July 27, 2007
MADHUKANT VAID AND HASUMATI VAID, PLAINTIFFS-APPELLANTS,
ANTHONY MOCCI; GUARANTEED CONSTRUCTION AND EXCAVATING, INC., A NEW JERSEY CORPORATION, GUARANTEED CONSTRUCTION, INC., A NEW JERSEY CORPORATION, AND GUARANTEED CONSTRUCTION & DEVELOPMENT, INC., A NEW JERSEY CORPORATION; AND SOUTH HYDE DEVELOPERS, INC., A NEW JERSEY CORPORATION, DEFENDANTS-RESPONDENTS.
On appeal from Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-2978-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted July 5, 2007
Before Judges Skillman and King.
This is an appeal by plaintiffs from a default judgment in their favor in an action under the Consumer Fraud Act, N.J.S.A. 56:8-1 to -20, arising out of a contract for the sale of real property. Plaintiffs claim that the damages awarded by the trial court did not represent their actual damages.
On or about January 3, 2001, plaintiffs entered into a contract to purchase a residence in Woodbridge from defendant Guaranteed Construction. When the contract was executed, the land on which the house was to be constructed was vacant. Plaintiffs paid Guaranteed the agreed $25,000 deposit for the house with three checks, the last of which was dated February 25, 2001. Plaintiffs subsequently obtained a mortgage commitment for the balance of the $250,000 purchase price of the house.
Guaranteed failed even to begin construction of the residence that was the subject of the contract of sale, and it later turned out it did not own the property on which the house was supposed to be constructed. Guaranteed also failed to return plaintiffs $25,000 deposit.
On May 5, 2002, Guaranteed's attorney sent a letter to plaintiffs' attorney, which stated:
Thank you for your letter dated May 8, 2002.
Please be advised that I have spoken with my client and he indicates to me that he has every intention of building this home in accordance with the Contract of Sale.
Please be advised my client has had extreme construction delays and costs overruns which have delayed this project. If it is that your clients still wish to purchase this home I ask that they be patient and continue to work with us. In the event they choose not to wait we will promptly refund the deposit monies.
On or about May 1, 2004, Guaranteed's principal, defendant Anthony Mocci, acquired the undeveloped lot on which Guaranteed had contracted to construct a residence for plaintiffs for $101,000. However, rather than fulfilling its obligations under the contract of sale with plaintiffs, on or about May 6, 2004, another company in which Mocci is the principal, defendant South Hyde Developers, Inc., sold the property to a third party for $170,000, thereby realizing a $69,000 profit.
On April 21, 2005, plaintiffs brought this action against defendants, asserting various causes of action, including breach of contract and violations of the Consumer Fraud Act. As of that date, Guaranteed had still not returned plaintiffs' $25,000 deposit.
Defendant Mocci answered the complaint, but his answer was subsequently suppressed for failure to answer interrogatories and requests for the production of documents. The other defendants apparently did not even answer the complaint. As a result, a default was entered and a proof hearing was held on July 25, 2006.
At that hearing, plaintiffs presented testimony by a real estate appraiser that the house plaintiffs had contracted to buy from Guaranteed would have had a value of $490,000 as of July 18, 2006. Plaintiffs claimed as damages the difference between that 2006 valuation of the house and the $250,000 January 2001 purchase price, which would be $240,000. Plaintiff also sought several other items of alleged damages that are not at issue on this appeal. On their Consumer Fraud Act claim, plaintiffs sought treble their actual damages and attorneys' fees.
At the conclusion of the proof hearing, the trial court rejected plaintiffs' damages claim and limited their damages to the return of their $25,000 deposit for the purchase of the house. The court trebled this amount in accordance with N.J.S.A. 56:8-19 and also awarded plaintiffs $3293 in prejudgment interest, $22,500 for attorneys' fees and $3768 for costs. In rejecting plaintiffs' damages claim, the court stated:
The court does not find the appropriate measure of damages to be the fair market value of the property at the time of the institution of suit, which is April of 2005, and the contract price of $250,000, which is the year the parties entered into the contract. The breach is when the house should have been built or completed and the damages should be awarded and can be awarded at that date.
However, the court also concluded that plaintiffs had proven their fraud claim:
[T]he court finds fraud in this case, which includes a misrepresentation as to the development, the ownership of the property, and the fact that the same defendant in this case later sold the property to another party for substantially more money without constructing the house, leaves the court to accept the argument that fraud in fact occurred.
On appeal, plaintiffs argue that the trial court erred in failing to award them "benefit of the bargain" damages. However, the contract of sale specifically provided that "the sole liability of the Seller for non-performance under this agreement shall be limited to the return of deposit monies[.]" We see no reason to decline enforcement of this provision with respect to plaintiffs' breach of contract claim.
