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Benmoore Construction Group, Inc. v. Herod Rutherford Developers

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


November 18, 2009

THE BENMOORE CONSTRUCTION GROUP, INC., PLAINTIFF-RESPONDENT,
v.
HEROD RUTHERFORD DEVELOPERS, L.L.C., ITS AGENTS, SERVANTS, AND/OR EMPLOYEES, DEFENDANT-APPELLANT, AND SUBMAX SERVICES, L.L.C., ITS AGENTS, SERVANTS AND/OR EMPLOYEES, SAFI RAJI, QUIZNOS SUB #7904, DEFENDANTS.

On appeal from the Superior Court of New Jersey, Law Division, Special Civil Part, Bergen County, DC-017701-08.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued October 26, 2009

Before Judges Rodríguez and Reisner.

Defendant Herod Rutherford Developers, L.L.C. (Herod), appeals from a $10,084 judgment entered by the Special Civil Part on December 22, 2008, in favor of plaintiff The Benmoore Construction Group, Inc. (Benmoore). We reverse.

I.

These are the most pertinent facts drawn from the trial record. Submax Services, L.L.C. (Submax) leased space from the property owner, Herod, to use as a Quizno's sub shop. The lease required the tenant to submit its construction plans to the landlord for its approval, provided that any permanent improvements would become the landlord's property at the end of the tenancy, and precluded the tenant from making either "structural alterations" or "any other alterations costing in any one instance in excess of $10,000" without the landlord's prior written consent. A schematic plan for the tenant's proposed improvements was attached to the lease.

Submax contracted with Benmoore to make the improvements needed to transform the unimproved leased space into a Quiznos restaurant. The contract between Submax and Benmoore was not attached to the lease or referenced in it; nor did Herod sign the contract. Although there were change orders, which added to the price of the job, Benmoore's principal, Jeffrey Pittel, confirmed that those change orders were signed by the tenant, not the owner. After Benmoore completed the job, Submax filed for bankruptcy without paying Benmoore approximately $14,000 still owed for the work.*fn1 On June 11, 2008, Benmoore filed a complaint against Submax and other related parties, and against Herod. Benmoore sought recovery against Herod on theories of unjust enrichment, quantum meruit and breach of contract.*fn2

According to Pittel, before the work was done, he discussed with the owner the fact that the owner would be entitled to "receive the fixed items that were being installed in place... within the structure." Pittel testified that the municipal building permit applications were submitted in the name of the owner. Pittel also confirmed that the owner received a copy of the architectural plans and proof of insurance. Pittel did not know whether the contract between Benmoore and Submax was submitted to the owner. Pittel testified that, among other improvements, Benmoore finished an existing bathroom, added a second bathroom, and added ductwork, an exhaust system, an improved sprinkler system and a fire alarm system. However, significantly, Pittel did not testify that he undertook these improvements in the expectation that the owner would pay for them if the tenant did not pay. Nor did he testify that the owner in any way induced him to believe that it would pay for the work.

Herod presented testimony from its manager, Jonathan Litt. According to Litt, Herod was "created... as an investment vehicle between two partners to purchase... a retail condominium" consisting of seven retail units on the first floor of a five-story commercial building. The space at issue in this case was one of those units. Litt described it as "vanilla" space, with only unpainted sheetrock walls, electricity and other utilities. Submax, which was a Quiznos franchisee, made the arrangements to have the space transformed into a restaurant. Herod did not enter into any contract with Benmoore or arrange for any of the renovation plans that Benmoore carried out. Nor, according to Litt, did Herod inspect any of the work done by Benmoore. On cross-examination, Litt explained that although an architectural drawing was attached to the lease, it did not contain the kind of detail needed to actually perform the improvements. Rather, the "schematic" attached to the lease was there to assure the landlord that the plans conformed to the space and would not "encroach into someone else's space."

After running the sub shop for a period of time, Submax stopped paying rent. In addition to failing to pay Benmoore, Submax failed to pay Herod more than $38,000 in rent. According to Litt "a lot of" the fixtures and equipment Submax had installed in the space were repossessed by another creditor. Herod removed some of the other improvements, such as "the counters, the floor, [and] the wallpaper which was Quiznos specific," because other tenants would not want those items in the space. However, other improvements remained, such as grease traps, ductwork, and a completed HVAC system. Nonetheless, at the time of the trial on November 21, 2008, Herod still had not been able to find a replacement tenant. In particular, Herod had tried to rent to another restaurant tenant which declined the space.

II.

In an oral opinion placed on the record on December 3, 2008, the trial judge characterized the issue in the case as whether Benmoore had "a viable cause of action" for unjust enrichment where "there was no contract between these parties, but... the defendant was aware of the construction work." She concluded that the landlord approved or authorized the tenant to undertake the construction work. Further, from the fact that the lease required the tenant to pay any increased property taxes attributable to its improvements, she inferred that the parties understood that the Benmoore improvements would increase the value of the property.

