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Steven L. Sugarman and Lisa M. Sugarman, H/W v. Gabriel Building Group

July 19, 2012


On appeal from the Superior Court of New Jersey, Law Division, Cape May County, Docket No. L-809-06.

Per curiam.


Telephonically argued May 2, 2012

Before Judges Baxter, Nugent and Carchman.

Defendant Gabriel Building Group, Inc., appeals from a final judgment, following a bench trial, finding that defendant breached its contract with plaintiffs Steven L. and Lisa M. Sugarman (collectively "plaintiffs," with any reference to Sugarman referring to Steven, except as noted) and fixing damages at $200,000 plus prejudgment interest of $53,886.90 together with taxed costs. Defendant challenges the findings as to both liability and damages as well as the dismissal of its counterclaim and denial of its motion to amend. We affirm the judgment as to liability and the calculation of damages, but reverse and remand for a determination of whether the contract contained an enforceable limitation on plaintiffs' available remedies. We also affirm the order dismissing the counterclaim and denying the motion to amend.

I. These are the facts adduced at trial.

In September 2004, plaintiffs approached Ed McLaughlin, a representative of defendant, and offered to purchase for $1.5 million an unimproved lot (the property) owned by defendant in Ocean City. Sam Gabriel, president of defendant, rejected plaintiffs' offer and instead offered to sell the land in conjunction with also building plaintiffs a "[l]uxury Mediterranean-style home" (the house) using architectural plans being prepared for defendant by the architectural firm Olivieri, Shousky and Kiss (Olivieri). Defendant had contracted with Olivieri in March 2003 to design a home for the property, and those plans (the Olivieri plans) were nearly complete while plaintiffs' and defendant's negotiations were underway. Although defendant was an experienced home building company that had built approximately ninety homes in Ocean City since 1997, this was the first time defendant had contracted with Olivieri.

Throughout September and October 2004, plaintiffs, Gabriel, and defendant's attorney Robert Penza negotiated the terms of the contract. Multiple drafts of the contract were exchanged by the parties.

On October 11, 2004, Sugarman, a Pennsylvania real estate attorney, emailed Gabriel and Penza a draft of a contract with a blank space where the Olivieri plans could be referenced by date once the plans were completed. The email also noted plaintiffs "understand that [defendant's] office will be forwarding the architectural plans and engineering study regarding the bulkhead to [Sugarman's] office by overnight mail and that the specifications will be finalized and provided later this week." That same day, and at Gabriel's request, Matthew Hamilton, the architect at Olivieri, sent copies of the Olivieri plans directly to plaintiffs and to McLaughlin; plaintiffs received the plans the following day.

Within a few days after receiving the Olivieri plans, plaintiffs included the date of those plans as part of the contract, signed the contract, and sent it to Gabriel and Penza for approval. In the October 15, 2004 email transmitting those plans, plaintiffs requested that defendant "forward the specifications for the [h]house, together with the engineering report for the bulkhead, at [its] earliest possible convenience," and also "let [plaintiffs] know the [a]rchitect's thoughts on the additional half story and/or the rooftop deck with interior access."

Three days later, Gabriel signed the contract on behalf of defendant. In response, plaintiffs made their initial deposit of $1000 as required under the terms of the contract, and plaintiffs again requested that defendant "forward the specifications, surveys, engineering reports and related studies comprising the 'Construction Documents' . . . for [their] review as soon as possible."

In the contract, defendant agreed to sell the property to plaintiffs and to construct a new residential unit on the property, "in accordance with the plans and specifications approved by Buyer," for the purchase price of $2,494,900. The contract further provided as follows:

