On appeal from the Superior Court of New Jersey, Chancery Division, Hudson County, Docket No. C-15-01.
The opinion of the court was delivered by: The opinion of the court was delivered by Fisher, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued November 10, 2010 -
Before Judges Fisher, Simonelli and Fasciale.
Previously, we reversed the denial of plaintiff's application for specific performance and remanded for an adjustment of the compensation to be paid by plaintiff to regain the property -- a task complicated by the fact that the interloping purchaser had substantially renovated and leased the property. We reverse again because the trial judge's final adjustment required plaintiff to pay an entrepreneurial profit inconsistent with the interloper's position as a constructive trustee.
In 1998, plaintiff Joseph Marioni contracted to buy real property in Jersey City from third-party defendant Roxy Garments Delivery Co., Inc. Prior to the closing date, Roxy breached the contract by selling the property to 94 Broadway, Inc. (Broadway). Marioni filed a complaint in the Chancery Division seeking both specific performance and damages. Shortly after suit was filed, the Chancery judge at the time granted summary judgment dismissing Marioni's claim for specific performance and transferred the action to the Law Division for resolution of the damages claim; we denied Marioni's motion for leave to appeal.
Approximately two years later, final judgment was entered and Marioni appealed, again seeking our review of the dismissal of his claim for specific performance. We reversed, holding that the contract between Marioni and Roxy was valid and enforceable and that Broadway was not a bona fide purchaser for value because it had actual and constructive knowledge of the Marioni-Roxy contract. Marioni v. 94 Broadway, Inc., 374 N.J. Super. 588, 601, 616 (App. Div.), certif. denied, 183 N.J. 581 (2005). We determined that Broadway's knowledge of Marioni's contract put Broadway in the position of a constructive trustee. Id. at 621-22; see Pomeroy, Specific Performance of Contracts § 465 (3d ed. 1926). Absent undue hardship in light of the evolving circumstances, we held Marioni was entitled to specific performance and remanded to the Chancery Division with instructions to "reassemble Humpty Dumpty." Marioni, supra, 374 N.J. Super. at 622. In other words, acknowledging that more than three years had transpired during which Broadway had repaired, renovated and leased the property, we directed the Chancery judge to determine whether equitable relief would be oppressive or create an undue hardship in light of any changed circumstances.
After a five-day trial, the Chancery judge decreed specific performance, subject to further proceedings to equitably adjust the original contract price of $170,000 -- which Marioni had agreed to pay Roxy -- now to be paid by Marioni to Broadway. In his oral decision, the judge correctly recognized his goal was to place the parties, to the extent possible, in the same positions they would have occupied had the Marioni-Roxy contract been performed as originally required. The judge correctly observed that equitable principles prohibit a constructive trustee from profiting and that Broadway should receive no entrepreneurial profit as a result of its interim wrongful possession of and dominion over the property.
With these principles as a guide, the judge increased the purchase price from $170,000 to $579,155.69. In reaching this result, the judge considered numerous factors. First, he awarded Broadway six percent interest on the contract price, compounded annually, yielding an interest factor of $85,617.13, which raised the purchase price to $255,617.13. Second, the judge found the value of the property increased by $790,000 over the five-year period due to both market conditions and physical renovations to the property made by Broadway. He arrived at this by subtracting the stipulated value of the property without renovations ($480,000) from its stipulated value as renovated ($1,270,000). The judge also found, however, that Marioni would be required to expend $50,000 to alter Broadway's renovations so that Marioni could utilize the property for his own particular interests.*fn1 Accordingly, the judge added $740,000 to the purchase price. Third, the judge added three operating costs paid by Broadway that Marioni would have paid had he been in possession, namely, the cost of maintaining insurance, property taxes and mortgage interest payments totaling $71,018.56. This raised the purchase price to $1,026,635.69. Lastly, the judge found Broadway was not entitled to $487,500 in rents collected from its tenant -- because as trustee, Broadway collected those rents on Marioni's behalf -- thus reducing the purchase price to $579,155.69. Restated in ledger form, the judge adjusted the original $170,000 purchase price, which Marioni would have paid Roxy but for the inequitable conduct that generated this suit, as follows:
Contract Price: 170,000.00 Interest: ,617.13 Increase in value: ,000.00 Less required alterations: -50,000.00 Insurance ,779.00 Taxes ,373.00 Mortgage interest ,866.56 Gross adjusted contract price 1,026,635.69 Rents -487,500.00 Net adjusted contract price $579,155.69*fn2
The judge also denied Marioni's request for $107,000 in fees incurred from storing his artwork in alternate locations in the interim.
On appeal, Marioni argues the judge erred in adjusting the purchase price by including the increase in the property's market value rather than restricting Broadway's award solely to its base investment. Marioni also argues he should have been awarded damages to compensate for expenditures incurred in storing his artwork elsewhere in the interim.
In fashioning relief, the Chancery judge has broad discretionary power to adapt equitable remedies to the particular circumstances of a given case. Salorio v. Glaser, 93 N.J. 447, 469 (1983), cert. denied, 464 U.S. 993, 104 S. Ct. 486, 78 L. Ed. 2d 682 (1983); Mitchell v. Oksienik, 380 N.J. Super. 119, 130-31 (App. Div. 2005). Equitable remedies "are distinguished by their flexibility, their unlimited variety," and "their adaptability to circumstances." Salorio, supra, 93 N.J. at 469. This general approach requires consideration of three specific components. First, the facts the judge adopts in an equity case, like any other non-jury case, are entitled to our deference "when supported by adequate, substantial and credible evidence." Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974). Second, in drawing conclusions from those facts, the Chancery judge is required to apply accepted legal and equitable principles; no deference is afforded in this regard. Manalapan Realty v. Manalapan Twp. Comm., 140 N.J. 366, 378 (1995); In re Estate of Schinn, 394 N.J. Super. 55, 66 (App. Div.), certif. denied, 192 N.J. 595 (2007). And third, in fashioning an appropriate equitable remedy to fit the particular circumstances, we will decline to intervene absent an abuse of discretion, see Sears Mortgage Corporation v. Rose, 134 N.J. 326, 354 (1993), or where the judge's conclusions prove inconsistent with his own findings of fact, VRG Corporation v. GKN Realty Corporation, 261 N.J. Super. 447, 454 (App. Div. 1993), rev'd on other grounds, 135 N.J. 539 (1994). In turning to this third aspect, we conclude the ...