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Kern v. Huettl


August 13, 2009


On appeal from the Superior Court of New Jersey, Law Division, Atlantic County, Docket No. L-1545-04.

Per curiam.


Submitted March 11, 2009

Before Judges Stern, Rodríguez and Payne.

Appellants Thomas L. Kern and Debra L. Kern, individually and as guardians ad litem for Robert A. Fox (collectively "the Kerns"), appeal from: (a) the March 2, 2007 order, denying their motion for reconsideration of the order granting J. Patrick Delaney, Jr., Bernadette Donnelley, and Countrywide Home Loans, Inc. (collectively "Countrywide defendants") summary judgment; and (b) the October 5, 2007 judgment, following a bench trial, in favor of defendant Bill "Mick" Michel, t/a Hileen Modular Homes. We affirm.

These are the salient facts. Early in 2002, the Kerns decided to move from Pennsylvania to New Jersey in order for their son Robert A. Fox to have access to a better special education program. The Kerns determined that the Atlantic County Special Services School District would be the best choice. On a trip to the Atlantic County area, they saw a sign for one of the construction projects on which Howard Huettl was currently working. Huettl was trading under the name Hileen Modular Homes. The Kerns spoke to Huettl, who agreed to develop a proposal on a home. Bill "Mick" Michel, was the construction manager for Hileen Modular Homes. Subsequently, Huettl provided the Kerns with a formal proposal to construct a modular home. There were time constraints because the Kerns desired to have their son settled and ready to begin school in early September 2002.

With the assistance of a realtor, the Kerns found a suitable lot for the modular home. Huettl suggested Countrywide as a mortgage lender. The Kerns spoke with defendant Bernadette Donnelley of Countrywide about a construction mortgage. Within a month, the Kerns signed a home construction agreement with Huettl and applied for a construction mortgage loan from Countrywide. Countrywide approved the mortgage loan.

The modular home was delivered on September 27, 2002. The delivery consisted of two module sections. The trucks delivering the modules could not reach the lot because the driveway had not been properly cleared. Thus, the modules were left on trailers in the middle of the road. The subcontractors who cleared the lot brought a bulldozer in to pull the modules back to the building lot. Because the dirt was very loose, the modules got stuck as soon as the bulldozer began to pull. A bigger bulldozer was brought in to move the modules. During this process, the modules came into contact with trees along the driveway. The top halves of the units were protected by a white plastic, like a shrink wrap.

The home was not set up until October 15, 2002. During the time the modules were sitting on the lot, prior to set up, water entered one of the modules through two holes in the protective shrink wrap. The Kerns purchased a tarp to prevent further water damage. The roof was installed on the night of October 15, 2002, in the dark, with only the use of flashlights. According to Thomas Kern, the home had extensive water damage and mold issues. Repairs were subsequently made by the builder, Muncy Homes.

The agreement with Huettl provided that construction would be complete and a Certificate of Occupancy would be obtained within three months from the date of installation of the home on the foundation. The Certificate of Occupancy was issued on December 4, 2002. While waiting for the modular home to be set and finished, the Kerns had to live in a camper in Mays Landing.

The Kerns hired William Dieal, Jr., a professional engineer, planner and a licensed home inspector, to inspect the home. In November 2002, Dieal performed the first of several inspections of the home and prepared a report of the necessary repairs. Dieal opined that the condition of the framing of the home was not structurally stable. He then advised that immediate action be taken to support the structure by installing a temporary beam full length in the crawl space to remain until the satisfactory resolution of litigation or permanent correction of conditions by the builder. This temporary remedy was never made.

The Kerns sued in the General Equity Part, seeking injunctive relief and specific performance from Michel and Huettl. The judge ordered the matter transferred to the Law Division. The Kerns filed an amended complaint, joining the realtor, Guy E. Kern; the Countrywide defendants; Muncy Homes; and Ralph M. Construction, Inc.

The Kerns moved for summary judgment against the Countrywide defendants pursuant to the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 to -20 ("CFA"), alleging that Countrywide misrepresented to them that it would inspect the modular home to ensure that it was being built in a workman-like manner. The Kerns based their CFA claim on Countrywide's recommendation to use Huettl as a builder and for making loan disbursements to Huettl over the Kerns' objections. The Countrywide defendants' cross-moved for summary judgment. The judge denied the Kerns' motion for summary judgment and granted the cross-motion.

The Kerns moved for reconsideration alleging that their agreement with the Countrywide defendants was a contract of adhesion. The judge denied the Kerns' motion for reconsideration, concluding that it was an improper attempt to raise the new issue of a contract of adhesion. The judge also ruled that the argument was substantively deficient.

Subsequently, the Kerns settled with Huettl for $15,000 and for a dismissal of his consolidated affirmative claim against the Kerns for the $11,000 balance due on the construction contract. The Kerns also settled with Muncy Homes for $5,000; Guy E. Kern for $1,500; and Ralph M. Construction for $15,000. The only remaining defendant, Michel, had defaulted. However, Michel moved to vacate the default. The judge granted the motion and Michel filed an answer.

