 on R. 1:7-4 (2010). Ordinarily, we would consider the exercise of such jurisdiction because of the lengthy and burdensome litigation in which the parties have already engaged. The matter was tried over six days but not decided until months later. Justice would be better served, however, if the matter was tried anew, as we explain below, because for us to make findings of fact would require credibility determinations which should be made by the trier of fact. See State in re J.D.H., 336 N.J. Super. 614, 628 (App. Div. 2001); rev'd on other grounds, 171 N.J. 475 (2002).

The parties signed a lump sum contract for the construction of a new home for $650,000 on April 5, 2003. On that date, plaintiffs paid $65,000, the first installment. Plaintiffs initially purchased house plans through the internet; they were advised by Aswar Batra (Batra), defendant's principal, that substantial modifications would have to be made to the plans due to the unique topographical conditions of the wooded, nearly one-acre sloping lot they eventually chose. For $20,000, Batra contacted an architect, obtained revised plans, and together with plaintiffs shepherded the review of the plans by Roseland Borough (Borough) through to the issuance of a building permit. The $20,000 was paid prior to the signing of the contract and was not included in the contract price. The construction plans were approved and a building permit issued by the Borough on August 18, 2003. Batra did not pick up the permit until three weeks later on September 8, 2003.

It is undisputed that the contract was prepared by Batra. It did not include the cost for site preparation and contained only the following language as to the home's completion date:

9) Construction and Completion:

This contract is contingent on Contractor obtaining a building permit for the dwelling. Contractor will apply for any and all required permits, inspections, and certifications to enable it to build and convey the dwelling. It takes approximately eight to ten months from the start of the foundation to completion of a custom home of this complexity, subject to weather conditions.

In early October 2003, nearly a month after Batra picked up the building permit, a subcontractor began to clear trees from plaintiffs' lot. The parties had several conversations about the importance of preparing the lot quickly so that the foundation could be installed before winter, but it was not until late November that Batra hired a second subcontractor to grade the site.

The grading and excavation of the foundation area required the removal of many truckloads of topsoil, although the number is in dispute. After December 2003, work on grading the lot stopped until April 28, 2004. Batra proffered no explanation to plaintiffs for the delay, however, he testified that in April he then encountered problems with soil conditions at the site that required him to retain an engineer. He did so two months later in June 2004. Batra did not explain the reason for the delay in obtaining necessary engineering services either.

In June 2004, the foundation framing was finally installed and Batra deemed it ready to contain the poured concrete foundation. The site did not pass the first municipal inspection. After a second inspection on August 3, 2004, the Borough approved the framing for the installation of poured concrete foundation walls. On August 28, 2004, plaintiffs paid defendant an additional $65,000 as called for by the agreement because the foundation was complete.

The choice of foundation material itself generated much conflicting testimony at trial. Plaintiffs claimed that in November 2003, after workers began to clear the lot, Batra proposed switching the foundation material from cinder block to poured concrete so that installation could be finished before winter. McLaughlin testified that Batra said the "upgrade" would cost an additional $10,000, but that since Batra felt responsible for the delay, he would split the cost with plaintiffs. McLaughlin said Batra told him that his share of the additional costs would therefore only be $5000. McLaughlin agreed, believing that the change would expedite the project plus constitute an improvement to the design.

In contrast, Batra testified that it was McLaughlin's idea to change the foundation from block to poured concrete and that the change required additional design revisions that further delayed the project. He denied that the onset of winter was the impetus for the change in foundation material, claiming the real reason was that McLaughlin had been doing research on the internet and thought a poured concrete foundation was a better choice. Batra denied agreeing to split the cost with McLaughlin.

The parties' accounts of the termination of the contract are also at great variance. McLaughlin testified that in August 2004 he asked defendant to suspend work on the site so that plaintiffs could obtain construction financing. The bank inspection was completed by early September. Defendant worked on the site briefly thereafter, but did no work after September 22, 2004.

McLaughlin further testified that he asked Batra to resume work on the project after the bank completed its inspection, but that Batra did not respond to these requests. On the other hand, Batra testified that he became concerned after he heard nothing from plaintiffs in the fall of 2004 indicating that he should resume work. As a result, on December 8 and 14, 2004, he faxed plaintiffs forms requesting that they finalize their choices of windows, roofing, doors and other details for the home. The faxes stated that the selections were necessary "before we start the next phase of construction."