Plaintiffs' claim under the Consumer Fraud Act, under which the trial court awarded damages, presents different issues. Under this Act, an aggrieved consumer is entitled to recover "any ascertainable loss of moneys or property, real or personal," suffered as a result of a consumer fraud. N.J.S.A. 56:8-19. Therefore, a party who has violated the Act cannot prevent the consumer from recovering its full "ascertainable loss" by reliance on a provision of the contract that purports to limit the violator's liability to the consumer's deposit.
Our case law recognizes that courts should take a flexible approach in awarding damages in cases involving fraud. See Zeliff v. Sabatino, 15 N.J. 70, 74-75 (1954); Correa v. Maggiore, 196 N.J. Super. 273, 284 (App. Div. 1984). "No rule of damages capable of precise application in all [fraud] cases can be laid down and followed." Zeliff, supra, 15 N.J. at 74. "As to some cases what is called the 'out-of-pocket' rule may furnish just and adequate compensation; in others the so-called 'benefit-of-the-bargain' rule may be the more just and accurate." Ibid.
Although the "benefit of the bargain" rule may have provided an appropriate measure of plaintiffs' "ascertainable loss," the problem with the evidence plaintiffs presented at the proof hearing was that their expert only testified concerning the value of the subject property as of July 18, 2006, which was many years after defendants' acts of consumer fraud. Under the "benefit of the bargain" rule, the aggrieved party is entitled to "the difference between the market price of the property at the time of the breach and the contract price." Donovan v. Bachstadt, 91 N.J. 434, 445 (1982). Plaintiff failed to present any evidence of the market value of the subject property at the time of defendants' violations of the Consumer Fraud Act. Those violations started when defendants represented that they owned the property on which the house was supposed to be constructed and continued at least through May 5, 2002, when defendants' attorney represented to plaintiffs that his client "has every intention of building this home in accordance with Contract of Sale." However, the record does not contain any evidence that defendants' misrepresentations continued after 2002. Indeed, plaintiff Madhukant Vaid testified at the proof hearing that he and his family moved to Orlando, Florida, four years before the hearing, after they became convinced defendants had no intention of building the house, which would have been sometime in 2002. There is no evidence that the parties had any continuing relationship after plaintiffs moved to Florida, except for Guaranteed's retention of plaintiffs' $25,000 deposit. Thus, plaintiffs' "ascertainable loss" under the "benefit of the bargain" rule would have been the difference between the market value of the property at the time of the last of defendants' acts of consumer fraud and the contract price. Any increase in the value of the property after defendants' acts of consumer fraud would be the result of market appreciation and for that reason not an appropriate measure of plaintiffs' damages as a result of the fraud. Therefore, the trial court properly rejected plaintiffs' proofs regarding their alleged benefit of bargain damages.
However, the trial court failed to award plaintiffs their full ascertainable loss as a result of defendants' violations of the Consumer Fraud Act. The court failed to award plaintiffs the undisputed $300 expense they incurred in obtaining a mortgage commitment for the purchase of the house. The court also erred in only awarding plaintiffs pre-judgment interest on their $25,000 deposit from April 21, 2005 to the date of judgment. This award was apparently based on Rule 4:42-11(b), which provides for the award of interest in "tort actions," commencing on "the date of the institution of the action or from a date 6 months after the cause of action arises, whichever is later." However, plaintiffs were entitled to interest on their $25,000 deposit for the full period defendants retained this money wrongfully obtained by acts of consumer fraud. Such interest was part of plaintiffs' "ascertainable loss of moneys" as a result of a consumer fraud for which recovery is authorized by N.J.S.A. 56:8-19. Cf. Green Springs Estates, Inc. v. Bd. of Educ. of Twp. of Springfield, 233 N.J. Super. 386 (App. Div. 1989). Therefore, a remand is required for the determination of these additional damages.
On the remand, plaintiffs also may seek leave to reopen the record to present more satisfactory evidence of their damages claim under the benefit of the bargain rule.
Finally, we reject plaintiffs' argument that the $69,000 profit defendants realized from the purchase and sale of the property which was the subject of the contract of sale is an appropriate alternative measure of their damages under the Consumer Fraud Act. Although such profits may be recovered under other theories of liability, such as unjust enrichment, see County of Essex v. First Union Nat'l Bank, 186 N.J. 46, 56-57 (2006), the measure of damages for a claim under the Consumer Fraud Act is limited to the "ascertainable loss of moneys or property" by the victim of the consumer fraud.
Accordingly, the judgment of the trial court is reversed and the case is remanded to the trial court for further proceedings in conformity with this opinion.
© 1992-2007 VersusLaw Inc.