[Paragraph 3.2]. Permits and Approvals. Attached hereto as Exhibit "A" and made an integral part hereof are copies of certain architectural plans prepared by Olivieri, Shousky and Kiss P.A. (the "Architect"), dated December 23, 2003 and October 7, 2004, and certain site and foundation plans prepared by the Architect, dated December 23, 2003 (collectively, the "Plans"), in connection with a Mediterranean style, single family home (the "House") Seller proposes to construct on the property. Seller has obtained foundation and piling permits from the City of Ocean City (the "City") and is in the process of applying for and/or obtaining building permits and such other approvals from the City and any other applicable governmental or regulatory authorities as may be required in order to construct the House and all other improvements as shown on the Plans. [Paragraph 3.3]. Construction Documents. Within ten (10) business days of the execution of this Contract by all parties, Seller shall provide Buyer with copies of all plans and specifications, building permits, governmental approvals, surveys, and engineering reports and studies related to or prepared in conjunction with Seller's development of the property and construction of the House thereon (the "Construction Documents"). Within ten (10) business days of Buyer's receipt of the Construction Documents, Buyer shall elect, upon written notice to Seller, to either (a) accept the Construction Documents and proceed with the purchase of the property as provided herein, or (b) terminate this Contract in which event all deposit monies shall be returned to Buyer upon the Buyer's return to the Seller of all of the original Construction Documents and the obligations hereunder shall terminate and be of no force and effect. [Paragraph 3.4]. Commencement of Construction. Seller shall commence construction of the foundation of the House in accordance with the approved foundation plans as soon as practicable following the parties' execution of this Contract and shall diligently and expeditiously apply for and pursue the requisite building permits and approvals for the House upon notification of Buyer's acceptance of the Construction Documents. Seller shall promptly notify Buyer if and when Seller does, or does not, obtain the requisite building permits and approvals. In the event Seller is unable to obtain the requisite building permits and approvals to construct the House and other improvements upon the property in accordance with the plans and specifications accepted by Buyer, then Buyer, within ten (10) business days of Buyer's receipt of Seller's notice, shall elect, upon written notice to Seller, to (a) accept such plans and specifications for the House as will be permitted and approved by the governmental authorities, or (b) terminate this Contract in which event all deposit monies shall be returned to Buyer upon the Buyer's return to the Seller of all the original Construction Documents and the obligations hereunder shall terminate and be of no force and effect.

The contract noted an estimated closing date of June 15, 2005, but also set an outside closing date of July 15, 2005, and provided that "time shall be of the essence in this regard," meaning "the party failing to perform within this time shall be in default under the [c]ontract." The contract further provided that plaintiffs were to make an initial deposit of $1000 upon signing of the contract, an additional deposit of $24,000 due ten business days after plaintiffs' receipt of the Construction Documents, and a final payment of the remainder at closing.

Paragraph 25 of the contract, titled "CANCELLATION OR DEFAULT OF CONTRACT," stated as follows:

If the Buyer does not make settlement in accordance with the terms of this Contract, all deposit monies may be retained by the Seller as compensation for the damages and expenses which the Seller has incurred in which event this Contract shall be canceled without further liability to either party, except as the Seller may be liable to REALTOR(S) for commission or other payment. In the event that the Seller does not perform in accordance with this Contract or the Seller is unable to deliver marketable title, and the Buyer is unwilling to accept such title as the Seller can make, then the Buyer has the choice of securing the return of all deposit monies, together with reasonable costs incurred for examination of title, survey and mortgage application fees or bringing any action in court for specific performance to which the Buyer may be entitled. In the event that Seller defaults by failing to substantially complete construction and obtain a municipal certificate of occupancy by the Outside Closing Date, then the Buyer has the choice of pursuing any and all remedies described above or extending the Outside Closing Date for a reasonable period of time to permit Seller to cure the default.

In the event settlement is not held in accordance with this Contract, or any dispute arises in which the parties cannot agree as to the disposition of deposit monies, it is agreed the Title Company shall act as Escrow Agent and shall retain the monies in escrow until the parties otherwise agree or a determination is made by the courts. Additionally, when a dispute arises as to the disposition of deposit monies under this Contract, the third party holding such deposit monies may unilaterally deposit the disputed funds in the Superior Court of New Jersey pursuant to the court rules and the laws of the State of New Jersey.

Finally, the contract contained numerous other provisions not directly relevant to the issues in dispute, such as provisions regarding marketable title, risk of loss, and warranties.

Unbeknownst to defendant, the Olivieri plans included a variety of specifications and allowances not contemplated by defendant as being part of the home. At trial, Gabriel claimed that when he signed the contract, he had not seen the Olivieri plans and did not know the level of detail that they contained. However, Gabriel also admitted that defendant's contract with Olivieri required Olivieri to "prepare complete construction documents . . . [including] plumbing faucet and fixture specifications and general specifications[,]" and that the Olivieri plans were "exactly what [defendant] had contracted with Olivieri to prepare for the construction of the high-end luxury Mediterranean house."

