Opinion
No. A05-776.
Filed May 16, 2006.
Appeal from the District Court, Hennepin County, File No. 03-16592.
Alfred Stanbury, Stanbury Law Firm P.A., (for respondent).
Patrick R. Gillespie, (for appellants).
Considered and decided by Willis, Presiding Judge; Shumaker, Judge; and Stoneburner, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2004).
UNPUBLISHED OPINION
Appellants argue that the district court erred by awarding respondent paving company (1) payment for driveway-paving services provided under a written contract, (2) prejudgment interest on payment for walkway-paving services provided under an oral agreement, and (3) unreasonable attorney fees. Because we determine that respondent did not substantially perform the work specified in the written contract and that the parties' oral agreement was a modification of the written contract, we reverse the district court's awards to respondent of the amounts owed after set-offs under both the written contract and its modification, of prejudgment interest, and of attorney fees. We remand for an order for judgment consistent with this opinion.
FACTS
Appellant Michael Luedeman operates a business, appellant Wood Concepts, Inc., out of a workshop located on his residential property (appellants together will be referred to as "Luedeman"). In 2002, Luedeman met with Michael Newcomb, a representative of respondent Metro Paving, to get a bid for paving services. Luedeman wanted a driveway in front of his workshop that delivery trucks could drive on. Metro Paving submitted a proposed written contract that included specifications and showed, by means of arrows on a diagram, that the driveway was to be graded so that water drainage would be directed to the right of the workshop. The proposed contract provided for interest on past-due amounts and attorney fees if legal action were necessary to collect payment. The proposed cost of the work was $3,528. Luedeman accepted and signed the contract. Shortly thereafter, Luedeman again met with Newcomb, and the parties orally agreed that Metro Paving would also pave a four-foot-wide walkway from Luedeman's home to the workshop for $1,300.
The paving work was completed in early October, and Metro Paving sent Luedeman a bill for $4,828. Luedeman refused to pay, claiming that he was dissatisfied with Metro Paving's work. In April 2003, Metro Paving filed a claim in conciliation court for the amount owed under the contract; Luedeman counterclaimed for the cost of removing the asphalt installed by Metro Paving. The conciliation court found in favor of Luedeman. Metro Paving then removed the case to district court.
On December 27, 2004, the district court ruled in favor of Metro Paving. The court determined that Metro Paving had substantially performed the work agreed to in the written contract and awarded it the contract price of $3,528 for the driveway paving, reduced by $3,000 for the cost to Luedeman of curing deficiencies in that work. The district court also determined that Metro Paving had substantially performed the work agreed to in the parties' oral agreement for the walkway paving and awarded Metro Paving the contract price of $1,300 for that work, reduced by $100 for the cost of curing deficiencies in the walkway. In addition, the court awarded 18% interest on the amounts due for both the driveway and walkway work. The district court denied Metro Paving's claim for attorney fees.
Both parties filed posttrial motions. On February 28, 2005, the district court denied Luedeman's motion to amend the court's conclusions of law but granted Metro Paving's motion and awarded it attorney fees of $9,850 for work done through the time of trial and $2,800 for bringing the posttrial motion. Luedeman appeals.
DECISION I.
Luedeman argues that the district court erred by concluding that Metro Paving substantially performed its contractual obligations. As a threshold matter, Metro Paving maintains that this issue may not be considered on appeal, arguing that Luedeman did not challenge "the trial court's finding of substantial performance" in his posttrial motion because Luedeman's posttrial argument was that "there cannot be substantial performance as a matter of law when the cost of repair exceeds 85% of the total cost of the project." But because the record shows that substantial performance was the primary issue at trial and that the district court's conclusion that Metro Paving substantially performed was challenged posttrial, we determine that this issue may be considered on appeal. See Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988) (determining that this court will consider only matters that were argued and considered by the district court).
In building and construction contracts, the general rule is that a party fulfills its duty under the contract with "substantial performance." Material Movers, Inc. v. Hill, 316 N.W.2d 13, 18 (Minn. 1982). Substantial performance is defined as
performance of all the essentials necessary to the full accomplishment of the purposes for which the thing contracted for has been constructed, except for some slight and unintentional defects which can be readily remedied or for which an allowance covering the cost of remedying the same can be made from the contract price. Deviations or lack of performance which are either intentional or so material that the owner does not get substantially that for which he bargained are not permissible.
Id. (quoting Ylijarvi v. Brockphaler, 213 Minn. 385, 390, 7 N.W.2d 314, 318 (1942)). Whether a contractor has substantially performed and the amount of damages caused by omissions or defects are fact questions. Knutson v. Lasher, 219 Minn. 594, 603, 18 N.W.2d 688, 694 (1945). It is not an appellate court's role "to reconcile conflicting evidence." Fletcher v. St. Paul Pioneer Press, 589 N.W.2d 96, 101 (Minn. 1999). On appeal, a district court's findings of fact "are given great deference, and shall not be set aside unless clearly erroneous." Id. If there is reasonable evidence to support the district court's findings of fact, an appellate court will not disturb those findings. Id.
