SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
A-5860-96T2
NAPORANO ASSOCIATES, L.P.,
Plaintiff/Respondent,
v.
B & P BUILDERS,
Defendant/Appellant,
v.
JEFFREY M. BEIDES and
KORONA BEIDES, EATON,
MARK & SANTIAGO, P.A.,
Third Party Defendants.
___________________________________________________________________
Argued: January 27, 1998 - Decided: March 5, 1998
Before Judges Pressler, Wallace and Carchman.
On appeal from the Superior Court of New
Jersey, Chancery Division, Middlesex County.
David M. Hutt argued the cause for appellant
(Hutt & Berkow, attorneys; Mr.Hutt, on the
brief).
Jeffrey M. Beides argued the cause for respondents
(Korona, Beides, Eaton, Mark & Santiago, attorneys;
Mr. Beides, on the brief).
The opinion of the court was delivered
WALLACE, JR., J.A.D.
This appeal involves the application of a liquidated damages
clause in a contract for the sale of real estate. The Law Division
judge granted summary judgment in favor of plaintiff, Naporano
Associates, L.P., concluding that defendant, B & P Builders,
breached the contract. In a separate hearing on damages, the judge
concluded that plaintiff was not limited to the liquidated damages
provision in the contract and granted plaintiff compensatory
damages. Defendant appeals. We reverse.
Plaintiff was the owner of the premises know as 1017 St.
Georges Avenue in Colonia (the premises). On January 23, 1996,
defendant entered into a contract of sale to purchase the premises
from plaintiff for the sum of $130,000 and paid a deposit of $100.
In March 1996, the parties entered into an addendum to the contract
reducing the purchase price to $128,000 and requiring an additional
deposit of $12,800. The addendum provided in part:
In the event that the closing does not take place on
or before May 1, 1996 through no fault of Seller,
Buyer shall be deemed to be in default under the
terms of the within Contract and the deposit shall
automatically and without notice be paid over to
Seller as liquidated damages.
(Emphasis added).
Defendant was also given the right to extend the closing date for
two additional months by paying a non-refundable extension fee of
$2,000 for each additional month. Defendant paid plaintiff $12,800
for the additional deposit and on May 1, 1996, defendant paid
plaintiff $2,000 to extend the closing date until June 1, 1996.
According to Ralph Mocci, an officer of defendant, he had
discovered that the New Jersey Department of Transportation (NJDOT)
contemplated condemnation proceedings for a portion of the
premises. As a result, defendant did not wish to have closing on
the contract until the condemnation issue was resolved.
On June 4, 1996, plaintiff's attorney wrote to defendant's
attorney, informing him that defendant had defaulted under the
terms of the contract by failing to close by May 31, 1996, or to
pay the $2,000 extension fee. The letter also stated that the
contract was terminated and that he was releasing the $12,800
deposit he held in escrow to the plaintiff.
Defendant's attorney replied by letter that NJDOT had informed
his client that the property was the subject of a condemnation
proceeding, that NJDOT had given notice of such to plaintiff, and
that a hearing had been scheduled for June 10, 1996, at which NJDOT
would meet with the officials in Woodbridge and the public to
discuss the condemnation proceedings. The letter also stated that
defendant agreed to provide the $2,000 extension fee to his officeSee footnote 1
to be held in trust pending ultimate resolution of the condemnation
proceedings.
Plaintiff's counsel replied by letter dated June 6, 1996, that
his client had never received notice from NJDOT of the condemnation
proceedings or the meeting. Counsel further stated that plaintiff
would not accept the $2,000 extension fee and that defendant's
failure to meet the May 31 deadline for the extension was a
default, entitling plaintiff to retain the deposit as liquidated
damages.
Defendant's attorney replied the next day and enclosed a copy
of the notification that his client had received from NJDOT about
the improvements to the road in front of the premises. He also
noted that defendant had been informed that NJDOT plans had been
sent to plaintiffs at P.O. Box 5158, Newark, New Jersey. He
requested that plaintiff's counsel contact him to discuss the
matter.
