268 N.J. Super. 488, *; 633 A.2d 1060;
1993 N.J. Super. LEXIS 847
THE TERRACE CONDOMINIUM ASSOCIATION, Plaintiff, v. MIDLANTIC
NATIONAL BANK, Defendant.
DOCKET NO. BER-L-9034-90
SUPERIOR COURT OF NEW JERSEY, LAW DIVISION, BERGEN COUNTY
268 N.J. Super. 488; 633 A.2d 1060; 1993 N.J. Super. LEXIS
847
July 19, 1993, Decided
SUBSEQUENT HISTORY:
Approved for Publication December 15, 1993.
COUNSEL: John J. Stern, for Plaintiff (Stern,
Steiger, Croland, Tanenbaum & Schielke, attorneys).
Douglas C. Borchard, Jr., for Defendant (Evans, Hand, Allabough
& Amoresano, attorneys).
JUDGES: Kole
OPINIONBY: MARTIN J. KOLE
OPINION: [*492]
OPINION
KOLE, J.A.D., retired and temporarily assigned
on recall
[This opinion has been abridged for publication purposes.]
Plaintiff, Terrace Condominium Association,
(the "Association"), is a not for profit corporation
of the State of New Jersey, formed to administer, manage and
operate the common affairs of the unit owners of the residential
condominium known as "The Terrace," and to maintain,
repair and replace the common elements and limited common
elements of said condominium.
On September 10, 1982, with about $ 1,000,000
worth of construction yet to be completed, the original builder
of The Terrace gave a deed in lieu of foreclosure to its construction
mortgagee, Midlantic National Bank/Citizens. Through subsequent
name change and merger, Midlantic National Bank/Citizens is
now known as the defendant, Midlantic National Bank ("Midlantic").
Subsequent to attaining ownership of the partially
completed project, Midlantic represented to the public that
it had assumed sponsorship of the condominium and had undertaken
all responsibilities related to the construction of the condominium
and the marketing of the residential condominium units. Thus,
the master deed for The Terrace, as recorded by Midlantic,
represents that, [*493] as sponsor of the condominium, Midlantic
intends to construct twelve condominium units, together with
certain roads, driveways, and other improvements; and for
purposes of the new home warranty and Builders' Registration
Act ( NJSA. 46:3B-1 to -20.), apparently Midlantic registered
with the Department of Community Affairs as a "builder,"
or successor to the developer, rather than as a mortgagee
in possession. See Central Heights Condominium Ass'n v. Little
Falls Savings & Loan Ass'n, 251 NJ Super. 335, 598 A.2d
233 (App. Div. 1991).
Although some condominium units had already
been sold, Midlantic engaged in construction. It remained
in control of the Association until at least April of 1985.
At that time, Midlantic was still the owner of a number of
the condominium units, at least one unit of which was not
in occupiable condition when primary construction was completed
in 1986. Midlantic incurred about $ 1,000,000 in construction
costs to complete The Terrace.
Located in the Borough of Fort Lee, The Terrace
comprises 12 condominium units on 6 residential floors. Constructed
and marketed as a luxury condominium, The Terrace boasted
such amenities as working fireplaces, "Kohler environments,"
"talking elevators," extensive balconies, glassed-in
rooms and panoramic views of New York City.
Since The Terrace was first occupied in 1986,
its residents have been beset with a number of problems.
Included among such problems is substantial water infiltration
into and water damage in the condominium units, in
the limited common element's, and in the common elements.
In addition, terrace surfaces have manifested construction
defects, and the fireplaces have been inoperable without creating
smoke conditions in other units of the building. Such problems
were brought to Midlantic's attention by the Association.
The Association hired a firm of engineering consultants, Kipcon
Inc., to prepare a report which would analyze the problems.
This report was completed in February of 1987, and the Association
gave it to Midlantic. [*494]
Midlantic endeavored to meet the Association's
complaints and remedy the foregoing problems until late 1988
or early 1989. It used the Kipcon report supplied to it by
the Association as a guide to the defects requiring remediation.
The primary concern was with complaints of leaking at the
windows and terraces on the upper floors and water seepage
in the exterior walls. The work that Midlantic thus performed
at The Terrace was with the asserted purpose of remedying
the foregoing problems. However, although performed as a good
faith remedial endeavor, much of the work consisted of short-lived
or improper repairs to the most significant of the above problems
and generally had the effect of concealing the true causes
of the problems. Midlantic's failure to properly correct many
of the condominium's construction defects adversely affected
the habitability of the condominium, including its common
elements and limited common elements. Furthermore, in many
respects, Midlantic misconceived its duty to repair as one
of maintenance for a limited period of time, thereby placing
the onus of the expense of repair on the Association.
