M. J. Daly & Sons, Inc. v. New Haven Hotel Co. , 91 Conn. 280 ( 1917 )

The complaint in this case seeks a foreclosure of a mechanic's lien filed by the plaintiff against real estate of the defendant Hotel Company, hereinafter, for convenience sake, referred to as the defendant, to secure the sum of $18,573.72 claimed to be due the plaintiff for labor performed and materials furnished in the construction of a building thereon, under and by virtue of a contract with the owner. No objection was made below, or is made here, to the validity of the lien or the right of the plaintiff to have a foreclosure judgment, except such as is addressed to the existence of an indebtedness for the labor performed and materials furnished upon the building. The plaintiff alleges that the sum named is due: the defendant that nothing is due. If anything is shown by the evidence to be due, the lien is good for that amount and may be foreclosed for that amount. Nichols v. Culver,51 Conn. 178, 180; Marston v. Kenyon, 44 Conn. 349, 356. The fundamental question of the case, therefore, relates to the existence of such indebtedness and its amount. Its answer is to be determined by recourse to the ordinary rules of law.

As to the $4,957.14, alleged by the plaintiff to be due under an award of arbitrators made in conformity with a provision of the contract, no objection is made to the plaintiff's right to charge that sum against the defendant. Its right to charge any portion of the balance of the claimed indebtedness is stoutly denied, and many of the alleged errors of the trial court gather around its conclusion that the sum of $12,690 was properly chargeable as a balance due for labor and materials performed and furnished in the execution of the contract.

The trial court found that the plaintiff substantially performed its contract, that its defaults were not wilful, and that an expenditure of $500 would have accomplished full performance. It accordingly held that there was due to the plaintiff, secured by the lien, the unpaid balance of the contract price less $500, to wit, $12,690, and rendered its judgment of foreclosure for that sum. Assuming the facts to be as found, the court's action was that which, the counterclaim aside, the law sanctions. Pinches v. Swedish EvangelicalLutheran Church, 55 Conn. 183, 187, 10 A. 264; Jones v. Marlborough, 70 Conn. 583, 589, 40 A. 460; Jones Hotchkiss Co. v. Davenport, 74 Conn. 418, 420,50 A. 1028; Morehouse v. Bradley, 80 Conn. 611, 613,69 A. 937; O'Loughlin v. Poli, 82 Conn. 427, 429, 74 A. 763.

The allegations of the complaint do not place limitations upon the plaintiff's right to a foreclosure of its lien for whatever sum is rightfully due to it on account of the construction of the building. They are sufficient to support a judgment of foreclosure upon whatever theory or basis the amount of that indebtedness is to be arrived at, whether it be that the plaintiff performed its contract, or substantially performed it, or was wrongfully prevented by the defendant from performing it.

Doubtless counsel for the defendant are right in saying that the complaint gives evidence that the plaintiff was not looking to a recovery upon the basis of performance, since the averment that the work was done under a contract providing for payment after completion, is unaccompanied by one of completion. But it does not follow from that fact that the amount for which foreclosure may be had is to be determined upon direct proof of the reasonable worth of the labor performed and materials furnished, and not with reference to the contract price presumably embodying an element of profit. On the contrary, the well-established rule, in this and other jurisdictions, is that the reasonable value for which recovery may be had in cases of substantial performance of building contracts, is to be ascertained with reference to the contract price and by deducting from that price such sum as ought to be allowed for the omissions and variations.Pinches v. Swedish Evangelical Lutheran Church,55 Conn. 183, 187, 10 A. 264; Jones Hotchkiss Co. v.Davenport, 74 Conn. 418, 420, 50 A. 1028; Valente v.Weinberg, 80 Conn. 134, 138, 67 A. 369; Morehouse v. Bradley, 80 Conn. 611, 614, 69 A. 937; O'Loughlin v.Poli, 82 Conn. 427, 429, 74 A. 763; Bowen v. Kimball,203 Mass. 364, 369, 89 N.E. 542; Danforth v. Freeman,69 N. H. 466, 469, 43 A. 621; Phillip v. Gallant,62 N.Y. 256, 265; 24 L.R.A. (N.S.) 351 note; 6 R. C. L. p. 967, § 343.

If it were so that the complaint contained averments which, either expressly or by reasonable implication, alleged completion, the plaintiff would not for that reason be deprived of the right to have a judgment of foreclosure for an amount ascertained upon the basis of substantial performance. Healy v. Fallon, 69 Conn. 228,234, 37 A. 495.

The rule stated as applicable to building contracts is an exception to that governing contracts generally. It had its origin in considerations of equity and justice, and its recognition is due to the fact that substantial justice in such cases can be done in no other way. There is no reason why one who has substantially performed such a contract, but unintentionally failed of strict performance in the matter of minor details, should have imposed upon him as a condition of recovery for that of which the other party has received the benefit, the burden of showing by direct evidence its reasonable value, or why he should be deprived of all benefit of the contract which he has substantially performed. The doctrine of substantial performance has had the approval of the courts for the very purpose of avoiding the hardships arising from the operation of the general rule, and the principles governing its application were designed to work to the fullest attainable extent approximate justice to all concerned.

