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Contract Applicators, Inc v. Borough of Park Ridge


October 2, 2012


On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-10371-09.

Per curiam.


Argued September 11, 2012

Before Judges Lihotz and Ostrer.

Plaintiff Contract Applicators, Inc., appeals from a final Law Division judgment awarding it $10,894.20, following a bench trial. Plaintiff's complaint sought payment of $58,774.42 for alleged costs of "labor, material, equipment, overhead and profit" for extra work items incurred in the performance of a public works contract for defendant, the Borough of Park Ridge. The trial court determined plaintiff failed to abide the express terms of the contract, as it did not obtain prior approval authorizing performance and payment of the extra work. Accordingly, the judge concluded plaintiff was not entitled to relief. The judge also found plaintiff had successfully defeated defendant's claimed credits, resulting in the judgment awarded to plaintiff. On appeal, plaintiff argues the trial judge erred in denying payment for the extra work. Following our review of the arguments in light of the record and the applicable law, we affirm.

These facts were presented at trial. Defendant solicited a lump sum bid to complete all aspects of the mechanical and structural rehabilitation and waterproofing of the Mill Road Powerhouse Museum (the project), a hydroelectric facility originally built in 1904. On May 22, 2008, defendant determined plaintiff's $193,509 bid was the lowest responsible sealed bid, and plaintiff was selected to perform the project in accordance with the drawings and specifications. Defendant adopted a resolution awarding plaintiff the contract, and noted Dan Loughran, an engineer with Quad 3 Group, Inc., was engaged to supply information regarding engineering related to the project and Bill Beattie, the municipal Director of Operations, was designated as defendant's contact for the contract.

The July 16, 2008 contract executed by the parties stated "all work shall be done in strict accordance with the Bid Specifications as prepared by [defendant]" and described in a specifications book for the project. The contract incorporated by reference all bid specifications, as well as plaintiff's responsive bid proposal. The bid specifications warned "[n]o additional claims for compensation [would] be considered."

Further, the bid specifications notified bidders:

Any proposed changes or deviations from the contract documents during the construction phase of this project must be submitted to [defendant] in writing. Written approval from [defendant] must be obtained prior to execution of the proposed change. The contractor proceeding without receipt of this approval does so at his own risk.*fn1

The contract also contained "administrative and procedural requirements for handling and processing Contract modifications." Specifically, contractor initiated change proposals for "latent or unforeseen conditions" were required to be submitted in writing to the project engineer and must:

1. Include a statement outlining reasons for the change and the effect of the change on the Work. Provide a complete description of the proposed change. Indicate the effect of the proposed change on the Contract Sum and the Contract Time.

2. Include a list of quantities of products required or eliminated and unit costs, with total amount of purchases and credits to be made. If requested, furnish survey data to substantiate quantities.

3. Indicate applicable taxes, delivery charges, equipment rental, and amounts of trade discounts.

4. Include costs of labor and supervision directly attributable to the change.

5. Include an updated Contractor's Construction Schedule that indicates the effect of the change, including, but not limited to, changes in activity duration, start and finish times, and activity relationship.

With respect to procedures for change orders, the specifications provided at section 1.5: "On Owner's approval of a Proposal Request, Engineer will issue a Change Order for signatures of Owner and Contractor on AIA Document G701." Finally, the contract at section 1.6 stated:

A. Construction Change Directive: Engineer may issue a Construction Change Directive on EJCDC Document 1910-8-F. Construction Change Directive instructs Contractor to proceed with a change in the Work, for subsequent inclusion in a Change Order.

1. Construction Change Directive contains a complete description of change in the Work. It also designates method to be followed to determine change in the Contract Sum or the Contract Time.

B. Documentation: Maintain detailed records on a time and material basis of work required by the Construction Change Directive.

1. After completion of change, submit an itemized account and supporting data necessary to substantiate cost and time adjustments to the Contract.