On October 23, 2004, plaintiffs received from defendant a document entitled "New Custom Home Specifications," which contained specifications that contradicted those contained in the Olivieri plans. At trial, Gabriel admitted that his specifications contained lower-cost allowances than the Olivieri plans did for the same items. As a result, plaintiffs emailed Gabriel and Penza, saying:

We have received the additional specifications from Ed McLaughlin, and unfortunately there must be a mistake. As you know, the architectural plans provided to us, dated Dec. 23, 2003 and Oct. 7, 2004, and upon which we based our decision to proceed with this transaction, set forth a number of detailed specifications for the house. We expected to receive specifications from you relating to those items, such as landscaping, pool and spa, not previously described in the plans.

Instead, the specifications forwarded to us by Ed cover the same items already detailed in the plans, and surprisingly, are directly contrary to the specifications in the plans and inconsistent with the "high end" product intended under our Agreement.

Hence, our conclusion that a mistake has been made.

Plaintiffs requested that Gabriel contact them about this issue at his earliest convenience. On November 1, 2004, Gabriel advised plaintiffs that he would investigate this issue and get back to plaintiffs about it. Plaintiffs requested that Gabriel forward to plaintiffs the additional Construction Documents.

Within the week, Gabriel responded to plaintiffs. Gabriel disagreed that he must honor the specifications contained in the Olivieri plans. He continued:

In the interest of saving time, I did direct the architect to directly provide you with plans. However, my architect did not obtain from me the allowance specifications he listed in his plans, some of which are in conflict with the specifications I provided to you. The architect's allowance specifications are his estimates, not my approved allowances. Therefore, you were correct in your first e-mail, that there must be a mistake. There is a mistake, which is some of the allowances contained in the architect's plans. The allowances I will honor as part of the Contract are the allowances contained in my New Custom Home Specifications.

I also want to be candid with you. I view building a custom home for individuals as a joint project between me and the customer.

It is usually a personally rewarding project for both of us, because I can tailor the home to the details and tastes of the customer, so that in the end they will have the home they want. In fact, they usually have a home which is even better than they anticipated, because along the way we may make construction suggestions from our experience, which the customer may not have thought of on their own. Time of completion of the home is frequently a consideration.

In your case, a timely completion is something that you have stressed in your Contract. Your current demands and position on this specification issue causes concern for me that I will have a difficult time with you on this project, which in the end will leave either one or both of us dissatisfied. Therefore, I would prefer to instruct the realtor to release your deposit monies to you, and release you from the Contract, so that neither of us will be dissatisfied with this project. [(Emphasis added).]

Plaintiffs responded to Gabriel by letter, stating, in part:

Your proposal that we simply "walk away" from our [c]ontract is categorically rejected. However, in an effort to provide you with an opportunity to cure your breach of the Contract, we offer the following: Build the house in accordance with the [p]lans and [s]pecifications and the terms of our [c]ontract, or alternatively, sell us the [l]ot for the [l]ot [p]urchase [p]rice as originally contemplated.

Please advise on your intensions, in writing, by no later than the close of business on Friday, November 12, 2004. If you refuse to perform under the [c]ontract or the alternative transaction suggested above, then we shall be compelled to initiate appropriate legal proceedings to protect our interests, including the filing of a [l]is [p]endens.

Gabriel never responded personally to this letter. On November 16, 2004, Penza notified plaintiffs for the first time that Ocean City "is now strictly interpreting their building codes, including projects under construction for which building permits have been previously issued," specifically with regard to two-and-one-half-story structures.

Thus, under the current climate, it was not surprising to receive the enclosed [z]oning [p]ermit [d]isapproval dated November 12, 2004 from Ocean City advising that the submitted applications for building permits for the above property were denied for the reasons given. The building permits were first denied on October 29, 2004 for the five reasons listed on the enclosed fax from the zoning office. These reasons were manageable requirements. However, the November 12, 2004 denial disallowing a third story will require a complete re-design of the house. [Gabriel] is in contact with the architect, for the purpose of obtaining re-designed plans to conform to township require- ments. . . . [Gabriel] will ...

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