J. Craig Reed & Kristi L. Reed v. Wally Conrad Construction ( 1999 )

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
J. CRAIG REED, and ) C/A NO. 03A01-9807-CH-00210
FILED
October 13, 1999
Cecil Crowson, Jr.
Appellate Court Clerk
wife, KRISTI L. REED, )
)
Plaintiffs-Appellees,)
)
)
)
)
v. )
)
)
)
WALLY CONARD CONSTRUCTION, ) APPEAL AS OF RIGHT FROM THE
INC., GREGORY D. SHANKS, ) KNOX COUNTY CHANCERY COURT
d/b/a SHANKS & BLACKSTOCK, )
and JIM NICELY, d/b/a JIM )
NICELY CONSTRUCTION, )
)
Defendants, )
)
and )
)
)
WEST KNOX PROPERTIES, INC., )
) HONORABLE FREDERICK D.
MCDONALD, Defendant-Appellant. ) CHANCELLOR
For Appellant For Appellee
W.F. SHUMATE, JR. HENRY T. OGLE
Shumate & Bowling Knoxville, Tennessee
Knoxville, Tennessee
Page 1
OPINION
AFFIRMED AND REMANDED Susano, J.
This is an action under the Tennessee Consumer
Protection Act (“the Act”) that arose out of the sale of a
residence. Following a bench trial, the court below awarded
compensatory damages, attorney’s fees, and discretionary costs
to the plaintiffs, J. Craig Reed and wife, Kristi L. Reed (“the
Reeds”) to remedy a violation of the Act, i.e., a
misrepresentation by the seller of the property as to whether
the location of the residence violates a subdivision setback
restriction. The seller of the residence, West Knox
Properties, Inc. (“West Knox”), appeals, raising three issues:
1. Did the Chancellor properly determine
that West Knox had violated plaintiffs’
rights under the Act?
2. Did the Chancellor correctly determine
the amount of compensatory damages to
which the Reeds were entitled in order to
cure the violation of the setback
requirement?
3. Are the plaintiffs entitled to an
award of $5,300 in attorney’s fees and an
award of $2,803.10 in discretionary costs?
The Reeds argue in their brief that this case should be
remanded “for consideration of an additional award of attorney’
s fees incident to the defense of this appeal.”
Page 2
I.
In December, 1994, the Reeds purchased a
newly-constructed house in the Crest Haven Subdivision of Knox
County from defendant West Knox. The purchase price was
$138,350. At the closing, West Knox gave the Reeds a warranty
deed, which deed provides, in pertinent part, as follows:
[West Knox] for itself and for its
successors does hereby covenant with the
[Reeds], their heirs and assigns that it
is lawfully seized in fee simple of the
premises above conveyed and has full
power, authority and right to convey the
same, that said premises are free from all
encumbrances except the county property
taxes, and that it will forever warrant
and defend the said premises and the title
thereto against the lawful claims of all
persons whomsoever.
(Emphasis added). The deed further provides that the
conveyance is “made subject to all applicable restrictions,
easements, and building set back lines of record....” By
virtue of this edict, the conveyance was made subject to a
provision of the subdivision restrictions stating that no
building could be located within five feet of any side lot
line.
At the closing, the title agent instructed the Reeds
to sign a survey plat that reflected the layout of the house
on the property. The survey plat shows that the house faces
generally south; and that the side lot lines run generally
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from south to north as one faces the property. The front lot
line is wider than the rear lot line. Thus, the width of the
property narrows from the front to the back.
A notation in cursive on the plat indicates that a
building setback of five feet is required along the side lot
lines. Another such notation indicates that a five-foot
utility and/or drainage easement exists inside the side lot
lines. The northeast corner of the house is shown on the plat
as being very close to the eastern lot line. This aspect of
the survey was not mentioned at the closing, and neither of
the Reeds interpreted the plat as reflecting a violation of
the setback requirement.
When the Reeds inspected the property, they believed
that the house was properly located on the lot. Mr. Reed
noted that the house seemed to blend with the rest of the
subdivision in terms of the distance between their house and
the neighboring houses. When the Reeds inspected the
property, the lot lines were not staked. Thus, even though
the northeast corner of the house is 1.9 feet from the eastern
lot line, this fact was not readily apparent from an on-site
inspection. 1
The Reeds did not discover the encroachment until
their neighbor advised them that he planned to erect a fence
along the Reeds’ eastern lot line. In planning the fence, the
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neighbor did a survey of the property and discovered that the
Reeds’ house intruded into the setback area. This was the
first notice the Reeds had that the house violated a provision
of the subdivision restrictions.
