Summary
discussing change orders and subcontractor's extra work in context of mechanic's lien
Summary of this case from Zimmer & Francescon, Inc. v. Rice Lake Contracting Corp.Opinion
No. 4-027 / 03-0492
May 26, 2004.
Appeal from the Iowa District Court for Linn County, Thomas L. Koehler, Judge.
Duane Palmer, d/b/a Palmer Construction Company, appeals from the trial court's adverse decree in an action to foreclose a mechanic's lien for the construction completed on Jerry and Roxann Glasbrenners' house. AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
Peter Riley of Tom Riley Law Firm, P.L.C., Cedar Rapids, for appellant.
Guy Booth, Cedar Rapids, for appellees.
Heard by Huitink, P.J., and Vogel and Mahan, JJ.
I. Background Facts Proceedings
Duane Palmer, d/b/a Palmer Construction Company, (Palmer) and Jerry and Roxann Glasbrenner entered into a contract on July 6, 2000, for Palmer to construct the Glasbrenners' house on property located in Ely, Iowa. The contract, drafted by Palmer, contained a clause requiring all change orders to be in writing and set the initial cost of completion of the house at $171,000.
On July 9, 2000, a written change order was executed that moved the building location from Ely to Mount Vernon. A second written change order was signed on October 14, 2000, adding a whirlpool tub to the house. The written change orders increased the cost of the home to $179,243.20. The Glasbrenners also orally requested changes to the home. Palmer claimed these additional changes cost $37,332.00, and increased the total cost of the home to $216,575.20.
The home was not completed when the Glasbrenners met with their mortgage lender to close the loan on December 15, 2000. Palmer asserted that he had not been paid what was due to him. The Glasbrenners were entitled to a credit of $171,638.41, due to payments they made and items they purchased. Palmer told the Glasbrenners they should not move into the home, because it was unsafe until it was completed. Thereafter, the Glasbrenners went to the house and changed the locks. Palmer did not complete any more work. The Glasbrenners presented evidence that it would cost at least $20,046.89 to complete the home.
On December 18, 2000, Palmer filed a mechanic's lien pursuant to Iowa Code section 572.2 (1999). Palmer filed an action to foreclose the lien on October 22, 2001, and the Glasbrenners filed an answer and counterclaim on November 8, 2001. In their counterclaim, the Glasbrenners alleged breach of contract, breach of warranty, and fraudulent misrepresentation.
The case was eventually tried in front of the court on December 18, 2002. The court issued its decree on January 22, 2003, finding Palmer's mechanic's lien was unenforceable because he did not produce valid written change orders for the additional amounts he claimed were due. The court found for the Glasbrenners on their counterclaims of breach of contract, breach of warranty, and fraudulent misrepresentation. Palmer was ordered to pay the Glasbrenners $20,046.89 to complete the house, $7300 in lost interest, $1000 in punitive damages, $4743.06 in attorney fees, and further ordered him to indemnify the Glasbrenners from any costs resulting from mechanic's liens placed on the property by unpaid subcontractors.
Palmer appeals the decision and raises the following issues for review: (1) whether he substantially complied with the contract and so may enforce his mechanic's lien; (2) whether oral change orders to the contract are enforceable; and (3) whether he should be liable for punitive damages.
II. Standard of Review
An action to enforce a mechanic's lien is in equity. Schumacher Elec., Inc. v. DeBruyn, 604 N.W.2d 39, 41 (Iowa 1999). When a counterclaim is tried together with the mechanic's lien action, the counterclaim is also in equity. Nepstad Custom Homes v. Krull, 527 N.W.2d 402, 404 (Iowa Ct. App. 1994). Our review on appeal is de novo. Baumhoefener Nursery, Inc. v. A D P'ship, Inc., 618 N.W.2d 363, 366 (Iowa 2000). In equity cases, especially when considering the credibility of witnesses, we give weight to the fact findings of the district court, but are not bound by them. Iowa R. App. P. 6.14(6)( g).