In or about the end of 1988 or early 1989, Midlantic
ceased all remedial activity at The Terrace without fully
curing the problem areas. Shortly after Midlantic ceased making
repairs, the Association commissioned and paid for various
professional studies in an attempt to identify the causes
of the problems and their most reasonable remedies.
These studies revealed that many of the problems
at The Terrace were the result of various patent and latent
defects, both structural and otherwise, in and about the condominium
units, limited common elements and common elements. All of
these defects were caused by improper workmanship and the
use of substandard (and, in some instances, missing) materials
in the construction of the building project.
I find that the Association demonstrated the
specific construction defects and associated costs of remediation
which follow. I further find that the stated remedies for
these defects are necessary and that the indicated costs thereof
are reasonable. [The [*495] court discussed each defect and
the reasonable cost of remediation.]
All of the defects, representing $ 157,300 in
curative costs, are the result of inferior workmanship and
materials in the construction of The Terrace. Moreover, essentially
all of such defects adversely affect the habitability of the
premises, particularly in light of the fact that each unit
was marketed as a luxury condominium.
In effecting in good faith what it deemed to
be the remedial work required in order to satisfy the Association's
complaints, Midlantic spent somewhat in excess of $ 78,000.
Although such work did not fully correct all of the defects,
some of it did ameliorate the problems involved and was of
benefit to the Association. Cf. Saint Barnabas Medical Center
v. Essex County, 111 N.J. 67, 79-80, 543 A.2d 34 (1989); Power-Matics,
Inc. v. Ligotti, 79 NJ. Super. 294, 305-07, 191 A.2d 483 (App.
Div. 1963). Indeed, the Association's expert witness Gehorsam
indicated as much, at least as to the parapets.
After considering the evidence relating to its
repair work, I am satisfied that Midlantic has conferred a
benefit on the Association to the extent of $ 25,000.
Midlantic contends that since the unit owners
purchased their condominiums at what it considers bargain
prices, plaintiff can not claim that the unit owners bought
with the expectation that they would be in a luxury building.
But the fact is that the units were sold by Midlantic as luxury
apartments with the concomitant amenities. In any event, in
view of the foregoing defects, it cannot be said that the
purchasers are attempting to upgrade their purchase at Midlantic's
expense.
The defendant, as the developer, sponsor, and
builder of The Terrace, had an obligation to construct the
condominium so that it would be of reasonable workmanship
and be fit for its particular use: habitation. Aronsohn v.
Mandara 98 NJ. 92, 484 A.2d 675 (1984); [*496] McDonald v.
Mianecki, 79 NJ. 275, 293, 398 A.2d 1283 (1979).
I find that plaintiff proved, by a preponderance
of the credible evidence, that the exterior walls of the condominium,
parking decks, terraces, front planters and fireplaces were
defective to such an extent that the implied warranties of
habitability and reasonable workmanship were breached by Midlantic.
It is of no moment that Midlantic is not generally in the
business of constructing condominiums. Such a warranty arises
whenever a consumer purchases from one "who holds himself
out as a builder-vendor of new homes." McDonald, supra,
79 NJ. at 293. The purchaser relies upon his "knowledge
and skill, and he impliedly represents that he is qualified
to erect a habitable dwelling. He is also in a better position
to prevent the existence of major defects." Id. at 294.
This is not a case, as Midlantic argues, where
the claimed defective materials and workmanship give rise
simply to a maintenance problem which the Association must
assume at its own cost. Midlantic, despite its unsuccessful
attempts at fully remedying the defects, is still responsible
for correcting construction defects that adversely affect
the habitability of the condominium or that substantially
interfere with the occupants' appropriate use of the condominium,
which includes the common elements and limited common elements.
I find that, under the circumstances of this
case, Midlantic was the "builder" and developer
and not merely a "mortgagee-in-possession" and is
thus liable for any breach of the implied warranty of reasonable
workmanship as well as any breach of the implied warranty
of habitability. Midlantic was more than a mere vendor. At
all times, it held itself out as the party responsible for
the construction of The Terrace, as well as being its developer
and sponsor. It recorded documents in which it declared that
it was the builder; it engaged in substantial construction
of the building, spending about $ 1,000,000 to complete it;
it acted as developer, [*497] sponsor and marketer; and it
represented to the Department of Community Affairs that it
was the builder.