Plaintiff's attorney responded by letter on June 13, 1996,
that "unless plaintiff receives the $2,000 extension fee by June
14, 1996 it would insist upon immediate release of the $12,800
deposit." Plaintiff also agreed to apply the forfeited deposit
towards the purchase price if the $2,000 was received by June 14,
1996, and closing of title occurred before July 1, 1996.
Apparently, defendant did not reply to the June 13, 1996
letter. Plaintiff then relisted the property for sale and reduced
the asking price. On October 24, 1996, plaintiff entered into a
contract of sale with a new buyer, Rabia Awan, for the purchase
price of $85,000. The closing was scheduled for December 1996.
By letter dated December 2, 1996, defendant's attorney wrote
to plaintiff's counsel that his client had discussed the
improvement plans with NJDOT and that defendant wanted "to close
title on or before April 1, 1996See footnote 2 at the purchase price of
$128,000."
Following a telephone conversation on December 9, 1996,
between counsel, defendant's counsel faxed a letter to plaintiff's
counsel and to the new buyer's counsel explaining that defendant
objected to the sale and that Awan should inform his title company
that defendant claimed an equitable lien on the premises. As a
result, Awan refused to complete the closing with plaintiff until
the contract dispute was resolved.
Plaintiff filed a four count declaratory judgment complaint
dated December 17, 1996. In the first count, plaintiff sought a
declaration that the contract between plaintiff and defendant had
been terminated by defendant's failure to meet the deadline and
that plaintiff was entitled to retain the $12,800 deposit as well
as the $2,000 extension fee. In the remaining counts, plaintiff
sought a judgment that defendant had no interest in the premises,
that defendant's actions constituted an intentional interference
with the contract between plaintiff and Awan, and that defendant's
actions constituted a slander of title. Plaintiff also sought
compensatory and punitive damages.
Plaintiff filed and obtained an Order to Show Cause on January
21, 1997, seeking a determination that the contractual rights of
defendant had been terminated. Following a hearing on February 27,
1997, the judge denied plaintiff's request and ordered the parties
to complete discovery within thirty days, after which he would
entertain motions for summary judgment.
Defendant undertook no discovery. Plaintiff filed a motion
for summary judgment returnable April 18, 1997. In support of that
motion, plaintiff relied on the certifications of John Naporano,
Ketan Shah, and Lynn Middleton.
John Naporano, Vice President of Nap Realty Corp., plaintiff's
General Partner, certified that plaintiff received no notification
from NJDOT concerning the contemplated condemnation of the premises
until December 23, 1996. He claimed that plaintiff was unaware of
the possible condemnation until defendant advised his attorney of
it. Further, Naporano set forth the sequence of events concerning
the contract with defendant and claimed that neither defendant nor
its attorney responded to plaintiff's offer in the letter dated
June 13, 1996, to extend the closing date to July 1, 1996, provided
plaintiff received a $2,000 extension fee by June 14, 1996.
Further, he certified that the highest offer plaintiff received
subsequent to the default by defendant was Awan's $85,000 offer.
In the concluding paragraph, Naporano claimed losses totaling
$6,728.21 as reflected on the schedule of losses attached to his
certification.
Shah certified, in part, that he was the listing agent for the
premises and that pursuant to the request of John Naporano, he
contacted Barbara J. Sancilaro, a real estate agent and the
daughter of Ralph Mocci, a principal of defendant, and offered to
sell the property to defendant for $99,000. He claimed this
occurred in early October 1996 and that Sancilaro had advised him
defendant rejected the offer and was no longer interested in the
property.