III. Mechanic's Lien
In order to successfully enforce a mechanic's lien, a contractor must show substantial performance of the contract. Bidwell v. Midwest Solariums, Inc., 543 N.W.2d 293, 295 (Iowa Ct. App. 1995). Substantial performance allows only omissions or deviations from the contract that are inadvertent or unintentional, not the result of bad faith, do not impair the structure as a whole, are remedial without doing substantial damages to the other portions of the building, and may be compensated through deductions in the contract price. Nepstad Custom Homes, 527 N.W.2d at 406 (citing Moore's Builder Contractor, Inc. v. Hoffman, 409 N.W.2d 191, 193 (Iowa Ct. App. 1987)).
Palmer contends that he substantially complied with the parties' contract, and so should be able to enforce his mechanic's lien. He admits that he did not complete the work on the house, but asserts that this was because the Glasbrenners locked him out of the job site.
An exception to the substantial performance requirement arises if the homeowner hinders or delays the contractor's performance of the contract. See Sheer Constr., Inc. v. W. Hodgman Sons, Inc., 326 N.W.2d 328, 332 (Iowa 1982) ("[T]here is an implied term that the person for whom the work is contracted to be done will not obstruct, hinder or delay the contractor, but, on the contrary, will in all ways facilitate the performance of the work to be done by him."). See also Employee Benefits Plus, Inc. v. Des Moines General Hosp., 535 N.W.2d 149, 155 (Iowa Ct. App. 1995) (noting a party may not hinder the performance of a contract).
The district court determined Palmer had voluntarily walked off the job. We note that Palmer did not seek to complete the job after the Glasbrenners changed the locks. The district court also determined Palmer failed to provide work in a professional manner and that some work needed to be redone or replaced. We conclude Palmer has failed to show he substantially performed the terms of the contract. Palmer is not entitled to enforcement of his mechanic's lien. See Nepstad Custom Homes, 527 N.W.2d at 406.
IV. Change Orders
Although Palmer cannot enforce his mechanic's lien, he should still be paid for his work. See id. at 407. "A builder may recover from an owner for extras ordered or agreed upon which were not covered by the contract." Id. (citing S. Hanson Lumber Co. v. De Moss, 253 Iowa 204, 208, 111 N.W.2d 681, 684 (1961)). At the same time, the owner is entitled to offsets for defects in the builder's work and for omissions from the contract. Id. Therefore, Palmer should be able to recover the contract price, plus the cost of additions, less damages for omissions and deficiencies. See Carson v. Roediger, 513 N.W.2d 713, 716 (Iowa 1994).
At the trial, Palmer presented a copy of the blueprints for the home, which included the changes which were made, and which contained the Glasbrenners' signatures. The Glasbrenners asserted they had not signed the blueprints and alleged their signatures had been copied from other documents. The district court determined the signatures were invalid, and concluded Palmer had failed to show written changes to the contract. The court also found the Glasbrenners "were not told of any increase in cost in the contract if there was a deviation from the blueprints." The court concluded Palmer had failed to establish he was entitled to payment for the changes that were made.
Palmer contends the district court improperly found that to be enforceable, the change orders needed to be in writing. Palmer claims the district court became side-tracked by the issue of whether the Glasbrenners had signed the blueprints, instead of focusing on whether written change orders were necessary in this case.
Generally, a builder may recover for extra work performed on a construction contract when ordered and agreed to by the parties and not covered by the building contract. Service Unlimited, Inc. v. Elder, 542 N.W.2d 855, 857 (Iowa Ct. App. 1995); Nepstad Custom Homes, 527 N.W.2d at 407. This is because the mechanic's lien statute, chapter 572, is based on principles of equity which require paying for work done and materials delivered. Schaffer v. Frank Moyer Constr., Inc., 628 N.W.2d 11, 19 (Iowa 2001) (citing Carson, 513 N.W.2d at 715). The statute should be liberally construed to promote these principles. Carson, 513 N.W.2d at 715.
