Summary
In Creith Lumber, Inc. v. Cummins, 163 Ohio St. 264, 267 (1955), the Ohio Supreme Court found waiver of a final inspection provision "where the owner of a building built for him takes possession of it, knowing or having reason to know that the construction is defective or incomplete."
Summary of this case from Younglove Construction, LLC v. PSD Development, LLCOpinion
No. 34136
Decided April 27, 1955.
Building contracts — Provision for inspection and approval certificate before final payment — Condition precedent to action for balance due — Condition waived by owner accepting and taking possession, when — Contractor may sue for balance, when.
1. In the absence of fraud, bad faith, failure to exercise honest judgment, or a waiver on the part of the contractee, a stipulation in a building contract providing for the payment of any balance due the contractor under the terms of the contract only upon final inspection and issuance of an approval certificate by a designated person constitutes a condition precedent to the maintenance of an action to recover such balance due or claimed to be due under the contract.
2. Where the owner of a building built for him under a contract accepts and takes possession of such building, knowing or having reason to know that the construction is defective or incomplete, such acceptance will be deemed a waiver of a condition precedent in the contract to the effect that the payment of any balance due the contractor thereunder shall become obligatory only upon final inspection and the issuance of an approval certificate by a designated person.
3. Where a contractor enters into a written contract with the contractee to furnish the materials and build a house on the land of the latter, by the terms of which contract the unpaid balance of the contract price is not to become due and payable until there has been issued an approval certificate as to the construction of the house, by a mortgage lender employed by the contractee to finance the building project, and where there is a substantial compliance with the contract and the contractee takes possession of and occupies such house as his property, such contractor may maintain a suit to recover the balance due him for such construction, notwithstanding there has been no issuance of an approval certificate by such mortgage lender.
APPEAL from the Court of Appeals for Franklin County.
This is an action upon a construction contract to recover the balance claimed due thereon.
The Creith Lumber, Inc., plaintiff, alleges in its petition that pursuant to a written contract it constructed and completed a home at Grove City, Ohio, for the defendants, which they now occupy. The contract price was $10,099.21. Plaintiff's suit is for the balance of $1,499.21 remaining unpaid.
The defendants' answer admits that they entered into the written contract with the plaintiff, that the contract was as substantially claimed by the plaintiff, that the plaintiff constructed the building having certain defects, and that the defendants were occupying the building; but denies there is due the plaintiff the amount prayed for in the petition. The defendants allege that there was a construction loan mortgage on the property; that the money to pay the claim of the plaintiff was on deposit with the mortgage lender; and that it had not been paid because no approval certificate had been issued by the mortgage lender as required by the terms of the contract.
There was also filed with the answer a cross-petition whereby the defendants sought to recover damages for claimed faulty construction of the building foundations causing, among other things, the improper fitting of doors and windows. They allege that "as the result of the defects * * * the fair market value of their house has been decreased $2,900" and pray that "plaintiff's petition be dismissed and they be awarded damages in the amount of $2,900 * * * on their cross-petition." For answer to defendants' cross-petition, the plaintiff entered a general denial.
Upon these pleadings the parties went to trial, a jury being waived by both parties. The plaintiff identified and introduced in evidence the written contract, which will be more fully described in the course of the opinion, and offered evidence to show that the balance claimed, $1,499.21, has not been paid.
Plaintiff then moved for a directed verdict in its favor for the amount prayed for in the petition, based upon the evidence and the admission in defendants' answer, which motion the court overruled. The court entry then proceeds as follows:
"Whereupon, the defendants entered a motion for dismissal of the plaintiff's action and the court herewith sustains said motion and dismisses said plaintiff's action.
"Thereupon, the plaintiff asked leave to reopen his [its] case and present further evidence, which motion was also overruled.
"And upon motion of defendants, the defendants' cross-petition is herewith dismissed without prejudice."
The Court of Appeals affirmed the judgment and the cause is now in this court upon the allowance of a motion to certify the record.
Messrs. Butler, Addison Werum, for appellant.
Messrs. Schwenker, Teaford, Brothers Solsberry, for appellees.