The judge also relied on the lease clause providing that the improvements would become the landlord's property at the end of the tenancy. From a lease provision requiring the tenant to obtain a discharge of any mechanics liens placed on the property arising out of work performed for the tenant, she reasoned that "the landlord knew that there was a possibility that mechanic's lien[s] could be filed against... Herod Rutherford as the owner."

She also reasoned that at least some of the improvements Benmoore installed in the space, such as ductwork, the extra bathroom, and a floor drain, had value to the landlord. She further considered that the landlord had advertised some of the improvements in an attempt to obtain a new tenant, albeit it had not yet found a new tenant. "So the whole issue in this case is whether Herod... has been unjustly enriched if they were permitted to keep all these improvements, but not being held responsible for the unpaid portions that Submax failed to pay." She concluded that the extra bathroom and the ductwork would increase the value of the property and make it "easier for [Herod] to be able to rent that space." She held: "So with regards to the cause of action, I do find that there's an unjust enrichment claim that the plaintiff has, in fact shown. So the court will award the amount of $10,000 to the plaintiff for those two structures... because the Court... almost takes judicial notice that bathrooms and duct work... that there is a value to that."

In a supplemental written opinion dated January 30, 2009, the judge reiterated that Herod knew of and approved the construction work, and would be unjustly enriched if it did not pay for it. She found that due to plaintiff's work, Herod now had more valuable rental space, which it was advertising for lease as finished restaurant space. The judge also noted that Benmoore "was not able to perfect the construction lien properly" because Herod had not recorded its deed.

III.

In reviewing the trial court's decision, we are bound by the trial court's factual findings so long as they are supported by substantial credible evidence. Rova Farms Resort, Inc. v. Investors Ins. Co. of America, 65 N.J. 474, 483-84 (1974). However, we owe no special deference to the trial court's interpretation of the law. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).

We begin by considering the equitable doctrine of unjust enrichment. As we explained in Callano v. Oakwood Park Homes Corp., 91 N.J. Super. 105 (App. Div. 1966), to recover under a theory of unjust enrichment, a plaintiff must prove that goods or services were provided in the expectation that the defendant would pay for them. In that case, we declined to hold Oakwood Park Homes, a developer, liable for the cost of shrubs provided by a plant nursery, Callano, to Pendergast, a contract purchaser of one of the developer's houses.

Quasi-contractual liability has found application in a myriad of situations. However, a common thread runs throughout its application where liability has been successfully asserted, namely, that the plaintiff expected remuneration from the defendant, or if the true facts were known to plaintiff, he would have expected remuneration from defendant, at the time the benefit was conferred. It is further noted that quasi-contract cases involve either some direct relationship between the parties or a mistake on the part of the person conferring the benefit.

In the instant case the plaintiffs entered into an express contract with Pendergast and looked to him for payment.

They had no dealings with defendant, and did not expect remuneration from it when they provided the shrubbery. No issue of mistake on the part of plaintiffs is involved.

Under the existing circumstances we believe it would be inequitable to hold defendant liable. Plaintiffs' remedy is against Pendergast's estate, since they contracted with and expected payment to be made by Pendergast when the benefit was conferred.

A plaintiff is not entitled to employ the legal fiction of quasi-contract to "substitute one promisor or debtor for another." [Id. at 109-110 (citations omitted).]

There is also a corresponding requirement that the defendant expects to pay the plaintiff for the services:

Moreover, in addition to the expectation of a plaintiff for payment of services rendered from a defendant, the counterpart of the rule requires that there must be an objective expectation by defendant to pay plaintiff:

A defendant is obliged to pay for services rendered to him by the plaintiff if the circumstances are such that plaintiff reasonably expected defendant to compensate him and if a reasonable man, in the defendant's position, would know that the plaintiff was doing the work in confidence that defendant would pay him. The absence of these factors brings an opposite result. [Emphasis supplied]. [Insulation Contracting and Supply v. Kravco, Inc., 209 N.J. Super. 367, 377-78 (App. Div. 1986) (citation omitted).]

The fact that the defendant has benefited from the plaintiff's services, without more, is insufficient.

"A person who has conferred a benefit upon another as the performance of a contract with a third person is not entitled to restitution from the other merely because of the failure of performance by the third person."... Otherwise stated: "If the party conferring a benefit does so pursuant to a contract with a third party, then non-performance by the other party to the contract does not entitle the party conferring the benefit to repayment from the recipient" on a theory of restitution or unjust enrichment. (citation omitted) [Ibid. (quoting § 110 of the Restatement, Restitution, (1937)).]