Although a contract may require written change orders, this requirement may be waived by the parties. Central Iowa Grading, Inc. v. UDE Corp., 392 N.W.2d 857, 860 (Iowa Ct. App. 1986). We have stated:
A written change order requirement is not of the essence of the contract, but is a detail in the performance. This type of requirement can be waived by the owner's knowledge of, agreement to, or acquiescence in such extra work, a course of dealing which repeatedly disregards this requirement, and a promise to pay for extra work, orally requested by the owner and performed in reliance thereon.
Id. (citations omitted). A contractor may recover for extra work only if it was performed with the knowledge or consent of the adverse party. Id. (citing 17A C.J.S. Contracts § 364, at 414 (1963)).
Jerry Glasbrenner testified he and his wife agreed to the changes that were made to the home, and they had requested some of the changes. He stated he was under the impression there would be no change in the cost of the contract due to these changes. He also testified as follows, however, about changes to the contract:
Q. Okay. If Mr. Palmer suggested them, you agreed to them before he went ahead and made those changes; right? A. Right.
Q. And some of the changes were your idea and you asked him; right? A. Yes.
. . . .
Q. And if you order things that are not included within the specifications of the contract, that is your obligation; is that right? A. Yes.
The evidence also shows the Glasbrenners admitted other oral changes to the contract should be enforced. The parties orally agreed Jerry Glasbrenner would perform some work on the house, and the Glasbrenners were given credits against the contract price for this work. Also, the parties orally agreed Palmer would pay at least part of the cost for the Glasbrenners to stay in a motel while the house was completed.
On our de novo review, we conclude the Glasbrenners waived the requirement that all change orders must be in writing. We find the Glasbrenners either requested or acquiesced to the oral change orders. We determine the Glasbrenners were aware that they were responsible to pay for additions to the contract. The cost of the changes based on oral requests was $37,332.
V. Punitive Damages
Palmer contends the district court should not have awarded punitive damages in this case. Punitive damages may not be recovered for a mere breach of contract; it is only when the breach also constitutes an independent tort, or other wrongful or illegal act, that punitive damages become a possibility. Higgins v. Blue Cross, 277 N.W.2d 232, 235 (Iowa 1982).
After finding Palmer breached the contract when he failed to complete the house according to contract specifications, the district court determined he also fraudulently misrepresented to both the Glasbrenners and the bank when he withdrew funds from the construction loan. The court found:
As for the fraudulent misrepresentation, it is most evident in the Plaintiff submitting requests for draws from the construction loan account. Specifically, he stated the money was to be used for paying the outstanding bills as to Suburban Lumber, Professional Plumbing and Vandersee Excavating. He did not use the funds to pay the bills, and as a consequence (without the knowledge or approval of either the Defendants or the bank), these accounts became delinquent and caused the three businesses to file Mechanic's Liens against the property of the Defendants.
The court's determination that Palmer committed fraudulent misrepresentation provides the necessary tort for an award of punitive damages in a breach of contract action.
To establish a claim of fraudulent misrepresentation, the Glasbrenners must prove: (1) Palmer made a representation; (2) the representation was false; (3) the representation was material; (4) Palmer knew the representation was false; (5) he intended to deceive; (6) there was justifiable reliance on the truth of the representation; (7) the representation was a proximate cause of the Glasbrenners' damages; and (8) the amount of damages. Gibson v. ITT Hartford Ins. Co., 621 N.W.2d 388, 391 (Iowa 2001). Our review of the record leads us to the same conclusion as the trial court. We accordingly affirm the decision to award the Glasbrenners $1000 in punitive damages.
VI. Summary
We have determined Palmer is entitled to the cost of the additional work he completed in the home, which is $37,332. This amount should be offset against the amounts awarded to the Glasbrenners on their counterclaims, $33,299.50. We therefore determine the Glasbrenners should be required to pay Palmer the amount of $4032.50. We note Palmer did not appeal the ruling that he should indemnify the Glasbrenners for any costs or expenses resulting from mechanic's liens on the home by subcontractors. We remand for entry of judgment in accordance with this opinion.
Costs of this appeal are assessed one-half to each party.