Flynn Builders, L.C. v. Matthew P. Lande and Chris Lande ( 2012 )

IN THE SUPREME COURT OF IOWA
No. 10–1278
Filed June 1, 2012
FLYNN BUILDERS, L.C.,
Appellee,
vs.
MATTHEW P. LANDE
and CHRIS LANDE,
Appellants.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Boone County, William C.
Ostlund, Judge.
On further review, appellants allege the district court and court of
appeals erred in holding the appellee was entitled to enforce its
mechanic’s lien. DECISION OF COURT OF APPEALS AFFIRMED IN
PART AND VACATED IN PART; DISTRICT COURT JUDGMENT
REVERSED, AND CASE REMANDED FOR FURTHER PROCEEDINGS.
Duane M. Huffer and Robert L. Huffer of Huffer Law P.L.C., Story
City, for appellants.
Meredith C. Mahoney Nerem and John D. Jordan of Jordan &
Mahoney Law Firm, P.C., Boone, for appellee.
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APPEL, Justice.
In this action to foreclose a mechanic’s lien, we address the
consequences of a contractor’s failure to render full and complete
performance.1 An owner and contractor entered into an agreement for
the construction of a new home. During construction, the owner refused
to pay the contractor after discovering markups on the cost of materials.
In response, the contractor halted construction and filed an action to
enforce a mechanic’s lien. The contractor subsequently filed a petition to
foreclose the mechanic’s lien. Although the contractor did not complete
construction, the district court found the contractor rendered substantial
performance under the contract and entered a judgment against the
owner. The court of appeals affirmed, and we granted further review.
For the reasons expressed below, we affirm in part and vacate in part the
decision of the court of appeals, reverse the judgment of the district
court, and remand the case for further proceedings.
I. Factual and Procedural Background.
This case involves a dispute between Gregg Flynn (Flynn) and
Matthew and Chris Lande. In early 2009, the Landes were seeking a
builder to construct a new home. Flynn, the owner of Flynn Builders,
L.C., submitted to the Landes a bid to construct the home for $259,576.
The bid included a line item for a “materials package” in the amount of
$61,223.77. The Landes accepted the bid, and Flynn began construction
in May 2009.
1The defendants raise six separate issues in their application for further review.
In the exercise of our discretion, we choose to only address the issue related to
substantial performance of the construction contract. As to the other issues raised on
appeal, the court of appeals’ opinion will stand as the final decision in this appeal. See
State v. Rodriguez, 807 N.W.2d 35, 37 (Iowa 2011).
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Construction continued until early July when the Landes
discovered the materials package included a $20,000 markup that Flynn
did not disclose.2 Though the markup did not increase the agreed upon
price, the Landes’ lender and the Landes refused to pay the markup.
Because the Landes and their lender refused to continue making
payments, Flynn stopped construction on the project and filed a
mechanic’s lien for $28,307.50 in the district court.
In August 2009, Flynn filed a petition to enforce the mechanic’s
lien. In their answer, the Landes denied the existence of a contract and
made no counterclaim. The matter proceeded to trial in May 2010.
During trial, Flynn testified that his duties as a general contractor
were nearly completed when he left the project. He explained that, while
the plumbing, drywall, paint, carpet, floor coverings, and trim remained
unfinished, arrangements had been made with various subcontractors to
complete the work. According to Flynn, “Everything was ready to go. . . .
[A]ll Matt [Landes] had to do is contact the individual sub[contractors],
even after I walked off, to have them come complete their jobs.” Brian
Stolte, an employee of Flynn, testified Flynn completed between eighty
and eighty-five percent of the project, possibly more, before leaving.
Stolte stated the insulation, drywall, trim, and flooring remained
unfinished when Flynn left. The unfinished trim, which would have
taken two weeks to complete, included the installation of cabinets, doors,
and windows. Stolte further stated that a day of work remained with the
heating and air conditioning and the concrete was not poured in the
front of the garage. Stolte estimated that it would have taken a total of
five to seven weeks to complete the four-to-five month project.
2A markup is defined as “[a]n amount added to an item’s cost to determine its
selling price.” Black’s Law Dictionary 1059 (9th ed. 2009).
