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County of Hudson v. Terminal Construction Corp.

Decided: November 18, 1977.

COUNTY OF HUDSON, A BODY POLITIC AND CORPORATE IN LAW OF THE STATE OF NEW JERSEY AND BOARD OF CHOSEN FREEHOLDERS OF THE COUNTY OF HUDSON, PLAINTIFFS-APPELLANTS,
v.
TERMINAL CONSTRUCTION CORPORATION, A CORPORATION OF THE STATE OF NEW JERSEY; ANTHONY J. MASCOLO; GEORGE MASUMIAN; AND TRANSAMERICA INSURANCE COMPANY, DEFENDANTS-RESPONDENTS



Lynch, Bischoff and Kole. The opinion of the court was delivered by Bischoff, J.A.D.

Bischoff

Plaintiffs appeal from a summary judgment in favor of all defendants which dismissed the complaint against them on the basis of N.J.S.A. 2A:14-1.1 (limitation of actions against architects and contractors). This contract action arose out of the construction of the Hudson County Administration Building in Jersey City, which was completed and accepted by the board of chosen freeholders on August 1, 1960.

Terminal Construction Corporation (Terminal) contracted with plaintiffs on June 30, 1955 to perform general construction work on the proposed building. In particular, this work included the installation of ceramic enameled tempered plate glass on the walls throughout the interior of the building. Mascolo and Masumian, architects, were allegedly obligated by their contract with plaintiffs to draw plans and specifications for this construction enterprise and also to supervise the work of Terminal and all its subcontractors and employees. Transamerica admits that it merged and consolidated with American Surety Company (American) which had entered into a performance bond with Terminal on June 30, 1955 wherein American agreed to bond Terminal, the principal, in the amount of $2,603,896 upon the condition of the well and true performance by Terminal of the general construction work it had contracted that same day to undertake. As a result of the merger and consolidation, plaintiffs contend that Transamerica is responsible for the bond of American.

The genesis of this suit was the county's discovery in May 1975 that many of the ceramic tiles installed throughout the Administration Building were beginning to bulge, separate from the cinder block walls and fall, causing a hazardous condition. Removal of the tiles from the wall showed that metal ties affixed to the wall which were intended to be used to support the tile blocks were not in actual use but had been bent up. Further, the backs of the tiles had been broken off before being set into place so as to

fit the line of the wall which had been built too far into the stairwell. The necessity of rectifying this condition has cost the county monies which it sought to recover in this suit. The complaint was filed on February 23, 1976.

The trial judge concluded that suit against all defendants was barred by N.J.S.A. 2A:14-1.1 because more than ten years had elapsed since the completion and acceptance of the construction and filing of the complaint. On appeal plaintiffs assert: (1) the running of the statute is tolled by the discovery rule in those situations where, as here, the defective condition is latent and fraud-like subterfuge impedes discovery of the defect, and (2) the statute does not apply to a surety such as Transamerica.

The discovery rule began in the limited area of medical malpractice, Fernandi v. Strully , 35 N.J. 434 (1961), but quickly spread to other fields, including the construction industry and related fields after the old "completed and accepted" rule was abandoned. Totten v. Gruzen , 52 N.J. 202 (1968). As a result of these two changes in the law, the liability of those involved in the building trade, such as architects and contractors, expanded immensely. It was as a direct result of this expanded liability that N.J.S.A. 2A:14-1.1 and similar statutes were enacted in more than 30 other states. O'Connor v. Altus , 67 N.J. 106, 121 (1975); Rosenberg v. North Bergen , 61 N.J. 190, 198 (1972). These statutes were meant to cut back on the potential of this group to be subject to liability for life. Comment, "Limitation of Action Statutes for Architects and Builders -- Blueprints for Non-Action," 18 Cath. U.L. Rev. 361, 384 (1969). Therefore, it would be directly contrary to the intent of the Legislature to permit the discovery rule to cut back on the impact of this statute when the statute was primarily intended to counteract the effect of the discovery rule.

Since the discovery rule is an instrument of equity, it might seem proper, at first, to allow the rule to be applied in those cases where it is alleged that there was a purposeful

concealment of a defect. (The fraud-like deception alleged herein was the bending back of the metal ties and cutting off the back of tiles so that they would take up less space and conceal the fact that the cinder block wall was built too far into the stairwell.) However, virtually all latent defects in construction could probably be subject to the allegation that they were purposefully concealed. Certainly any suit against an architect based on the fact that he incorrectly certified work as being completed in accordance with the specifications and in a workmanlike manner may be framed in terms of an accusation that the certification was made with knowledge of the defect. Such an exception would quickly engulf the statute (N.J.S.A. 2A:14-1.1) and render it worthless. This contention of plaintiffs is rejected.

Plaintiffs' second contention relates to the application of the statute to the surety. N.J.S.A. 2A:14-1.1 reads in pertinent part:

No action whether in contract, in tort, or otherwise to recover damages for any deficiency in the design, planning, supervision or construction of an improvement to real property * * * shall be brought against any person performing or furnishing the design, planning, supervision of construction or construction of such improvement to real property, ...


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