Middleton certified she is employed by NJDOT and that it was
contemplated that a widening of Route 35 would necessitate the
acquisition of between ten and fifteen feet from the frontage of
the premises. She asserted that no official notice of the proposed
acquisition had been provided, but NJDOT had conducted a public
information forum and had responded to inquiries concerning the
proposed plans. Further, she claimed that NJDOT's proposed plans
originally showed one owner of the premises and the property
located to the rear of the subject premises, but that NJDOT was
notified that the front portion of the property was sold to
plaintiff and that NJDOT's plans would be changed to reflect this
change in ownership.
Plaintiff argued in its brief in support of its motion for
summary judgment that defendant had breached the contract, thereby
entitling plaintiff to retain the deposit as liquidated damages.
Defendant filed a brief in opposition to plaintiff's motion for
summary judgment and submitted the certifications of Ralph Mocci
and Barbara Sancilaro.See footnote 3
Mocci, an officer of plaintiff, acknowledged that he had
signed the contract and addendum on behalf of defendant and that
defendant had paid a total deposit of $12,900 and an extension fee
of $2,000. He was advised by NJDOT that the subject premises were
part of a contemplated condemnation proceeding. As a result, Mocci
informed his attorney that he did not wish to close title on the
property in the event the property was condemned by NJDOT. Mocci
was aware that plaintiff declared a default as a result of
defendant's failure to pay the $2,000 extension fee by May 31,
1996, and he had instructed his attorney to advise the seller he
would pay the $2,000 extension fee so long as it was held in escrow
by defendant's attorney until the condemnation issue was resolved.
Mocci asserted that after months of review with NJDOT, he
determined defendant could still use the premises and instructed
his attorney to forward plaintiff's attorney a proposal to close
title. He then learned that plaintiff was attempting to sell the
premises to another buyer, which caused him to inform plaintiff and
the new buyer of defendant's claim to the property. Mocci said he
reviewed the certification of Ketan Shah and denied he was informed
of plaintiff's offer to sell the property to defendant for $99,000.
Mocci claimed defendant would be interested in purchasing the
property at a reduced price.
In defendant's brief in opposition to plaintiff's motion for
summary judgment, defendant argued that in the event the court
determined that defendant breached the contract, then plaintiff
alone was entitled to the schedule of losses attached to Naporano's
certification. Defendant argued that if the schedule of losses was
accurate, plaintiff was not entitled to retain the deposit as
liquidated damages, but only the actual damages of $6,720.
On April 18, 1997, the motion judge held argument on
plaintiff's motion. The judge reviewed the material facts which
were uncontested or admitted and concluded that the contract was
clear. The judge found that defendant failed to close or extend
the agreement on June 1, 1996, that the contract terminated by its
own terms, and that plaintiff was free to enter into a contract
with a new buyer.See footnote 4 The judge denied summary judgment, however, on
damages issue and scheduled a proof hearing for April 29, 1996. At
the proof hearing, plaintiff offered testimony concerning the
original contract price, the attempt to sell the property after
defendant refused to close, and the new contract price of $85,000.
The judge concluded that the liquidated damage clause should not be
enforced and awarded plaintiff damages in the amount of $45,056.62,
less a credit for the forfeited deposit. This appeal followed.
Defendant contends the trial judge erred in not enforcing the liquidated damages clause in the contract. Plaintiff argues that the doctrine of judicial estoppel, which operates to bar a party to a legal proceeding from arguing a position inconsistent with one previously asserted, should prohibit defendant from its effort to enforce the liquidated damages clause.
Initially, we find no cause to restrict defendant's argument on liquidated damages. A close reading of the briefs and certifications below reveals that plaintiff originally sought to have the judge declare that it properly retained defendant's deposit as a result of defendant's breach of the contract. Moreover, Naporano's certification submitted in support of plaintiff's motion for summary judgment, included a schedule of losses totaling $6,728.21. Further, in its brief in support of its
motion for summary judgment, plaintiff argued that it was entitled
to retain defendant's deposit as liquidated damages. Faced with
this argument by plaintiff, defendant cited four cases that dealt
with liquidated damages clauses: Nohe v. Roblyn Development,
296 N.J. Super. 172 (App. Div.), certif. denied,
149 N.J. 36 (1997);
Kutzin v. Pirnie,
124 N.J. 500 (1991); Van Es v. Honeyleaf
Properties, Inc.,
253 N.J. Super. 566 (App. Div. 1992) and
Wasserman's Inc. v. Township of Middletown,
137 N.J. 238 (1994).
Further, defendant discussed the above cases and argued that courts
will only enforce a reasonable liquidated damages clause.
