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The Tarquini Organization, P.A. v. The Haddonfield Board of Education

A-6082-98T5 (N.J. Super. App. Div. 2001) (Unpublished)

CONTRACTS; INTERPRETATION—Where the terms of a contract are not clear, the intention of the parties must be determined by the language used, taken as an entirety, as well as the situation of the parties, the attendant circumstances, and the object the parties were seeking to attain.

Pursuant to a written agreement, an architectural design firm was to perform architectural services on a district-wide facility improvement program for a school board. Its fees were to be a percentage of the construction cost and were to be paid on a phase by phase basis. One of the phases was designated as the “Schematic Design Phase.” A provision of a standard AIA contract was modified to provide that the cost for the Schematic Design Phase was not to exceed $35,000 “which is to be credited to a final fee, until such time as a bond referendum and/or some other means of financing the project is obtained, provided the Owner shall vigorously pursue financing approval for the Project through a bond referendum and/or other means no later than one (1) year after the completion by the Architect of the Schematic Design Phase.” Another modification was that should the initial financing referendum not have received voter approval, “the Architect’s additional compensation for any required changes for additional referenda shall also be deferred until such time as financing for the Project is obtained.” Further, the contract provided that “...within thirty (30) days after the approval of the financing for the Project, ... the Architect shall be retained for the completion of the Project as presently proposed or as may be modified in the future.” The total fee for the Schematic Design Phase, absent the contingent limitation, would have been $102,159 had the project been approved by the voters. Further, the contract, as drafted, appeared “to contemplate that [the architect] would be retained for the completion of this project as proposed, or as may be modified in the future even if the referendum was defeated.” On the other hand, another portion of the contract permitted the school board to terminate the contract upon not less than seven days’ written notice to the architect. Yet another provision of the contract provided that it could be “terminated by either party upon not less than seven days’ written notice should the other party fail to substantially perform in accordance with the terms of this Agreement through no fault of the party initiating the termination.” If the contract was terminated other than by reason of the architect’s fault, the architect was entitled to compensation for services performed prior to termination.

When the referendum failed to receive voter approval, the board terminated the architect’s services, clearly without any fault on the part of the architect. Prior to termination, the $35,000 for the Schematic Design Phase was paid. The architect filed suit, but the lower court held that since a bond referendum had never been passed and no other means of financing had been obtained, the architect’s fee was limited to $35,000. It rejected the architect’s contention that its services were to be retained following failure of the bond resolution, finding that the architect was “not entitled to perpetual employment when there [was] clearly a method of termination under” the contract. The Appellate Division was troubled by the lower court’s decision. It felt it necessary to ascertain the intention of the parties “as that intention is revealed by the language used, taken as an entirety, the situation of the parties, the attendant circumstances, and the objects they were striving to attain.” It pointed out that a court “must not focus on an isolated phrase but, rather, should read the contract as a whole and consider the surrounding circumstances.” In such circumstances, extrinsic evidence may be offered to show an intention that is unexpressed in the writing. The Appellate Division believed that the lower court erred in granting summary judgment to the school board. It pointed out that the contract’s provisions were clearly in conflict with each other. As a consequence, it felt that neither the board’s contention that the architect’s fee was capped upon rejection of our referendum nor the architect’s contention that its fee was merely deferred until the project was ultimately approved, could be proven from the written contract. Although the parties could have specifically provided for the architect’s entitlement to compensation if the referendum was rejected, the Court could not determine from the record what the parties intended. Therefore, the lower court’s judgment was reversed and remanded to determine the intent of the parties under the contract.

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