Opinion
No. COA10-585
Filed 1 March 2011 This case not for publication
Appeal by Defendants Cecil Williams d/b/a CT Williams Construction Co. and C.T. Williams Construction, LLC from judgment entered 20 November 2009 by Judge Quentin T. Sumner in Nash County Superior Court. Heard in the Court of Appeals 16 November 2010.
Rountree and Boyette LLP, by Charles S. Rountree, for Plaintiff-Appellee. W. Michael Spivey for Defendant-Appellants Cecil Williams d/b/a CT Williams Construction Co. and C.T. Williams Construction, LLC. Moseley, Elliott Dickens, L.L.P., by Bradley A. Elliott, for Defendant-Appellees Heaton Construction, Inc. and Hanover Insurance Company.
Nash County No. 09 CVS 206.
Defendants Cecil Williams d/b/a CT Williams Construction Co. and C.T. Williams Construction, LLC (hereinafter Williams) appeal from judgment ordering Williams to pay breach of contract damages to Weaver's Asphalt Maintenance Company, Inc. (Plaintiff) and to Co-Defendant Heaton Construction, Inc. (Heaton) on its cross-claim, and awarding attorney's fees in favor of Plaintiff. For the following reasons, we affirm in part and remand in part.
On or about 9 March 2007, the Town of Spring Hope (Town) entered into a general construction contract with Heaton to build the Spring Hope Town Hall (Project). Surety Defendant, Hanover Insurance Company (Hanover), delivered to the Town a Payment Bond securing general contractor Heaton's performance of its contract with the North Carolina municipality. By written first tier subcontract agreement, Heaton subcontracted the Project's site work to Williams. Such site work was to include demolition of the existing building; construction of a retaining wall, steps, and handicap ramp to the new building; installation of sidewalks, a curb and guttering; grading and parking lot paving; and landscaping. On 2 February 2008, Williams subcontracted the paving work to Plaintiff by written second tier subcontract agreement, which limited Plaintiff's responsibilities to paving the parking lot with asphalt. Whereas Williams was responsible for grading the parking area, the second tier paving subcontract specified that "[n]o grading [was] to be done by [Plaintiff]" and that Plaintiff would "[n]ot [be] responsible for any drainage issues due to improper grading." Other provisions addressed the tonnage of surface asphalt included in the subcontract and noted that extra charges would be incurred if additional asphalt were required "due to improper grading issues." Plaintiff further promised to furnish labor and materials for $13,000.00, due upon completion of the paving job, and later agreed to install asphalt for a drive-up window ramp for an additional $2,000.00.
Plaintiff began paving the parking lot and the drive-up window ramp on 12 February 2008 and completed its work on the Project pursuant to the paving subcontract on 15 February 2008. By invoice delivered 18 February 2008, Plaintiff billed Williams for an undisputed total of $16,245.00, which included the original contract price, the additional work, and asphalt overages. The terms noted on the invoice required payment to be made within ten days, with a "1 ½% Service Charge Thereafter" to be applied as monthly interest until paid. Remaining unpaid for its work, Plaintiff served its notice of a lien upon funds to the Town and to Heaton on 10 April 2008 and sent the notice to Williams by certified mail. And on 4 December 2008, Hanover acknowledged its receipt of Plaintiff's claim under the Payment Bond securing Heaton's work as general contractor on the Project. As of the date of trial in this matter, however, Plaintiff had not been paid any sum for its work under the paving subcontract. While Williams explained that "he did not get paid by Heaton" as grounds for not paying Plaintiff, Hanover contended that it refused to pay anything to Plaintiff before its suretyship liability was determined.
Heaton's failure to pay Williams was related to several issues arising from allegedly faulty site work, including the grading being too high, which resulted in draining problems associated with the parking lot, and deviations from specifications in constructing the entrance steps and handicap ramp to the new building, which resulted in deficient function and appearance. Demolition of the steps, ramp, and a substantial portion of the parking lot was required to allow for step replacement, repair and modification of the ramp, and the design and installation of additional drainage facilities to remedy the drainage problems caused by improper grading. Heaton ultimately "backcharged" Williams the sums of $25,640.00 and $27,432.49 for expenses incurred in correcting the problems related to improper grading and the steps, respectively.