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According to Matt Lande, “[t]he whole house was pretty much
studs” when Flynn stopped working on the project. He stated the
basement doors and garage doors were not installed and that the siding
was only partially completed. Lande also testified that he, not Flynn,
was in fact the general contractor on the project. Lande explained he
understood the agreement to be that Flynn would frame, side, and
shingle the house, and both Flynn and Lande would recruit
subcontractors to build the house.
Following trial, the district court held, inter alia, Flynn was entitled
to enforce the mechanic’s lien because Flynn substantially performed the
contract. The court concluded Flynn was a general contractor of the
project and that the general contracting markup fee of $20,000 was
“appropriate and in accordance with standards of the industry.” The
court stated that Matt Lande acted in large part as a general contractor
during construction. Addressing the substantial performance issue, the
court found that Flynn’s completion of eighty percent of the project
amounted to substantial performance of the contract. The court stated
“the credibility of the parties was given substantial weight in reaching
[the court’s] ultimate conclusion.” The court entered a judgment in the
amount of $16,574.75, plus interest, against the Landes. The Landes
appealed.
On appeal, the Landes argued the district court erred in finding
Flynn substantially performed. The Landes noted the home was only
eighty to eighty-five percent complete when Flynn stopped working on
the project. The Landes observed a number of items remained
unfinished on the project, including installing insulation, drywall,
flooring, and trim. The Landes also asserted Flynn breached the contract
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by walking off the job before completing the project. The court of appeals
affirmed.
The court of appeals reasoned that Flynn substantially performed
the contract because the home was “framed, enclosed, roofed, sided (with
a minor exception), and the electrical and plumbing were roughed-in.”
The court explained evidence in the record established the home was
seventy to ninety-five percent complete when Flynn left the project. The
court further noted the record was devoid of any indication of bad faith
on the part of Flynn or that the unfinished portion of the home impaired
the structure as a whole. The Landes filed an application for further
review, which we granted.
II. Standard of Review.
Actions to enforce mechanic’s liens are in equity. Carson v.
Roediger, 513 N.W.2d 713, 715 (Iowa 1994). Our review is therefore
de novo. Id. In our de novo review, the district court’s fact findings are
given weight, but we are not bound by them. Id. This court has stated
in mechanic’s lien cases, “involving as they do numerous charges and
counter charges which depend entirely on the credibility of the parties,
we have frequently held the trial court is in a more advantageous
position than we to put credence where it belongs.” McDonald v. Welch,
176 N.W.2d 846, 849 (Iowa 1970).
III. Discussion.
A. Law Related to Mechanic’s Liens and Substantial
Performance. Mechanic’s liens were not recognized at common law and
are purely a creature of statute. See Clemens Graf Droste Zu Vischering
v. Kading, 368 N.W.2d 702, 708 (Iowa 1985); Roger W. Stone, Mechanic’s
Liens in Iowa, 30 Drake L. Rev. 39, 41 (1980) [hereinafter Stone].
Mechanic’s lien statutes are designed to protect “persons who have
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supplied labor or material for the construction, improvement, or repair of
a building or other structure by giving the lienholders security
independent of their contractual remedies against the owner of the
property, if any.” Stone, 30 Drake L. Rev. at 42. Although mechanic’s
lien statutes are in derogation of the common law, they are liberally
construed “ ‘with a view to promote its objects and assist the parties in
obtaining justice.’ ” Gollehon, Schemmer & Assocs., Inc. v. Fairway-
Bettendorf Assocs., 268 N.W.2d 200, 201 (Iowa 1978) (citation omitted).
The Iowa territorial government enacted the first mechanic’s lien
statute in Iowa in 1838. The Statute Laws of the Territory of Iowa 349
(1839); Stone, 30 Drake L. Rev. at 41. Though the statute has
undergone a series of amendments since its adoption, Stone, 30 Drake L.
