Rodgers v. Walker ( 1998 )

I N T H E C O U R T O F A P P E A L S
A T K N O X V I L L E
FILED
July 30, 1998
Cecil Crowson, Jr.
A L F O R D R O D G E R S a n d ) K N O X C O U N T Y Appellate C ourt Clerk
S U Z A N N E R O D G E R S ) 0 3 A 0 1 - 9 7 0 8 - C H - 0 0 3 7 1
)
P l a i n t i f f s - C o u n t e r - )
D e f e n d a n t s - A p p e l l e e s )
)
v . ) H O N . F R E D E R I C K D . M c D O N A L D ,
) C H A N C E L L O R
D O N W A L K E R )
)
D e f e n d a n t - C o u n t e r - ) A F F I R M E D A S M O D I F I E D
P l a i n t i f f - A p p e l l a n t ) a n d R E M A N D E D
J . T H O M A S J O N E S O F K N O X V I L L E F O R A P P E L L A N T
D A V I D A . L U F K I N O F K N O X V I L L E F O R A P P E L L E E S
O P I N I O N
G o d d a r d , P . J .
Alford and Suzanne Rodgers filed a complaint in Knox
County Chancery Court seeking damages arising from the
construction of their home. The suit was brought against the
general contractor, Don Walker. The Rodgerses alleged a breach
of the construction contract on the part of Mr. Walker and sought
damages for excessive costs and unreasonable delay in
construction.
Mr. Walker answered the complaint and filed a counter-
claim seeking a past due balance on the project. The alleged
unpaid balance was $95,543.08 for costs of completing
construction plus a 15 percent contractor’s fee.
The Chancellor's final judgment, which incorporated his
memorandum opinion, awarded the Rodgerses a money judgment
against Mr. Walker in the amount of $24,256.16.
After the conclusion of post-trial motions, the
Chancellor reduced the money judgment to an even $24,000. A
timely notice of appeal was promptly filed by Mr. Walker, and
this appeal followed.
The Rodgerses and Mr. Walker entered into a
construction contract dated July 14, 1994. The contract was a
preprinted form titled “Sales or Construction Contract,” with
blanks to be filled in as to certain information. The blanks
were filled in and other language was added to the preprinted
form. Several pages were attached to the contract setting forth
various materials, including proposed allowances and house plan
sketches.
The Rodgerses submitted the contract to Home Federal
Savings Bank in order to obtain a construction loan. The
Rodgerses and Mr. Walker both signed a construction loan
agreement provided by Home Federal stating that the house was to
be completed no later than 360 days from the signing of the
construction contract.
2
Paragraph 3 of the contract relates to price and terms
and provides in part: “HOME to be built on a ‘COST PLUS 15%’
(ESTIMATED cost is $230,000.00).”1 The parties added this
language to the preprinted contract in typewritten form. Mr.
Walker’s first estimate for the house was $298,000, but the
Rodgerses made it clear they could not afford that price.
Paragraph 5 relates to the completion and delivery date
of the residence. The blank line for the number of days was
filled in such that paragraph 5 states:
It is agreed that the property will be ready and
tendered for delivery on or before the expiration of
210 days from the date of this contract. Otherwise,
the purchaser will have the option of canceling this
contract and obtaining a refund of his earnest money
deposit.
However, at the end of paragraph 5, the parties added: “If LOAN
is approved within thirty (30) days.” The loan was not approved
within 30 days.
At the time of the contract the parties intended that
Mr. Walker would build the Rodgerses a two level, 3,200 square
foot house. The house that was ultimately constructed was a
three level, 4,800 square foot house. The additional level and
square footage were the result of a basement being added, because
the slope of the lot and soil conditions made it more efficient
to put in a lower level. Mr. Walker had an opportunity to view
the land where the house was to be built before the parties
entered into the contract.
1
T h e e s t i m a t e d c o s t o f $ 2 3 0 , 0 0 0 f o r t h e h o u s e i n c l u d e d t h e p r i c e o f
a s w i m m i n g p o o l ( $ 2 2 , 0 0 0 ) , w h i c h w a s n o t t o b e b u i l t b y M r . W a l k e r .
3
The Rodgerses were in Europe when the decision was made
to add the basement. When the Rodgerses returned to surprisingly
find their home had a basement they did agree to pay for the
extra work. Later, a letter was sent to the Rodgerses stating
that the cost overrun attributed to the added basement was
$10,064. There is conflicting testimony regarding decisions to
finish the basement and other changes and additions made during
the construction process.
Throughout construction the Rodgerses were presented
with monthly statements for costs of materials and services, plus
Mr. Walker’s 15 percent contractor’s fee. The Rodgerses paid all
of the statements sent to them except for the last one which
totaled an unexpected $95,543.08. Before the submission of the
last invoice, the Rodgerses had already paid approximately
$220,000.
