JB Pool Management v. Four Seasons at Smithville Homeowners Association Inc., A-5169-11T3; Appellate Division; opinion by Sabatino, J.A.D.; decided and approved for publication June 13, 2013. On appeal from the Law Division, Camden County, L-4408-10. DDS No. 11-2-0274 [32 pp.]

JB Pool Management, a pool management company, contracted with Four Seasons at Smithville Homeowners Association Inc., a condominium association, to supply lifeguards and maintenance services for the association's indoor pool. During the term of the contract, a mold infestation was discovered in the pool facilities and government officials ordered the pool closed for more than seven months while the mold was remediated.

Seeking to recover four months of service fees that Four Seasons had not paid while the pool was closed, JB sued, asserting claims for breach of contract, unjust enrichment and quantum meruit. Four Seasons filed an answer and 10 separate defenses. It did not mention the doctrines of impossibility of performance or frustration of purposes. It mentioned impossibility of performance for the first time in its reply brief in support of its motion for summary judgment.

At the charge conference, the judge sua sponte said that the impossibility doctrine did not fit the present case but that the doctrine of frustration of purpose did. Over JB's objection, the court charged the jury that Four Season's obligation to pay the disputed fees could be excused under that doctrine. The jury found Four Seasons not liable for the fees.

Held: In the future, the doctrine of frustration of purpose generally should be pleaded as an affirmative defense by litigants seeking to invoke that doctrine to avoid their contractual duties. Because it was not raised by Four Seasons but sua sponte by the trial judge at the charge conference, the dismissal of the breach-of-contract claim is reversed and the matter is remanded for additional discovery focused on that defense, followed by a new trial. The trial court also must re-examine its finding that the underlying purpose of the contract was conditioned on the pool being open for use and to consider if that finding can be reconciled with the contract's "no reduction in charges" provision.

The panel says the concepts of impossibility of performance and frustration of purpose are doctrinal siblings. Both may apply when a party's contractual obligations can be excused or mitigated because of a supervening event. That event must be one that had not been anticipated when the contract was created and that fundamentally alters the nature of the parties' ongoing relationship.

A successful defense of impossibility of performance excuses a party from having to perform its contract obligations, where performance has become literally impossible, or at least inordinately more difficult, because of the occurrence of a supervening event that was not within the original contemplation of the contracting parties.

Under the doctrine of frustration of purpose, the obligor's performance can still be carried out, but the supervening event fundamentally has changed the nature of the parties' overall bargain. Relief from performance of contractual obligations under this doctrine will not be lightly granted. The evidence satisfying the doctrine's requirements must be clear, convincing and adequate.

The panel says the judge astutely recognized that the most appropriate doctrine that might relieve Four Seasons of its contractual duties for payment to JB is not impossibility of performance but frustration of purpose. However, JB's counsel was not given notice that the frustration doctrine was being invoked until the charge conference, long after discovery was completed. The panel disagrees with the trial judge's determination of no prejudice flowing from that late notice. Had she been alerted sooner that her adversary would be arguing frustration of purpose, she might have explored the elements of that doctrine in discovery and in her trial preparation.

The panel says it cannot ascribe significant blame to Four Seasons for the failure of notice because neither the court rules nor case law explicitly requires the doctrine of frustration of purpose to be pleaded as an affirmative defense. The applicable rule, Rule 4:5-4, does not list either frustration of purpose or impossibility of performance.

Nor is the panel willing to find that Four Seasons waived these defenses by omitting them from its responsive pleading, in light of the dearth of precedent mandating such a pleading.

However, the panel holds that, in future cases, the defenses of frustration of purpose and impossibility of performance must be raised in a responsive pleading unless exceptional circumstances excuse that oversight. The matter is referred to the Civil Practice Committee to consider a rule amendment. The panel also finds that the appropriate remedy here is to vacate the final judgment and remand for additional discovery germane to the frustration defense and a new trial.

The panel cites a second reason for reversal and remand: the trial judge's finding that the underlying purpose of the contract was conditioned on the pool being open for use, despite a contract provision that there will be no reduction in charges and no liability for JB's failure to perform where such failure is attributable to reasons beyond its control.

The judge did not comment explicitly about this provision or attempt to reconcile his analysis with them. Nor did the judge make a finding that the contract provision was ambiguous. These omissions are potentially significant because a party's duties to perform are not discharged under the frustration doctrine if the contract language or the circumstances indicate the contrary.

On remand, the proofs concerning the meaning of the "no reduction" language should be amplified. The court should then re-examine its determination in light of those proofs and decide whether consideration of extrinsic proofs is warranted to resolve any ambiguity in the contract.

The panel affirms the dismissal of JB's alternative claims for unjust enrichment or quantum meruit recovery, finding that, having failed to develop and quantify its proofs on those claims before the first trial, it does not deserve a second chance.

For appellant — Kurt David Raatzs (McDowell Posternock Law). For respondent — Samuel J. McNulty (Hueston McNulty; McNulty and Edward J. Turro on the brief).