At a bench trial on a breach of contract third-party beneficiary theory, the judge found that 100% of the damages were caused by the settling defendants and that there was no breach of contract or negligence on the part of Michel.

On appeal, the Kerns contend that: (1) Countrywide made affirmative oral misrepresentation that inspections would take place throughout the construction to induce the Kerns to enter into a contract with Countrywide; (2) the judge erred in ruling that an opinion does not violate the CFA; (3) Donnelley made affirmative oral representations to the Kerns that inspections would take place throughout the construction of their home and the Kerns relied on those promises to their detriment; and (4) Michel, as construction manager on behalf of Huettl, owed a duty to the Kerns, as third-party beneficiaries. We disagree with each contention.

The Consumer Fraud Claim

The Kerns argue that the trial judge should not have applied the parol evidence rule to bar Countrywide's oral statement. The parol evidence rule may be explained generally as follows:

When two parties have made a contract and have expressed it in a writing to which they have both assented as the complete and accurate integration of that contract, evidence, whether parol or otherwise, of antecedent understandings and negotiations will not be admitted for the purpose of varying or contradicting the writing. [Filmlife Inc. v. Mal "Z" Ena, Inc., 251 N.J. Super. 570, 573 (App. Div. 1991) (citation omitted).]

"[T]he parol evidence rule operates to prohibit the introduction of oral promises to alter or vary an integrated written instrument . . . ." Filmlife, supra, 251 N.J. Super. at 573 (quoting Ocean Cape Hotel Corp. v. Masefield Corp., 63 N.J. Super. 369, 378 (App. Div. 1960)).

An exception to the parol evidence rule exists when the extrinsic evidence is to prove fraud in the inducement. Filmlife, supra, 251 N.J. Super. at 573. Courts have reasoned that extrinsic evidence is permitted to prove fraud because the extrinsic evidence "is not offered to alter or vary express terms of a contract, but rather, to avoid the contract or 'to prosecute a separate action predicated upon the fraud.'" Id. at 573-74 (quoting Ocean Cape, supra, 63 N.J. Super. at 378).

However, the fraud exception has limitations. For instance, in Filmlife, the court distinguished "between fraud regarding matters expressly addressed in the integrated writing and fraud regarding matters wholly extraneous to the writing." Filmlife, supra, 251 N.J. Super. at 574. The fraud exception is applicable only to fraud regarding matters wholly extraneous to the writing and not to matters covered by the integrated writing. Id. at 574-75.

Here, the Kerns are alleging that, Donnelley, as a Countrywide home loan consultant, made representations that Countrywide would perform inspections of the modular home to make sure that the work was completed and that it was completed in a workman-like manner. Specifically, the Kerns argue that the fraud exception is applicable as the inspections promised orally by Countrywide were qualitative in nature (workmanship and code compliance), while the inspections covered in the contract were quantitative (percent of completion). The Kerns therefore contend that "the nature and scope of the Kerns 'inspections' was '. . . as to a thing not dealt with at all in the agreement.'" See Winoka Vill., Inc. v. Tate, 16 N.J. Super. 330, 334 (App. Div. 1951).

However, the construction loan agreement between the parties, which contains an integration clause in section 9.12, directly contradicts the Kerns' claim. The agreement contains express language that Countrywide would "not be obligated to make any such inspections, [but] if made, such inspections [would be] for [Countrywide's] purposes only." Moreover, the agreement states that in no way should it be deemed "a warranty or representation as to the quality, serviceability, habitability, or merchantability of the construction of the improvements or any portion thereof . . . ."

Furthermore, contrary to the Kerns' contention, Filmlife specifically applied the above reasoning to the situation currently before the court where the fraud is being pursued under the CFA. Filmlife, supra, 251 N.J. Super. at 576. An unconscionable commercial practice may be the source of a private right of action, pursuant to the CFA. Ibid. However, if the plaintiff is precluded from introducing extrinsic evidence to contradict the express terms of the contract, then they are also precluded from using the extrinsic evidence to prove an unconscionable commercial practice under the CFA. Ibid.

The Kerns' reliance on Garden State Plaza Corp. v. S. S. Kresge Co., 78 N.J. Super. 485, 496 (App. Div.), certif. denied, 40 N.J. 226 (1963), is without merit as that case pertains to the concept that "the parol evidence rule does not even come into play until it is first determined what [is] the true agreement of the parties." The agreement here between the parties is unquestionably the true and final agreement and thus the Kerns' reliance on Garden State Plaza Corp. is unfounded.

In further support of their argument, the Kerns contend that the contract drafted by Countrywide is a contract of adhesion and is unconscionable. However, this legal theory was raised for the first time in the Kerns' motion to reconsider the denial of their summary judgment motion. It is not properly before us because a motion to reconsider requires application only of what the court used to decide the original motion. The movant can argue that the judge's legal analysis was wrong, or the judge misconstrued the facts, or failed to consider evidence. R. 4:49-2. See Cummings v. Bahr, 295 N.J. Super. 374, 384 (App. Div. 1996). Consequently, a motion for reconsideration will be inappropriate if based on new facts known or that could have been known to the movant prior to the entry of judgment. Del Vecchio v. Hemberger, 388 N.J. Super. 179, 189 (App. Div. 2006).