The evidence at trial showed that the asphalt in front of the workshop door was approximately two and one-half inches thick rather than the three inches specified in the contract. Luedeman asserts, therefore, that the district court's conclusion that Metro Paving substantially performed was erroneous because Metro Paving intentionally deviated from the terms of the contract. But Luedeman cites no evidence, and we find none, in support of his claim that the deviation was intentional. Luedeman further asserts that the conclusion that there was substantial performance was erroneous because the thickness of the asphalt was a material defect that prevented the use of the driveway in its intended manner; he maintains that delivery trucks cannot drive on the asphalt because they dent and crack it. The district court found, however, that the dents and cracking in the driveway were "not due to inadequate services provided by [Metro Paving]." Instead, the district court found that the damage was caused by "weather, the nature of asphalt" and Luedeman's use of heavy equipment on the asphalt during the curing period. There is reasonable evidentiary support for these findings.
Luedeman further maintains that Metro Paving did not substantially perform because it did not grade the area as specified in the contract. Luedeman asserts that although the contract provides that the area was to be graded so that water would be directed to the right of the workshop, that is, to the west side of the driveway, Metro Paving decided during the course of its work to grade the area so that water would drain to the opposite side of the driveway. Luedeman argues that, thus, Metro Paving is not entitled to recover because of this intentional deviation from the contract. See Knutson, 219 Minn. at 604, 18 N.W.2d at 695 (providing that the doctrine of substantial performance "does not confer on a contractor any right to deviate from the contract or to substitute what he may think is just as good as what the contract calls for. Where the deviation is wilful, the contractor is not entitled to recover at all."). The district court found that the "parties do not agree as to how the drainage away from the workshop was to be directed. Newcomb claims that the drainage was to be directed to the north, or right, of the shop; Luedeman claims that the drainage was to be directed to the west." This finding is clearly erroneous. Newcomb in fact testified that the contract required Metro Paving to grade so as to "get everything to roll to the west." Thus, the parties agreed that the contract required that the grading would direct runoff to the west side of the driveway. Further, it is clear that Metro Paving intentionally deviated from the contract; Newcomb testified that, contrary to the "original game plan," Metro Paving diverted the water "going the other way" when it encountered difficulties during the paving work. And nothing in the record shows that Luedeman agreed to the grading change.
Luedeman also argues that the grading was a material defect, precluding a determination that there was substantial performance. He testified that as a result of Metro Paving's defective work, rainwater and melting snow do not drain away from the workshop but instead accumulate in front of the building and seep into the workshop. Luedeman further testified that the grading caused the pavement to heave up approximately five inches from the level of the workshop floor. And Mark Sundman, an expert witness to whose testimony the court gave the "greatest credence," testified that the "water drainage was wrong" and caused water to seep into the workshop. Thus, the record indicates that the grading was a material, not a "slight," defect.
Because we determine that the grading was both an intentional deviation and a material defect, the district court's finding of substantial performance by Metro Paving is clearly erroneous and Metro Paving cannot recover. Instead, Luedeman is entitled to damages for Metro Paving's breach of the construction contract.
"The usual measure of damages for breach of a construction contract is the cost of reconstruction. If reconstruction is not possible without unreasonable economic waste, the proper measure of damages is the difference in value between what was contracted for and what was actually built." Asp v. O'Brien, 277 N.W.2d 382, 384 (Minn. 1979). The district court found that Sundman "estimated a cost of $3,350.00 to remove the forty-two foot by forty-two foot asphalt area in front of the shop, and a cost of $3,894.00 to then reinstall the area," for a total reconstruction cost of $7,244. Sundman also testified that the drainage problem could be corrected without a complete removal and replacement of the asphalt; he estimated a cost of $2,500 to correct the drainage problem by removing a ten-foot-wide strip in front of the workshop and then regrading, repaving, and seal-coating the area.
Based on Sundman's testimony, we determine that total reconstruction would constitute "unreasonable economic waste" and that, thus, the proper amount of damages relating to the driveway paving is $2,500 — the amount that the district court allowed Luedeman as an offset for curing the drainage problem along the workshop door.
Although the district court also allowed Luedeman $500 as an offset for the use of an infrared device to cure puddling, the record shows that this repair would have been to the same area that Sundman proposed removing and replacing.
The district court concluded that "Luedeman contributed to the breach of contract by failing to allow Newcomb to cure or remediate." We determine that this conclusion is erroneous. The district court based its conclusion on its finding that "Luedeman refused to allow Newcomb to remediate and cure the puddling [of water on the driveway] by use of an infrared device to reheat the blacktop."