Rev. at 41–42, Iowa caselaw has developed a requirement that in order to
enforce a mechanic’s lien, the work must be substantially performed by
the contractor, Keys v. Garben, 149 Iowa 394, 395, 128 N.W. 337, 337
(1910); see also S. Hanson Lumber Co. v. De Moss, 253 Iowa 204, 208,
111 N.W.2d 681, 684 (1961); Farrington v. Freeman, 251 Iowa 18, 23, 99
N.W.2d 388, 391 (1959); Peterman v. Hardenbergh, 250 Iowa 931, 933,
97 N.W.2d 152, 154 (1959); S.D. & D.L. Cota Plastering Co. v. Moore, 247
Iowa 972, 978, 77 N.W.2d 475, 478 (1956); Huffman v. Hill, 245 Iowa
935, 938, 65 N.W.2d 205, 206 (1954). The more recent applications of
the substantial performance doctrine in Iowa appear in published
decisions of the Iowa Court of Appeals. See, e.g., Nepstad Custom Homes
Co. v. Krull, 527 N.W.2d 402, 406 (Iowa Ct. App. 1994); Moore’s Builder &
Contractor, Inc. v. Hoffman, 409 N.W.2d 191, 194 (Iowa Ct. App. 1987).
Our caselaw in this regard is consistent with the law in a significant
number of states. See 53 Am. Jur. 2d Mechanic’s Liens § 49, at 133–34
(2006).
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In Huffman, the court explained that “a technical, exact and
perfect performance is not necessary” in an action to foreclose a
mechanic’s lien. Huffman, 245 Iowa at 938, 65 N.W.2d at 206. So long
as the builder substantially performs the contract, the builder “is entitled
to the contract price less reasonable damages on account of slight
defects in performance.” Id. This court elaborated on the substantial
performance doctrine in Farrington, stating,
“ ‘Substantial performance,’ as defined by the cases, permits
only such omissions or deviations from the contract as are
inadvertent or unintentional, are not due to bad faith, do not
impair the structure as a whole, are remediable without
doing material damage to other parts of the building in
tearing down and reconstructing, and may without injustice
be compensated for by deductions from the contract price.
So much is allowed in building contracts because of the
hardship to the contractor if slight, unintentional deviations
should bar his recovery.”
Farrington, 251 Iowa at 24, 99 N.W.2d at 391 (quoting Littell v. Webster
Cnty., 152 Iowa 206, 215, 131 N.W. 691, 694 (1911)).
The concept of substantial performance in the mechanic’s lien
context is derived from contract law. In Farrington, for example, the
court’s definition of substantial performance was taken directly from a
breach of contract case. See Farrington, 251 Iowa at 24, 99 N.W.2d at
391; Littell, 152 Iowa at 215, 131 N.W. at 694. In the area of contracts,
“[s]ubstantial performance is performance without a material breach,
and a material breach results in performance that is not substantial.”
II E. Allan Farnsworth, Farnsworth on Contracts § 8.16, at 518 (3d ed.
2004); see also 5 Philip L. Bruner & Patrick J. O’Connor, Jr., Bruner &
O’Connor Construction Law § 18:12, at 892–93 (2002) (“Substantial
performance means the contractor has completed its work to such an
extent that it cannot be said to have materially breached the contract.”);
Richard A. Lord, Williston on Contracts § 44:55, at 232–33 (4th ed. 2000)
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(“A breach of a contract is not material if substantial performance has
been rendered.”).
B. Application of Law to Facts. With these principles in mind,
we now turn to the facts in this case. In our de novo review, we conclude
Flynn did not substantially perform the contract. We note that more
than simply punch-list items remained to be completed when Flynn left
the project. See Cont’l Ill. Nat’l Bank & Trust Co. v. United States, 101 F.
Supp. 755, 758 (Ct. Cl. 1952) (holding unfinished punch-list items did
not amount to material breach); Pettit v. Hampton & Beech, Inc., 922 A.2d
300, 305 (Conn. App. Ct. 2007) (substantial performance even though
punch-list items totaling $5000 unfinished). Flynn himself testified that,
although he made arrangements with subcontractors to complete the
house, the plumbing, drywall, paint, carpet, floor coverings, and trim
remained unfinished. According to Stolte, Flynn’s own witness, the
unfinished trim included the installation of cabinets, doors, and
windows. Stolte also stated the heating and air conditioning was not
complete and the concrete had not been poured in front of the garage.
Stolte estimated it would take an additional five to seven weeks to
complete the project. All told, Stolte believed Flynn completed only
eighty to eighty-five percent of the project when the contract was
terminated. See Carefree Bldg. Prods., Inc. v. Belina, 564 N.Y.S.2d 852,
854 (App. Div. 1991) (holding, as a matter of law, contractor failed to
substantially perform when deficiencies represented twenty-five percent
of contract price); Jerry B. Wilson Roofing & Painting, Inc. v. Jobco-E.R.