The primary question presented may be stated as follows: Where a contractor enters into a written contract with the contractee to furnish the materials and build a house on the land of the latter, by the terms of which contract the unpaid balance of the contract price is not to become due and payable until there has been issued by a mortgage lender, employed by the contractee to finance the building project, an approval certificate as to the construction of the house, and where in the meantime the contractee takes possession of and occupies such house as his property and permanent residence, may such contractor maintain a suit to recover the balance of the contract price, notwithstanding there has been no issuance of an approval certificate by such mortgage lender?
In the absence of fraud, bad faith, failure to exercise honest judgment, or a waiver on the part of the contractee, such a stipulation constitutes a condition precedent to the maintenance of an action to recover the sum claimed to be due under the contract. Sweeney v. United States, 109 U.S. 618, 27 L. Ed., 1053, 3 S. Ct., 344; Ahlgren v. Walsh, 173 Cal. 27, 158 P. 748, Ann. Cas. 1918E, 751; Hennessy v. Metzger, 152 Ill. 505, 38 N.E. 1058, 43 Am. St. Rep., 267; Korbly, Recr., v. Loomis, 172 Ind. 352, 88 N.E. 698, 139 Am. St. Rep., 379; Crouch v. Gutmann, 134 N.Y. 45, 31 N.E. 271, 30 Am. St. Rep., 608; Halvorson v. Blue Mt. Prune Growers Co-op., 188 Ore., 661, 678, 214 P.2d 986; Zimmerman v. Marymor, 290 Pa. 299, 138 A. 824, 54 A.L.R., 1252; 9 American Jurisprudence, 24, Section 34; Restatement of the Law of Contracts, 448, Section 303. See annotation, 110 A.L.R., 137, 142.
However, where the owner of a building built for him under contract substantially performed accepts and takes possession of it, knowing or having reason to know that the construction is defective or incomplete, such acceptance will be deemed a waiver of such a condition precedent and the contractor will be entitled to recover the amount due under the contract less deductions for deficiencies. Ludlow Lumber Co. v. Kuhling, 119 Ky. 251, 83 S.W. 634, 115 Am. St. Rep., 254. See Brent v. Head, Westervelt Co., 138 Iowa 146, 115 N.W. 1106, 16 L.R.A. (N.S.), 801.
This court in the case of Goldsmith v. Hand, 26 Ohio St. 101, 107, very clearly stated the rule as follows:
"We think that where parties have dealt with each other as these parties respectively have in reference to the contract and the mode of its performance, and the owner of the lot has chosen to go into the occupancy and use of the building erected upon it, thereby appropriating to himself the fruits of the contract, he ought, on the plainest principles of justice, to pay for them at the contract price, less such sums for delay, defective work, or inferior materials, etc., as the owner is in equity entitled to have deducted. This view seems to be in accord with the authorities of some of the other states on the subject."
Besides, the same conclusion as to waiver is reached from a consideration of the specific terms of the contract between the parties in the instant case. Paragraph numbered 9 of the contract provides as follows:
"Final inspection and issuance of an approval certificate or report by the mortgage lender * * * or any use or occupancy of the house by the owner shall be deemed completion of the work to be done hereunder and acceptance thereof by the owner and owner shall thereupon sign a completion certificate. * * * Owner agrees not to move any household or personal effects into the house until contractor receives final payment and turns key over to owner. * * *"
For obvious reasons the doctrine of waiver has especial significance and application in a building-contract case where the building is constructed upon the premises of the contractee owner. The work on the building, under such circumstances, is such that, even if rejected, the owner necessarily receives the benefit of the contractor's materials supplied and of the services performed, which situation differs from a case where a chattel is constructed, since the chattel may be rejected or returned to the contractor or furnisher. Since, in the case of a building contract, the owner must receive the benefits of construction, in justice he must pay for what he receives, if he takes possession.
In the instant case, the trial court directed a verdict for the defendants on the ground that the plaintiff did not establish compliance with the condition precedent to its right of recovery. But, since, under the pleadings and evidence, a clear waiver of such condition precedent was shown and a presumption of substantial performance arose, a prima facie case was made for recovery. The motion to direct a verdict should have been overruled. The burden would then be on the defendants to show by way of counterclaim the defects in construction, if any, and the consequent credits to which they were entitled as against the balance remaining unpaid on the contract price.
The judgment of the Court of Appeals is reversed and the cause is remanded to the Common Pleas Court for further proceedings according to law.
Judgment reversed.
WEYGANDT, C.J., MATTHIAS, ZIMMERMAN, STEWART, BELL and TAFT, JJ., concur.