July 13, 2007
KERI A. NOWICKI AND JUDITH THOMPSON, PLAINTIFFS-RESPONDENTS/ CROSS-APPELLANTS,
JAMES ALLUNARIO, JOHN ALLUNARIO, AND ROBERT ALLUNARIO, DEFENDANTS-APPELLANTS/ CROSS-RESPONDENTS, CORNERSTONE HOME INSPECTION, AND MICHAEL DOMINIANNI, DEFENDANTS.
On appeal from Superior Court of New Jersey, Law Division, Passaic County, Docket No. L-5259-03.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued May 8, 2007
Before Judges Kestin and Weissbard.
Defendants, James Allunario, John Allunario, and Robert Allunario, appeal from a final judgment, entered following a jury trial, in favor of plaintiffs, Keri A. Nowicki and Judith Thompson, in the amount of $24,695.69. We reverse and direct the entry of judgment for defendants.
The case arises from plaintiffs' purchase from defendants of property at 35 Ryerson Avenue, Bloomingdale. The contract of purchase was signed on July 23, 2002. The contract stated in bold type: that the Property is being sold in an "As Is" condition and that this Agreement is entered into based upon the knowledge of the Buyer as to the value of the land and whatever buildings are upon the Property and not on any representations made by the Seller, the named Broker(s) or their agents as to character or quality.
The contract gave the buyer the right to an inspection by a qualified inspector, and provided a period of time for the sellers to cure any defects identified by the inspector; if the seller declined to cure the defect, the contract was voidable by the buyer.
Defendants were also required to complete a Seller's Disclosure Statement (SDS), which was signed by the three defendants on July 17, 22, and 23, 2002, and countersigned by plaintiffs on August 6, 2002. The SDS stated the following:
2. NOTICE TO SELLER:
Each Seller is obligated to disclose to a buyer all known facts that materially and adversely affect the value of the property being sold and that are not readily observable. This disclosure statement is designed to assist Seller in complying with disclosure requirements and to assist Buyer in evaluating the property being considered. The listing real estate broker, the selling real estate broker and their respective agents will also rely upon this information when they evaluate, market and present Seller's property to prospective buyers.
3. NOTICE TO BUYER:
This is a disclosure of Seller's knowledge of the condition of the property as of the date signed by Seller and is not a substitute for any inspections or warranties that Buyer may wish to obtain. It is not a warranty or representation by the listing broker, or their agents.
Defendants responded in the negative to questions on the SDS asking whether they were "aware of any past or present movement, shifting, deterioration, or other problems with walls or foundations." Defendants did provide information as to "water leakage in the house," with a notation alongside that entry, "cosmetic not structural." Defendants denied having made any "structural changes" but did identify a number of "alterations." In response to whether any former owners had made structural changes, defendants checked off "unknown."
A notation on the form said "SEE MOM."
In fact, the property, which according to the SDS was over ninety-years-old,*fn1 had been previously owned by defendants' parents. Defendants' father having died, defendants' mother had transferred title to her sons about a year before plaintiffs' purchase. According to deposition testimony of defendants' mother, introduced at trial, the home had been converted from a one-family to a two-family residence in the early 1950's when she married defendants' father, in order that her in-laws could live on the first floor while she and her husband lived on the second. Thereafter, the family moved to a new house next door. Defendant James Allunario was five-years-old when the family moved, John was an infant, and Robert was not yet born. The house was used as a two-unit rental property for more than forty years prior to the sale.
On July 26, 2002, defendants' attorney wrote to plaintiffs' attorney suggesting a number of "changes/amendments" to the contract of sale, which were accepted by plaintiffs' attorney on July 26, 2002. The letter, which thus constituted an addendum to the contract, stated in part that:
13. All representations are to the best of sellers' knowledge and shall not survive closing of title.
14. Any and all disclosure statements provided by the sellers through the realtors are for informational purposes only and shall not be construed as a warranty or representation, nor survive closing of title. Buyer agrees that the results of any inspections shall supersede any disclosure made by the sellers.
On August 3, 2002, plaintiffs had an inspection performed by Michael Dominianni of Cornerstone Home Inspection (collectively Cornerstone). As a result, plaintiffs requested that some termite infestation be treated, but nothing else. On September 13, 2002, title was closed.
After moving into the property, plaintiffs noticed problems with the floors and ceiling which led them to have an engineer and contractor look at the house. As a result, plaintiffs were advised that a load-bearing wall had been removed from the house.
