Opinion
DOCKET NO. A-2914-14T1
06-30-2015
THOMAS P. LYDON, JR. and SHARON K. LYDON, Plaintiffs-Appellants, v. PCAM ASSOCIATES, INC., Defendant-Respondent.
Scott T. Tross argued the cause for appellants (Herrick, Feinstein L.L.P., attorneys; Mr. Tross and Elena T. McDermott, on the briefs). David B. Newman of the New York and Florida bars, admitted pro hac vice, argued the cause for respondent (Day Pitney, L.L.P., attorneys; Marco A. Anzalone and Mr. Newman, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Fisher and Accurso. On appeal from Superior Court of New Jersey, Chancery Division, Monmouth County, Docket No. C-137.14. Scott T. Tross argued the cause for appellants (Herrick, Feinstein L.L.P., attorneys; Mr. Tross and Elena T. McDermott, on the briefs). David B. Newman of the New York and Florida bars, admitted pro hac vice, argued the cause for respondent (Day Pitney, L.L.P., attorneys; Marco A. Anzalone and Mr. Newman, on the brief). PER CURIAM
Plaintiffs Thomas and Sharon Lydon appeal on leave granted from an order of the Chancery court granting defendant PCAM Associates, Inc.'s motion to strike their claims for specific performance and declaratory judgment and vacating a lis pendens plaintiffs filed against the property on which defendant had agreed to construct a custom-built $2.3 million home to be conveyed to plaintiffs. Because we believe the court erred in determining that specific performance was not an available remedy under the circumstances, we reverse.
In spring 2013, the parties entered into a contract in which plaintiffs agreed to purchase a custom-designed, single-family home to be constructed by defendant on a lot in Sea Girt. The contract obligated defendant to construct the home "substantially in accordance with the plans and specifications of the Project Architect, except for extras specifically authorized by the Seller," and required notification and approval by the buyer of any materials substituted by the seller due to unavailability.
After construction began in fall 2013, plaintiffs claim defendant made "changes to the plans and specifications without [plaintiffs'] approval." They came to believe defendant was substituting inferior materials for those specified in the plans in order to save money. By summer 2014, plaintiffs concluded defendant had no intention of correcting deviations from the plans and specifications or permitting plaintiffs to meet with the project architect and builder at the property, and would not put in place plaintiff's selections without additional payments.
In early August, plaintiffs filed an eight-count complaint in the Chancery Division seeking specific performance of defendant's obligation to construct the home in accordance with the plans and specifications, and a declaratory judgment obligating defendant to construct the home accordingly and to honor plaintiffs' selections without additional charge and asserting claims for breach of contract, breach of the implied covenant of good faith and fair dealing, violation of the Consumer Fraud Act, legal and equitable fraud, negligent misrepresentation and unjust enrichment. Plaintiffs also filed a notice of lis pendens against the property. Defendant answered and counterclaimed alleging breach of contract, fraud and tortious interference.
Defendant obtained a certificate of occupancy in October and set a time of the essence closing for November 13. Although plaintiffs attended the final walk through on that day, they refused to close title, instead submitting a letter containing 187 items they considered unfinished. Plaintiffs conducted a formal inspection of the house with their construction expert on December 16. The expert concluded that "the house on which [plaintiffs] were asked to close was quite simply not the custom-designed house that [defendant] agreed to deliver. There were substantial deviations from the plans and specifications and custom selections were ignored for no good reason." The expert concluded that the home was not ready for closing in accordance with the parties' contract.
Shortly after the pleadings closed, defendant moved to strike plaintiffs' claims for specific performance and a declaratory judgment and to vacate the lis pendens. It claimed that the case "involves nothing more than a breach of a contract for the purchase and sale of real estate," and because plaintiffs "are not ready, willing and able to close title, [defendant] needs the ability to sell the house to a third party and to pursue the breach of contract litigation for as long as it takes." Defendant claimed that plaintiffs "have an adequate remedy at law and that is for damages. If they chose to close title, the damages would be the difference in value between the house as constructed and the house as [plaintiffs] claim it should have been if built in accordance with the plans and specifications. If they do not close title, their damages, if proven, would be all the out-of-pocket expenses incurred in connection with the house. In either scenario, [plaintiffs] would be made whole."
The trial judge, relying on "a general principle that courts of equity will not supervise building or construction contracts, Becker v. Sunrise at Elkridge, 226 N.J. Super. 119, 127 (App. Div.)[, certif. denied, 113 N.J. 356 (1988)]," and declining to find this home "a unique piece of property," dismissed the claims for specific performance and declaratory judgment. Finding the remaining claims limited to monetary relief only, the court discharged the lis pendens. We granted plaintiffs' motion for leave to appeal, stayed the discharge of the lis pendens and now reverse.
We review an order issued pursuant to Rule 4:6-2(e), failure to state a claim, using the same standard that governs the trial court. Borough of Seaside Park v. Comm'r of N.J. Dept. of Educ., 432 N.J. Super. 167, 200 (App. Div.), certif. denied, 216 N.J. 367 (2013). The trial judge dismissed plaintiffs' claim for specific performance because she deemed the remedy unavailable as a matter of law. Although plaintiffs sought a judgment "[d]irecting [defendant] to construct the home substantially in accordance with the plans and specifications," and there are cases holding that courts of equity "will not ordinarily undertake to enforce the performance of so-called building and construction contracts," Lester's Home Furnishers, Inc. v. Modern Furniture Co., 1 N.J. Super. 365, 368 (Ch. Div. 1948), we think the trial judge took too narrow a view of this dispute.