On 30 January 2009, Plaintiff commenced this action against Williams, Heaton, and Hanover, seeking breach of contract damages and, or in the alternative, recovery under the surety bond, the statutory contractor's lien, or under the doctrine of unjust enrichment. Heaton filed a cross-claim against Williams for breach of contract, and Hanover cross-claimed to recover from Williams any sums it might be ordered to pay Plaintiff by virtue of its Payment Bond. Williams' answer included a cross-claim against Heaton for breach of contract, citing Heaton's refusal to pay sums owed for Williams' site work on the Project. Following a bench trial conducted at the 2 November 2009 Civil Session of Nash County Superior Court, the trial court entered judgment in favor of Plaintiff, ordering Williams to pay Plaintiff $22,207.85 with 1 ½% monthly interest from 1 November 2009 until paid, and in favor of Heaton, entitling Heaton to recover against Williams $13,838.46. The trial court's judgment also required Hanover to pay all sums owed Plaintiff in accordance with the Payment Bond and entitled Hanover to recover that same amount from Williams. From this judgment, Williams appeals.
When reviewing the judgment from a bench trial, "our standard of review is whether there is competent evidence to support the trial court's findings of fact and whether the findings support the conclusions of law and ensuing judgment." Town of Green Level v. Alamance Cty., 184 N.C. App. 665, 668-69, 646 S.E.2d 851, 854 (2007) (citation omitted). Rule 52(a) of the North Carolina Rules of Civil Procedure requires a trial judge sitting without a jury "to (1) find the facts on all issues joined in the pleadings; (2) declare the conclusions of law arising on the facts found; and (3) enter judgment accordingly." Powers v. Tatum, 196 N.C. App. 639, 648, 676 S.E.2d 89, 95 (citation omitted), disc. review denied, 363 N.C. 583, 681 S.E.2d 784 (2009); see also N.C. Gen. Stat. § 1A-1, Rule 52(a) (2009).
The facts required to be found are the ultimate facts established by the evidence which are determinative of the questions involved in the action and essential to support the conclusions of law reached. The requirement is designed to dispose of the issues raised by the pleadings and to permit a reviewing court to determine from the record whether the judgment — and the legal conclusions which underlie it — represent a correct application of the law. The court's findings of fact are conclusive on appeal if supported by competent evidence, even though there may be evidence to the contrary.
Id. at 648-49, 676 S.E.2d at 95 (internal quotation marks and citations omitted).
I.
Williams argues that the trial court erred by not making any findings of fact addressing whether Plaintiff and Heaton failed to mitigate any loss or damage resulting from the breach of contract by Williams. We disagree.
Failure to mitigate damages, as Williams concedes, is an affirmative defense, see, e.g., Elm St. Gallery, Inc. v. Williams, 191 N.C. App. 760, 762, 663 S.E.2d 874, 875 (2008) ("Defendants filed an answer, denied all of plaintiffs' allegations, and raised the affirmative defense[] of . . . failure to mitigate damages."); Kotis Props., Inc. v. Casey's, Inc., 183 N.C. App. 617, 623, 645 S.E.2d 138, 142 (2007) ("The [breaching] defendants bore the burden of proof on [their] affirmative defense that [the nonbreaching party] failed to mitigate its damages."), which must be alleged in an answer or risk waiving the argument, see, e.g., Robinson v. Powell, 348 N.C. 562, 566, 500 S.E.2d 714, 717 (1998) ("[A] party shall affirmatively set forth any matter constituting an avoidance or affirmative defense[;]" thus, "[f]ailure to raise an affirmative defense in the pleadings generally results in a waiver thereof."). Williams' answer did not raise the affirmative defense of failure to mitigate damages. Moreover, entirely absent from Williams' list of contested issues to be tried by the trial court, attached as an exhibit to the order on final pre-trial conference, was any mention of the mitigation of damages issue. Finally, although Williams claims that substantial evidence introduced at trial was directed at the issue of whether Plaintiff or Heaton should have informed Williams of the grading problems before proceeding with paving, such testimony was neither framed as a mitigation of damages argument nor applied to any discussion of that defense. Accordingly, the affirmative defense of failure to mitigate damages was not tried by consent, either express or implied, and the trial court had no occasion to make findings related thereto. See Nationwide Mut. Insur. Co. v. Edwards, 67 N.C. App. 1, 6, 312 S.E.2d 656, 660 (1984) ("Defendant . . . neither pled nor tried the case on this theory. She thus cannot now present it on appeal.").