The present suit, filed December 5, 2003, named the Allunarios and Cornerstone as defendants. The complaint asserted the following causes of action against the Allunarios: breach of contract with reference to the contract of sale and SDS (count one); fraud (count two); violation of an implied covenant of good faith and fair dealing (count three); and negligent misrepresentation (count four). The fifth, sixth, and seventh counts were against Cornerstone, which settled prior to trial for $27,500.
At trial, the judge granted defendants' motion to dismiss the negligent misrepresentation and implied covenant counts, deeming them subsumed within the fraud and breach of contract claims, both of which were submitted to the jury. In response to special interrogatories, the jury found: (1) that "a load-bearing wall once existed between the kitchen and family room/living room of the first floor apartment of 35 Ryerson Avenue . . . and this was removed at some time prior to plaintiffs' purchase" and (2) that defendants breached their contractual obligation by failing to disclose the removal of the load-bearing wall." The jury further found that Cornerstone was not negligent. Damages for breach of contract were fixed at $50,000. Finally, the jury determined that the existence and removal of a load-bearing wall was not proven by clear and convincing evidence, thereby rejecting plaintiffs' fraud claim.
Post-trial, the judge rejected defendants' motion for a new trial but did grant a pro tanto reduction of the damage award by the amount of the settlement with Cornerstone in the amount of $27,500. Thus, the net verdict was $22,500, to which prejudgment interest and costs were added, bringing the total judgment to $24,695.69.
On appeal, defendants argue that the breach of contract claim was erroneously submitted to the jury and that plaintiffs failed to prove damages. Alternatively, defendants claim that error in the jury charge on fraud requires a new trial, even though the jury rejected the fraud allegation.
Plaintiffs have cross-appealed, contending that the award of a credit was error, that the instruction on the burden of proof as to fraud was erroneous, that their negligent misrepresentation and implied covenant causes of action were improperly dismissed, and that various evidentiary rulings constituted error.
Because we conclude that the record fails to support the jury's damage award, we have no need to address defendants' other arguments or plaintiffs' arguments on the cross-appeal. Even if plaintiffs were correct in their claims concerning the fraud charge or their other legal theories, without competent proof of damages no verdict could stand.
Plaintiffs presented Michael Natoli as an expert engineering witness. Natoli had conducted an inspection of plaintiffs' house and opined to a requisite degree of certainty that a load-bearing wall on the first floor had been removed, thereby undermining the structural integrity of the house. The basis for that conclusion need not be set out in detail; it suffices to observe that his testimony provided more than sufficient support for the jury's finding that a load-bearing wall had been removed. Natoli opined that as a result of the wall's removal, the house was "at the point of imminent collapse." The house "will come down in the future." Natoli was of the view that the home inspector, Cornerstone, should have seen that the wall was removed. According to Natoli, any competent inspector should have been able to observe the problems resulting from the removal. Natoli could not say when the wall had been removed.
Natoli provided a description of the extensive work that would have to be done to fix the problems associated with the wall's removal. He concluded that "the amount of work to do so would be so cost prohibited [sic], quite simply would be much more economical to demolish the house and build new." Over defendants' objection, Natoli estimated a cost of $120,000 to build a "low end" residence. In responding to defendants' objection that the cost of a new house as compared to the cost of fixing a 100-year-old house was like comparing "apples and oranges," the judge stated:
But then it's a question of other proofs or other instructions to the jury as to what they have to do with that number . . . the amount of damages. This is an element of it, not plain and simple and unadorned. It's going to require something else, but I think he's entitled to stick with that element.
Further, Natoli estimated $25,000 as the cost of demolition, and $12,000 for the necessary building plans and permits, bringing the total expense to $157,000.
In moving for a directed verdict in favor of defendants, the following colloquy occurred between counsel and the court:
[DEFENSE COUNSEL]: And most importantly, there is not a scintilla of evidence of the value of this property on the date of the transaction being one penny less than 225. The only evidence in the case as to value of this property [are] two things. . . . There are two forms of evidence. Number one, there's an arm's length negotiation resulting in a 225,000-dollar price on September 15th or thereabouts, 2002, and there's the admissions of the plaintiff that some three years later, the same property contemplating not a house but a demolition of the house is worth more than 300,000.
The condition of the house clearly is immaterial to the damage claimed, and, therefore, there's no showing of detrimental reliance. Regardless of whether there's a house there, a good house, a bad house, a negligent house, a --
THE COURT: No showing of damages.
[DEFENSE COUNSEL]: There's simply no showing of damages, of detrimental reliance which is not a question separate from fraud. It is inherent in the cause of action for fraud. What plaintiffs' own evidence [which came] out of the plaintiffs' own mouths has established is not detrimental reliance but beneficial reliance. They're at least $75,000 ahead of the game by virtue of this.
