September 14, 2010
THOMAS COMPANY, INC., PLAINTIFF,
TAMBURRO BROTHERS CONSTRUCTION CO., INC., DEFENDANT/THIRD-PARTY PLAINTIFF-RESPONDENT,
HAMILTON TOWNSHIP BOARD OF EDUCATION, THIRD-PARTY DEFENDANT-APPELLANT.
On appeal from Superior Court of New Jersey, Chancery Division, Atlantic County, C-50-09.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted August 31, 2010
Before Judges Simonelli and Waugh.
Third-party defendant Hamilton Township Board of Education appeals orders of the Chancery Division (1) requiring it to participate in an arbitration to resolve a lawsuit related to the school construction project that underlies this action; (2) ordering it to continue to hold certain funds in escrow pending completion of a second related lawsuit; and (3) declaring the rights of the parties with respect to the second lawsuit. Because we conclude that there were unresolved, genuine issues of material fact, we reverse and remand for further proceedings consistent with this opinion.
We discern the following operative facts and procedural history from the record.
The Board entered into a contract with third-party plaintiff Tamburro Brothers Construction Co., Inc., for work related to the renovation of one of its schools. When the work was substantially completed, Tamburro filed suit against the Board for retainage and other funds that it claimed were then owed to it by the Board, as well as claims against other parties not relevant here. The Board filed a counterclaim against Tamburro.
Tamburro and the Board eventually entered into a settlement in December 2007. At the time of the settlement, one of Tamburro's subcontractors, Thomas Company, Inc., had made a claim arising from the project. In addition, the Board had filed suit against the manufacturer of the gymnasium floor installed as part of the project. Both of those collateral claims were referred to in the settlement agreement.
The material provisions of the settlement agreement were as follows:
1. The Board shall pay Tamburro the total sum of $345,000.00 in full and final settlement of all claims by Tamburro against the Board. The parties also accept this settlement amount in full settlement of all claims of the Board for back charges, credits and offset against Tamburro.
2. The Board shall pay $295,000.00 out of the settlement amount on or before December 28, 2007. Payment of the initial sum of $295,000.00 shall not release Tamburro from responsibility to complete the work items identified in paragraph 3.
3. On or before January 15, 2008, Tamburro shall
a. remove and replace broken terrazzo tiles located in the hallways of the William Davies School.
b. scarify the perimeter of the drainage basement in the areas excavated by Tamburro during the project, and
c. remove and replace two sets of door panic bars at locations identified by the Board's staff.
4. Furthermore, with respect to the Board's pending litigation involving the gymnasium floor, the Board reserves its rights against Tamburro as general contractor and Tamburro reserves its defenses against the Board, including its rights against the material supplier and gymnasium floor installer.
5. The parties agree and acknowledge that any and all claims of subcontractor Thomas Roofing for change orders and alleged extra work are not included in this settlement. The Board agrees to participate in binding arbitration among and between Thomas Roofing, Tamburro and the Board and agrees to be bound by the decision of the arbitrator.
7. Upon completion by Tamburro of the work items set forth in paragraph 3 and the resolution of the gymnasium floor litigation by verdict or settlement, the Board shall immediately pay to Tamburro the settlement balance of $50,000.00.
The initial $295,000 payment to Tamburro was made by the Board. Tamburro commenced work on the items listed in Paragraph 3. Although there is agreement that the work was not completed by January 15, 2008, the Board and Tamburro take differing positions as to whether the work has actually been completed in a satisfactory manner.
In June 2009, Thomas filed suit against Tamburro, seeking to compel it to honor the arbitration agreement contained in their contract. Tamburro filed a third-party complaint against the Board in mid-June of 2009, seeking to compel it to participate in the arbitration as required by Paragraph 5 of the settlement agreement. In its answer to the third-party complaint, the Board took the position that, because Tamburro had failed to complete the work required by Paragraph 3, Tamburro had breached a material provision of the settlement agreement and the Board was, therefore, excused from any further performance, particularly participation in the Thomas arbitration.
On July 7, 2009, Tamburro obtained an order to show cause from the Chancery Division, seeking to compel the Board to participate in the Thomas arbitration. The Board filed certifications in opposition to that application. The matter was heard on August 5, 2009. The judge concluded that, because Tamburro had made good faith efforts to comply with its obligations under Paragraph 3, there was not a material breach of the settlement agreement. Consequently, he ordered the Board to participate in the Thomas arbitration.