The principle behind courts of equity refusing specific performance of construction contracts is the difficulty in rendering a judgment detailing the specifications for the work and supervising its performance. See Fleischer v. James Drug Stores, Inc., 1 N.J. 138, 148 (1948) ("Equity may decline jurisdiction where the execution of its decree for specific performance would entail continuing and constant superintendence over a considerable period of time."). Here, however, as evidenced by the certificate of occupancy, construction of this home, at least from the seller's perspective was complete. More important is that the great weight of authority in New Jersey holds that specific performance in the context of real estate contracts is not only permitted, but presumed, because real property is deemed to be "unique." Mesa Dev. Corp., VIII v. Meyer, 260 N.J. Super. 363, 367 (App. Div. 1992) ("A recognition of the uniqueness of land has given rise to a 'virtual presumption' of the inadequacy of monetary damages to a buyer whose contract for the purchase of land has been breached by a seller.") (internal citations omitted).
While the ability of the court to render an effective judgment is, of course, important, the right to specific performance in the first instance turns on whether plaintiffs have an adequate remedy at law.
Equity's jurisdiction to award specific performance of a contract is exercisable unless the remedy at law is adequate and complete and as efficient as the remedy of specific enforcement. In the language of Lord Selborne, the ruling principle is that specific performance will be given if it will "do more perfect and complete justice." The "foundation and measure" of the jurisdiction, said Professor Pomeroy, "is the desire to do justice, which the legal remedy would fail to give" - complete justice to both parties "with respect to all the judicial relations growing out of the contract between them." Pomeroy's Equity Jurisprudence (5th ed. 1941) section 1401.
[Fleischer, supra, 1 N.J. at 146 (internal citations omitted).]
We think it obvious that plaintiffs' remedy at law, namely damages, would not be as adequate, complete or efficient as specific performance. Plaintiffs engaged defendant to build a highly customized house on a particular lot in Sea Girt. It is not disputed that they spent hundreds of hours developing plans with the project architect and choosing the fixtures and finishes to be installed. No further proof of "uniqueness" was required. Pruitt v. Graziano, 215 N.J. Super. 330, 331 (App. Div. 1987) ("Presumptively, real property is unique and damages at law are an inadequate remedy for breach of a contract to sell it. A factual resolution of uniqueness of the real property is immaterial."). Because we conclude that specific performance is an available remedy as a matter of law under these circumstances, we reverse the trial court's finding that plaintiffs failed to state a claim for specific performance.
Defendant has asserted that plaintiffs are not entitled to specific performance as they have not been ready, willing and able to perform. See Stamato v. Agamie, 24 N.J. 309, 316 (1957) ("[T]he general rule is that he who seeks performance of a contract for the conveyance of land must show himself ready, desirous, prompt, and eager to perform the contract on his part.") (quoting Meidling v. Trefz, 48 N.J. Eq. 638 (E. & A. 1891)). Although it is certainly true that "[s]pecific performance is not usually available to a party that is in material breach of its contractual obligations," Ballantyne House Assocs. v. City of Newark, 2 69 N.J. Super. 322, 336 (App. Div. 1993), if "a party's non-performance is occasioned by the wrongful conduct of the party against whom the remedy is sought, a decree of specific performance may be appropriate." Ibid.
Accordingly, while a buyer seeking specific performance must demonstrate an ability to perform, so too must the seller who demands a time of the essence closing. Marioni v. 94 Broadway, Inc., 374 N.J. Super. 588, 605 (App. Div.), certif. denied, 183 N.J. 591 (2005). Here plaintiffs had already instituted suit claiming that defendant was in breach of its contractual obligations months before defendant demanded a time of the essence closing. Plaintiff obtained the report of a construction expert within weeks of that closing date asserting that defendant had substantially deviated from the plans and specifications and that the home was not ready for closing in accordance with the parties' contract.
Whether the house was built in conformance with the plans and specifications is at the heart of the dispute between the parties. Defendant cannot equitably defeat plaintiffs' claim for specific performance at the pleading stage of the litigation by asserting plaintiffs' failure to close in accordance with its time of the essence notice when plaintiffs have raised a genuine issue as to whether defendant was delivering the building promised. See ibid. ("To seek the forfeiture of the purchaser's equitable title, the seller must act equitably.").
At the motion hearing before the trial court and at oral argument in this court, plaintiffs expressed their willingness to accept the property with an abatement of the purchase price. Specific performance with an abatement of price is an established remedy, one which may be particularly appropriate here because construction has already been completed. Koppel v. Olaf Realty Corp., 56 N.J. Super. 109, 120 (Ch. Div. 1959) ("It has been repeatedly held in this State that there may be a specific performance of a contract involving the building and sale of a house, with an abatement of the purchase price for uncomplete or improper workmanship in the building by the builder."), aff'd, 62 N.J. Super. 103 (App. Div. 1960).
We direct the trial court to hold a hearing to determine whether plaintiffs are ready, willing and able to close title with an abatement, and if they are, to order specific performance with an appropriate sum to be held in escrow pending resolution of their dispute. Because we conclude that relief under the Declaratory Judgments Act is no longer available at this stage of the proceedings, we affirm the dismissal of that claim. See Ballantyne, supra, 269 N.J. Super. at 331 (noting that "[w]hen 'the parties have reached a stage where rights under a contract have been breached, relief under the Declaratory Judgments Act is unavailable'") (quoting Rego Indus. Inc. v. Am. Modern Metals Corp., 91 N.J. Super. 447, 453 (App. Div. 1966)) (alterations omitted).
Affirmed in part, reversed in part, and remanded for further proceedings consistent with this opinion. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION