Insulation Contracting and Supply v. Kravco, Inc.

• Decision Date: 21 April 1986
• Citation: 209 N.J.Super. 367,507 A.2d 754
• Parties: INSULATION CONTRACTING AND SUPPLY, a/k/a I.C.S., Plaintiff-Appellant, v. KRAVCO, INC., Equitable Life Assurance Society of the United States, Millmak Associates and Cope Construction Company, Defendants-Respondents, and Peyton Interior Contractors, Inc., Peyton Contractors, Inc. and Cope Linder Associates, Defendants. GAR EQUIPMENT CORPORATION, Plaintiff-Appellant, v. MILLMAK ASSOCIATES, Millmak Associates Joint Venture and Kravco, Inc., Defendants-Respondents, and Peyton Interior Contractors, Inc., and Peyton Contractors, Inc., Defendants.
• Court: New Jersey Superior Court — Appellate Division

Page 367

209 N.J.Super. 367

507 A.2d 754

INSULATION CONTRACTING AND SUPPLY, a/k/a I.C.S., Plaintiff-Appellant, v. KRAVCO, INC., Equitable Life Assurance Society of the United

States, Millmak Associates and Cope Construction

Company, Defendants-Respondents,

and

Peyton Interior Contractors, Inc., Peyton Contractors, Inc.

and Cope Linder Associates, Defendants.

GAR EQUIPMENT CORPORATION, Plaintiff-Appellant, v. MILLMAK ASSOCIATES, Millmak Associates Joint Venture and Kravco, Inc., Defendants-Respondents, and Peyton Interior Contractors, Inc., and Peyton Contractors,

Inc., Defendants.

Superior Court of New Jersey Appellate Division.

Argued Jan. 7, 1986.

Decided April 21, 1986.

Edward D. Sheehan, Camden, for appellant Insulation Contracting and Supply (DuBois, Sheehan, Hamilton & DuBois, Camden, attorneys; Edward D. Sheehan, Camden, on brief and reply brief).

Walter J. Fleischer, Jr., Morristown, for appellant GAR Equipment Corp. (Shanley & Fisher, Morristown, attorneys; Walter J. Fleischer, Jr., Morristown, on brief).

Steven K. Kudatzky, Haddonfield, for respondents (Tomar, Parks, Seliger, Simonoff & Adourian, Haddonfield, attorneys; Steven K. Kudatzky, Haddonfield, on brief and letter brief).

Before Judges GAULKIN, DEIGHAN and STERN.

The opinion of the court was delivered by

DEIGHAN, J.A.D.

These consolidated appeals present a common legal issue: When the general contractor on a construction project terminates one of its subcontractors for non-performance, does the general contractor (or project owner) thereby become liable to pay the terminated subcontractor's subcontractors who fully performed its subcontract? The trial judge in each case denied recovery. We affirm.

The facts are not in dispute. On October 1, 1981 Millmak Associates (Millmak), a joint venture consisting of co-venturers Piermak Associates (Piermak) and Equitable Life Assurance Society of United States (Equitable), entered into a written construction contract with Kravco, Inc. (Kravco), for the construction of "Ocean One," a shopping mall on Millmak's pier along the Atlantic City Boardwalk. Under the construction contract, Kravco was the general contractor and Cope Linder Associates (Cope Linder) the architect. Under a separate agency agreement, Cope Construction Company (Cope Construction) was to assist Kravco in the performance of its duties as general contractor.

On May 6, 1982 Kravco entered into a written subcontract with Peyton Contractors, Inc. (Peyton), to install framing and wallboards as well as to do painting and related work. On October 27, 1982 Peyton entered into a sub-subcontract with plaintiff Insulation Contracting Supply to supply and install insulation for a consideration of $215,000 including extras. Plaintiff undertook its sub-subcontract and on January 28, 1983 received a $30,000 payment from Peyton.

On February 25, 1983, because of a default in performance, Kravco terminated the subcontract with Peyton. At that time plaintiff had substantially completed its sub-subcontract and three days later, on February 28, 1983 plaintiff fully completed its obligation under the contract. Plaintiff's work was accepted and was not a factor involved in the default of Peyton by Kravco.

Plaintiff received no further advances under its subcontract and consequently filed a complaint in the Law Division, Atlantic County against Peyton, Kravco, Equitable, Cope Linder and Cope Construction for $185,000, the balance due under its sub-subcontract. Kravco, Equitable, Millmak, Cope Linder and Cope Construction moved for a summary judgment supported by affidavits of Myles H. Tanenbaum, a general partner of Piermak and Richard Spoenlein, a project manager employed by Cope Construction. Plaintiff filed a cross-motion for summary judgment and Peyton filed an affidavit executed by its controller Gary Wertheimer, to "clarify certain facts with regard to the two pending Cross Motions." On August 10, 1984, after argument, ¹ Judge Perskie delivered an oral opinion, granting defendants ² summary judgment dismissing the complaint and denying plaintiff's cross-motion for summary judgment. Subsequently, on December 24, 1984 a consent judgment for $185,000 plus interest was entered in favor of plaintiff against Peyton.

GAR Equipment Corporation (GAR), also a sub-subcontractor of Peyton, instituted a separate action against Millmak, Kravco and Peyton in the Law Division, Middlesex County. The procedural and factual backgrounds are essentially the same as those in the appeal of Insulation Contracting and Supply. Following cross-motions for summary judgment in that matter, on October 15, 1984 Judge Reavey granted defendants' and denied GAR's motion. On March 5, 1985 a consent judgment was entered in favor of GAR and against Peyton for $20,534.03.