The Reeds brought suit against West Knox, alleging a
violation of the Act and requesting treble damages. 2 Upon
hearing the proof, the court awarded the Reeds a judgment in
the amount of $3,600. Thereafter, the Reeds filed a motion to
reopen the proof and to recover treble damages, attorney’s
fees, and discretionary costs. While denying the motion to
reopen the proof and to award treble damages, the court
granted an award of attorney’s fees and discretionary costs.
West Knox filed a motion to reduce the judgment by
$3,000, the amount that the defendant title attorney paid to
settle the claim against him. In its memorandum opinion, the
trial court held that West Knox was entitled to the requested
reduction. In reviewing the amount of the judgment, the court
also reconsidered its initial award of damages:
This review has led to the conclusion that
the amount of the damages awarded
Plaintiffs at trial was erroneous. The
award was based upon West Knox’s
contention that the error in the location
of Plaintiffs’ home on the lot could be
remedied by taking a notch out of the
corner of their house at a cost of
$3,600.00. While notching out could
correct the location problem, in ruling in
favor of that solution virtually no
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consideration was given to Plaintiffs’
view of how the location problem should be
resolved. The notching out and damages
resulting therefrom would be proper for a
commercial structure in which aesthetic
considerations are of lesser, if any
significant, import. However, in
considering the amount and extent of
damages to a home aesthetics are generally
entitled to greater consideration. See:
Edenfield v. Woodlawn Manor, Inc. , 462
S.W.2d 237, 240-242 (Tenn.App. 1970).
Applying an essentially commercial
standard to the allowance of damages in
this case, rather than a residential
standard, was error.
Plaintiffs sought to have the correction
to their home be made by squaring off its
entire end, and they objected to having a
notch taken out of a corner of it.
Plaintiffs’ aesthetic sensibilities were
accorded essentially no weight.
Plaintiffs view that a squared off end on
the house would be aesthetically more in
keeping with the generally square type of
home they contracted for and which they
believed they had purchased, rather than a
house with a notched out corner is
understandable, and has merit. While
Plaintiffs’ desires do not totally
control, their opinion of what would be
the most acceptable solution to the
problem, even though to a great extent
based on aesthetic considerations, should
Page 6
be accorded substantial weight.
Considering all of the circumstances in
evidence Plaintiffs are entitled to have a
squared off end on their house as they
were willing to accept, and as they
sought. While this is more expensive than
the solution proposed by the defense, it
is nonetheless far less expensive than
would be moving the whole house, which
would fully redress Plaintiffs’ injury.
Accordingly, the court awarded the Reeds a total of $26,500 in
damages plus $5,300 in attorney’s fees and $2,018.10 in
discretionary costs. 3
II.
In this non-jury case, our review is de novo upon
the record, with a presumption of correctness as to the trial
court’s factual determinations, unless the preponderance of
the evidence is otherwise. Rule 13(d), T.R.A.P.; Union
Carbide Corp. V. Huddleston, 854 S.W.2d 87, 91 (Tenn. 1993).
The trial court’s conclusions of law, however, are accorded no
such presumption. Campbell v. Florida Steel, 919 S.W.2d 26,
35 (Tenn. 1996).
We also note that the trial court is in the best
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position to assess the credibility of the witnesses;
therefore, such determinations are entitled to great weight on
appeal. Massengale v. Massengale, 915 S.W.2d 818, 819
(Tenn.App. 1995); Bowman v. Bowman, 836 S.W.2d 563, 566
(Tenn.App. 1991). In fact, this court has noted that
on an issue which hinges on witness
credibility, [the trial court] will not be
reversed unless, other than the oral
testimony of the witnesses, there is found
in the record clear, concrete and
convincing evidence to the contrary.
Tennessee Valley Kaolin Corp. v. Perry, 526 S.W.2d 488, 490
(Tenn.App. 1974).
III.
After reviewing the record with the foregoing
principles in mind, we cannot say that the evidence
preponderates against the trial court’s finding that West Knox
violated the Act. The Act states, in pertinent part, as
follows:
Any person who suffers an ascertainable
loss of money or property, real, personal,
or mixed...as a result of the use or
employment by another person of an unfair
or deceptive act or practice declared to
be unlawful by this part, may bring an
action individually to recover actual
damages.