The residence was not completed within the 210-day
period provided for in paragraph 5 of the construction contract.
Mr. Walker admitted at trial that there was a two-month delay in
obtaining the stucco contractor which appeared to be a major
reason for the delay. Eventually, the Rodgerses moved into the
house in early August of 1995, before it was completed and more
than a year after the contract was signed. Soon thereafter, the
Rodgerses’ attorney sent Mr. Walker a letter terminating him from
the job because of undue delay.
During the construction process, the Rodgerses
attempted to close on the permanent mortgage on numerous
occasions but were unable to do so because of Mr. Walker’s
4
delays. In June 1995, when the Rodgerses were preparing to close
their permanent mortgage, Mr. Walker provided the Rodgerses with
a document titled “Approximate Cost to Finish,” wherein he
estimated that it would cost approximately $46,300 to finish the
house. The Rodgerses used this figure to obtain a final closing
for a permanent mortgage. As stated above, the final bill
provided to the Rodgerses was approximately $50,000 more than the
estimate given only a few months earlier.
After terminating Mr. Walker, the Rodgerses hired
Herman Love to finish the house. Mr. Love finished the house and
was paid $24,669.90 for his costs and services.
The Chancellor awarded the Rodgerses $63,611.16 on
their claim for damages and awarded Mr. Walker $39,355 on his
counter-claim. The balance of the awards left Mr. Walker owing
the Rodgerses approximately $24,000. As stated above, Mr. Walker
then timely filed his notice of appeal to this Court on December
15, 1997.
The following issues, which we restate, are presented
by Mr. Walker:
I. Did the Chancellor err in calculating damages
by using the estimated costs rather than the actual
costs?
II. Did the Chancellor err by subtracting the 15
percent contractor’s fee from the amount owed to Mr.
Walker by the Rodgerses?
III. Did the Chancellor err in awarding the
Rodgerses construction loan interest as part of their
damages?
5
IV. Did the Chancellor err in awarding the
Rodgers damages for items that were not “punchlist”
items but were additional work not covered by the
contract with Mr. Walker?
Mr. Walker contends that the Chancellor improperly used
the estimated cost rather than the actual cost in calculating
damages under the cost plus contract between the parties. Issues
involving a trial judge’s contract interpretation have no
presumption of correctness on appeal. Hillsboro Plaza
Enterprises v. Moon, 860 S.W.2d 45 (Tenn.App.1993). However, in
cases such as this, where the case was tried without a jury,
there exists a presumption of correctness as to findings of fact
by the trial court. Rule 13 of the Tennessee Rules of Appellate
Procedure. However, no presumption arises as to questions of
law. Campbell v. Florida Steel Corporation, 919 S.W.2d 26(Tenn.1996.) The case sub judice involves both questions of law
(contract interpretation) and of facts. The first issue before
this Court is one of proper contract interpretation.
There is no question that the construction contract
entered into between the Rodgerses and Mr. Walker was a cost plus
15 percent agreement. The Chancellor made such a ruling early in
the trial and the Rodgerses do not dispute that ruling. Mr.
Walker argues that the Chancellor’s final ruling on damages
contradicted the holding that the contract was cost plus because
Mr. Walker felt the damages were based on the final estimate of
$46,300 instead of his actual costs.
6
Generally, damages under a cost plus contract are based
on the actual costs incurred in building the house. When an
estimate is provided in a cost plus contract it is simply
that--an estimate, not a fixed price or guaranteed maximum.
Davis v. Sliney, an unpublished opinion of this Court, filed in
Jackson on July 21, 1988. Mr. Walker argues that the Davis case
is very similar to this case. In Davis, the contractor provided
a final estimate to complete the house of between $18,000 and
$20,000, but the final bill was for a little over $39,000. The
Court of Appeals held the contract was cost plus and that the
contractor was entitled to his actual costs. Mr. Walker claims
the same result should follow here because there is no dispute
that Mr. Walker incurred the expenses he is asserting.
The problem with Mr. Walker’s reliance on Davis is that
there is no discussion in that case referring to a provision like
paragraph 7 in the contract with the Rodgerses. Paragraph 7,
titled “CHANGES AND ADDITIONS” states:
If proposed construction or under construction, it is
understood that any additions or changes not included
in plans and specifications are to be agreed upon
between the contracting parties and are to be confirmed
in writing as the work progresses.