After the contract's execution, plaintiff commenced work on September 19, 2008. Later, on July 23, 2009, defendant removed certain items from the scope of work. As expressed in the contract, a credit against the contract price was due because these items were not performed.

On December 6, 2009, plaintiff submitted an itemized request to Loughran seeking payment for additional work items it incurred to complete the project. At trial, Anthony Cappuccio, plaintiff's employee, itemized the work on more than twenty items claimed as unforeseen problems encountered in plaintiff's performance of the project, along with four invoices for extra work by its welding contractor. Cappuccio also identified photographs he had taken depicting the work. Finally, he discussed the limitation on credits claimed by defendant against the contract amount. Defendant reduced plaintiff's payment for items related to its July 23, 2009 change in the scope of work.

On cross-examination, Cappuccio admitted plaintiff had not submitted a written change order or obtained written approval prior to performing the tasks. However, he asserted Loughran told him to "wait [']till you're done with everything and then give us the total." Consequently, he prepared the December 9, 2008 correspondence, listing all of the extra items for which plaintiff sought payment. Plaintiff also presented the testimony of Ronald Eodice, who testified regarding additional work provided by plaintiff's welding subcontractor.

Beattie testified on behalf of defendant, discussing the project, the pre-bid meeting, the contract and plaintiff's failure to seek preauthorization for extra work requests. He explained defendant had no prior notice of claims for extra work until he received plaintiff's December 9, 2008 letter. Loughran also testified, reviewing his December 17, 2008 response to plaintiff's demand, in which he addressed each additional payment request. Loughran sought additional documentation necessary for clarification of several items, but noted prior notice of problems warranting adjustments to the contract had not been given. Consequently, he rejected many requests because they were neither unforeseen nor outside the initial scope of work. Notwithstanding plaintiff's failure to obtain prior permission, defendant approved five items as change orders and agreed to pay plaintiff a total of $178,530.*fn2 Plaintiff declined to accept the sum as final payment and initiated this action seeking additional compensation for the claimed extra work.

At the close of evidence, the parties agreed to submit written closings. Thereafter, Judge Menelaos W. Toskos issued a bench opinion on June 22, 2011. Finding the contractual terms clear and unambiguous, Judge Toskos rejected plaintiff's argument asserting defendant had waived the contract terms when it changed the scope of work in July 23, 2009. Further, the judge concluded, even if Loughran had advised plaintiff to submit change requests at the conclusion of the project, he was not authorized to waive the contract terms requiring formal written change order approval by defendant. As to the credits defendant invoked because of the reduction in the scope of work, the judge determined plaintiff had commenced work on certain items before being told the work need not be completed, entitling plaintiff to additional payment of $10,894.20. Plaintiff's appeal ensued.

Plaintiff suggests Loughran had apparent authority to act for defendant and the trial judge erred in determining plaintiff failed to prove defendant waived the contract provisions regarding prior authorization for payment of extra work. Plaintiff argues defendant's agent, Loughran, altered the contract's preauthorization requirements by allowing change requests to be submitted at the end of the project and also by approving payment for certain extra work notwithstanding the lack of preauthorization.

Our review of the trial judge's decision is governed by well-established principles. A question regarding the interpretation or construction of a contract is a legal one and our review is plenary, with no special deference to the trial judge's interpretation of the law and the legal consequences that flow from the established facts. Zabilowicz v. Kelsey, 200 N.J. 507, 512-13 (2009); Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). We undertake an independent review of whether the trial judge's application of the law was correct.

Plaintiff's argument relies upon the doctrine of apparent authority.

An agency relationship is created "when one person (a principal) manifests assent to another person (an agent) that the agent shall act on the principal's behalf and subject to the principal's control, and the agent manifests assent or otherwise consents so to act." Restatement (Third) of Agency § 1.01 (2006) (internal quotation marks omitted). Generally, an agent may only bind his principal for such acts that "are within his actual or apparent authority." Carlson v. Hannah, 6 N.J. 202, 212 (1951) (citation omitted). Actual authority occurs "when, at the time of taking action that has legal consequences for the principal, the agent reasonably believes, in accordance with the principal's manifestations to the agent, that the principal wishes the agent so to act." Restatement (Third) of Agency, supra, § 2.01. Apparent authority arises "when a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal's manifestations." Id. § 2.03. The doctrine of apparent authority "focuses on the reasonable expectations of third parties with whom an agent deals."