McLaughlin's perspective was that the faxed notices were sent because Batra realized plaintiffs were dissatisfied with his performance, that the notices were backdated and were not related to the unconscionable delay in construction. One notice also advised that previously submitted "change orders" had to be signed and paid in full before work would proceed further.

Both parties agreed that Batra would present plaintiffs with invoices, captioned "change orders," for the payment of services not specified in the contract. The first change order related to the site preparation work, including the removal of trees, and came to $44,500. Plaintiffs paid $14,500 towards this bill on September 27, 2003 and paid the balance of $30,000 on November 7, 2003.

The second change order was for $55,280 and included both site preparation and the upgrade from a cement block foundation to a poured concrete foundation, for which an additional $17,280 was charged. Plaintiffs paid $41,340 of this second invoice on August 17, 2004; it is unclear why the remaining balance of $18,140 was not paid.

The third change order, totaling $37,917, again included site preparation work. It also authorized an upgrade to steel beams in the basement instead of wooden beams, and a $25,000 charge for engineered lumber for higher grade joists and "lumber price increase." In other words, Batra charged plaintiffs an unspecified amount for anticipated increases in lumber prices due to the delay in the start of construction. It is not clear who suggested the change to steel beams and higher grade joists, as McLaughlin and Batra disagreed on this point. The change order, dated November 3, 2004, was neither signed nor paid by plaintiffs.

In summary, plaintiffs paid approximately $210,340 for a graded site and a foundation, and an additional $25,550 for the revision of architectural plans originally purchased on the internet. Plaintiffs terminated their relationship with defendant by letter from an attorney dated December 22, 2004. They subsequently filed a complaint and amended complaint alleging breach of contract and fraud, among other things. Defendant filed an answer and counterclaim seeking payment of the outstanding balances on the change orders and damages for breach of contract.

Batra testified during the trial that his anticipated profits were thirty percent of the contract price, exclusive of his actual time or overhead. He therefore sought thirty percent of $520,000, the unpaid balance on the contract price, or $156,000, as damages.

On May 9, 2008, the trial judge issued an oral decision. He awarded defendant the $13,940 balance on the second change order, a $4317 permit fee included in the third change order, $4900 for thirty-five loads of dirt removed from the site as listed on the third change order, $8500 that defendant claimed he paid out-of-pocket for engineering work necessary to grade and clear the property, and lost profits of $156,000.

The only specific findings as to credibility and weight of testimony the judge made related to defendant's expert witness's estimate of the number of truckloads of topsoil that had to be removed from the site versus the testimony of plaintiffs' expert on the subject. The judge accepted the testimony of defendant's expert on this issue because plaintiffs' expert did not visit the site, and, in the judge's view, his testimony conflicted with that of other witnesses.

No factual findings were made regarding other key issues, including the credibility of McLaughlin and Batra. Despite the length of the decision, the judge focused mainly on the written language of the contract and the problems in grading the site. He concluded, with little explanation, that plaintiffs "inappropriately terminated the contract to the detriment of the defendant."

The judge opined that even considerable delay would "not preclude the enforcement of a contract if there are no special circumstances indicating that prompt performance was essential and no express provision require[ed] such performance." The judge considered the eight-to-ten-month completion time frame after the installation of a foundation to be the only time frame relevant to the adjudication of the dispute. Because the foundation was not completed until August 2004, and defendant was discharged in December 2004, he perceived plaintiffs to have violated the contract and defendant to be in compliance. He characterized the terms of the contract as clear and unambiguous, and said that he was without the authority "to rewrite a contract merely because it might have been drafted differently or to make a better contract in the event that the contract should have been better or might have been better for the parties than they themselves have [seen] fit to enter into." The judge also found that defendant's testimony about lost profits, the only evidence proffered on this point, was "essentially uncontroverted by the plaintiff as being unreasonable or inconsistent with industry standards in the construction industry."

At oral argument on the motion for a new trial, conducted on August 15, 2008, the court agreed with plaintiffs' attorney that, in order to decide the issues presented at the trial, he had to determine whether the time in which defendant was performing under the terms of the contract was reasonable. He said:

the Court's findings are implicit or it would not have granted the relief that it did if it did not find as it did and particularlize the events which led it to conclude that any delay on the part of the defendant was entirely reasonable under the circumstances.

