Lewis Electric Co. Vs. Ronald E. Miller And Kathleen F. Miller

IN THE SUPREME COURT OF IOWA
No. 08–2008
Filed December 17, 2010
LEWIS ELECTRIC CO.,
Appellee,
vs.
RONALD E. MILLER and KATHLEEN F. MILLER,
Appellants.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Woodbury County,
Jeffrey A. Neary, Judge.
Contractor seeks further review of court of appeals’ reversal of
district court judgment on breach-of-contract claim, as well as reversal of
the district court’s denial of defendants’ breach-of-contract counterclaim.
DECISION OF COURT OF APPEALS AFFIRMED AS MODIFIED;
DISTRICT COURT JUDGMENT REVERSED, AND CASE REMANDED.
Jeffrey A. Sar of Baron, Sar, Goodwin, Gill & Lohr, Sioux City, for
appellants.
Jeffrey L. Poulson and Jessica R. Noll of Thomas & Poulson Law
Firm P.C., Sioux City, for appellee.
2
TERNUS, Chief Justice.
We have taken this breach-of-contract matter on further review to
consider the contention of appellee, Lewis Electric Co., that the court of
appeals’ instructions on remand require further clarification. See
Anderson v. State, 692 N.W.2d 360, 363 (Iowa 2005) (“On further review,
we can review any or all of the issues raised on appeal or limit our review
to just those issues brought to our attention by the application for
further review.”). 1 Agreeing that additional direction is required, we
affirm the court of appeals’ decision with the specific directive that the
scope of remand is limited to a determination of the damages incurred by
the appellants, Ronald E. Miller and Kathleen F. Miller (collectively
“Miller”), for Lewis Electric’s breach of contract with regard to the work it
performed at Miller’s store located in Le Mars, with judgment to be
entered in accordance with the directions given in this opinion.
I. Background.
Lewis Electric is an electrical contractor in Sioux City. Miller owns
The Tool Depot, a store with locations in Sioux City and Le Mars. At
various times during 2003 and 2004, Lewis Electric provided electrical
services on a time-and-material basis in Miller’s Sioux City store, billing
Miller $4164.53 for this work. In 2003, Miller hired Lewis Electric to
perform electrical work in the Le Mars store, which was in the process of
opening. The parties’ agreement as to the scope of this work was set
forth in two bid documents. Lewis Electric was to be paid $49,200 for
this work. After Miller had paid Lewis Electric $30,000 for electrical
services at the Le Mars store, a dispute over Lewis Electric’s performance
1The court of appeals’ decision stands as the final ruling on all other issues
raised on appeal. See Everly v. Knoxville Cmty. Sch. Dist., 774 N.W.2d 488, 492 (Iowa
2009).
3
arose. This dispute primarily involved the number of light fixtures to be
installed and the foot-candles the fixtures would provide.
The parties attempted to resolve their dispute. As a result of these
efforts, Lewis Electric deducted a small amount from the remaining
balance on the contract price for work it conceded it did not do, bringing
the amount it claimed under the contract to $18,871.64.
When the parties could not reach a full resolution of their dispute,
Lewis Electric brought a breach-of-contract action seeking payment of
$4164.53 for the services performed at the Sioux City store and
$18,871.64 for services rendered at the Le Mars store. Miller asserted
that no money was owed on the Le Mars account because Lewis
Electric’s work was defective. In addition, Miller filed a counterclaim
under a breach-of-contract theory, seeking recovery for the cost of
repairs to Lewis Electric’s defective work at the Le Mars store. Miller did
not dispute the work or amount owed with regard to the Sioux City store.
At the bench trial of this action, Lewis Electric presented evidence
in support of its breach-of-contract damages. Likewise, Miller submitted
evidence of its damages, specifically that it had paid $4045.15 for
engineering services to design a fix for Lewis Electric’s defective work and
$18,930 for electrical installation services to make the fix, for total
damages of $22,975.15.
The district court found that Lewis Electric had not breached the
Le Mars contract. Accordingly, it awarded damages to Lewis Electric on
its claim and denied Miller’s counterclaim. With respect to the Le Mars
contract, the district court reduced Lewis Electric’s damages from
$18,871.64 to $16,927.50 to reflect additional work the court found
Lewis Electric had not performed. The court also entered judgment in
favor of Lewis Electric on the Sioux City account in the sum of $4164.53.
4
Miller appealed, challenging only the rulings with respect to the
Le Mars contract. 2 Miller claimed there was not substantial evidence to
support the district court’s finding that Lewis Electric had not breached
this contract. The court of appeals agreed and reversed the judgment for
Lewis Electric with regard to the work performed at the Le Mars store as
well as the district court’s denial of Miller’s counterclaim. The court of
appeals’ disposition of the matter was as follows:
The portion of the judgment for the Sioux City account,
separate from the Le Mars account, is affirmed in the sum of
$4164.53. The remainder of the judgment ($16,927.50) is
vacated, and the matter of the Le Mars account and the
defendant’s counterclaim is reversed and remanded for
resolution. We assess appellate court costs one-half to Miller
and one-half to Lewis Electric.
