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Mercardo v. Eovino

A-3187-02T2 (N.J. Super. App. Div. 2004) (Unpublished)

CONTRACTS; RELEASES—Even though a governmental agency may have the right to approve payments to be made under a contract, if it is not a party to the underlying contract, the contracting parties are free to amend the contract and even to release each other from further liability one to the other.

A homeowner contracted for significant repair and remodeling work to her property. The contract was made pursuant to the Federal Rental Rehabilitation Program (FRRP), a program which provides funding to rehabilitate low to moderate income housing. Although the New Jersey Department of Community Affairs (DCA) administers the program, the locality’s office of housing and urban development (HUD) mediates between the State and local property owners and holds the funds until completion. The contract provided that the work had to be completed within 180 days. Additionally, it stated that final payment was not to be made until HUD inspected and approved the work, and that the owner could not be reimbursed until the DCA’s inspector certified that the work was satisfactorily completed.

With only thirty-six days remaining to complete the entire project, the most important part of the project was still unfinished and the contractor hadn’t even obtained construction permits for the other twenty-nine designated projects on the house. Thus, the owner terminated the contract and paid another contractor to fix and complete the work previously started. The original contractor then submitted an invoice to the owner for the work he completed. The owner refused to pay and HUD held a meeting in an attempt to resolve the dispute. Both parties were present at the meeting with HUD. An agreement was reached providing that the owner would pay the contractor $1,500 “as payment in full” for the $6,000 balance.

The contractor claimed that when he signed the agreement, he thought that it had meant that he would receive the $4,500 balance from DCA. However, DCA refused to fund the balance even though HUD had recommended it. The contractor then sued the owner seeking payment of the $4,500 balance. The owner contended that the agreement released all claims against her, and was not conditioned on subsequent approval or payment by DCA.

The lower court held that the agreement was an attempted modification of the original contract and that it was invalid without the required assent of the DCA, but the Appellate Division disagreed. It noted that neither DCA nor HUD was a signatory to the original contract. In addition, the agreement did not place any conditions on the owner’s release from further liability. Specifically, it provided for an unconditional release by the contractor of “any and all claims” with respect to the completed work.

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