The Kerns argue further that Donnelley, as a Countrywide home loan consultant, vouched for Huettl and that this opinion violated the CFA. The relevant section of the CFA is N.J.S.A. 56:8-2, providing:

The act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing, concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise or real estate, or with the subsequent performance of such persons as aforesaid, whether or not any person has in fact been misled, deceived or damaged thereby, is declared to be an unlawful practice . . . . [N.J.S.A. 56:8-2 (emphasis added).]

Not just any mistaken statement, however, will constitute misrepresentation barred under the CFA. Gennari v. Weichert Co. Realtors, 288 N.J. Super. 504, 535 (App. Div. 1996), aff'd as modified, 148 N.J. 582 (1997). An affirmative misrepresentation in the context of the CFA must be (1) a material statement of fact; (2) found to be false; and (3) made to induce the buyer to make the purchase. Ibid. "[I]dle comments or mere puffery" will not violate the CFA. Gennari, supra, 148 N.J. at 607.

Here, the Kerns allege that Donnelley, in her capacity as a home loan consultant for Countrywide, made a misrepresentation. During his deposition, Thomas Kern testified that Donnelley stated "she highly recommended" Huettl and that he was "one of the best builders that they have" and that the Kerns "couldn't go wrong with him" and "he would do an excellent job." The judge correctly found that, even accepting Kern's testimony as true, a cause of action could not lie under the CFA because the alleged statement was not a statement of fact, but simply an opinion.

Therefore, applying the appellate standard to this legal issue, see Manalapan Realty, LP v. Twp. Comm., 140 N.J. 366 (1995), we conclude that the CFA is not an available cause of action.

The Claim Against Michel

The Kerns argue on appeal that they were third-party beneficiaries of the contract between Michel and Huettl because of Michel's position as construction manager. They argue for damages as a result of a breach by Michel of said contract.

N.J.S.A. 2A:15-2 provides that a person will have standing to sue pursuant to a contract if that contract was made for the person's benefit. The standard applied by New Jersey courts in determining third-party beneficiary status is "whether the contracting parties intended that a third party should receive a benefit which might be enforced in the courts . . . ." Werrmann v. Aratusa, Ltd., 266 N.J. Super. 471, 476 (App. Div. 1993) (quoting Rieder Cmtys., Inc. v. Twp. of N. Brunswick, 227 N.J. Super. 214, 222 (App. Div.), certif. denied, 113 N.J. 638 (1988)). The key is in the contractual intent to recognize a right to performance in a third party. Broadway Maint. Corp. v. Rutgers, 90 N.J. 253, 259 (1982). If there is no intent, then the third person has merely an incidental benefit and consequently no standing to sue. Ibid. Thus, the contract must be examined and consideration given to the circumstances surrounding the contract in order to determine whether the contracting parties intended to benefit an unnamed third party. Rieder, supra, 227 N.J. Super. at 222.

The trial judge found that Michel was not a construction manager. Nonetheless, the judge found that the Kerns were third-party beneficiaries to the oral contract between Michel and Huettl. However, the judge determined that, although the Kerns were third-party beneficiaries to Michel and Huettl's contract, no third-party beneficiary rights for damages accrued because Michel was not in breach of his duties under the contract.

Trial testimony revealed that Michel's involvement in the project was minimal, including the installation of the exterior sill plates that go around the perimeter of the foundation and the bearing plates, which Michel cut and placed on the foundation. There was no issue concerning the installation of the sill plates and the bearing plates, were only cut by Michel, installation was performed by the set crew, Ralph M. Construction. The remainder of the set up was performed by Ralph M. Construction. Michel, however, did cut the hole for the kitchen sink and a transfer duct, as well as extend the roof vents. Both cuts were crooked according to the Kerns, however, no pictures were provided during trial. Michel testified that these projects were performed correctly.

The trial judge concluded that "any damage done to the home by the delivery to the site, the sitting on the site waiting for the set up and the dragging of the trailers with the modules on to the lot area for installation by the crew in a water tight condition would be the responsibility of Muncy initially and . . . Huettl, thereafter." The judge found that "Huettl, Muncy and [Ralph M. Construction] are 100% responsible for the damages suffered by [the Kerns]."

Trial court findings are ordinarily not disturbed unless "they are so wholly unsupportable as to result in a denial of justice," and are upheld wherever they are "supported by adequate, substantial and credible evidence." Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 483-84 (1974). "Deference is especially appropriate 'when the evidence is largely testimonial and involves questions of credibility.'" Cesare v. Cesare, 154 N.J. 394, 412 (1998) (quoting In re Return of Weapons to J.W.D., 149 N.J. 108, 117 (1997)). Here, there is substantial evidence to support the judge's findings.



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