Defendant contended that plaintiff had made only a cursory
attempt to define its actual damages, but if the schedule of losses
totaling $6,728.21 was correct, then plaintiff was only entitled to
receive that amount in damages. Defendant never argued that the
liquidated damages clause was unreasonable, but contended that
faced with a claim of actual losses of $6,728.21, plaintiff's
damages should be limited to that amount. Defendant also argued in
its brief that plaintiff failed to identify what efforts it
undertook to sell the property and therefore, summary judgment
should be denied.
We are satisfied that based on the arguments presented by each
party and the procedural posture of the case before the motion
judge, judicial estoppel does not apply here. In general, this
doctrine estops a party from asserting a position contrary to a
previously asserted position. See Chattin v. Cape May Greene,
Inc.,
243 N.J. Super. 590 (App. Div.), aff'd. o.b.,
124 N.J. 520
(1991). Moreover, a party must successfully assert a position in
order to be estopped from asserting a contrary position in future
proceedings. See Cummings v. Bahr,
295 N.J. Super. 374, 386 (App.
Div. 1996). Here, at the motion for summary judgment, defendant
believed it was faced with a claim by plaintiff for liquidated
damages which were almost double the amount of the actual damages.
Under those circumstances, defendant contended that the sparse
record did not permit it to conduct the necessary analysis under
the case law to determine the reasonableness of the liquidated
damages clause. Now, faced with a claim of damages well in excess
of the liquidated damages clause, defendant argues that the facts
presented demonstrate that the liquidated damages clause is
reasonable. Under these circumstances, the equitable doctrine of
judicial estoppel should not apply to prevent defendant from
arguing in favor of the liquidated damage clause.
We turn now to defendant's contention that the trial judge erred in not enforcing the liquidated damages clause in the contract. Aside from its judicial estoppel argument, plaintiff failed to address defendant's argument seeking enforceability of the liquidated damages clause in the contract.
Whether a liquidating damages clause in enforceable is a question of law for the court to decide. Wasserman's Inc., supra, 137 N.J. at 238. In Wasserman's, our Supreme Court noted that in commercial transactions between parties with comparable bargaining
power, a liquidated damages clause may be a lawful remedy. Id. at
253. The burden of proof is upon the party challenging the
liquidated damages clause. Wasserman's, supra, 137 N.J. at 253.
The Court explained:
Sophisticated parties acting under the advice
of counsel often negotiate stipulated damages
clauses to avoid the cost and uncertainty of
litigation. Such parties can be better
situated than courts to provide a fair and
efficient remedy. Absent concerns about
unconscionability, courts frequently need ask
no more than whether the clause is reasonable.
[Ibid.]
The Court further explained that reasonableness is a major factor
in the enforcement of liquidated clauses and cited the Restatement
(Second) of Contracts § 356 (1) (1981), which provides that:
Damages for breach of either party may be
liquidated in the agreement but only at an
amount that is reasonable in the light of the
anticipated or actual loss caused by the
breach and the difficulties of proof. A term
fixing unreasonably large liquidated damages
is unenforceable on grounds of public policy
as a penalty.
[Id. at 252.]
Moreover, the Court noted that although courts in the past have
determined the enforceability of a liquidated damages clause at the
time of the making of the contract, "the modern trend is towards
assessing reasonableness either at the time of contract formation
or at the time of the breach." Id. at 251.
