ESTOK CORP MIDDLESEX TRENCHING CO v. SOLARIS HEALTH SYSTEM INC (2010)

This appeal follows a bench trial on a complaint filed by plaintiff Estok Corp., t/a Middlesex Trenching Co. (Middlesex), and a counterclaim filed by defendant O.A. Peterson Construction Co. (Peterson).  Peterson, the general contractor on a project to demolish and rebuild a nursing school for Solaris Health System, Inc.,¹ retained Middlesex as the subcontractor responsible for site work that included grading and installation of walkways, curbing and a parking lot.   Middlesex commenced this litigation and left the job before completing the work.   Peterson thereafter retained a second subcontractor to complete the work.

Middlesex initially alleged that Peterson breached the parties' contract by failing to pay for additional work.   Peterson asserted that Middlesex breached by improperly performing some of its work and failing to complete the job.   In defense to Peterson's claim of breach, Middlesex asserted that its failure to perform was excused by Peterson's interference.

After a trial on the competing claims, the judge dismissed Middlesex's complaint with prejudice;  rejected Middlesex's defense of excuse;  awarded Peterson $232,826 in damages to cover the amount Peterson paid to have the unfinished work completed and Middlesex's non-conforming work fixed;  deducted $173,922.30 that Peterson would have owed Middlesex if it completed the job;  and entered a $60,894 judgment in favor of Peterson.   Middlesex appeals.

Judge Brock provided detailed factual findings and stated her legal conclusions in a written opinion issued with the judgment on July 21, 2009.   The judgment is supported by substantial credible evidence in the record, and, for that reason, we affirm.   R. 2:11-3(e)(1)(A).

We provide a brief discussion of the issues raised on appeal.   Middlesex contends:

I.  THE COUNTERCLAIM AWARD TO DEFENDANT

BASED UPON PLAINTIFF'S ALLEGED BREACH OF CONTRACT SHOULD BE REVERSED DUE TO THE LEGAL DOCTRINE OF EXCUSE.

II. UNDER THE DOCTRINE OF ESTOPPEL,

DEFENDANT IS PRECLUDED FROM REFUSING PAYMENT FOR UPGRADES TO [THE] STAMPED CONCRETE WALKWAY [THAT MIDDLESEX INSTALLED BEFORE LEAVING THE JOB].

Our discussion of the facts is limited to those pertinent to the issues raised.   Middlesex's claim of excuse is based on a disagreement about the adequacy of the compacting of the subsurface over which Middlesex was to lay pavement for the final parking lot.   The dispute was between the principals of these companies, William Gulya, the president of Middlesex, and John C. Peterson, the owner of Peterson.   Middlesex did its work in stages, and when Gulya returned to pave the final parking lot, he thought the grade elevation in the area was higher than he had left it.   He suspected that the contractor responsible for compacting the subsurface had not followed the contract's specifications.

The vice president in charge of Solaris's facilities had observed the compacting.   He was satisfied with the method used and the result obtained.   Accordingly, Solaris did not require Peterson to test or have the subcontractor test for compliance with the specified compaction rate.

There was conflicting testimony about Gulya's allegation that the elevation of the grade in the parking lot had changed since he was last on site.   Peterson admitted that there was a small area that Middlesex had graded during an earlier phase of the project, but he contended that no one else had done anything to change the grade in that location.   In his view, Middlesex was obligated to rectify the condition it created.   Gulya produced a report on the grade describing the conditions on May 4, 2007, but not one describing the elevation when Middlesex was last on the site.

Gulya claimed to be worried about his liability in the event his work failed due to instability of the subsurface.   Pursuant to paragraph 5.3.3 of the contract between Solaris and Peterson, Peterson must “require each subcontractor to (1) inspect surfaces and job conditions before beginning work at site, and (2) accept or cite necessary corrections in surfaces or job conditions at work site.”   But pursuant to Peterson's contract with Middlesex, “soils testing” that would allow Middlesex to evaluate the subsurface was excluded from the price of Middlesex's contract.   Relying on those provisions, Gulya demanded tests to dispel his suspicion of improper compacting.²  Peterson had not done the testing and refused to do it.

Although Gulya understood that Solaris had agreed to have an engineer present, he believed that the engineer would be there only to test his work.   He also said, however, that he did not want to return to the site with his crew only to have them wait for Solaris's engineer to test the subsurface.

According to the vice president of Solaris, Solaris was prepared to have the subsurface tested before Middlesex commenced work so long as everyone was present.   He did not convey that information to Gulya but had told Peterson.   In any event, Gulya subsequently said he would have his own engineer do the testing.   But before it was done, Gulya announced that he would return to the site and submit a change order covering the additional cost he would incur to bring the elevation grade back to the specified level.

At the point that this dispute about the subsurface arose, the entire project had already taken longer than expected.   Solaris was demanding prompt completion from Peterson, and Peterson was demanding the same from Gulya.   Peterson and Gulya exchanged e-mails on the topics of delay and completion of the parking lot that were plainly personal and closer to nasty than civil.   Middlesex had already commenced this litigation against Peterson, and the parties' lawyers also exchanged correspondence.   In that correspondence, Middlesex repeatedly urged Peterson to comply with its demands or terminate Middlesex and pay another contractor to complete the work.