Page 8
T.C.A. § 47-18-109(a)(1) (1995). “The Tennessee Consumer
Protection Act is to be liberally construed to protect
consumers and others from those who engage in deceptive acts
or practices.” Morris v. Mack’s Used Cars, 824 S.W.2d 538,
540 (Tenn. 1992). The Act is applicable to real estate
transactions between consumers and sellers engaged in the
business of selling real property. See Ganzevoort v. Russell,
949 S.W.2d 293, 297-98 (Tenn. 1997).
We have recognized that “an unfair or deceptive act
need not be willful or knowingly made to recover actual
damages under the Consumer Protection Act.” Smith v. Scott
Lewis Chevrolet, Inc., 843 S.W.2d 9, 12 (Tenn.App.
1992)(holding that negligent conduct constitutes a deceptive
act or practice under the Act).
In its deed, West Knox represented that the property
was “free from all encumbrances except the county property
taxes.” By making this statement, West Knox represented that
the property had no encumbrances other than property taxes
when in fact this was not the case. The northeast corner of
the house lies within the five-foot setback area in violation
of the subdivision restrictions. This violation of a
restrictive covenant is an encumbrance on the title of the
property. See Staley v. Stephens, 404 N.E.2d 633, 636
(Ind.App. 1980)(finding setback violation created cloud on
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title because buyers exposed to possible litigation from other
homeowners). Thus, West Knox’s statement in the warranty deed
that no encumbrances existed other than property taxes was a
misrepresentation.
Although the evidence does not suggest that West
Knox knowingly made the subject misrepresentation, the
evidence does preponderate that West Knox made this
representation negligently. West Knox was acting in the
course of its business of selling houses when it represented
to the Reeds that the property was free from encumbrances
except property taxes. Furthermore, the evidence
preponderates that West Knox failed to exercise reasonable
care in making this representation. According to Wally
Conard, president of West Knox, the encroachment occurred when
the bulldozer operator began excavating from the wrong
surveying pin. Mr. Conard testified that he did not discover
the encroachment until six months after the Reeds purchased
the house. However, the eye of a trained professional such as
Mr. Conard should have recognized from a cursory examination
of the survey that the house encroached into the setback area.
We find and hold that Mr. Conard was negligent in failing to
discern the violation of the sideline setback requirement and
in making a representation in the deed to the effect that no
such violation existed.
When questioned at trial about the survey, Mr. Reed
Page 10
explained why neither he nor his wife noticed what is arguably
an indication on the survey that the northeast corner of the
house is one foot away from the eastern side line:
Q: Can you explain how you didn’t see
that? It’s fairly clear on here it
appears to me.
A: It is if you are looking for it.
Q: Well, did you take any time to examine
the survey?
A: I did not try to rectify the survey
with the other statements on the survey.
I recognize it as my property. It says
right here the building setbacks are five
feet, [sic] must comply with building
setbacks. Couldn’t have conflicting
information on a survey.
It is our judgment that the evidence supports a finding that
West Knox made a negligent misrepresentation which violated
the Act.
IV.
A.
Although the parties do not dispute the existence of
a setback violation as the house now stands, the parties do
dispute the effect of the violation on the property and how to
remedy the problems created by it.
The evidence presented at trial preponderates that
Page 11
the setback violation adversely affects the marketability of
the house. The plaintiffs’ expert, attorney Stanley Roden,
testified that the title is not marketable because of the
violation. Dwight Sharp, vice-president of the bank that
financed the Reeds’ purchase, admitted on cross-examination
that the violation “would have some bearing on” selling the
property.
Although the violation is not visually apparent in
the property’s current state, the violation would become very
obvious if, as the Reeds’ neighbor proposes, a fence was
erected along the property line. With a fence along or near
the property line, it would be obvious that the Reeds’ house
is too close to the line. Furthermore, Mr. Reed testified
that one cannot move from the front of the property to the
rear without trespassing on his neighbor’s property. Thus, it
is apparent from the evidence that the violation affects the
aesthetic value and marketability of the Reeds’ house.
West Knox argues that any effect on the house’s
marketability could be resolved by amending the subdivision
restrictions to require setback lines in compliance with the
Knox County zoning requirements. Although the county’s zoning
ordinance also requires a minimum setback line of five feet,
that ordinance -- unlike the subdivision restrictions -- does
not prohibit a patio within the setback area. Thus, if, as
West Knox proposes, the corner of the house is removed and a
patio created from the exposed concrete slab, the Reeds’ house
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would no longer be in violation of any setback requirement.
