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Padula Builders, Inc. v. Kostiha

July 3, 2007

PADULA BUILDERS, INC., PLAINTIFF-RESPONDENT/ CROSS-APPELLANT,
v.
LOUISA J. KOSTIHA, DEFENDANT-APPELLANT/CROSS-RESPONDENT.



On appeal from Superior Court of New Jersey, Chancery Division, Ocean County, Docket No. C-210-03.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued May 8, 2007

Before Judges Skillman, Lisa and Holston, Jr.

Defendant, Louisa J. Kostiha, appeals from four orders entered by the Chancery Division. The orders arise from the trial of plaintiff Padula Builders' complaint for specific performance of an option agreement for the conveyance of two lots contained in a five lot subdivision. The orders also arise from the trial of defendant's counterclaim for damages for breach of an alleged contract for the construction of a house for defendant by plaintiff on one of the lots in the subdivision. Three of the orders appealed from were entered after a trial or evidentiary hearing. The other order denied defendant's motion for reconsideration.

The dispute concerns an option agreement between the parties dated June 25, 2001. The agreement granted plaintiff the option to purchase four of the five lots owned by defendant in Dover Township, on which she had obtained a five lot residential subdivision. The subdivision as appears on Dover Township's Tax Map is described as Block 392.04, Lots 29.01, 29.02, 29.03, 29.04, and 29.05.

The term of the option was for two years commencing July 1, 2001 and continuing until June 30, 2003. Plaintiff was given the option to purchase four of the five lots, two for $175,000 and two for $200,000. All payments due under the option were required to be made within the two-year time frame. Defendant would retain the remaining lot and plaintiff would construct a house for defendant on that lot.

The option was to be exercised on a lot-by-lot basis, and the agreement contemplated that plaintiff would find a buyer, design a custom home of at least 3,500 square feet, and enter into a contract with that buyer for the construction of a house on the lot. Plaintiff would then give written notification to defendant of its exercise of the option on that lot.

Other than the first lot, for which the entire purchase price was required to be paid on notification by plaintiff of its exercise of the option, only a $10,000 deposit would be paid up front on the remaining three lots with the balance to be paid upon closing of title with the third-party buyer.

The first lot, Lot 29.04, was sold by defendant to Dr. and Mrs. Kumar*fn1 under a contract for sale dated August 2002. The direct sale of the lot to the Kumars by defendant for $100,000 was by mutual agreement of the parties, and constituted a modification of the terms of the option agreement. Defendant, thereafter, found buyers for two of the three remaining lots. By letters dated March 24, 2003 and April 23, 2003, plaintiff gave defendant written notice of its exercise of the option on two of the remaining lots, Lots 29.03 and 29.05, and tendered the required $10,000 option payment for Lot 29.03.*fn2

Plaintiff had entered into separate contracts for the purchase of each of the lots, with houses to be constructed thereon, with third-party purchasers. Construction of the houses on those lots was not to be completed by June 30, 2003, the option end date. However, plaintiff was prepared to tender payment of the balance due for each of the lots at a closing to be held prior to June 30, 2003.

Defendant contended that Section 4 of the option agreement required completion of construction on or before June 30, 2003, and that as a result of the failure of plaintiff to complete construction, plaintiff was in default of the agreement. Defendant, therefore, refused to convey title to the lots. Defendant further claimed that completion of her house on the retained lot before June 30, 2003 was a condition of the option agreement, the failure of which placed plaintiff in default.

Judge Clyne bifurcated the issues and tried plaintiff's claim for specific performance first. After conducting a bench trial, Judge Clyne in an oral and written opinion of September 17, 2004 granted plaintiff specific performance of the option to purchase the two lots. By order dated October 18, 2004, defendant was required to convey to plaintiff Lots 29.03 and 29.05. The judge further ordered plaintiff to pay the purchase price for each lot of $175,000 and $200,000 respectively, as set forth in the option agreement, with closing to take place at the office of plaintiff's counsel on October 18, 2004.