Lewis Electric seeks further review of the court of appeals’ decision
on two grounds. First, Lewis Electric contends it was error to reverse, as
there was substantial evidence supporting the district court’s judgment
with respect to the Le Mars contract. Second, Lewis Electric contends
the instructions on remand were insufficiently specific in that they did
not direct the action to be taken by the district court to resolve the
parties’ claims on remand. As stated above, we have taken the case to
consider the second ground.
II. Analysis.
As stated above, the district court found that Lewis Electric had
substantially performed its contract with Miller, with the exception of a
few minor deviations that the court deducted from the contract price.
See Farrington v. Freeman, 251 Iowa 18, 23, 99 N.W.2d 388, 391 (1959)
(“[W]here substantial performance has been proven by the builder, he is
2The district court also considered and rejected a tort theory of recovery under
Miller’s counterclaim. Miller does not challenge this ruling on appeal.
5
entitled to his contract price less deduction for the value of any defects in
performance.”). The court of appeals held there was not substantial
evidence to support the trial court’s factual finding that Lewis Electric
did not breach the Le Mars contract. Although not expressly stated in its
opinion, the court of appeals held, in essence, that the record showed as
a matter of law that Lewis Electric did not substantially perform the
Le Mars contract due to its defective performance. 3 To address the
appropriate scope of the remand ordered by the court of appeals, it is
necessary to understand the rules governing recovery under the
circumstances presented here.
We begin with the potential recovery by Lewis Electric for its
performance under the contract. Due to the court of appeals’ reversal of
the district court’s finding of substantial performance, Lewis Electric may
not recover under “the general rule”
that a contractor who substantially performs under a
building or construction contract is entitled to recover the
contract price minus the cost of repairing the defects or
completing the unfinished part of the work so as to bring the
construction up to the level required by the contract.
24 Richard A. Lord, Williston on Contracts § 66:14, at 448–51 (4th ed.
2002) (noting any recovery under this rule is “subject to the qualification
that the contractor cannot recover more than the contract price”)
[hereinafter Williston on Contracts]. Instead, Lewis Electric’s recovery
under the contract, if any, will be governed by the following principle: “A
construction contractor who fails to perform substantially under the
contract can recover at most only in quantum meruit for the value of the
3The court of appeals appears to have held that there was not substantial
evidence to support the trial court’s finding that Lewis Electric’s “failure to provide
ninety-six light fixtures with seventy-six foot-candle levels did not constitute a breach of
the terms of the parties’ contract.”
6
work . . . .” Id. § 66:14, at 451. The measure of recovery under this rule,
“where the performance is incomplete but remediable,” is “the unpaid
contract price” minus “the cost of completing any unfinished work and
remedying any defective work,” “plus any other damages suffered by the
owner, not to exceed the benefit actually received by the owner.” Id.
§ 66:14, at 451–53.
Of course, recovery by Lewis Electric will occur only if the
remaining contract price is greater than Miller’s cost of completing or
remedying Lewis Electric’s work. If Miller’s damages 4 exceed the
remaining contract price of $19,200, Miller will be entitled to a judgment
in the amount of that excess. See Conrad v. Dorweiler, 189 N.W.2d 537,
540–41 (Iowa 1971) (applying rule that “party left with an uncompleted
contract could secure its completion and recover from the wrongdoer the
reasonable cost of finishing the work in excess of the original contract
price”); Restatement (Second) of Contracts § 347, at 112 (1981) (“[T]he
injured party has a right to damages . . . measured by (a) the loss in the
value to him of the other party’s performance caused by its failure or
deficiency, plus (b) any other loss . . . caused by the breach, less (c) any
cost or other loss that he has avoided by not having to perform.”)
[hereinafter Restatement]; 5 Restatement § 348(2)(b), at 119–20 (“If a
4“In defective construction cases, damages may include diminution in value,
cost of construction, and completion in accordance with the contract, or loss of rentals.”
R.E.T. Corp. v. Frank Paxton Co., 329 N.W.2d 416, 421 (Iowa 1983). Depending on the
circumstances, only one measure of damages may be appropriate or a combination of
them may be required to place the injured party in as favorable a position as though no
breach had occurred. Id. Here, Miller seeks the expenses he incurred to remedy and
complete the work that was required under his contract with Lewis Electric.
5As an illustration of the rule that the injured party is limited to damages based
on his actual loss in the context of a construction contract, the Restatement provides:
A contracts to build a house for B for $100,000, but repudiates the
contract after doing part of the work and having been paid $40,000.
Other builders would charge B $80,000 to finish the house, but B finds a
builder in need of work who does it for $70,000. B’s damages are limited
7
breach results in defective or unfinished construction . . . [the injured
party] may recover damages based on . . . the reasonable cost of
completing performance or of remedying the defects if that cost is not
clearly disproportionate to the probable loss in value to him.”); 6 Williston
on Contracts § 66:17, at 462 (“If the defect causing the breach is
remediable from a practical standpoint, recovery generally will be based
on the market price of completing or correcting the performance, minus
the unpaid part of the contract price.”).