Generally, the question whether a liquidated damages clause
is enforceable has arisen in a context where the seller seeks the
enforcement of the clause and the buyer seeks to have it declared
invalid. That is, the seller's actual damages are substantially
less than the liquidated damages and the buyer challenges the
liquidated damages provision as a penalty. See, e.g., Nohe, supra,
296 N.J. Super. at 172. In the instant matter, however, the roles
are reversed. The defendant-buyer is seeking to enforce the
liquidated damages clause, while the plaintiff-seller seeks damages
in excess of the liquidated damages provision. In our view, the
analysis is the same. The essential question is still whether the
liquidated damages amount is reasonable in light of the anticipated
or actual loss caused by the breach and the difficulties of proof
of loss. Moreover, we should consider this question either at the
time the contract is negotiated or at the time of the breach.
Applying the principles set forth in Wasserman's, supra, to
the present case, we find no impediment to the enforcement of the
liquidated damages clause. The parties are sophisticated business
people represented by counsel. At the hearing below, Ronald
Weitzman testified that plaintiff is an investment company that
invested monies and had acquired the property "in 1994 as a
settlement in the bankruptcy court of a second mortgage
participating loan." Weitzman claimed that based on discussions
with several realtors in the area, the value of the property was
approximately $200,000. He claimed that plaintiff initially listed
the property for $225,000, but could not sell in that price range.
Eventually, defendant offered to acquire the property and the
parties reached an agreement.
Thus, the premises had been on the market for some time. In
the event of a breach, plaintiff would have had to relist the
premises, continue to pay the taxes, and would incur additional
fees, including realtor and attorney fees. At the time that the
parties negotiated the contract and addendum in the Spring of 1996,
the parties could not predict the actual losses in the event of a
breach. We conclude that at the time of entering into the
agreement, the bargained for liquidated damages clause was neither
unduly punitive nor excessively harsh and was not unreasonable.
Considering the circumstances at the time of the breach in
June 1996, we reach the same conclusion. By then, there was a
question on at least defendant's part whether NJDOT would seek to
condemn a portion of the premises. The affect this had on the
property is speculative, but the likelihood is that this new
development impacted negatively on the value of the property.
Plaintiff was faced with several unanswerable questions at the time
of the breach: When would another potential buyer make an offer
approaching the previous amount? What amount would be reasonable
for plaintiff to accept? Should plaintiff offer the property again
to defendant prior to accepting a reduced offer?
We recognize there are many factors that affect the fair
market value of property. At the time plaintiff acquired the
property, it had received estimates of value in the $200,000 range,
and yet plaintiff accepted an offer of $85,000 in October 1996. No
other evidence, such as an independent real estate appraisal, was
offered to establish the fair market value of the premises. In our
view, at the time of the breach, the actual damages were impossible
to predict and the liquidation damages provision in the contract
was not unreasonable.
In sum, we are satisfied that it was error not to apply the
contract provision for liquidated damages. Whether we assess
reasonableness at the time of the making of the contract or at the
time of the breach, the liquidated damages clause agreed to here,
by sophisticated commercial parties, was reasonable.
Lastly, defendant's contention that it should now be permitted to press its counterclaim and third party complaint is clearly without merit. R. 2:11-3(e)(1)(E). Defendant did not appeal from the grant of summary judgment on liability in favor of plaintiff. Defendant's attempt to avoid that liability judgment comes too late.
The judgment is reversed and the matter is remanded for further proceedings consistent with this opinion.
Footnote: 1The letter was unclear on whether defendant intended that its attorney hold the extension fee in trust or whether plaintiff's attorney would hold the funds. Footnote: 2The date of April 1, 1996 is a mistake. We assume that the date was intended to read April 1, 1997. Footnote: 3We are unable to locate the certification of Barbara Sancilaro in the record on appeal. Footnote: 4Defendant does not appeal from the summary judgment on liability and therefore, we do not that issue.