The Chancellor’s ruling emphasized that--although the contract
was cost plus--all provisions in the contract must be considered
in calculating damages. He interpreted paragraph 7 as placing a
duty on Mr. Walker to keep the Rodgerses reasonably informed of
increasing costs beyond the estimate of $230,000.2 The
2
T h e c o n s t r u c t i o n i n t e r e s t a g r e e m e n t w i t h H o m e F e d e r a l a l s o
i n c l u d e d a p r o v i s i o n t o i n f o r m H o m e F e d e r a l i n w r i t i n g o f a n y c h a n g e s o r
a d d i t i o n s t h a t w o u l d s u b s t a n t i a l l y i n c r e a s e t h e c o s t o f c o n s t r u c t i o n .
7
Chancellor’s opinion stated, “There must be some point at which
an owner receives some protection even under a cost plus percent
contract so as not to end up finding themselves in a position
where they owe a tremendous additional amount of money that was
unexpected.”
We agree with the Chancellor’s statement, but only when
a cost plus contract contains a provision like paragraph 7--the
type of provision that places a specific duty on the contractor
to get written confirmation of additions and changes that add
substantial costs to the construction of the house. If the cost
plus provision is to be enforced so must all other valid
provisions in the contract.
The Chancellor held that in light of paragraph 7 the
$50,000 of additional charges were unreasonable without the
matter being agreed upon in writing. Therefore, the Chancellor’s
final judgment did not contradict his ruling that the contract
was cost plus. The damages were simply calculated on what the
Rodgerses could reasonably be expected to pay pursuant to Mr.
Walker’s breach of paragraph 7.
Mr. Walker argues in the alternative that even if
paragraph 7 does allow for such a calculation of damages the
Rodgerses waived strict compliance with the provision. The
Rodgerses did admit to asking for some small changes and not
requiring written confirmation for those. However, there is much
disputed testimony as to which party was responsible for the
major changes that resulted in the huge additional expenses. It
8
is clear that the basement, which was the main reason for the
extra costs, was added without the Rodgerses' prior approval.
Regardless of the Rodgerses conduct, the written change
order requirement cannot be waived. “The clear meaning of
Tenn.Code Ann. § 47-50-112(c) prevents giving effect to oral or
implied waivers of the terms of a contract which requires a
written waiver." Barnett v. Willis, an unpublished opinion of
this Court filed in Nashville on June 13, 1990. The Court in
Barnett held that T.C.A. 47-50-112 supersedes prior case law that
holds the requirement of a written change order in an express
contract can be waived by the owner’s conduct. Therefore, we
hold that paragraph 7 was not waived and Mr. Walker was obligated
to provide such written change orders.3
Mr. Walker next argues that even if the Chancellor’s
general calculation of damages is proper, the Chancellor erred in
subtracting the 15 percent contractor’s fee from the balance owed
Mr. Walker. Mr. Walker was allowed to recover $46,300 as
reasonable costs the Rodgerses had to pay. However, the
Chancellor decided to subtract from that figure Mr. Walker’s 15
percent fee even upon no clear evidence the fee was even included
in the balance due.
We understand why Mr. Walker was not allowed to recover
his contractor’s fee on the amount that was held to be
unreasonable and required written confirmation. We do not see
3
M r . W a l k e r ’ s o w n e x p e r t w i t n e s s a d m i t t e d a t t r i a l t h a t a
c o n t r a c t o r s h o u l d p r o v i d e b u y e r s w i t h w r i t t e n c o n f i r m a t i o n o f m a j o r c h a n g e s
t h a t w i l l r e s u l t i n e x c e s s i v e c o s t o v e r r u n s .
9
any reason why Mr. Walker is not entitled to his contractor’s fee
on the costs that were reasonable for the Rodgerses to pay.
The Rodgerses are to receive damages that would put
them in the same position they would have been in had Mr. Walker
not breached the contract. They should not profit by the
defendant’s breach. Hennessee v. Wood Group Enterprises, Inc.,
816 S.W.2d 35 (Tenn.App.1991). Although Mr. Walker did not put
forth sufficient evidence to show that the 15 percent fee should
be added to the balance due, subtracting the fee would be
punitive to Mr. Walker and allow the Rodgerses to profit.
Therefore, we hold that it was error for the Chancellor to
subtract Mr. Walker’s contractor’s fee from the reasonable
balance due by the Rodgerses.
Mr. Walker also argues that the Chancellor erred in
awarding the Rodgerses construction loan interest as an element
of damages. Paragraph 5 of the construction contract provided
that the Rodgerses could cancel the contract and obtain a refund
of their earnest money if the construction of the house was not
completed on time. Mr. Walker does not dispute that he breached
the contract by not finishing the construction on time. However,
he claims that the Rodgerses did not assert their contractual
rights to damages and thus waived any right to recover damages
for the delay. Mr. Walker would be correct if it was not for the
provision that was added to the end of paragraph 5 by the parties
which states: “If the LOAN is approved within thirty (30) days.”
The loan was not approved within 30 days, thus making paragraph 5
void.