Apparently in the hope of reaching an accommodation that would permit completion of the work, the parties arranged a meeting for May 9, 2007.   Offended that Peterson cursed when asking Gulya “what his problem was,” Gulya started to leave the meeting.   In response, Peterson grabbed Gulya's arm and turned him around.   Another person in attendance got between them, and Gulya left with a bruised arm.

The following day, Peterson demanded Middlesex complete the work in five days.   Middlesex did not respond.   On May 29, 2007, Peterson notified Gulya that he had retained a replacement.

Middlesex relies on law which addresses interference with performance of contractual obligations.  “[W]here one party to a contract, by prevention or hindrance, makes it impossible for the other to carry out the terms thereof, the latter may regard the contract as breached and recover his damages thereunder from the first party.”  Wolf v. Marlton Corp., 57 N.J.Super. 278, 285 (App.Div.1959).   In Wolf, this principle was applied to address performance under a contract to purchase a new home between the buyers and the builder.  Id. at 280.

The buyers did not make an installment payment when due, and the sale did not close.  Id. at 280-81.   Although the builder had not demanded payment, he retained the deposit.  Id. at 280, 282.   Contending that they were ready, willing and able to close and that the builder did not demand their performance, the buyers commenced the litigation to recover their deposit.   Id. at 280, 282.   The trial judge found in favor of the buyers.  Id. at 281.

On appeal, the builder contended that he had shown the “[b]uyers breached the agreement of sale by preventing its performance through threats to resell the house to an undesirable purchaser and to ruin defendants' building business if defendants carried out the contract.”  Id. at 282.   This court agreed that if the builder could establish that claim, he would be entitled to relief.   Id. at 289-90.

The panel assessed the builder's defense under the standards enunciated in Rubenstein v. Rubenstein, 20 N.J. 359, 365 (1956), a case addressing duress as a defense to formation of a contract.  Wolf, supra, 57 N.J.Super. at 285-86.   Under Rubenstein, wrongful compulsion negates the “actual consent” critical to an enforceable contract.  20 N.J. at 365;  see also Shanley & Fisher, P.C. v. Sisselman, 215 N.J.Super. 200, 206-07, 212-13 (App.Div.1987) (discussing and approving of Wolf and Rubenstein in evaluating a letter agreement).

Whether threats or other coercive conduct gives rise to a right to void a contract requires consideration of the circumstances, “including the age, capacity and relation of the parties,” to determine “whether a particular individual has been impelled to act by duress.   In this respect, the test for duress is subjective, rather than objective, and does not turn on whether the duress is of ‘such severity as to overcome the will of a person of ordinary firmness.’ ”  Shanley & Fisher, supra, 215 N.J.Super. at 212-13.   The ultimate question is whether the threat or other pressure “is so oppressive under given circumstances as to constrain one to do what his free will would refuse.”  Rubenstein, supra, 20 N.J. at 367.

Arguably, allegations that one party's threats or unreasonable demands have interfered with the other party's performance under a contract are more aptly characterized as breach of the implied covenant of good faith and fair dealing.   See Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Center Assocs., 182 N.J. 210, 224 (2005) (noting the duty of good faith and fair dealing extends to “the performance and enforcement of the contract”);  see also Restatement (Second) of Contracts § 205 comments c & d (1981) (discussing contours of the duty of good faith and fair dealing in negotiations and performance and its relationship to duress and interference).   But that analysis also focuses on the “effect” of the offending conduct.   Compliance with the implied covenant is a question of whether the offending conduct destroys or injures the innocent party's right to the benefit of the contract.  Brunswick Hills, supra, 182 N.J. at 225.

This analysis was applied, without reference to the implied covenant, in Kroop v. Scala, 5 N.J. Misc. 89, 91 (Sup.Ct.1927), another case considered in Wolf. In Kroop, Leone, a contractor, retained Kroop to paint Scala's home.  Id. at 89.   Before the work was completed, Scala threatened violence against Kroop if he returned to the job.  Id. at 90.   Kroop sued Scala and Leone for his lost profit, and on appeal the judgment entered in Kroop's favor was affirmed.  Id. at 90-91.   The court concluded that the threat was sufficient to warrant Kroop's suspension of the work and that Leone contributed by failing to secure Kroop's peaceable entry to the work site, an obligation which was implicit in their contract.  Id. at 91.

Judge Brock addressed the evidence in light of these relevant legal principles.   With respect to Peterson grabbing Gulya's arm, she considered the correspondence that preceded the meeting and Gulya's unexplained and provocative departure from the meeting that led to the “assault.”   Assessing the impact of that assault on Middlesex's ability to complete the work, Judge Brock found that the two men generally did not encounter one another on the site and that repetition of the incident was highly unlikely.   Considering the holdings of Wolf and Kroop, she concluded that Peterson's conduct did not excuse Middlesex's failure to return to the job.