Tamburro filed a motion for summary judgment in September 2009, which was opposed by the Board. Oral argument was heard on October 23, 2009. The judge entered an order holding that
(1) the settlement agreement was enforceable; (2) the Board must continue to hold the remaining $50,000 from the settlement until disposition of the claim related to the gymnasium floor; (3) the Board cannot spend those funds absent such a resolution of the gymnasium-floor litigation or an agreement of the parties; (4) and the $50,000 was not a cap on any claim by the Board against Tamburro.
This appeal followed.
The central issue on this appeal is whether Tamburro breached the settlement agreement and, if so, whether that breach was sufficiently material to excuse the Board's further performance of its terms. The judge determined, in essence, that there was substantial good-faith compliance with the requirements of Paragraph 3 and that, consequently, there was no material breach. Tamburro supports that view, although it also argues that there was full compliance and that any untimeliness was not its fault and was acquiesced in by the Board. The Board takes the position that, because the repairs required by Paragraph 3 were a material term of the settlement agreement, any breach of that paragraph, even one that is not itself material, relieves it of any further obligations, including those related to the Thomas arbitration.
An appellate court reviews a grant of summary judgment de novo, applying the same standard governing the trial court under Rule 4:46. Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46 (2007). Generally, the court must "consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill v. Guardian Life Ins. Co., 142 N.J. 520, 540 (1995); see also R. 4:46-2(c).
It is well established that a settlement agreement is a contract, Pascarella v. Bruck, 190 N.J. Super. 118, 124 (App. Div.), certif. denied, 94 N.J. 600 (1983), and must be construed with reference to the entire agreement, not "selective reference to [its] individual clauses." In re Fairfield Gen. Corp., 75 N.J. 398, 413 (1978). See Grow Co. v. Chokshi, 403 N.J. Super. 443, 464 (App. Div. 2008).
We have held that, under certain circumstances, the material breach of a contract by one party can excuse further performance by the other party. Chance v. McCann, 405 N.J. Super. 547, 565-66 (App. Div. 2009).
Ingrassia Constr. Co., Inc. v. Vernon Twp. Bd. of Educ., 345 N.J. Super. 130, 136-37 (App. Div. 2001) ("[I]f 'during the course of performance one party fails to perform "essential obligations under the contract," he may be considered to have committed a material breach and the other party may elect to terminate it.'" (quoting Medivox Prod., Inc. v. Hoffmann-LaRoche, Inc., 107 N.J. Super. 47, 58-59 (Law Div. 1969))). See also Magnet Res., Inc. v. Summit MRI, Inc., 318 N.J. Super. 275, 285-86 (App. Div. 1998) (citing Restatement (Second) of Contracts § 237 (1981)).
Where a contract calls for a series of acts over a long term, a material breach may arise upon a single occurrence or consistent recurrences which tend to "defeat the purpose of the contract." In applying the test of materiality to such contracts a court should evaluate "the ratio quantitatively which the breach bears to the contract as a whole, and secondly the degree of probability or improbability that such a breach will be repeated." [Magnet, supra, 318 N.J. Super. at 286 (quoting Medivox Prod., supra, 107 N.J. Super. at 59).]
Consequently, the breach itself must be material and the provision breached must be an "essential" obligation of the contract. That decision is ordinarily one for the finder of fact. Chance, supra, 405 N.J. Super. at 566 (citing Lo Re v. Tel-Air Commc'ns, Inc., 200 N.J. Super. 59, 72-73 (App. Div. 1985)).
In the case before us, at the return of the order to show cause and on the summary judgment motion, the judge relied upon conflicting certifications to find that there was no material breach of the settlement agreement. Our review of the record leads us to the conclusion that there were genuine issues of material fact as to whether there was a breach of Tamburro's obligations under Paragraph 3 and, if so, whether it was a material breach of an essential provision of the settlement agreement, such that further performance by the Board was excused. Consequently, the judge should have held an evidentiary hearing rather than deciding the factual issues on the basis of conflicting certifications. See R. 4:46-3(b):
If after the inquiry prescribed by paragraph (a) of this rule [concerning disputed and undisputed facts] it appears to the court at the hearing of the motion that the case may be fully or partially adjudicated upon limited testimony, with or without specific further discovery, the court shall, if practicable, enter an order fixing a date certain for the trial of specifically identified disputed factual issues and, if appropriate, fixing the subject, mode, and time for completion of discovery.
Because this action was brought in the Chancery Division, a mini-bench trial on those limited factual issues would be appropriate. See Agurto v. Guhr, 381 N.J. Super. 519, 531 (App. Div. 2005).
Reversed and remanded for further proceedings consistent with this opinion.
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