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Harold J. Hamilton Associates v. RTRK Investment, Inc.

A-2827-02T5 (N.J. Super App. Div. 2004) (Unpublished)

CONTRACTS; COLLECTIONS; STATUTE OF LIMITATION—Being “lulled” into not pursuing a collection claim does not constitute an act of equitable estoppel that would toll the statute of limitation because to apply the doctrine would require a showing that the delinquent party reasonably relied to its prejudice and then changed its position to its detriment.

A liquor store’s owner entered into an agreement with an engineering firm to prepare a site plan for the property. The plan was not utilized, but the owner paid the firm in full for its services. A year later, at the request of the owner, the firm prepared a second site plan, and it was used to develop the property. Although the agreement required the firm to prepare as-built drawings upon completion of the construction work, that never happened. When the construction was completed after three years, the building was occupied pursuant to a Certificate of Occupancy (C of O) that the owner received without filing the required final as-built drawings.

Seven years passed before the firm realized that its contractual relationship with the owner was over and that the owner had already received its C of O without the required as-built drawings. It was then that the firm sent the owner an invoice for the second site plan it prepared eleven years earlier. When the owner refused to pay, the firm sued. In response, the owner asserted that the firm’s claims were barred by the six-year statute of limitations applicable to contracts. A contract claim accrues when the party seeking to bring the action first has an enforceable right to collect payment under the contract. The Court felt there was no question that the firm’s claim accrued when it prepared the site plan.

The firm contended that its claims were not barred because the commencement of the running of the statute of limitations is extended for mutual, running, open accounts. The Court disagreed, holding that the open accounts exception only applies when a debtor affirmatively acknowledges the unpaid balance and does so with the express intention to pay the whole debt. Even a payment “on account” would suffice only to extend that statutory limitation if accompanied by an expression of the intent to pay the debt in full.

Consequently, the Court ruled that the engineering firm clearly failed to demonstrate that its contract with the owner was an open account. No term of the contract required it to wait until the completion of the as-built drawings before sending an invoice for its earlier-completed work. The firm was also unable to point to any payment on any account or any acknowledgment of the debt sufficient to implicate the open accounts exception. Finally, the fact that the firm performed other services in 1996, which was within the six-year period, did not alone revive the earlier debt or extend the time to sue for such payment.

The engineering firm also claimed that the rules of equity demanded that the debt be paid, and that the owner should be equitably estopped from using the statute of limitations defense because the owner had “lulled [the firm] into a false sense of security concerning the preparation and filing of the ‘as-built’ site plans” by failing to inform the firm that it had received the final C of O. The Court disagreed, explaining that equitable estoppel applies where “conduct, either express or implied, . . . reasonably misleads another to his prejudice so that a repudiation of such conduct would be unjust in the eyes of the law.” In other words, an innocent party, in reasonably relying on that conduct, must have changed its position to its detriment.

Here, there was no evidence that the owner “lulled” the engineering firm into waiting to prepare and send its invoice. Even if the parties had agreed that payment would be delayed until after the “as-builts” were prepared, that did not preclude the preparation of an invoice. Also, even if the parties had agreed that payment would not be due until the “as-builts” were prepared and the C of O issued, there was no evidence that the owner concealed the fact that the project was completed. Anyone passing the site on the highway could have seen that the new addition was both complete and occupied. Furthermore, the engineering firm visited the property after the project’s completion to perform additional work.

Finally, the engineering firm argued the doctrine of unjust enrichment. This doctrine is an equitable remedy in the nature of quasi-contractual relief and, unfortunately for the engineers, does not create an alternative to compliance with the applicable statue of limitations. Suits in quasi-contact, including those asserting the theory of unjust enrichment, are themselves subject to the statute of limitations, thus barring the engineering firm from recovery.

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