We see no basis for disturbing Judge Brock's factual findings or reaching a different conclusion based on the legal implications of her findings.   Gulya was, at best, ambivalent about testing the subsurface, and he was unable or unwilling to articulate a basis for his “reasonable suspicion” about the subsurface or explain why he decided to abort the meeting meant to resolve the issues by attempting to leave.   While Peterson committed a simple assault if he was reckless as to causing bodily injury, N.J.S.A. 2C:12-1a, he did not threaten to inflict future bodily harm if Gulya returned to the site.   Instead, Peterson grabbed, albeit inappropriately, Gulya's arm in an effort to keep him from leaving the meeting without resolving the issues.

With respect to the compaction testing, Judge Brock concluded that Middlesex failed to establish that the condition of the subsurface warranted its departure from the site.   Judge Brock found that Solaris was willing to do the testing, that Gulya said he would have his engineer conduct the tests and that he ultimately did not have the tests done.   Gulya then decided to proceed without the test and demanded additional payment for grading work.   On these findings, which are well-supported by the record, Judge Brock determined that Middlesex “abandoned” any excuse for non-performance based on the subsurface.   We agree.

Middlesex's claim of estoppel is based on its assertion that it prepared its bid in reliance on Peterson's representations about the specifications for a stamped concrete walkway.   Middlesex contends that Peterson did not explain that the specifications required it to add brick-colored pigment to the cement, as opposed to staining the cement, or that the contract required cement borders.   According to Gulya, when he asked Peterson about these elements, Peterson said that staining would suffice and that no borders were required.   Gulya claimed that he prepared his bid in reliance on that information and without checking the specifications.³

Judge Brock's comprehensive decision does not expressly address estoppel, and it is not clear to us whether this issue was raised below.   Nonetheless, because neither party indicates that the issue was not raised below, we have considered that claim and concluded that it has no merit.

Equitable estoppel is invoked “in ‘the interests of justice, morality and common fairness.’ ”  Palatine I v. Planning Bd. of Twp. of Montville, 133 N.J. 546, 560 (1993).   To establish its entitlement to relief under this doctrine, Middlesex had to show that Peterson “engaged in conduct, either intentionally or under circumstances that induced reliance, and that [Middlesex] acted or changed [its] position to [its] detriment.”  Marsden v. Encompass Ins. Co., 374 N.J.Super. 241, 249 (App.Div.), certif. denied, 183 N.J. 257 (2005).   There are cases indicating that the reliance must be “reasonable.”  Skulski v. Nolan, 68 N.J. 179, 198 (1975) (quoting Summer Cottagers' Ass'n of Cape May v. City of Cape May, 19 N.J. 493, 504 (1955));  cf.  Miller v. Miller, 97 N.J. 154, 163 (1984) (stating the elements without reference to “reasonable” reliance).

Middlesex does not refer us to a case in which a subcontractor has been permitted to invoke estoppel to shift responsibility for an injury the subcontractor sustained by electing to question the general contractor in lieu of reading specifications incorporated in their contract.   Without binding authority so holding, we fail to see how a general contractor who responds to a subcontractor's question in the circumstances of this case can be found to have acted in a manner that “induced reliance.”   See Marsden, supra, 374 N.J.Super. at 249.⁴

Affirmed.

FOOTNOTES

FN1. Solaris was dismissed from the case on stipulation entered prior to trial..  FN1. Solaris was dismissed from the case on stipulation entered prior to trial.

FN2. Gulya also relied on a specification addressing earth work that called for back-fill compaction in eight-inch lifts, but Peterson testified that the specification for eight-inch lifts did not apply to the area at issue, which was back-filled in twelve-inch lifts..  FN2. Gulya also relied on a specification addressing earth work that called for back-fill compaction in eight-inch lifts, but Peterson testified that the specification for eight-inch lifts did not apply to the area at issue, which was back-filled in twelve-inch lifts.

FN3. Middlesex does not argue misrepresentation of material fact or opinion..  FN3. Middlesex does not argue misrepresentation of material fact or opinion.

FN4. As an alternative basis for affirmance, Peterson argues that the contract includes a clause that shifts the risk of Solaris's non-payment to Middlesex and bars the claim of estoppel.   Because we have rejected the claim of estoppel, we do not consider whether the contract provision is enforceable or whether it would defeat a valid claim of estoppel if it were enforceable.   See generally Seal Tile Corp. v. Ehert, Inc., 589 F.Supp. 701 (D.N.J.1984)..  FN4. As an alternative basis for affirmance, Peterson argues that the contract includes a clause that shifts the risk of Solaris's non-payment to Middlesex and bars the claim of estoppel.   Because we have rejected the claim of estoppel, we do not consider whether the contract provision is enforceable or whether it would defeat a valid claim of estoppel if it were enforceable.   See generally Seal Tile Corp. v. Ehert, Inc., 589 F.Supp. 701 (D.N.J.1984).

PER CURIAM