Midlantic seeks to immunize itself by claiming
that it is not a builder with respect to The Terrace and that
non-builders cannot be liable for breaches of the implied
warranty of reasonable workmanship. According to Midlantic,
it is liable only for the distinct and separate implied warranty
of habitability, and Midlantic claims that The Terrace is
habitable.
Defendant's argument is unpersuasive. At the
time of the defective construction, it appears, Midlantic
was already more than a lender, and, as such, had an obligation
to subsequent purchasers regarding the condition or quality
of that work. See Postizzi v. Leisure + Technology, Inc.,
235 NJ Super. 285, 562 A.2d 232 (App. Div. 1989). Contrast
Rzepiennik v. U.S. Home Corp., 221 NJ. Super. 230, 238, 534
A.2d 89 (App. Div. 1987).
In any event, since Midlantic took over construction,
it must be held to have assumed all of the obligations and
responsibilities of the initial builder and developer and
to have become a full-fledged "builder-vendor,"
responsible for all defects, including those beyond the scope
of what it perceives to be its own limited construction activities.
Even though Midlantic may not have built the entire structure
or the parking facilities, and may not have applied the outside
wall covering, it did assume the obligations of the builder
of the project. It should be noted that a mortgagee-in-possession
can be liable for defective construction. See Central Heights
Condominium Ass'n v. Little Falls Savings and Loan Ass'n,
supra, 251 N.J. Super. at 335.
Finally, a breach of the implied warranty of
reasonable workmanship may also constitute a breach of the
implied warranty of habitability if the condition is sufficiently
serious to affect the dwelling's habitability. Aronsohn v.
Mandara, 98 NJ. 92, 105, 484 A.2d 675 (1984). Such is the
case here. A number of the problems, including the leakage
into the units, terraces and parking decks, and the dampness
on the outside walls, are substantial [*498] and serious enough
to constitute breaches of the habitability warranty. Freedom
from exposure to the elements certainly is a matter of habitability.
This is particularly so where, as here, the project purports
to be a luxury condominium.
Midlantic also raises a statute of limitations
defense.
The warranties on which the bank relies are
the express statutory warranties promulgated under the New
Home Warranty and Builders' Registration Act ("HOW")
and the Planned Real Estate Full Disclosure Act ("PREFDA").
The bank contends that since it is not a builder and The Terrace
is habitable, n1 its responsibilities are limited to those
under HOW and PREFDA. The warranties thereunder apply to "developers."
According to Midlantic, the statute of limitations prescribed
by HOW and PREFDA has run as to those statutory warranties,
precluding any recovery by plaintiff. Before analyzing the
merits of defendant's statute of limitations argument, a brief
discussion of the PREFDA and HOW warranties is in order.
- - - - - - - - - - - - - - Footnotes - - -
- - - - - - - - - - - -
n1 I have found, however, in this case, that
the habitability of The Terrace was substantially adversely
affected by the defects. I have further found the Bank to
be the builder or to have assumed the obligations of the builder.
- - - - - - - - - - - - End Footnotes- - - -
- - - - - - - - - -
I. PREFDA WARRANTIES
In PREFDA, the Legislature provided that the
Division of Housing and Urban Renewal of the State Department
of Community Affairs shall adopt such rules and regulations
as are reasonably necessary for the enforcement of the provisions
of the Act. The rules may contain provisions requiring the
developer to give a fair and reasonable warranty on construction
of any improvements. NJSA. 45:22A-35(a). The Division of Housing
and Urban Renewal adopted the following warranty provisions:
WARRANTY ON CONSTRUCTION
a. The developer . . . shall warrant the construction
of the unit or interest provided in [HOW].[*499] b. The developer
. . . shall, in addition to the warranties required under
[HOW], warrant the following to be free from defect due to
material and workmanship for a period walls and fences. The
developer shall also warrant that of one year from the date
of possession or settlement: outbuildings, driveways, walkways,
patios, retaining all drainage is proper and adequate and
that all off site improvements are free from defects for a
period of one year from the date of construction.c. Developer
shall warrant that all lots, parcels, units or interests are
fit for their intended use.
[N.J.A.C. 5:26-7.1].
