Borough of Atlantic Highlands v. Eagle Enterprises, Inc.

Citations: 312 N.J. Super. 188; 711 A.2d 407; 1998 N.J. Super. LEXIS 268

Court: New Jersey Superior Court Appellate Division; June 16, 1998; New Jersey; State Appellate Court

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The court, represented by KIMMELMAN, J.A.D., addressed whether an arbitration clause in a construction contract remained in effect after the parties executed a subsequent agreement acknowledging the completion of the contract and stating that it represented full and final settlement of all claims for compensation. The trial court concluded that the arbitration clause was not nullified by the subsequent agreement, denying the defendant's application to enjoin arbitration related to a change order claim and dismissing the plaintiff's complaint with prejudice. The appellate court reversed this decision.

The original construction contract, entered into on December 29, 1995, required the defendant to build an emergency services building for $959,700, with a completion deadline of February 4, 1996, and liquidated damages of $500 per day for delays. However, substantial completion was only achieved on February 28, 1997, over four months past the deadline, due to disputes over the cause of the delay, which the defendant attributed to the plaintiff's architect.

Several unresolved issues persisted post-completion, including claims for damages due to delays and payments for work and change orders. As tensions rose, the parties negotiated a 'Final Agreement' on June 5, 1997, which stated that a $12,500 credit would settle all claims related to delays, with a $10,000 retainage held pending the satisfactory completion of specified repair items. The agreement declared that both parties had no further claims against each other, except for the retainage, which would be released upon satisfactory completion of the repairs listed.

On June 5, 1997, the plaintiff paid the defendant $27,535.73 for previously completed work, certified by the defendant's president as fully completed. Change orders totaling $20,974.31 increased the original contract sum from $959,700 to $980,674.31, with a $10,000 retainage withheld. No other outstanding claims were mentioned. On July 25, 1997, the defendant rescinded its prior agreement to waive $12,500 for delays, citing 'duress' and requesting this amount be reinstated as 'Change Order No. 13.' The defendant demanded payment and later served notice of intent to arbitrate, asserting additional change orders totaling $89,735.19, claiming this sum as due while disregarding the Final Agreement’s settlement of all claims.

Defendant's arbitration demand did not reference the Final Agreement or claims of fraud or economic duress affecting its validity. Instead, it focused solely on claims regarding change orders under the original contract's arbitration clause. The original construction contract, containing an arbitration provision, was effectively canceled by the Final Agreement, which stated that all claims were fully settled and that no further claims existed. The issue of the Final Agreement's validity due to alleged fraud or economic duress pertains only to itself and is distinct from the original contract, which it nullified.

Defendant cites Van Syoc v. Walter to argue that its claim of fraudulent inducement regarding the Final Agreement is arbitrable. However, Van Syoc does not support this argument. In that case, the court ruled that a claim of fraud related to a contract containing an arbitration clause should be resolved by an arbitrator. In contrast, the claim here pertains solely to the Final Agreement, which lacks an arbitration clause. Therefore, the court concludes that any allegations of fraud or economic duress connected to the Final Agreement must be addressed in a court of general jurisdiction first. If it is determined that the Final Agreement was indeed induced by fraud or duress, the defendant may then pursue arbitration for its additional claims. The court asserts that the parties did not agree to arbitrate this specific dispute and that the Final Agreement serves as a clear general release. As a result, the court vacates the prior order dismissing the plaintiff's complaint and remands for judgment in favor of the plaintiff.