We do not find West Knox’s proposed remedy to be a
feasible one. Although a variance or an amendment to the
subdivision restrictions might technically resolve the
violation, such actions would not alleviate the aesthetic
problems which ultimately affect the house’s marketability.
Furthermore, the Reeds would end up with a house which is
irregularly shaped instead of the rectangular house they
purchased. The “lopping off” of the offending corner may
remedy the setback violation but it would leave a house that
is unappealing to its owners and most likely undesirable to
prospective purchasers.
We recognize that, in some cases, a violation of a
setback restriction may be so minor as to warrant an award of
only nominal damages. For example, in Womack v. Ward, 186
S.W.2d 619 (Tenn.App. 1944), a restrictive covenant prohibited
any building from being nearer than four feet to a common
driveway shared by the plaintiff and the defendant. The
defendant’s house encroached eight inches into the setback
area, and the plaintiff brought an action for violation of the
restrictive covenant. We held that
[t]he record does not contain the
slightest evidence that such encroachment
has depressed either rental or sales value
of this property. In short we have a
technical breach of the quoted agreement
but of such insignificant nature as to be
Page 13
unnoticed for a year the house was under
construction.
Id. at 620. Because no actual damages were shown, we awarded
only nominal damages to the plaintiff. Id.However, cases such as Womack are distinguishable
from the instant case. First, the evidence before us
preponderates that the violation has an adverse effect on the
marketability, or sales value, of the Reeds’ house. Second,
the setback violation in the instant case was more than a mere
technical violation; the violation resulted in the Reeds
purchasing a house that was different from that which was
represented to them. The Reeds received a house which does
not conform with the subdivision’s restrictive covenants, thus
possibly subjecting them to litigation in the future. See
Benton v. Bush, 644 S.W.2d 690, 692 (Tenn.App. 1982)(“
Restrictions to protect the beauty of the neighborhood, value
of the property, and uniformity are covenants...enforceable by
the owner of any of the lots so protected by the restrictive
covenants.”) This is not a case for nominal damages. The
Reeds have sustained real damages as a result of West Knox’s
violation of the Act.
Page 14
B.
We now turn to the issue of the measure of damages.
Marvin House, an engineering consultant, testified as an
expert witness for the Reeds. In his opinion, removing only
the offending corner would disturb the aesthetic value of the
house. Thus, he concluded, the most practical solution would
be to sever the eastern end of the building, including the
driveway, by approximately four feet. Mr. House testified
that this approach would bring the house within the setback
requirement and would avoid an irregularly-shaped structure.
He estimated that the cost to do the needed modification would
be in the range of $29,500 to $31,500.
West Knox presented the testimony of James Nicely,
the builder of the Reeds’ house. He proposed remedying the
setback violation by removing 31 square feet of the laundry
room and creating an uncovered patio from the exposed concrete
slab. Mr. Nicely estimated that the cost of removing the
corner of the house and leaving an uncovered patio would be
$2,347.16.
We think that the proper measure of damages must
take into account the effect that the setback violation has on
the house’s aesthetic value. See Edenfield v. Woodlawn Manor,
Inc., 462 S.W.2d 237, 240 (Tenn.App. 1970). In Edenfield, the
purchaser of a condominium sued the developer because the
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installation of air conditioning ducts did not comply with the
contract specifications. In awarding the plaintiff the full
cost of replacing the air conditioning ducts, we referred to
13 Am.Jur.2d Building and Construction Contracts § 79 (1964):
The fundamental principle which underlies
the decisions regarding the measure of
damages for defects or omissions in the
performance of a building or construction
contract is that a party is entitled to
have what he contracts for or its
equivalent.
* * *
As a general rule, the measure of damages
is the cost of correcting the defects or
completing the omissions, rather than the
difference in value between what ought to
have been done in the performance of the
contract and what has been done, where the
correction or completion would not involve
unreasonable destruction of the work done
by the contractor and the cost thereof
would not be grossly disproportionate to
the results to be obtained. On the other
hand, the courts generally adhere to the
view that if a builder or contractor has
not fully performed the terms of the
construction agreement, but to repair the
defects or omissions would require a
substantial tearing down and rebuilding of
the structure, the measure of damages is
the difference in value between the work
if it had been performed in accordance
with the contract and that which was
actually done, or (as it is sometimes
said) the difference between the value of
the defective structure and that of the
structure if properly completed. Despite
this latter rule, however, there is some
authority to the effect that damages for a
contractor’s breach of a contract to
construct a dwelling, where it is not
constructed in accordance with the plans
and specifications, are the amount
required to reconstruct it to make it
conform to such plans and specifications,
Page 16
rather than the difference in loan or
market value on the finished dwelling,
since unlike a commercial structure, a
dwelling has an esthetic value and must be
constructed as the owner wants it, even
though the finished dwelling may be just
as good.