WARRANTY ON CONSTRUCTION OF COMMON FACILITIES.
a. The developer . . . shall warrant the construction
of the common facilities period of two years from the date
of completion of each of the common facilities;b. The developer
shall warrant that the common facilities are fit for their
intended use;c. The developer shall repair or correct any
defect in construction, material or workmanship in the common
facilities within a reasonable time after notification of
the defect.
[N.J.A.C. 5:26-7.2]
II. HOW WARRANTIES
Through the HOW statute, new home warranties
were established as follows:
(1) One year from and after the warranty date
the dwelling shall be free from defects caused by faulty workmanship
and defective materials due to noncompliance with the building
standards as approved by the [Commissioner of the Department
of Community Affairs. . . .].(2) Two years from and after
the warranty date the dwelling shall be free from defects
caused by faulty installation of plumbing, electrical, heating
and cooling delivery systems; however, in the case of appliances,
no warranty shall exceed the length and scope of the warranty
offered by the manufacturer. (3) Ten years from and after
the warranty date for major construction defects. [According
to the definitional section of HOW, N.J.S.A. 46:3B-2, a major
construction defect means "any actual damage to the load
bearing portion of the home."]
[N.J.S.A. 46:3B-3].
Defendant's statute of limitations argument
is without merit. It should be noted that plaintiff has not
premised any cause of action upon the breach of a PREFDA warranty
or a HOW [*500] warranty. Rather, plaintiff has based its
cause of action upon an alleged breach of the implied warranties
established under McDonald v. Mianecki, supra, 79 NJ. at 275,
i.e., the common law.
Further, plaintiff's rights are not limited
to those prescribed by PREFDA and HOW. These statutes provide
rights, obligations, and remedies that are supplementary to,
and not exclusive of, those provided by the common law.
With regard to HOW, the statute itself provides
that its remedies are non-exclusive. N.J.S.A. 46:3B-9. See
also McDonald, supra, 79 NJ. at 287; Central Heights Condominium
Ass'n, supra, 251 NJ Super at 337.
PREFDA does not explicitly state that its remedies
are non-exclusive. However, there is nothing in the statute
itself, or any evidence of a statutory intent, indicating
that its rights and remedies are exclusive. Unless there is
a clear legislative expression to the contrary, a statutory
right or remedy does not preempt an existing common law right
or remedy; but, rather, is deemed to be additional to or cumulative
of the latter. See De Fazio v. Haven Savings and Loan Ass'n,
22 N.J. 511, 519 (1956); Blackman v. Iles, 4 N.J. 82, 89,
71 A.2d 633 (1950); Wildstein v. Tru Motors, Inc., 227 N.J.
Super. 331, 335, 547 A.2d 340 (Law Div. 1988). There is no
such clear legislative expression in PREFDA. Contrast Spring
Motors Distrib., Inc. v. Ford Motor Co., 98 N.J. 55 (1985)
(dealing with a uniform statute, the U.C.C., by which "the
Legislature adopted a carefully-conceived system of rights
and remedies to govern commercial transactions").
Even assuming that plaintiff is bound by the
limitation periods in PREFDA and HOW and the two year warranty
limitations therein were applicable in this case, nonetheless
defendant is equitably estopped from arguing that plaintiff
failed to file its complaint within that period. Until late
1988 or early 1989, defendant attempted actively to repair
the construction defects, [*501] and used the Kipcon report
submitted to it by plaintiff as a guide with respect thereto.
By its conduct, defendant represented to the Association,
at least impliedly, that it would fully remedy the problems
so that the building would satisfy the warranties of habitability
and good workmanship and materials. Plaintiff relied thereon
in good faith and thus delayed pursuing its remedy until July
12, 1990, when the complaint was filed. Since plaintiff filed
its complaint within two years after defendant completed its
unsuccessful repair work, under principles of equitable estoppel,
the two year statute of limitations did not run with respect
to any applicable PREFDA or HOW warranty. See Highway Trailer
Co. v. Donna Motor Lines, Inc., 46 N.J. 442, 449, 217 A.2d
617 (1966), cert. denied sub nom., Mount Vernon Fire Ins.
Co. v. Highway Trailer Co., 385 U.S. 834 17 L. Ed. 2d 68,
87 S. Ct. 77 (1966); Biocraft Laboratories, Inc. v. USM Corp.,
163 N.J. Super. 570, 573, 395 A.2d 521 (App. Div. 1978); Torcon,
Inc. v. Alexian Bros. Hosp., 205 N.J. Super. 834, 436-437
(Ch. Div. 1985), aff'd, 209 N.J. Super. 239, 507 A.2d 289
(App. Div. 1986).