II.
Williams argues that the trial court erred in finding that Plaintiff's invoice provided for interest to be charged each month that the outstanding balance remained unpaid and, accordingly, in concluding that Williams incurred a 1 ½% monthly interest upon its failure to pay Plaintiff within ten days of receiving the paving invoice. Specifically, Williams disputes the trial court's finding of fact 8 that Plaintiff's invoice for $16,245.00 "required payment within 10 days, with interest thereafter to be charged at 1 ½% per month until paid," where the invoice omitted any reference to the time frame during which interest charges would accrue. The invoice dated 18 February 2008 is included in the record and contains the following typewritten phrase at the bottom: "TERMS: Net 10 days, 1½% Service Charge Thereafter." When asked what this phrase meant to him, Plaintiff testified that "if you don't pay it within 10 days the interest starts accumulating," but the parties did not explore the frequency of such accumulation. No other evidence was solicited regarding the meaning of the phrase, most likely because there is no dispute as to the temporal term, but the trial court's finding must still be supported by competent evidence. Although it may be customary in the construction industry, as Plaintiff and Heaton argue, to charge monthly interest of 1 ½% (where 18% annual interest is often the legal limit in many contexts), there was no evidence of such custom or industry practice before the trial court. Accordingly, we must remand for additional findings of fact as to what time frame is included in the interest term on Plaintiff's invoice, as this question obviously impacted the trial court's determination of the damages Williams owed Plaintiff.
Williams also argues that, where the initial paving subcontract contained no terms related to any interest to be charged upon the amount ultimately due under the contract, Plaintiff cannot unilaterally add an interest term upon later submission of its invoice. Williams, however, did not raise this theory, let alone any objection to the interest term, at trial, and we do not consider this contention on appeal.
III.
Williams argues that the trial court erred in failing to find that Heaton wrongfully terminated its contract with Williams due to its failure to give three-days notice, as required by the first tier subcontract, and by concluding that Williams repudiated the agreement with Heaton. We agree that the trial court's findings are insufficient to support a theory of repudiation.
A breach of contract may occur in several ways:
Breach of contract occurs when a party fails to perform a contractual duty which has become absolute. . . . [W]hen performance of a duty under contract is presently due any nonperformance constitutes a breach. Breach may also occur by repudiation. Repudiation is a positive statement by one party to the other party indicating that he will not or cannot substantially perform his contractual duties.
Millis Construction Co. v. Fairfield Sapphire Valley, 86 N.C. App. 506, 510, 358 S.E.2d 566, 569 (1987) (internal citations omitted). If Williams had repudiated the contract, Heaton would no longer have been required to honor the terms thereof, including the notice provision related to termination. See Dixon v. Kinser and Kinser v. Dixon, 54 N.C. App. 94, 101, 282 S.E.2d 529, 534 (1981) (explaining that "when a party to a contract gives notice that he will not honor the contract, the other party to the contract is no longer required to make a tender or otherwise perform under the contract because of the anticipatory breach of the first party"); see also Restatement (Second) Contracts § 255 cmt. a (1981) ("No one should be required to do a useless act, and if, because of a party's repudiation, it appears that the occurrence of a condition of a duty would not be followed by performance of the duty, the non-occurrence of the condition is generally excused.").
When a breach occurs by nonperformance or defective performance, "[e]ven if the failure is material, it may still be possible to cure it by subsequent performance without a material failure," Restatement (Second) Contracts § 237 cmt. b, and the non-breaching party's obligations are not excused. A failure to cure within a reasonable time may then be treated as a repudiation, see id. § 251 cmt. c, illus. 5, as would a positive statement by the breaching party that it does not intend to cure its nonperformance. For repudiation to result in a breach of contract where there is still time to cure, "the refusal to perform must be of the whole contract or of a covenant going to the whole consideration, and must be distinct, unequivocal, and absolute." Profile Invs. No. 25, LLC v. Ammons E. Corp., ___ N.C. App. ___, ___, 700 S.E.2d 232, 235 (2010); see also Gupton v. Son-Lan Dev. Co., ___ N.C. App. ___, ___, 695 S.E.2d 763, 768 (2010) ("[T]he words or conduct evidencing the renunciation or breach must be a positive, distinct, unequivocal, and absolute refusal to perform the contract when the time fixed for it in the contract arrives. . . .").