THE COURT: Even if they relied on it, they didn't do so to their detriment. There's been no detriment.
[DEFENSE COUNSEL]: They were benefited. They're much better off today completely . . . regardless of the condition of the house. Their contemplation is not that they will live there. They will sell it to a developer who will demolish, or else they'll do that themselves and keep the profits for themselves.
THE COURT: You want to be heard on that? I'm going to reserve on it. If you want to be heard, I'll hear you just briefly.
[PLAINTIFFS' COUNSEL]: Just briefly. . . . I've given my argument before. I mean --
THE COURT: All right. Then let me rule, and then what -- if I have to revisit it, I'll give you a chance to argue first.
Okay. I'm going to reserve on that.
Any other motions, defense counsel?
[DEFENSE COUNSEL]: Just one other fillip on top of what I just said on no damages being proven. There's also a complete failure of any evidence as to cost of repair. The only evidence is cost of demolition and rebuilding.
And under Correa v. Maggiore [196 N.J. Super. 273 (App. Div. 1984)], I found another case that I commend to the Court's attention in this regard which really just backs up Correa in a slightly different context, but it's Velop, Inc. v. Harry Kaplan [301 N.J. Super. 32 (App. Div. 1997), appeal dismissed, 153 N.J. 45 (1998)], and particularly where they discuss measure of damages. It's primarily a contract and negligence case as opposed to an intentional fraud case.
But in that case, the Court at Page 64 addressed the measure of damages, and it carries over. . . . It's mainly on Page 64, 65. And they discussed the cases we have spoken about in this case including counsel's often relied on case 525 Main Street Corp.[v. Eagle Roofing Co., 34 N.J. 251 (1961)] and others.
So there's simply no proof of the damage -- of the cost of repair or demolition or diminution.
In his charge to the jury, the judge said the following concerning damages:
The plaintiffs claim that they purchased the home for $225,000. That's not disputed. They say that there was a breach of the contract which made that house less valuable to them. The damages that you can award to them if you get to damages and if you feel that they're entitled to damages are the reasonable cost of repairs to the premises in the condition that they actually took it. There is testimony on damages which you can consider arriving at the answer to that question.
In denying defendants' motion for a new trial, the judge said:
The evidence on the question of damages was that it would cost $150,000 to build the house that they thought they were buying, and that was the low end of the spectrum. It was a basic house that this person said could be built for about that much. The jury evidently didn't accept it. They felt that $50,000 was a fair amount. I think it was at least based on what that expert told them was the evidence.
And I have to say that based on all the evidence here as very often happens, I think the jury got it right one way or another. That $50,000 is probably closer to what the actual [number] is and what several other people might have thought. I think they got it right one way or another.
I certainly can't say absolutely that they got it wrong and that there was no basis in the evidence for the decisions that they made. I can't say that. So I have to deny the motion for a new trial.
Correa v. Maggiore, supra, is instructive, if not dispositive, on the damage issue. In that case, as here, the purchaser of a home claimed that the seller failed to provide information "regarding significant structural problems which substantially impaired [the home's] value." 196 N.J. Super. at 277. "[T]he house 'leaned' or 'tilted' to one side by virtue of its age and because of problems pertaining to deterioration of its foundation." Id. at 278. There was testimony from a licensed architect and mason contractors as to the nature of the substantial repairs required to remedy the defect. Id. at 279-80.
In Correa, the purchase price for the property was $25,000; however, plaintiffs' expert witness estimated that it would cost $37,000 to straighten the house. Id. at 278-80. The jury awarded $33,000 in damages. Id. at 277. We concluded that the result constituted an unjustified windfall to the plaintiff-purchaser and such a verdict would provide plaintiff with "a completely renovated, if not new, home. . . ." Id. at 284. We rejected use of a "cost of repairs approach" where "it would result in 'unreasonable economic waste.'" Id. at 285 (quoting 525 Main St. Corp., supra, 34 N.J. at 255). We stated:
By virtue of the age of the building and its present condition, the cost of reconstruction is not an appropriate measure of plaintiff's loss. This is so because the cost of repairs vastly exceeds the contract price and the probable market value of the property. It would be anomalous to compel defendant to provide plaintiff with what essentially amounts to a totally refurbished home, which would be a result far exceeding what is necessary to make plaintiff whole.
Rather, the diminution in value caused by defendant's deceit better reflects plaintiff's actual loss and satisfies the reasonable expectation of the parties. [Id. at 285-86.]