1 0
Without valid provisions for a completion date and one
restricting recovery, the Chancellor properly calculated damages
based upon a reasonable time for completion and foreseeable
damages. The Chancellor looked to both the 210-day completion
time period in the construction contract and the 360-day period
in the loan agreement with Home Federal in order to determine a
reasonable time for completion. The Chancellor concluded that a
360-day completion period was reasonable because it was 150 days
longer than what Mr. Walker had contracted for originally and
also because Mr. Walker had signed the agreement with Home
Federal giving him notice that the construction loan was based on
a 360-day completion period.
Because Mr. Walker signed the construction loan
agreement, the Chancellor held that construction loan interest as
an element of damages was foreseeable. We agree with the
Chancellor’s holding on this issue but rule that he erred in
awarding the Rodgerses $14,400 in interest.
As stated above, the Rodgerses should only be put back
in the position they would have been in had Mr. Walker fully
performed the contract. If the construction was completed on
time the Rodgerses would not have had to pay the additional
construction loan interest, but they would have had to pay a
mortgage payment upon conversion of the construction loan to a
permanent mortgage. Therefore, the Rodgerses are entitled to the
$14,400 minus the interest on their monthly mortgage payments
based on a reasonable rate the Rodgerses could have obtained at
the end of the 360-day completion period. A reasonable monthly
1 1
mortgage payment must be determined in order to recalculate the
total construction interest the Rodgerses should be awarded.
I n a d d i t i o n , t h e r e s h o u l d b e a d d e d t o t h e f o r e g o i n g t h e
a m o u n t o f i n t e r e s t t h e R o d g e r s e s h a d t o p a y b e c a u s e t h e h o u s e w a s
n o t c o m p l e t e d w i t h i n t h e 3 6 0 - d a y p e r i o d . T h i s w o u l d b e
c a l c u l a t e d b y d e t e r m i n i n g t h e t i m e p e r i o d - - i f a n y - - b e t w e e n t h e
e n d o f t h e 3 6 0 - d a y p e r i o d a n d t h e d a t e t h e p e r m a n e n t l o a n w a s
o b t a i n e d . F o r e x a m p l e , i f i t i s d e t e r m i n e d t h e d e l a y w a s a
p e r i o d o f t h r e e m o n t h s , t h e i n t e r e s t a s t o t h e l a s t t h r e e m o n t h s
o f t h e l o a n s h o u l d b e a d d e d t o t h e i n t e r e s t i n i t i a l l y d e t e r m i n e d
t o b e o w e d .
Mr. Walker’s final argument is that the Chancellor
erred in awarding the Rodgerses damages for items that were not
“punchlist” items but were additional work not covered by the
contract. Although the Chancellor is best suited to make these
factual determinations and we review them under a presumption of
correctness, we do hold that one item was included in the
Rodgerses' damages that was clearly not covered by the contract.
The trial record made it quite clear that the $24,669.90 paid to
Mr. Love for the additional work needed on the house included a
$5000 charge for banister work. These banisters were not part of
the contract between the Rodgerses and Mr. Walker and, thus, are
not the responsibility of Mr. Walker to pay. Therefore, the
$5000, plus Mr. Love’s 15 percent contractor’s fee on that
amount, should be subtracted from Mr. Love’s total charges,
resulting in a new balance of $18,669.90.
1 2
However, we also find that the Chancellor made a
similar error in calculating the balance due to Mr. Walker. Mr.
Walker’s balance due of $46,300 included a charge of $5,500 for
pool work. Mr. Walker admitted at trial that these were costs of
the pool builder and not his. Therefore, the $5,500 plus his 15
percent contractor’s fee should reduce the balance due. The
final payment owed by the Rodgerses to Mr. Walker would then
total $39,975. We find no error in all the other items included
by the Chancellor in the damage calculations.
Our corrections to the damage award results in Mr.
Walker recovering $39,975 for unpaid costs. The Rodgerses are
entitled to the $18,669.90 they had to pay Mr. Love and the
$24,541.26 spent on materials to finish the house, totaling
$43,211.16. The Rodgerses are further entitled to the
construction interest remaining after reasonable mortgage
payments have been subtracted. Therefore, the sum result is an
award of $3,236.16 plus the remaining construction interest for
the Rodgerses.
For the reasons stated above, the judgment of the
Chancery Court is affirmed as modified and remanded for
recalculation of interest the Rodgerses should recover in
accordance with this opinion and collection of the judgment and
costs below. Costs of appeal are adjudged against the Rodgerses
and their surety.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
H o u s t o n M . G o d d a r d , P . J .
C O N C U R :
1 3
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
D o n T . M c M u r r a y , J .
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
C h a r l e s D . S u s a n o , J r . , J .
1 4