Kelly Assocs., Inc., 513 N.Y.S.2d 263, 265 (App. Div. 1987) (fifteen
percent); Fuchs v. Saladino, 118 N.Y.S. 172, 176 (App. Div. 1909) (fifteen
percent). While “[n]o mathematical rule relating to the percentage of the
price, of cost of completion or of completeness can be laid down to
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determine substantial performance of a building contract,” Plante v.
Jacobs, 103 N.W.2d 296, 298 (Wis. 1960), the work left unfinished in
this case was much more than a technical or inadvertent omission;
rather, the omissions materially affected the habitability of the house.
See Nelson v. Hazel, 406 P.2d 138, 144 (Idaho 1965) (“The mere fact that
a shell was constructed containing the rooms outlined in the contract,
does not in itself mean that the contract was substantially performed.”).
We acknowledge the record demonstrates Matt Lande agreed to
perform some tasks that are ordinarily the responsibility of a general
contractor. But the owner’s willingness to take on additional
responsibilities does not absolve the builder’s responsibility to
substantially perform the work the builder agreed to perform. While
Matt Lande had the ability to contact Flynn’s subcontractors to complete
the work, the responsibility to complete the project was Flynn’s in his
capacity as general contractor. As observed by the Wisconsin Supreme
Court,
the owner has a right to contract for the completed structure
or work and in the building of a house the contract price
pays for the relief from trouble and personal effort on the
part of the owner in respect to building.
Kreyer v. Driscoll, 159 N.W.2d 680, 681–82 (Wis. 1968) (holding $50,000
contract for building of house not substantially performed when $4650
remained); see also Harris v. Desisto, 932 S.W.2d 435 (Mo. Ct. App.
1996) (stating the general contractor “cannot argue that he had
substantially performed under the agreement when it is obvious that [the
developer] had performed in his stead and that [l]ogically, under a claim
of substantial performance, [the general contractor] cannot claim the
benefits of the [developers’] efforts precipitated by [the general
contractor’s] breach as a basis for avoiding the effect of the breach”);
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Local Union No. 964, United Bros. of Carpenters & Joiners of Am. v.
Lighting Servs., Inc., 557 N.Y.S.2d 764, 765 (App. Div. 1990) (holding
that, although certificate of occupancy had been delivered, evidence in
the record established work that should have been done by the
contractor was performed by others).
C. Disposition. Having determined Flynn did not substantially
perform the contract, we recognize that there may be additional legal and
factual issues that were not reached by the district court that could have
an impact on the disposition of this case. The district court did not
address, for instance, the factual disputes in the record for the reason
Flynn walked off the job and whether lack of specific performance might
be excused by the conduct of the Landes. See Horsfield Constr., Inc. v.
Dubuque Cnty., 653 N.W.2d 563, 573 (Iowa 2002) (stating that
anticipatory repudiation “excuses performance on the part of the non-
breaching party”). The district court also did not address the
significance, if any, of the hidden nature of the markup on the ability of
Flynn to enforce a mechanic’s lien. We intimate no view on these
questions, but remand the case on the current record for further
proceedings. See, e.g., Lewis Elec. Co. v. Miller, 791 N.W.2d 691, 694–96
(Iowa 2010) (reversing based on lack of evidence of substantial
performance and remanding for new findings “on the basis of the current
record”); Sauder v. Union Produce Coop., 592 N.W.2d 695, 698 (Iowa
1999) (remanded for findings on an issue the district court did not
consider “on the existing record”).
IV. Conclusion.
For the reasons discussed above, we hold that the trial court erred
in concluding that Flynn had substantially completed work for the
Landes. On this issue, we vacate the opinion of the court of appeals,
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reverse the judgment of the district court, and remand the case for
further proceedings. The opinion of the court of appeals is affirmed as to
all other issues raised in this appeal.
DECISION OF COURT OF APPEALS AFFIRMED IN PART AND
VACATED IN PART; DISTRICT COURT JUDGMENT REVERSED, AND
CASE REMANDED FOR FURTHER PROCEEDINGS.