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Borough of Atlantic Highlands v. Eagle Enterprises, Inc.

312 N.J. Super. 188, 711 A.2d 407 (App. Div. 1998)

CONTRACTS; ARBITRATION—An arbitration clause arising out of, or related to, a party’s contract is no longer viable after the parties enter into a subsequent agreement acknowledging that the contract was completed and where the subsequent agreement contains a release of all claims, even if the subsequent agreement was subject to completion of certain items called for in the original contract.

Following public bidding, a contractor and a municipality entered into a construction contract. The contract had a date by which the work was to be completed and set daily liquidated damages for delay beyond the contracted completion date. The deadline was not met. The contractor blamed the municipality’s architect for the delay. When the property was completed four months late, a number of matters between the parties remained unresolved, including a damage claim for delay and payment for a variety of change orders. After several months dragged by, the general contractor became hard-pressed for funds and reached a “final agreement” with the municipality. The agreement provided for a deduction (credit) in favor of the municipality as full settlement of any and all claims by either party for damages by reason of delay or late completion of the project. The settlement agreement contained a provision wherein the parties agreed that the contract was completed and that the settlement agreement constituted the full and final satisfaction of all claims for compensation, leaving neither party with any further claim for compensation or damages against the other. The settlement agreement also provided that $10,000 would be withheld pending completion of certain listed repairs. Less than two months after the execution of the settlement agreement, the contractor wrote to the municipality seeking to rescind it and designating fraud and “duress” as the reason for its prior acceptance. The contractor advised the municipality to regard its demand letter as a change order and to add the settlement deduction (credit) back into the overall cost of the project. When this was not done, the general contractor served a notice of intent to arbitrate on the municipality. The demand for arbitration made no mention either of the settlement agreement or that the general contractor claimed it was induced to execute that agreement through fraud or economic duress.

The issue, therefore, was whether the settlement agreement was to be voided because of fraud or economic duress. In the view of the Court, that issue was only tangentially related to the original construction contract since the settlement agreement canceled the original contract. The assertion of fraud or economic duress was not in the inducement of the original contract, but was alleged only in the inducement of the settlement agreement. Therefore, the Court determined that the parties never agreed to submit this particular dispute to arbitration. The settlement agreement, which the Court assumed to be binding, unambiguously was intended to operate as a general release. Therefore, nothing was left for arbitration. Consequently, the arbitration clause in the original contract was not applicable to the resulting dispute between the general contractor and the municipality.


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