Consequently, the district court on remand must first determine
the costs incurred by Miller to complete or repair Lewis Electric’s work.
If that figure is less than the remaining contract price, $19,200,
judgment for the difference will be entered in favor of Lewis Electric. If
Miller’s damages exceed the unpaid contract price, judgment for the
excess will be entered in favor of Miller. 7 The determination of Miller’s
________________________
to the $70,000 that he actually had to pay to finish the work less the
$60,000 cost avoided or $10,000, together with damages for any loss
caused by the delay. See Illustration 2 to § 348.
Restatement § 347 cmt. e, illus. 12, at 116.
6To illustrate the rule providing the measure of damages for incomplete or
defective construction, the Restatement states:
A contracts to build a house for B for $100,000 but repudiates the
contract after doing part of the work and having been paid $40,000.
Other builders will charge B $80,000 to finish the house. B’s damages
include the $80,000 cost to complete the work less the $60,000 cost
avoided or $20,000, together with damages for any loss caused by delay.
See Illustration 12 to § 347.
Restatement § 348 cmt. c, illus. 2, at 121–22.
7For example, if the district court finds all the costs claimed by Miller,
$22,975.15, were incurred to complete the contract work or repair defective contract
work, Miller would be entitled to a judgment on his counterclaim of $3775.15
($22,975.15 minus $19,200), plus interest and the costs of this action. The full
remaining balance under the contract of $19,200 is the appropriate deduction, not the
balance found owing under the contract by the district court, $16,927.50. The amount
found by the district court to be due to Lewis Electric for the work it performed reflects
a deduction in the contract price for work not performed by Lewis Electric, a sum
already included in the $22,975.15 costs to repair and complete Lewis Electric’s work.
8
damages shall be made on the basis of the current record. We find this
mandate to be appropriate, as the parties had a full and fair opportunity
in the proceedings below to present their evidence as to all issues and
have identified no error that would warrant a new trial. Therefore, there
is no basis for a retrial upon remand. See State v. Gordon, 732 N.W.2d
41, 44–45 (Iowa 2007) (“The State has pointed to no error in the district
court proceeding that would entitle the State to a new hearing . . . . In
sum, the State had a full and fair opportunity to support its accusation
. . . , but its evidence was insufficient. In view of these circumstances,
the [State] is not entitled to a second bite of the apple to remedy its
failure of proof.”); see also M-Z Enters., Inc. v. Hawkeye-Sec. Ins. Co., 318
N.W.2d 408, 416 (Iowa 1982) (stating that parties should not rely on
appellate court’s power of remand “as a substitute for careful trial
preparation and presentation of evidence”).
III. Disposition.
We affirm the court of appeals’ decision with the following specific
instructions. Upon remand, the district court shall enter judgment for
Lewis Electric on its Sioux City contract claim in the sum of $4164.53,
plus interest and costs. The court shall also determine Miller’s damages
resulting from Lewis Electric’s breach of the Le Mars contract, and enter
judgment in favor of Lewis Electric on its Le Mars contract claim or in
favor of Miller on its counterclaim, depending on whether Miller’s
damages exceed the remaining contract price of $19,200. 8
8Should the district court determine Miller is entitled to a judgment on his
counterclaim, under Iowa Rule of Civil Procedure 1.957, the court may not set off
damages awarded on Miller’s counterclaim against Lewis Electric’s recovery under the
Sioux City contract, as the parties have neither agreed to such an arrangement nor
have they brought the court’s attention to a statute that requires a setoff. See City of
Sioux City v. Siouxland Eng’g Assocs., 611 N.W.2d 777, 778–79 (Iowa 2000) (discussing
rule 225, now rule 1.957).
9
The court of appeals ordered that the costs on appeal be taxed one
half to Lewis Electric and one half to Miller. Iowa Rule of Appellate
Procedure 6.1207 provides that “[a]ll appellate fees and costs shall be
taxed to the unsuccessful party, unless otherwise ordered by the
appropriate appellate court.” We have recently held that it is an abuse of
discretion to divide costs equally between the parties when one party was
fully successful on appeal. Solland v. Second Injury Fund, 786 N.W.2d
248, 249–50 (Iowa 2010). Here, the only matter contested on appeal was
the respective liability of the parties regarding the Le Mars contract.
Miller was entirely successful on that matter, obtaining a reversal of the
judgments in favor of Lewis Electric on Lewis Electric’s contract claim
and on Miller’s contract counterclaim. Therefore, costs on appeal are
taxed to Lewis Electric, the unsuccessful party.
DECISION OF COURT OF APPEALS AFFIRMED AS MODIFIED;
DISTRICT COURT JUDGMENT REVERSED, AND CASE REMANDED.