Id. § 7.08 comment b. [N.J. Lawyers' Fund for Client Protection v. Stewart Title Guar. Co., 203 N.J. 208, 220 (2010).]

Apparent authority applies when proofs show: "1) conduct by the principal that would lead a person to reasonably believe that another person acts on the principal's behalf -- i.e., conduct by the principal 'holding out' that person as its agent; and 2) acceptance of the agent's service by one who reasonably believes it is rendered on behalf of the principal." Estate of Cordero ex rel. Cordero v. Christ Hosp., 403 N.J. Super. 306, 315 (App. Div. 2008). Application of the doctrine is intended to prevent "a principal from 'choos[ing] to act through agents whom it has clothed with the trappings of authority and then determin[ing] at a later time whether the consequences of their acts offer an advantage.'" Id. at 312 (quoting Restatement (Third) of Agency § 2.03 comment. c (2006)).

Plaintiff's argument ignores the limitations placed on municipal expenditures. "The Local Budget Law, N.J.S.A. 40A:4-1 to -88[,] establishes the procedures required for adoption of a municipal budget, determining the amounts to be raised by taxation and appropriation of budgeted funds for specific purposes." Maltese v. Twp. of N. Brunswick, 353 N.J. Super. 226, 238 (App. Div. 2002). N.J.S.A. 40A:4-57 specifically provides:

No officer, board, body or commission shall, during any fiscal year, expend any money (except to pay notes, bonds or interest thereon), incur any liability, or enter into any contract which by its terms involves the expenditure of money for any purpose for which no appropriation is provided, or in excess of the amount appropriated for such purpose.

Any contract made in violation hereof shall be null and void, and no moneys shall be paid thereon.

Further, [t]he Local Fiscal Affairs Law, N.J.S.A. 40A:5-1 to -47 prescribes procedures that municipalities must follow in paying appropriated public funds to vendors, employees or other claimants. N.J.S.A. 40A:5-16 establishes the general requirement that the governing body shall not pay public funds unless the claimant presents a certified bill detailing the nature of the claim and a certification by a duly designated officer or employee stating that the goods have been received or the services have been rendered to the municipality.

N.J.S.A. 40A:5-17a requires that "[t]he governing body shall approve or disapprove all claims." [Maltese, supra, 353 N.J. Super. at 238.]

Taken together, these statutes embody a peremptory policy in the interest of efficient and economical administration of government to assure protection of the public fisc. These principles were expressed in the parties' contract, which stated that absent specific prior municipal authorization and prior approval of work to be performed, payment was not warranted.

Here, defendant's resolution approving the contract makes clear Beattie, the municipal Director of Operations, was designated as defendant's agent regarding the contract while Loughran was engaged for the purpose of supplying information regarding engineering aspects. Although Loughran could provide expert opinion and recommendations regarding change requests, nothing supports the proposition he held the authority to waive defendant's prior approval of any changes, especially those resulting in increased costs. See Samuel J. Creswell Iron Works, Inc. v. Hous. Auth. of Camden, 449 F.2d 557, 560 (3d Cir. 1971) (holding "in the absence of express authority, an architect, in his role as architect [for a municipality], has no power to waive or modify a stipulation in a contract that requires . . . a written order if the contractor is to be permitted to make changes in the specifications").

We conclude the trial court properly applied the law, rejecting plaintiff's proposition that Loughran's conduct bound defendant despite the terms of the contract. The fact that defendant authorized payment for certain changes apparently deemed unforeseen and necessary does not alter its right to reject plaintiff's request for payment for other alleged extra work that had not been authorized.


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