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Van Note-Harvey Associates, P.C. v. Township of East Hanover

March 12, 2003

VAN NOTE-HARVEY ASSOCIATES, P.C., PLAINTIFF-APPELLANT,
v.
THE TOWNSHIP OF EAST HANOVER, DEFENDANT-RESPONDENT.



On certification to the Superior Court, Appellate Division.

SYLLABUS BY THE COURT

This appeal deals with a suit on a book account in which the plaintiff engineer, Van Note-Harvey Associates, seeks to recover contractual prejudgment interest on "accumulating accounts receivables."

In October 1972, defendant Township of East Hanover contracted with Van Note to provide professional engineering services in connection with a multi-million dollar sanitary sewer construction project. Van Note designed the system and supervised its installation. After EPA and DEP grants were awarded to the Township, a contract for installation of the system was awarded to J.A. Cavanaugh Contractors, Inc. (JAC) in August 1982. Under the terms of the contract, monthly estimates were to be submitted to the Township as the work progressed. In addition, JAC was to be paid for materials used in the project based on a fixed unit price. Any extras were to be adjusted on completion of the installation.

During the course of the construction, an issue arose regarding JAC's alleged use of excessive sheeting. On completion of the project, JAC sought payment for the additional sheeting and other cost overruns in excess of $1 million, approximately $287,99 of which was attributable to the additional sheeting. Those claims for cost overruns were submitted to arbitration and the Township settled for $940,000. Thereafter, Van Note submitted to the Township a bill in the amount of $110,000 for professional services rendered during the sewer construction project and a separate bill in the amount of $167,658.26 for services rendered during the sewer construction project. When the Township disputed the bills, Van Note filed suit.

In the complaint, Van Note sought to recover a $183,998.15 balance due and owing for providing professional engineering services during the arbitration proceedings, $20,648.63 for "interest on retainage held by the defendant," contractual prejudgment interest of $42,127.27 "on the accumulating accounts receivable" as of the date when the complaint was drafted, and other amounts for various other charges. Both the claims for the interest on the retainage held by the Township and prejudgment interest on the accumulating accounts receivable were based on specific provisions in the contract between Van Note and the Township.

In its answer to the complaint, the Township asserted a counterclaim alleging that Van Note, among other things, had engaged in professional negligence that contributed to the cost overruns, including the extra sheeting. The Township demanded a trial by jury on all issues.

At the conclusion of the evidence, the trial court instructed the jury that Van Note was seeking to recover five types of contract damages, and enumerated them, with the exception of the contractual pre-judgment interest. Neither party objected to the trial court's failure to reference or to submit to the jury the issue of prejudgment interest. During the course of deliberations, the jury came back with a question, ultimately pointed at the award of interest. In response to the question, the trial court told the jury that it need not consider an award for interest, as that determination would be made by the trial court on a "post-application motion." The jury returned a verdict in favor of Van Note in the same amount outlined in the trial court's charge. The jury rejected the Township's counterclaim for professional negligence.

The trial judge rejected Van Note's subsequent post-judgment application for prejudgment interest, finding that Van Note had not shown overriding and compelling equitable reason to justify such an award. That reasoning was based on the court's belief that the Township had not prosecuted a frivolous counterclaim. The Appellate Division affirmed, deferring to the trial court's "finding that prejudgment interest was not warranted under the contract or under the equities of the case."

The Supreme Court granted Van Note's petition for certification.

HELD: In the face of contractual provisions providing for payment of prejudgment interest on accumulating overdue accounts receivable, the Township of East Hanover, like any private entity, must be required to comply with its contractual obligations, and this matter is remanded to the Law Division for a determination of plaintiff's entitlement to prejudgment interest under the contract.

1. The trial court's failure to submit the issue of prejudgment interest to the jury, without objection, and the court's assertion several times during the trial that that issue would be decided by the court in a post-judgment motion, constitutes a waiver of the previous demand for a jury trial on prejudgment interest on accumulating overdue accounts receivable. (p. 8)

2. The trial court's decision does not reflect that it decided Van Note's claim of entitlement to contractual prejudgment interest. The trial court's statement that it was denying Van Note's application for prejudgment interest because Van Note had not shown an overriding and compelling equitable reason to justify such an award, was a reference to the standard for awarding prejudgment interest in contract or contract-like actions against a governmental agency when there is no statute authorizing such interest. In the face of the contractual provision regarding prejudgment interest, the Township, like any private entity, must be required to comply with its contractual obligations. (p. 9)

The Judgment of the Appellate Division is REVERSED and the matter is REMANDED to the Law Division to determine whether plaintiff Van Note is entitled to prejudgment interest on the accumulating overdue accounts receivable pursuant to the contract between the parties. The remand proceedings are to be conducted without a jury. To the extent that the jury's verdict decided any precondition to awarding prejudgment interest, that determination must be accorded res judicata effect under the circumstances of this case.

JUSTICES LONG, VERNIERO, LaVECCHIA, ZAZZALI, and ALBIN join in JUSTICE COLEMAN's opinion. CHIEF JUSTICE ...


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