In Zobel Dahl Constr. v. Crotty, the Minnesota Supreme Court determined that an owner who unreasonably fails to allow a contractor to complete a project excuses the contractor's performance and breaches the contract. 356 N.W.2d 42, 45 (Minn. 1984). In that case, the contractor established that it was industry practice for an owner to submit a "punch list" of defects and have defects corrected before making final payment to the contractor. Id. at 44. The supreme court concluded that the homeowner breached the implied condition that each party will not unjustifiably hinder the other from performing because the homeowner would not allow the contractors onto his property to repair the punch-list defects. Id. at 46.
The record shows that approximately three weeks after the job was completed, Luedeman contacted Metro Paving to complain about, among other things, the drainage problem. Newcomb testified that, although he offered to correct the drainage problem by using an infrared system that would reheat the asphalt so that Metro Paving could "re-rake" it, Luedeman was not willing to let Metro Paving do the repair. Luedeman testified that he rejected Newcomb's repair offer because Newcomb offered only to smooth the asphalt and did not tell him that they could change the grade of the driveway. Because Sundman, Luedeman's expert witness, whom the district court credited, testified that to correct the drainage problem, the paved area in front of the workshop would need to be removed so that the area could be regraded and repaved, we determine that Luedeman did not unreasonably fail to allow Metro Paving to complete the project and therefore did not breach the contract.
II.
Luedeman argues that because the walkway construction was done under a separate agreement, the district court erred by awarding Metro Paving prejudgment interest on the amount owed for that construction. In its December 27, 2004 order, the district court determined that Metro Paving was entitled to prejudgment interest from October 1, 2002, in the amount of 18% per year (1.5% per month) on the amount owed to Metro Paving, after set-offs, for all of the work it performed for Luedeman. In his posttrial motion, Luedeman moved to amend this finding, asserting that the parties' oral agreement regarding construction of the walkway was a separate agreement that did not provide for prejudgment interest. In a February 28, 2005 order, the district court denied Luedeman's motion, giving no reasons. Because the district court applied the contractual prejudgment interest rate to the amount owed under the oral agreement, we conclude that the district court determined that the oral agreement was a modification of the written contract.
The question of whether the parties entered into an oral modification of the contract is a question of fact. See Johnson v. Quaal, 250 Minn. 154, 158, 83 N.W.2d 796, 799 (1957). A court may consider parol evidence of subsequent conversations that alter the terms of a contract to determine if the parties have orally modified a contract. Nord v. Herreid, 305 N.W.2d 337, 339-40 (Minn. 1981). The parties' written contract provides that "[a]ny alteration or deviation from above specifications involving extra costs will be executed only upon written orders." But under Minnesota law, parties may agree to orally modify a contract, even if the contract contains a provision requiring that modifications be in writing. See Larson v. Hill's Heating Refrig. of Bemidji, 400 N.W.2d 777, 781 (Minn.App. 1987) (acknowledging general common-law rule that "a written contract can be varied or rescinded by oral agreement of the parties, even if the contract provides that it shall not be orally varied or rescinded" and determining that parties' agreement to terminate employment contract was effective despite contract's provision against oral modification), review denied (Minn. Apr. 17, 1987).
The parties both testified that after the written contract was executed, Luedeman and Newcomb met again and orally agreed that when Metro Paving paved the driveway, it would also pave a walkway on Luedeman's property for $1,300. Newcomb testified that the work order that he drafted for the project included the driveway area called for by the "original contract" and that the walkway was "added after [he] got the verbal okay from Mr. Luedeman." Luedeman testified that after he signed the original contract, he asked Newcomb to give him an "add-on bid price" for the construction of the walkway because he "thought doing it all at one time was the most efficient way of doing it." Luedeman further testified that he "agreed to build the walkway from [his] shop to [his] house as an add-to project" for a "totally separate price added on to the base pay." Further, in the proposed findings of fact, conclusions of law, and order for judgment that Luedeman submitted to the district court, he proposed that the court find that "the parties orally agreed to modify the contract by adding the following provisions: a. [Metro Paving] to grade a path between [Luedeman's] workshop and the residence adjacent to the workshop." Thus, there is clear-and-convincing evidence showing that the oral agreement was intended to modify the written contract.
Because we determine that the district court's conclusion that Metro Paving substantially performed the driveway-paving services was erroneous and that, thus, Metro Paving breached the parties' contract, we conclude that Metro Paving is not entitled to recover for either the driveway or walkway paving, which were elements of the same contract. See Elliott v. Caldwell, 43 Minn. 357, 360, 45 N.W. 845, 846 (1890) (concluding that contractor was not entitled to recover for construction of home when the deviations were intentional and the owner did not get substantially what he bargained for). Luedeman, however, is entitled to $100 for the cost of curing deficiencies in the walkway work. See Asp, 277 N.W.2d at 384 (determining that for breach of construction contract, "[i]f reconstruction is not possible without unreasonable economic waste, the proper measure of damages is the difference in value between what was contracted for and what was actually built"). And because we determine that Metro Paving is not entitled to payment under the contract, we further conclude that Metro Paving is not entitled to prejudgment interest or attorney fees. We remand for an order for judgment consistent with this opinion.