The judge again limited his analysis to a discussion of the timeline in the written contract and the nature of the site. The only relief he extended to plaintiffs was to reduce the judgment by the $8500 he previously allowed defendant for engineering fees.

Rule 1:7-4(a) requires a trial court to "find the facts and state its conclusions of law thereon in all actions tried without a jury." As reiterated in Curtis v. Finneran, 83 N.J. 563 (1980), courts are obliged to make findings of fact:

In a non jury civil action, the role of the trial court at the conclusion of the trial is to find the facts and state conclusions of law. R. 1:7-4. Failure to perform that duty "constitutes disservice to the litigants, the attorneys and the appellate court." Kenwood Assocs. v. Bd. of Adj. Englewood, 141 N.J. Super. 1, 4 (App. Div. 1976). Naked conclusions do not satisfy the purpose of R. 1:7-4. Rather, the trial court must state clearly its factual findings and correlate them with the relevant legal conclusions.

[Id. at 569-70.]

The trial judge did not correlate factual findings with relevant legal conclusions, nor could he, as he made virtually no factual findings. He did not even mention, for example, the ten or eleven months it took defendant to clear and grade the site and install the foundation, and whether that initial delay was reasonable. Plaintiffs also contended that defendant breached the duty of good faith and fair dealing, and violated the Consumer Fraud Act, by charging sums which greatly exceeded the written contract. The trial judge did not explain his out-of-hand dismissal of these claims either. He did not explain why he entirely rejected McLaughlin's testimony, or why he found Batra's testimony credible and reasonable.

In some instances, a contractor's testimony about lost profits alone will be sufficient to establish the amount of damages. See RSB Lab. Servs., Inc. v. BSI Corp., 368 N.J. Super. 540, 555 (App. Div. 2004) (stating that lost profits may be awarded with a "reasonable degree of certainty."). In this case, however, the award was made on nothing more than defendant's bald assertions. There have to be some facts presented which support the claim of loss and justify the measure of damages awarded. V.A.L. Floors, Inc. v. Westminster Cmty., Inc., 355 N.J. Super. 416, 424-25 (App. Div. 2002) (citations omitted). Batra did not support his entitlement to thirty percent of the contract price as lost profits, nor did the judge discuss what aspect of Batra's testimony led him to award him $156,000. On this issue, the judge impermissibly shifted the burden of proof. Rather than compelling defendant to prove its measure of damages, he imposed upon plaintiffs the burden to disprove it.

Without resolution of the crucial question of credibility as between McLaughlin and Batra, and the many important facts and circumstances upon which they disagreed, we cannot decide whether the conclusions of law reached by the trial court are warranted. The factual conflicts between would-be homeowners and contractor are at the very heart of this litigation. Without some assessment as to credibility, at the least, we simply cannot fairly assess the merits of the judge's legal conclusions. We cannot discern whether the dismissal of plaintiffs' complaint and the award of damages to defendant on virtually every item he requested are sustainable.

Even where a "contract on its face is free from ambiguity," evidence of external circumstances are always admissible. Conway v. 287 Corp. Ctr. Assocs., 187 N.J. 259, 269 (2006) (quoting Atl. N. Airlines v. Schwimmer, 12 N.J. 293, 301-02 (1953)). In this case there were ample proofs of external circumstances against which the reasonableness of defendant's delay and billings, and accordingly, the reasonableness of plaintiffs' termination of the contract, should have been measured. Although evidence of external circumstances was admitted, the admission was fruitless, as the judge ignored the information. We therefore vacate the judgment dismissing plaintiffs' complaint and awarding defendant damages, and remand for a new trial.

 
Reversed and remanded.

Plaintiff may have actually paid defendant a total of $25,500 for "architect and engineering" costs plus additional services rendered by Batra before the contract was signed. The basis for payments over $20,000 is unclear to us after our review of the record. Furthermore, Batra acknowledged during the trial that he only paid the architect $8800 of this sum, keeping the balance for himself. This fact was not disclosed to plaintiffs at the time; they assumed the full $20,000 was paid to the architect.

(continued)

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A-0210-08T3

February 5, 2010