Kravco and similar cases hold that sub-sub-contractors that are not paid by the sub-contractors who hired them, cannot sue property owners or general contractors with whom they lack privity. See F. Bender, Inc. v. Jos. L. Muscarelle, Inc., 304 N.J. Super. 282, 285-86 (App. Div. 1997). Courts in those cases recognized that allowing sub-sub-contractors to sue owners and general contractors, instead of requiring them to pursue their statutory remedies under the Mechanics Lien Law (now the Construction Lien Law), would wreak havoc in the construction industry. Id. at 286-87. We have recognized an exception where a defendant general contractor has specifically undertaken to assist a sub-sub-contractor to obtain payment out of funds due to the sub-contractor. See Onorato Constr., Inc. v. Eastman Constr. Co., 312 N.J. Super. 565 (App. Div. 1998).

Applying these cases here, we find no basis to impose liability on Herod on a theory of unjust enrichment or the related doctrine of quantum meruit. Benmoore contracted with Submax, not with Herod. There is no evidence in this record that Benmoore undertook the work in the expectation that Herod would pay for the improvements. Nor is there any evidence that Herod took any action that would have led Benmoore to believe that Herod would pay for the job if Submax failed to pay, or that Herod expected to pay for the work. The fact that Herod may have obtained some benefit from some portion of the work is, by itself, insufficient to support plaintiff's equitable claims. See Callano, supra, 91 N.J. Super. at 109-10; DCB Constr. Co. v. Central City Dev. Co., 965 P.2d 115 (Co. 1998).

The Construction Lien Law, N.J.S.A. 2A:44A-3, supports our conclusion. Under the statute, a contractor who performs work for a tenant who fails to pay, may place a lien against the tenant's leasehold interest. However, the contractor may only place a lien against the property owner's interest if the property owner approves the contract in writing:

Any contractor,... who provides work, services, material or equipment pursuant to a contract, shall be entitled to a lien for the value of the work or services performed, or materials or equipment furnished in accordance with the contract and based upon the contract price....

The lien shall attach to the interest of the owner in the real property. If a tenant contracts for improvement of the real property and the contract for improvement has not been authorized in writing by the owner of a fee simple interest in the improved real property, the lien shall attach only to the leasehold interest of the tenant. [Ibid. (emphasis added).]

A prior version of the law had allowed a contractor to place a lien on the owner's interest if "such alteration, repair or addition was made with the written consent of the owner." N.J.S.A. 2A:44-68. However, in 1994, the Legislature passed the current version, which requires that the owner have approved the contract itself, and not simply the performance of the work. N.J.S.A. 2A:44A-3. The statute defines "contract" as a written agreement defining the work and the price: "'Contract' means any agreement, or amendment thereto, in writing, evidencing the respective responsibilities of the contracting parties." N.J.S.A. 2A:44A-2. See Legge Indus. v. Joeseph Kushner Hebrew Academy/JKHA, 333 N.J. Super. 537, 558-60 (App. Div. 2000).

"[O]rdinarily a change in legislative language signifies a purposeful alteration in the substance of the law." State v. Magner, 151 N.J. Super. 451, 453 (App. Div. 1977) (citing William H. Goldberg & Co. v. Div. of Employment Sec. 21 N.J. 107, 112-13 (1956); Stauhs v. Bd. of Review, 93 N.J. Super. 451, 456-57 (App. Div. 1967)).

Accordingly, we infer that the Legislature intended to limit a landowner's potential liability for construction liens arising from a tenant's construction projects to situations where the owner had actually approved the contract, as opposed to situations where, as here, the owner had only approved the tenant's proposal to have the work performed. Consequently, Herod cannot be held liable on plaintiff's theory that, by failing to timely record its deed, Herod prevented Benmoore from perfecting a construction lien on the premises. Since Herod did not approve the Benmoore-Submax contract in writing, Benmoore could not have placed a construction lien on Herod's ownership interest. It could only have placed the lien against Submax's leasehold interest. N.J.S.A. 2A:44A-3.

Further, while a contractor that fails to perfect its lien rights under the statute may still pursue payment, N.J.S.A. 2A:44A-3, the contractor can only pursue those from whom it has an underlying legal or equitable right to payment. For that reason, Benmoore's reliance on Groesbeck v. Linden, 321 N.J. Super. 349, 351 (App. Div. 1999), and Patock Construction Co. v. GVK Enterprises, LLC 372 N.J. Super. 380, 382 (App. Div. 2004), is misplaced. In those cases, the contractors were suing the property owners who had hired them to perform the work. In this case, Herod did not contract for the work to be done, and there is no basis to require Herod to pay any portion of the remaining balance due from Submax to Benmoore. The December 22, 2008 judgment is therefore vacated.

Reversed.


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