Plaintiff presents the following issues:

I. BY ELECTING TO TERMINATE PEYTON (THE SUB-CONTRACTORS), DEFENDANTS-RESPONDENTS (THE OWNERS-GENERAL CONTRACTORS) BECAME RESPONSIBLE TO PAY DIRECTLY THE INVOICES OF PLAINTIFF-APPELLANT (THE SUB-SUBCONTRACTOR).

II. THERE DOES EXIST PRIVITY OF CONTRACT BETWEEN PLAINTIFF-APPELLANT AND THE DEFENDANTS-RESPONDENTS IN THIS CASE ARISING FROM THE CONTRACT DOCUMENTS THEMSELVES.

III. THERE DOES EXIST PRIVITY OF CONTRACT BETWEEN PLAINTIFF-APPELLANT AND DEFENDANTS-RESPONDENTS SUFFICIENT FOR THE PURPOSE OF MAINTAINING THIS CAUSE OF ACTION AS A RESULT OF THE THIRD-PARTY BENEFICIARY STATUS OF THE PLAINTIFF-APPELLANT.

IV. PLAINTIFF-APPELLANT IS ENTITLED TO MAINTAIN A DIRECT CAUSE OF ACTION AGAINST DEFENDANTS-RESPONDENTS ON A THEORY OF UNJUST ENRICHMENT.

I.

In support of its first contention plaintiff relies upon Pike Industries, Inc. v. Middlebury Associates, 140 Vt. 67, 436 A.2d 725 (1981), cert. den. 455 U.S. 947, 102 S.Ct. 1446, 71 L.Ed.2d 660 (1982). In Pike, Middlebury, owner of a proposed shopping center, entered into a contract with Bean, the contractor for construction of the shopping center. 140 Vt. at 69, 436 A.2d at 726. Bean entered into a subcontract with Pike for paving work at the center. On November 11, 1974, after Pike completed its paving contract, Middlebury terminated the contract with Bean and took over the project under a provision in the prime contract. Middlebury never paid Bean under the prime contract and as a result, when Pike was not paid for its services under the sub-subcontract, it instituted suit against both Bean and Middlebury. Ibid.

Article 16.2 in the prime contract between Middlebury and Bean provided that, if Middlebury terminated the contract,

the Owner [Middlebury] shall further assume and become liable for obligations, commitments and unsettled claims that the Contractor [Bean] has previously undertaken or incurred in good faith in connection with [the project]. [Pike, 140 Vt. at 70, 436 A.2d at 727].

Chief Justice Barney, speaking for the Vermont Supreme Court held that under Article 16.2 of the contract Middlebury was liable to Pike:

By terminating the [Middlebury-Bean] contract, Middlebury assumed Bean's previously incurred obligation to pay Pike according to the [Bean-Pike] subcontract. Middlebury thereby owed a duty to Bean to pay Bean's debts. Pike is a creditor beneficiary of that obligation [of Middlebury] and may enforce Middlebury's duty to pay Bean's debt to Pike.... Pike therefore has a direct action against Middlebury and may recover accordingly. [Pike, 140 Vt. at 73, 436 A.2d at 727].

[U]nder Article 16.2 [of the Middlebury-Bean contract] Middlebury assumed and became liable for Bean's obligations to its unpaid subcontractors.

... Under this contract [between Middlebury and Bean], once the owner (Middlebury) terminates the contract with the contractor (Bean), ... the owner steps into the contractor's shoes, so to speak, and becomes primarily liable for the contractor's obligations to the subcontractors. [Id. at 73, 436 A.2d at 728].

Plaintiff contends that the "basic principle" established by Pike is that, "[i]f a general contractor decides to terminate a sub-contractor, in so doing, the general contractor becomes responsible directly to the sub-sub-contractors for the value of their services rendered even though there never existed a direct written contract between the general contractor and those sub-sub-contractors." Contrary to plaintiff's contention, the holding in Pike was based, not on any "basic principle" of law, but upon the specific provision in Article 16.2 of the contract.

Plaintiff also points out that the wording of Article 16.2 in the Millmak-Kravco contract is substantially identical to Article 16.2 in Pike. And, based on this fact, plaintiff contends that Article 16.2 is "incorporated by reference" into the Kravco-Peyton subcontract by Paragraph 1.5 in the subcontract. However, Paragraph 1.5 merely provides that:

The parties hereto agree that, for the purposes of this Subcontract, the official Contract Documents are those prepared by the Architect and on file in the Contractor's office. Subcontractor has examined and agrees to be bound by the Contract Documents insofar as applicable to this Subcontract and the Contract Work. [Emphasis supplied].

Paragraph 1.5 does not incorporate Article 16.2 and does not mean that either Millmak or Kravco "agreed to pick up after Peyton in the event Peyton defaulted on its obligations [to its subcontractors]" as contended by plaintiff.

Here, although Millmak approved the prime contract between Kravco and Peyton by an addendum under the signatures on the last page, it expressly disclaimed any liability:

The undersigned owner referred to above hereby approves this subcontract. By granting this approval owner does not assume in favor of subcontractor or any other party any of the obligations of the contractor hereunder.

Plaintiff next contends that Paragraph 7.2 in the Kravco-Peyton subcontract is similar to Article 16.2 in Pike and establishes a contractual privity with either Kravco or Millmak. However, Paragraph 7.2 merely gives Kravco the right to...