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John & Al Construction Co., LLC v. McGhee

A-4750-07T3 (N.J. Super. App. Div. 2009) (Unpublished)

CONTRACTORS — Issuance of a Certificate of Approval by a municipality for construction work is not dispositive as to whether the work has been substantially completed in accordance with the contract.

A homeowner entered into a contract with a construction company to renovate her home. The contract called for three payments to the contractor. The homeowner withheld the last payment because she believed that the work was not substantially completed even though a Certificate of Approval (CA) had been issued by the municipality. The contractor sued for payment.

The lower court found that the work was incomplete, but held the homeowner liable for damages to compensate the contractor for the work performed on the homeowner’s behalf. Prior to entry of the judgment, the municipality issued a “notice of violation and order to terminate” finding that the construction violated New Jersey’s Uniform Construction Code Act. The municipality also rescinded the CA until the violations were corrected. The homeowner sent several letter to the lower court requesting that it revise its judgment to reflect the fact that the original judgment was based on the premise that the work had passed all inspections and that the house had been granted a CA. Without responding to the homeowner’s letters, the lower court entered judgment in favor of the contractor. The homeowner appealed.

The Appellate Division reversed. The Court not only concurred with the lower court’s finding that the work performed by the contractor was incomplete, but noted that this conclusion was reinforced by the subsequent building inspection, the rescission of the CA, and the notice of building code violations. On the other hand, it ruled that the lower court erred in awarding damages when the contractor did not substantially complete the contracted-for work. According to the Court, only after a contractor has substantially complied with its contract, can it be allowed to recover the contract price, less a fair allowance to the owner for minor defects or omissions. This was not the case here. It also found that the evidence submitted after the trial only reinforced a conclusion that the lower court had previously reached – that the work had not been substantially completed. Thus, the lower court’s judgment was reversed because even though it came to the proper conclusion as to the facts, it awarded damages in a fashion that was contrary to legal precedent.

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