In any event, the PREFDA warranties of fitness
for an intended use (N.J.A.C. 5:26-7.1(c); N.J.A.C. 5:26-7.2(b))
do not provide for any specific time limitation. There is
no indication in the statute that these habitability-type
warranties only last for a specified time or that a claim
thereto must be made within such a period.
The remedy elected by plaintiff herein involves
obtaining relief for breaches of the common law implied warranties
established by the Supreme Court in McDonald v. Mianecki,
supra, 79 NJ at 275. The PREFDA and HOW warranties do not
displace such implied warranties. The applicable limitation
period with respect to plaintiff's cause of action is the
usual six year limitation period provided by N.J.S.A. 2A:14-1.
That statute states that "every action at law . . . for
any tortious injury to real or personal property . . . or
for recovery upon a contractual claim or liability, express
or implied, not under seal . . . shall be commenced within
6 years next after the cause of such action shall [*502] have
accrued." Thus, whether the breach of implied warranty
is deemed contractual or tortious in nature, the six year
statute of limitations applies. See Lavin v. Hackensack Bd.
of Ed., 178 N.J. Super. 221, 227-229 (App. Div. 1981), aff'd,
90 N.J. 145 (1982); Bergen Community College Trustees v. J.P.
Fyfe, Inc., 188 N.J. Super. 288, 293, 457 A.2d 83 (Law Div.
1982), aff'd on other gds., 192 N.J. Super. 433 (App. Div.
1983), certif. denied, 96 N.J. 308 (1984); Hermes v. Staiano,
181 N.J. Super. 424, 428-430, 437 A.2d 925 (Law Div. 1981).
See also Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358,
414-417, 161 A.2d 69 (1960).
As plaintiff filed its action on July 12, 1990,
it is necessary to determine whether the six year statute
of limitations had expired as of that date. Plaintiff maintains
that its cause of action accrued in September of 1988, when
defendant "ceased its ineffective remedial construction
and renounced its duty to make the warranties true."
Whether or not this is so, I am satisfied that that plaintiff
filed its action before the six year statute of limitations
ran.
New Jersey courts have consistently applied
the "discovery rule" with respect to statute of
limitations issues. The discovery rule is an equitable principle
by which an accrual of a cause of action is delayed until
the injured party discovers, or by the exercise of reasonable
diligence and intelligence, should have discover that he or
she may have a basis for an actionable claim. Once the injured
party knows that it has been injured and that the injury is
the fault of another, whose identity is known, it has the
requisite knowledge for the period of limitations to commence
running. Torcon, supra, 205 N.J. Super. at 435. See also Lynch
v. Rubacky, 85 N.J. 65, 70, 424 A.2d 1169 (1981).
In the case at hand, primary construction continued
until at least 1986. It was at this time that the Association
learned of the construction problems in the building or reasonably
should have learned of those problems. Therefore, the cause
of action [*503] accrued in any event in 1986, well within
the applicable statute of limitations period.
The fact that the Bank was willing to, and in
fact did, make settlements with several individual condominium
owners in accordance with its obligations under HOW does not
in any way indicate that the Association's remedy is limited
to the provisions of HOW or PREFDA. If a unit owner has a
claim under HOW, that does not mean that the Association does
not have a different claim for the common elements and limited
common elements under the common law. See Postizzi, supra,
235 N.J. Super. at 289-291. Moreover, until April 1985, the
unit owners had no control of the Association, and should
not be bound by the period of time prior thereto. Even if
each unit owner could have sued the Bank while the Bank was
in control of the Association, Siller v. Hartz Mountain Assoc.,
93 N.J. 370, 381-382, 461 A.2d 568 (1983), cert. denied, 464
U.S. 961 78 L. Ed. 2d 337, 104 S. Ct. 395 (1983), it may well
be that ordinarily the right to make such claims should be
tolled or deferred until the unit owners control the association.
But here, until late 1988 or early 1989, the Bank was endeavoring
to remedy the defective work and material, and the Association,
as well as the unit owners, could rightly assume that such
remedial work would correct the problems involved. It was
not until then, when the Bank refused to proceed further despite
the continued existence of those problems, that, predicated
on principles of equitable estoppel (already discussed), the
time can be said to have begun to run against the unit owners
or the Association even if the HOW or PREFDA limitation periods
applied in this case.
Conclusion
For the foregoing reasons, judgment is entered
in favor of plaintiff and against defendant in the amount
of $ 132,300. |