In the determination of the amount of deduction which ought to be made in the application to specific cases of the rule stated, regard must be had to the circumstances which each presents. A different method, for instance, is required to accomplish the ends of justice where the shortcomings are such as may be remedied and completion according to the contract had without substantial interference with the structure of the building, than where the remedy and completion involves substantial structural changes. In the first case — and that, upon the finding, is this case — the approved method under ordinary conditions is to deduct from the contract price such sum as it would cost to make the work comply with the contract. In the latter case, the amount of deduction might be measured by the diminished value of the building to the owner by reason of the defects. In any case, the deduction is to be so determined that the owner's resultant payment will be fair and reasonable compensation with reference to the contract price for what of value to him he has received and no more, and that the contractor shall receive a fair reward determined by the contract standard for the benefit conferred by him in his attempt to execute the contract. Pinches v. SwedishEvangelical Lutheran Church, 55 Conn. 183, 187,10 A. 264; Sherry v. Madler, 123 Wis. 621, 626,101 N.W. 1095; Gleason v. Smith, 63 Mass. (9 Cush.) 484, 486; Sticker v. Overpeck, 127 Pa. 446, 450, 17 A. 1100;Holl v. Long, 34 Misc. Rep. (N. Y.) 1, 3,68 N.Y.S. 522; 24 L.R.A. (N.S.) 351 note; 134 Amer. State Rep. 684 note.

The fact that the plaintiff was wrongfully prevented by the defendant from continuing with the work does not stand in the way of the defendant's indebtedness to it being determined on the basis of substantial performance. By such performance it won the right to recover with reference to the contract price, and it was not in the defendant's power to deprive it of the benefits of such recovery by a wrongful act. It well may be that in such case the contractor would have the right to treat the contract as rescinded, and avail himself of redress against the wrongdoer by the recovery of damages measured as outlined and applied in Valente v.Weinberg, 80 Conn. 134, 138, 67 A. 369. But to hold that by reason of an act of wrongdoing on the part of the owner a contractor loses the right which was his by virtue of his substantial performance, is quite another matter. It would be a strange doctrine indeed which should give to the wrongful act such effect, and Valente v. Weinberg furnishes no support for it. In that case the court was not dealing with a situation in which there had been a substantial performance. The plaintiff, indeed, claimed that he had nearly completed the building, but near completion is by no means the same thing as substantial completion according to contract, as that phrase is used in the law. The case was discussed throughout as one where the plaintiff had chosen to treat the contract as rescinded by reason of the defendant's wrongful prevention of performance, and the rule for the measure of damages was prescribed with that fact solely in view. No reference was anywhere made to the presence of the element of substantial performance, or to the rights of the plaintiff, had it been present. The case of Hoyt v. Pomeroy, 87 Conn. 41,86 A. 755, was one brought by a contractor who treated the contract, not substantially performed, as rescinded by the wrongful act of the owner and sued to recover the reasonable worth of the labor and materials he had put into the building. The opinion, citing Valente v.Weinberg, 80 Conn. 134, 67 A. 369, rightly says that the measure of damages in such case is not the contract price less the cost of completing the contract, but the reasonable value of the services and materials furnished. p. 46. A broader proposition it neither lays down nor implies.

It remains to consider whether or not the court was justified in reaching the conclusions of fact stated, upon the strength of which it acted and, as we have seen, properly acted. The defendant contends that it erred in respect to the first of them, to wit, that the contract was substantially performed. The question of substantial performance is ordinarily one of fact, and this case furnishes no exception by reason of the subordinate facts found being inconsistent with the ultimate conclusion.Morehouse v. Bradley, 80 Conn. 611, 613,69 A. 637. Our examination of the conflicting evidence satisfies us that the conclusion is one which we cannot disturb.

It is one of the conditions of a contractor's right to recover as for substantial performance, that his default was not wilful or voluntary. The fact that the plaintiff did not continue in its efforts to complete performance until its accomplishment, did not convert its default in that respect into a wilful or voluntary one. It was deprived of the opportunity to do what it was proposing to do and engaged in doing by way of completion of details and correction of faults, by the act of the defendant who, acting upon the authority of a certificate of default given by the architects and proceeding as provided in Article V of the contract, terminated its employment. Had this action on the part of the architects and owner been justified by the plaintiff's conduct in respect to the execution of its contract, a very different situation would be presented. But the court has found that there was no such justification for the termination of the plaintiff's employment. As bearing upon the question of the plaintiff's attitude toward the work and its completion, it would appear that it was quite immaterial whether or not the architects acted in bad faith in giving the certificate upon the strength of which the plaintiff's employment was terminated. But the court has found, as it was competent for it to do, that their action was not in good faith, and that puts an end to its efficiency for all purposes connected with the case.

