Opinion ID: 2317903
Heading Depth: 2
Heading Rank: 2

Heading: fraud issues

Text: The Superior Court, Appellate Division, in effect reversed the trial court's judgment and disposition of the issues in this matter, upon the determination by the Appellate Division that there was no evidence of fraud introduced in support of the allegations of the complaint as incorporated in the pretrial order. Necessarily included in the questions involved on the present appeal is Terminal's question whether the issues of fraud were properly submitted to the jury. Adjectively the Appellate Division appropriately observed that specification of fraud is required under R.R. 4:9-1. This rule (formerly Rule 3:9-1, which applied at the time of the complaint in this case) reads:  In all averments of misrepresentation, fraud, mistake, breach of trust, willful default or undue influence, particulars of the wrong, with dates and items if necessary, shall be stated so far as practicable   . (Emphasis supplied) The importance of compliance with R.R. 4:9-1, supra, is obvious. The effect of noncompliance with R.R. 4:9-1, supra, on the course of trial and judgment was discussed in detail in Schlossberg v. Jersey City Sewerage Authority, 15 N.J. 360, 369-372 (1954). The default charged to the authority and to its alleged agents, consultants or arbiters is fraud in the sense in which it is coupled substantively to the law of enforcement of construction contracts, the general category with which we are here concerned. Engineer control provisions in this field of construction contracts are regarded as dispositive of disputes between the parties in the absence of clear proof of fraud upon the part of the engineer. T. Foster Callahan, Inc., v. Comm'rs, etc., Union Twp., 102 N.J.L. 705, 706-707 ( E. & A. 1926). Proof of fraud in this respect may not be rested upon mere divergent statements of facts, made by an arbiter in his certificate of completion and by the party against whom it issues. Landstra v. Bunn, 81 N.J.L. 680, 685 ( E. & A. 1911). And it has been held that to instruct a jury that if they find an architect withheld a completion certificate without substantial reason, they may find fraud, is erroneous. Bradner v. Roffsell, supra (57 N.J.L., at pages 416-417). In the Bradner case, however, it was observed that if the architect had been the agent of the owner, he might have bound his principal by direct action or by ratification by conduct. Id., page 419. We are not faced in the present matter with the mere withholding of a completion certificate. In fact, the parties stipulated at the trial in the present matter that Terminal's action was not barred by the completion certificate provisions of the contract. The issues in the present matter depend upon the status of the engineer and whether his or its performance of his or its various duties under the contract, and the authority's acts in the premises, were sufficiently pleaded as fraudulent under Rule 3:9-1 (now R.R. 4:9-1), supra. We are of the opinion that acts or inaction of the engineer in exercise of authority vested in him or it by the owner under the contract is denominated fraudulent in the legal sense where the engineer's act or inaction was arbitrary and without reason, and that this rule applies even where the owner was not a direct participant in the engineer's fraud. Rizzolo v. Poysher, 89 N.J.L. 618, 625 ( E. & A. 1916). In this we are in accord with the expression of law made by the Superior Court, Appellate Division, in the present matter that: Fraud in this connection has a broader connotation than is ordinarily implied. In addition to its ordinary significance, in construction contracts it includes arbitrary action and gross mistake. 9 Am. Jur., Building and Construction Contracts, § 34; Restatement of the Law, Contracts, § 303. The philosophy of the law in this respect has been stated to be: If the engineer has acted in good faith after fair investigation of the facts, the courts give conclusive effect to his decision as the parties agreed. 3 Corbin on Contracts (1951), sec. 652, p. 600. It has been said that the decided cases are generally in accord, and that if the architect or engineer has acted fradulently or has committed a gross mistake the contractor is entitled to payment. Grismore on Contracts (1947), sec. 164, pp. 252-253. Cf. Massman Const. Co. v. Lake Lotawana Ass'n, 240 Mo. App. 469, 210 S.W. 2 d 398, 402 ( Ct. App. 1948). The underlying rationale of this philosophy of constructive fraud is that in determinations under this type of contract the high point in the Architect's (or engineer's) practice of his profession lies in those instances when in order to do justice to the Contractor he has to oppose the desire of his employer, the Owner. Parker and Adams, The A.I.A. Standard Contract Forms and The Law (1954), p. 54. It has been said that the architect or engineer occupies a position of trust and confidence, and that he should act in absolute and entire good faith throughout, and that when he acts under a contract as the official interpreter of its conditions and the judge of its performance he should side neither with the Owner nor with the Contractor but exercise impartial judgment. American Institute of Architects, The Handbook of Architectural Practice (1943), ch. 8, pp. 19, 20; ch. 48, p. 81. As an example of the application of the philosophy of constructive fraud, it was said in Duval County v. Charleston Engineering & Con. Co., 101 Fla. 341, 134 So. 509, 514 ( Sup. Ct. 1931), that it is generally held that construction contracts cannot leave the arbitrary or fraudulent decision of an architect or engineer or the like to operate as a conclusive settlement of matters in controversy. And the Iowa Supreme Court in Littell v. Webster County, 152 Iowa 206, 131 N.W. 691 (1911), modified on other grounds and petition for rehearing overruled, 132 N.W. 426 (1911), held (131 N.W., at page 697):    the contractors cannot be deprived of their rights through the failure of the engineer to act, nor should they be defeated by his fraud or through his collusion. And doubtless capricious or arbitrary action on his part will be sufficient upon which to predicate a finding of fraud   . However, it does not follow ipso facto that this constructive fraud philosophy was not adequately pleaded in the five counts in the amended complaint last filed by Terminal in this action. Each count alleged the facts concerning each item in dispute, and many of the items were stated in minute detail; the contract terms were alleged; Terminal's performance was alleged; the acts of the authority and of the engineer were alleged; and the refusal to approve the specific items, or to pay therefor, was alleged in terms in which the charge of arbitrary determination by the authority and the engineer is clearly spelled out. The particulars of the constructive fraud alleged therefore seem to have been stated so far as practicable under former Rule 3:9-1 (now R.R. 4:9-1), supra. Further the pretrial order demonstrates that this was the theory of the case in the incorporation therein of the terms arbitrarily and grossly negligently in conjunction with the charging phrase wilfully, illegally, fraudulently, and contrary to the contract. Our goal in the administration of the adjective law is to reach substantial justice. There remains the question whether there was any evidence of arbitrary action or gross mistake to come within the definition of law of constructive fraud in building contracts hereinbefore discussed. This may not be treated generally, but must be determined separately with respect to each of the individual claims advanced in the five counts of the last filed amended complaint.