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McLaughlin v. Batra Creative Homes, Inc.

A-0210-08T3 (N.J. Super. App. Div. 2010) (Unpublished)

CONTRACTORS; DAMAGES — Even though there are some cases where a contractor’s testimony about lost profits alone would be sufficient to establish the amount of damages, a court should not grant an award on nothing more than bald assertions.

A property owner executed a lump-sum contract for construction of a new home. The contract stated that it “takes approximately eight to ten months from the start of the foundation to completion … subject to weather conditions.” The foundation was completed in August of 2004, but the builder did not perform any work after that date. Accounts varied as to the reason for the delay, although it is clear that there were several disputes relating to change order items. The property owner terminated the contract in December, 2004 and sued the contractor. It alleged breach of contract, breach of the duty of good faith and fair dealing, and breach of the Consumer Fraud Act (by charging sums which greatly exceeded the written contract). The builder responded by seeking payment of the outstanding balances on the change orders and breach of contract damages.

The lower court ruled in favor of the builder, awarding the outstanding balance on the change orders and an amount equal to the builder’s lost profits. The Court agreed with the builder’s estimate that its lost profits should be 30 percent of the unpaid balance of the contract price. In addition, the Court considered the eight-to-ten-month completion time frame after the foundation installation to be the only time frame relevant to this dispute. Because the foundation was completed in August 2004, and the builder was discharged in December 2004, the Court perceived the property owner to have violated the contract and the builder to be in compliance. The Court concluded, with little explanation, that the property owner “inappropriately terminated the contract to the detriment of the [property owner].” The Court opined that even considerable delay by the builder would “not preclude the enforcement of a contract if there [were] no special circumstances indicating that prompt performance was essential and no express provision require[d] such performance.”

On appeal, the Appellate Division reversed and remanded. It ruled that the lower court made virtually no factual findings regarding key issues, and did not explain why it entirely rejected the property owners’ testimony, or why it found the builder’s testimony credible and reasonable. It also held that the lower court did not explain its “out-of-hand” dismissal of the property owners’ claim that the builder breached the duty of good faith and fair dealing, and violated the Consumer Fraud Act. Moreover, it noted that while in some instances a contractor’s testimony about lost profits alone would be sufficient to establish the amount of damages, here, the lower court’s award was made on “nothing more than [the builder’s] bald assertions.” It ruled that the builder must present some facts which support its claim of loss. It concluded that without resolution of the crucial issues of the parties’ credibility, and the many important facts and circumstances upon which the parties’ disagreed, it could not decide whether the lower court’s conclusions of law were warranted. Finally, the Court declared that even where a contract on its face is free from ambiguity, evidence of external circumstances is always admissible. Although evidence of external circumstances was admitted, the admission was fruitless, as the lower court ignored the information. Accordingly, it decided that credibility determinations should be made by the trier of fact and ordered a new trial.

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