The court's finding that the additional expenditure of $500 would have sufficed to fully complete the contract is one which presents a more troublesome question. It appears from the memorandum of decision that in arriving at the figures named as the reasonable cost of completion, the court in effect adopted the estimate made by one Kimball, an expert witness called by the plaintiff. This it was permissible for it to do, provided Kimball's estimate covered as wide a field of deficiency as did the finding of the court. Our study of this witness' testimony satisfies us that such was not the case. The questions propounded to him, in response to which the $500 estimate was given, contained obvious limitations, and limitations which, as appears from the character of the testimony offered on behalf of the defendant, were important. The witness was asked for his estimate of the reasonable expense "of making such changes and corrections in the duct work as were accessible as indicated in the report of Matlock." Waiving the irregularity of basing the inquiry upon the contents of a report not in evidence, as the report of Matlock was not, the question propounded to the witness contained two important limitations, in that it confined the estimate called for to changes and corrections, and to changes and corrections in accessible construction. It did not include omissions, of which there were apparently some at least, and took into account no construction which was inaccessible, as some of the plaintiff's installation complained of was. The estimate given appears to have conformed to the question, and we fail to find any testimony extending its scope. Apparently the court inadvertently mistook the character of this testimony, and assumed that it was more comprehensive than we find it to have been.

The defendant's counterclaim, which the court disallowed, contains two entirely independent claims: (1) for the sum of $8,784.95, an amount audited and certified by the architects as the expense incurred by the defendant in the completion of the plaintiff's contract, as provided in Article V; and (2) for the sum of $15,075 as liquidated damages for failure to complete the work by the time agreed, computed at the rate of $75 per day as provided in Article VI. The total of both was claimed.

A large part of the $8,784.95 item was expended in the installation of a newly designed system for the ventilation of a portion of the hotel, to take the place of that originally designed and substantially constructed by the defendant. The court finds that most of it was so expended. The reason assigned for this substitution was that such method of correction of the plaintiff's defective work was more economical than the direct process of correction would have been. The court has found that this was not so. It has further found that the architects knew that it was not so, that their audit and certificate, pursuant to Article V, was not in good faith, and therefore that the sum so certified is not conclusive evidence of the plaintiff's obligation to pay that amount. The defendant has asked a correction of the finding by the elimination of its statement as to the architects' knowledge. Given the facts as to the substantial completion of the work as the court has found them and as they must stand, it would be difficult to escape the conclusion of knowledge on the part of the architects which the court drew. It certainly was a reasonable and legitimate one. From it the ultimate conclusion, that the plaintiff was not chargeable with the certified amount, follows naturally and as a matter of course.

It is said that the certificate of the architects should not have been rejected in toto, even upon the assumption that there was bad faith in the inclusion in it of improper items. It is to be remembered that the certificate is pleaded as under the contract conclusively binding the plaintiff to the payment of the amount certified. The bad faith found simply avoids that effect, and takes away from the certified amount the element of adjudication. The parties are not thereby deprived of their rights or relieved of their obligations as they may be disclosed by the evidence. Those rights and obligations came under consideration in the determination of the amount that the plaintiff is entitled to receive for the work done and in view of that undone.

In this connection notice should be taken of a claim of counsel for the defendant which appears at this and several other points in their argument, including the discussion of objections to the admission of testimony. They contend that the defendant is entitled to repayment for the expense in fact incurred by it in correcting the faults existing in the work and accomplishing completion. That would be true if the termination of the plaintiff's employment had been rightful, and the required certificate had been given. The contract so provides. But here the termination was wrongful. The provisions of Article V, therefore, are not applicable to this situation and the defendant's remedy for nonperformance is that provided by the ordinary rules of law, to wit, a deduction or allowance, from the contract price for the finished work, of such sum as represents a fair and reasonable cost of repair and completion.

Turning now to the second matter embraced in the counterclaim, it is to be observed that the defendant would not be permitted, in any event, to have redress for delay in completion, by the enforcement of the contract provision for liquidated damages, and at the same time to avail itself of the provisions of Article V. Resort to the latter precludes resort to the former.New Haven v. National Steam Economizer Co., 79 Conn. 482,492, 65 A. 959. The defendant, however, does not, in the present state of the case, encounter that obstacle to the presentation of its claim for liquidated damages. The plaintiff, in its reply to this counterclaim, alleged a waiver of the pertinent contract provisions, and the court has found such waiver. This is a finding of fact and one which, in view of the evidence, we may not disturb. Chatfield Co. v. O'Neill, 89 Conn. 172,175, 93 A. 133.

Other assignments of error of minor importance do not, in view of our conclusion, call for consideration.

There is error and a new trial is ordered.

In this opinion THAYER and RORABACK, Js., concurred.