Here, the alleged repudiation occurred after the time prescribed for the promised performance, but the trial court's findings that Williams' faulty work was a substantial breach of the contract indicate that Williams' "performance" of grading and step construction essentially amounted to nonperformance of those contract terms. However, some evidence at trial suggested that Heaton gave Williams the opportunity to cure the material breach by subsequent performance such that Heaton could not have regarded its obligations under the contract as discharged. In fact, Heaton's project manager testified that he "sent Mr. Cecil Williams a certified letter when the issue with the asphalt came up offering him an opportunity to fix the deficiencies." Further testimony indicated that, upon disagreement between Williams and Heaton as to the appropriate remedy for the defective steps, the parties met on 13 February 2008 to discuss whether the steps needed to be repaired or replaced. Notwithstanding a provision in the Heaton-Williams subcontract requiring three working days written notice to terminate Williams or hire a substitute subcontractor, there was evidence that Heaton's project manager decided to terminate Williams' contract at the conclusion of the meeting and sent a letter to Williams indicating that someone else would replace the steps the following day. If, however, the Williams-Heaton contract remained in force as the parties grappled with how to remedy the defects, then Heaton would not have been excused from complying with the provisions therein regarding the notice required for termination of its subcontractor. There are no findings of fact, however, as to any communications between Heaton and Williams following the latter's breach or whether Williams had the opportunity to cure its defective performance.
Even if Heaton gave Williams the opportunity to cure and thereby remained bound by its obligations under the subcontract, including the termination provision, any unequivocal refusal to fix the defects would constitute a repudiation by Williams and excuse Heaton from honoring the terms of their agreement. The trial court's judgment, however, contains no specific findings of fact to demonstrate that Williams repudiated the contract. The only finding on this issue is that Williams "refused [Heaton's] proper demands that [Williams] correct its work which failed to comply with the project's plans and specifications." While this finding suggests that Heaton did give Williams an opportunity to cure its faulty site work — such that Williams could have then repudiated the contract if it explicitly refused to cure — the trial court made no findings to show that Williams' refusal, whether by words or conduct, of Heaton's demands was couched in positive, distinct, unequivocal, and absolute terms. Accordingly, the findings of fact are not sufficient to support the trial court's conclusion that Williams repudiated the site work contract by unjustifiably refusing to correct its faulty work.
Assuming arguendo that Heaton's failure to comply with the three-day notice provision was itself a breach because it had not been excused from its contractual obligations, we are not in the position to determine whether such disregard of the agreement's termination provisions was immaterial or not. See Opsahl v. Pinehurst Inc., 81 N.C. App. 56, 64-65, 344 S.E.2d 68, 74 (1986) (noting that under North Carolina law, "whether failure to perform a contractual obligation is so material as to discharge the other parties' performance is a question of fact for the jury or for the trial court without a jury"). Accordingly, we must remand to the trial court for further findings as to whether Williams did indeed repudiate the contract in unequivocal, absolute terms at a time when the parties remained bound thereunder. If Heaton was not excused from performance following Williams' breach due to the latter's intent to cure, but the trial court does not find competent evidence of an absolute refusal by Williams, then the trial court must also make findings as to whether Heaton's alleged one-day notice of termination constituted a breach of the contract. If so, the trial court must also find whether such breach was material and excused Williams' performance or otherwise affected the trial court's judgment in favor of Heaton.
IV.
Williams' final argument on appeal is that the trial court erred by awarding attorney's fees without considering Plaintiff's failure to mitigate damages in resolving whether Williams' nonpayment constituted "an unreasonable refusal by the losing party to fully resolve the matter which constituted the basis of the suit." As we indicated above, Williams failed to raise mitigation as an affirmative defense. Accordingly, we dismiss this argument.
In light of the foregoing, we affirm the trial court's judgment in favor of Plaintiff but remand for additional findings regarding the interest to be charged in calculating the damages. We also remand for additional findings of fact on the issue of whether there was an anticipatory repudiation by Williams of its contract with Heaton and, if not, whether Heaton's failure to give Williams three-days' notice of termination was a material breach of the contract.
Affirmed in part; Remanded in part.
Judges BRYANT and STROUD concur.
Report per Rule 30(e).