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Authored - NJ Contract Law Update - What Was Probably a Fully Integrated Agreement Was Nonetheless Found Waived By Conduct
JULY 10, 2013 | Windels Marx - Commercial Litigation

In Spagnuolo Builders, LLC v. Martinelli, ___ N.J.Super. ___, 2013 WL 1776080 (App.Div. April 26, 2013), the Appellate Division once again allowed the terms of an agreement to be varied by conduct. The plaintiff had acted as construction manager for an expensive new home. The contract provided for a $375,000 basic fee; called for an unspecified "additional fee", if changes were made, "in the event the scope of work changed"; and apparently had another compensable clause for (a) employee work and (b) material.

At the time of litigation, the shortfall of the $375,000 agreed-upon amount was $45,000, in addition to $20,429.73 due (under another unspecified clause) for "work performed by plaintiff employees [,] and materials".

It appears that plaintiff's further claim--that it was entitled to "additional fees" for construction management in the amount of $60,000--was not raised until litigation.

A variant fact--which appears to have strongly influenced the courts--was that the parties had become very friendly with each other. This included the parties' families vacationing together. Perhaps this was part of a 'ratification' analysis sub silentio.

All of plaintiff's claims were granted by the trial court, and ultimately affirmed on appeal.

Unfortunately, the trial and appellate opinions do not specify whether the construction management agreement contained the usual clauses (1) about being an integrated agreement, and (2) precluding oral or conduct-based modifications. However, based on the formality that appears to have been attended the agreement, and the fact that the plaintiff was apparently a professional construction manager, one can assume that such clauses were probably present. Even, if so, the 'friendship factor' mentioned above, and the further fact that the parties worked together in a very informal manner without defendants objecting to plaintiff's non-performance of certain work, nonetheless led the courts to believe that the parties had (1) modified the terms of the contract by their course of conduct, and (2) "relieved plaintiff from its obligations to perform certain services within the scope of the work".

Even though plaintiff did not perform all of the services outlined in the agreement, recovery was allowed nonetheless, because there was "no evidence showing that plaintiff agreed to accept less than $375,000 for the services provided". The Court did not address in detail the possibility of lesser recovery for less work--even if no one had contemporaneously complained about the 'less work'--since the contract terms were not met.

As to the additional $60,000, the Court conceded that such a fee was contractually due only for a broader "scope of work" (emphasis added), and only if the parties agreed "before the changes were made". The Court nonetheless awarded the fees because the time involved in performing the agreed work was much higher than would have been incurred 'but for' certain delays. The Court recognized that the contract's compensation provisions, per se, did not apply; but nonetheless went beyond the terms of the contract, to award the fee sought on the basis of "unjust enrichment". This, notwithstanding many courts' admonitions not to allow "unjust enrichment" recovery when there is an applicable contract clause--meaning the parties have already decided what is just or unjust.

The moral of the story is that common-law theories can upset literal contract expectations. Careful drafting, and strong litigation positions (emphasizing the importance of written contract expectations), can sometimes help.

Contact & Legal Disclaimer

Clark Alpert is the author of Guide to New Jersey Contract Law, published by the New Jersey Institute for Continuing Legal Education, originally published in 2007 and updated in November 2011. His updates on New Jersey contract law are based in recent issues and practical methods for addressing similar situations in your practice or business. They are not intended to serve as legal advice. Clark welcomes your questions and comments.

 




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