More recently, we addressed the issue of the appropriate measure of damages for defective construction in St. Louis LLC v. Final Touch Glass and Mirror, Inc., 386 N.J. Super. 177 (App. Div. 2006). We noted that we had "in the past described the appropriate measure of damages for an injury to real property as a 'complex subject' that requires a response 'in a great variety of ways depending upon the evidence in the particular case.'"
Id. at 188 (quoting Velop, supra, 301 N.J. Super. at 64). "Generally, either diminution in value or the reasonable cost of restoring or repairing the damage may be appropriate." Ibid.
Certainly, there are distinguishing features between Correa and St. Louis, and the present case. This case does not deal with construction defects and, unlike Correa, the demolition/rebuilding estimate by Natoli ($157,000) did not exceed the purchase price ($225,000).*fn2 Nevertheless, we consider the principles cited in those cases to be applicable here.
The only competent testimony offered by plaintiffs on the damage issue was that of Natoli, discussed at length earlier. Plaintiffs seek on appeal to find additional support in their own testimony, but we agree with defendants that the evidence in question was not offered or received as substantive evidence on the damage issue. The testimony of plaintiffs came in response to a ruling by the judge that defendants could introduce evidence, in the form of a letter from defendants to plaintiffs in July 2005, offering to repurchase the property for $225,000. The judge ruled that the offer, which was rejected, bore on the issue of mitigation of damages. Plaintiffs testified that, on advice of counsel, the offer was rejected because of their belief that the property had greatly appreciated in value from the time of the purchase in 2002 to the time of the offer in July 2005. Nowicki testified that even with the structural problems identified by Natoli, the house was worth "at least $300,000," and "probably" $400,000 without the defects. However, in permitting this testimony, the judge instructed the jury as follows:
I think it's apparent to the members of the jury what the witness is saying is her belief as to these things, and she's not holding herself out as an expert. And you should not accept these statements as statements of facts. This is her belief.
Thompson testified that, from talking to some friends, she thought the house was worth between $290,000 and $300,000, as is, and "close to 400 if not more," if it was structurally sound.
The judge's determination to allow evidence of the re-purchase offer, and counter-evidence as to why it was rejected, did not constitute an abuse of discretion. His limiting instruction was likewise entirely appropriate. The valuation of real property is a matter requiring expert testimony. Jacobitti v. Jacobitti, 263 N.J. Super. 608, 613 (App. Div. 1993), aff'd, 135 N.J. 57 (1994). Plaintiffs had no expertise in this area and were, therefore, incompetent to offer testimony as to the value of the property with and without the structural problems. Thus, the testimony as to value was admissible not as substantive evidence but only as it explained why defendants' offer was rejected. We reject plaintiffs' argument that due to the cross-examination by defendants on this issue, "the trial court's original limiting instruction should not govern. . . ." Additionally, plaintiffs' reliance on Penbara v. Staczynski, 347 N.J. Super. 155 (App. Div. 2002) and Lane v. Oil Delivery, Inc., 216 N.J. Super. 413 (App. Div. 1987), for the proposition that owners of property may estimate its value, is totally misplaced in this context. As plaintiffs themselves concede, those cases dealt with personal property, not real estate.
Thus, the only evidence offered on damages was from Natoli. His estimate of demolition and rebuilding provided no basis for the jury's award of $50,000. Natoli provided no estimate of the cost of repair and plaintiffs provided no expert testimony as to diminution in value. Indeed, demolition and rebuilding was wholly inappropriate as a measure of damages in this case and defendants' objection to the testimony should have been sustained. The trial judge recognized, and instructed the jury, that the measure of damages was the cost of repair. But there was no evidence of the cost of repair. As a result, the jury was permitted to engage in sheer speculation on the proper measure of damages. For the same reason, defendants' motion for a directed verdict or for judgment notwithstanding the verdict should have been granted. Without proof of actual damages, plaintiffs had no sustainable cause of action for breach of contract. Ruane Dev. Corp. v. Cullere, 134 N.J. Super. 245, 252 (App. Div. 1975), overruled on other grounds by Kutzon v. Pirnie, 124 N.J. 500 (1991).
Thus, even if plaintiffs were correct in their cross-appeal that the court employed an erroneous burden of proof on fraud,*fn3 that the negligent misrepresentation/implied covenant of good faith causes of action were improperly dismissed, or that there were prejudicial evidentiary errors, the result would be the same because no damages were proven. And, as we noted at the outset, our disposition makes it unnecessary for us to consider defendants' primary argument that the court should have directed a verdict in their favor on the breach of contract count.
Reversed and remanded for entry of judgment in favor of defendants.