Defendant, thereafter, changed counsel. Substituted counsel filed a motion for reconsideration of the court's September 17, 2004 order*fn3 based on defendant's claim that the entire trial was tainted because of the impermissible dual representation by defendant's trial counsel in the sale of the lot to the Kumars. The contract for the sale of this lot had a separate construction contract between plaintiff and the Kumars attached. Defendant alleged her trial counsel represented both plaintiff and her in the Kumar transaction, and thus, was in conflict of interest because of divided loyalty when representing her in the trial of plaintiff's specific performance claim.

Defendant further sought reconsideration of the court's October 18, 2004 order for specific performance on the basis that she was precluded at the trial from presenting the defense of unclean hands, which was the third separate defense asserted in her answer to plaintiff's complaint. Plaintiff sought to have the court set aside its order for specific performance on the basis that defendant and plaintiff participated in an unlawful scheme to defraud the government of income taxes by side agreements. Defendant asserted that plaintiff agreed to pay her an additional $50,000 in cash and give her a $50,000 credit against the construction of her residence in connection with the Kumar conveyance.

The court rejected defendant's arguments and determined that all legal arguments and all separate defenses associated with the right of specific performance had been available for defendant to raise at the trial of the claim for specific performance. The court stated that plaintiff's belated assertion of the parties' tax avoidance scheme was one in which defendant was raising the issue with unclean hands. The judge thus denied reconsideration on that basis.

The judge found, after a plenary hearing on December 20, 2005, that defendant failed to establish the existence of dual representation on the part of her former trial attorney or his law firm. The ruling was memorialized in the court's January 9, 2006 order.

Thereafter, Judge Clyne tried the damages claims. The judge made detailed findings in an oral decision of the amounts due for the value of work performed by plaintiff on defendant's house, offset by amounts plaintiff owed defendant, including amounts due for reimbursement for real estate taxes on the lots conveyed as required by the option agreement. On January 31, 2006, after determining defendant owed plaintiff a total of $50,053.95 and plaintiff owed defendant a total of $50,500 and after setting off one sum against the other, the court awarded defendant damages in the amount of $446.05 plus $7,896.05 as reimbursement for taxes paid on Lots 29.02, 29.03, and 29.05 plus pre-judgment interest in accordance with the Rules of Court. The court entered an order of judgment in defendant's favor in the amount of $8,342.10. Defendant appeals all four orders. We affirm.

Defendant presents the following arguments for our consideration:

POINT I

THE TRIAL COURT ERRED IN ENTERING A JUDGMENT COMPELLING DEFENDANT TO SELL LOTS 29.03 AND 29.05 TO PLAINTIFF, AS THE PLAIN LANGUAGE OF THE OPTION CONTRACT DEMONSTRATES THAT THE PARTIES INTENDED PLAINTIFF'S CONSTRUCTION OF A HOME AND SALE OF THAT HOME TO A BONA FIDE THIRD PARTY PURCHASER DURING THE OPTION PERIOD TO BE A CONDITION OF PLAINTIFF'S OPTION.

POINT II

THE TRIAL COURT EITHER DENIED DEFENDANT HER RIGHT TO PROCEDURAL DUE PROCESS UNDER BOTH THE UNITED STATES CONSTITUTION AND THE NEW JERSEY CONSTITUTION OR VIOLATED NEW JERSEY LAW BY ENTERING A JUDGMENT FOR SPECIFIC PERFORMANCE WITHOUT TRYING OR OTHERWISE CONSIDERING DEFENDANT'S AFFIRMATIVE DEFENSES.

POINT III

THE TRIAL COURT ERRED IN FINDING THAT MR. YORK DID NOT REPRESENT PLAINTIFF IN THE OPTION NEGOTIATION AND THE VIJAYAKUMAR TRANSACTION, THEREBY REFUSING TO VACATE THE ORDER GRANTING SPECIFIC LEGAL SERVICES ON PLAINTIFF'S BEHALF, UNDER THE STANDARD IMPOSED BY NEW JERSEY LAW, AND THE EXISTENCE OF THAT RELATIONSHIP CREATED A ...


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