Edenfield, 462 S.W.2d at 241 (citing 13 Am.Jur.2d Building and
Construction Contracts § 79 (1964)). We find the rationale of
Edenfield to be persuasive here. We therefore affirm the
trial court’s award of damages based upon the cost of
correcting the setback violation.
V.
A.
The Act provides that a court may award attorney’s
fees upon finding a violation of its terms. T.C.A. §
47-18-109(e)(1) (1995). We review the award of attorney’s
fees under an abuse of discretion standard. See Haverlah v.
Memphis Aviation, Inc., 674 S.W.2d 297, 306 (Tenn.App. 1984).
In the instant case, we find no abuse of discretion in the
trial court’s threshold decision to award attorney’s fees.
West Knox challenges the amount of fees awarded in
this case. Specifically, West Knox argues that documentation
of an attorney’s time spent on a case is a “traditional
requirement” of recovering such fees.
Page 17
“While it is preferable to prove the reasonableness
of such fees through the affidavit of the attorney doing the
work, the Court can determine a reasonable fee upon
consideration of all facts and circumstances presented by the
record.” Hennessee v. Wood Group Enters., Inc., 816 S.W.2d
35, 37 (Tenn.App. 1991).
The Reeds filed a motion requesting an award of
attorney’s fees under the Act:
While the attorney has a belief that he
has more than fifty (50) hours of his time
devoted to the file in the representation
of Plaintiffs in the protection of their
interest, he asked Plaintiffs to seek for
him an award of $7,500.00 as an
appropriate fee to be paid by Defendants
to the Plaintiffs as their attorney fees.
The trial court awarded plaintiffs $5,000 in attorney’s fees.
We do not find this to be an unreasonable amount based upon
the attorney’s assertion that he spent more than fifty hours
on the case. This issue is found adverse to the appellant.
B.
West Knox also challenges the chancellor’s award of
$2,018.10 in discretionary costs to the Reeds. Specifically,
West Knox contests the award of $385.75 for the costs of
court-ordered mediation.
“While reasonable and necessary costs in the
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preparation and trial of a lawsuit may be assessed as
discretionary costs under T.R.C.P. 54.04(2), the awarding of
such costs is a discretionary matter with the trial court.”
Hodges v. S.C. Toof & Co., 833 S.W.2d 896, 902 (Tenn. 1992).
Rule 54.04(2), Tenn.R.Civ.P., defines the
discretionary costs which are allowable as
reasonable and necessary court reporter
expenses for depositions or trials,
reasonable and necessary expert witness
fees for depositions or trials, and
guardian ad litem fees....
Id. We cannot say that the trial court abused its discretion
in awarding discretionary costs for deposition expenses, court
reporter expenses, and expert witness fees. While an award
for the costs of mediation is not expressly authorized under
Rule 54.04(2), we find that such an award is permitted under
Section 7 of Rule 31 of the Rules of the Supreme Court:
The costs of any alternative dispute resolution
proceeding, including the costs of the services
of the Rule 31 dispute resolution neutral, at
the neutral’s request, may be charged as court
costs. The court may in its sound discretion
waive or reduce costs of an alternative dispute
resolution proceeding .
In the instant case, it appears that the “neutral” billed for
his mediation services. This is the only reasonable
explanation for the fact that the Reeds’ attorney seeks
Page 19
reimbursement for such a charge. We find that billing by the
neutral is tantamount to “the neutral’s request” as set forth
in Rule 31.
C.
Finally, the Reeds contend that this case should be
remanded for consideration of an additional award of attorney’s
fees incident to the defense of this appeal. We do not find
an award of fees on appeal to be appropriate in this case.
Certainly, this appeal is not frivolous in nature. See T.C.A.
§ 27-1-122 (1980).
Page 20
VI.
The judgment of the trial court is affirmed. Costs
on appeal are taxed to the appellant. This case is remanded
to the trial court for the enforcement of the judgment, and
for collection of costs assessed below, all pursuant to
applicable law.
__________________________
Charles D. Susano, Jr., J.
CONCUR:
________________________
Houston M. Goddard, P.J.
________________________
William H. Inman, Sr.J.
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