Portzen Construction, Inc. v. Cal-Co Insulation, Inc., Cal-Co Insulation, Inc. v. Portzen Construction, Inc., and United Fire & Casualty Company

IN THE COURT OF APPEALS OF IOWA
No. 13-0758
Filed May 29, 2014
PORTZEN CONSTRUCTION, INC.,
Plaintiff-Appellee,
vs.
CAL-CO INSULATION, INC.,
Defendant-Appellant.
CAL-CO INSULATION, INC.,
Plaintiff-Appellant,
vs.
PORTZEN CONSTRUCTION, INC., and
UNITED FIRE & CASUALTY COMPANY,
Defendant-Appellees.
________________________________________________________________
Appeal from the Iowa District Court for Dubuque County, Thomas A.
Bitter, Judge.
A subcontractor appeals from the judgment entered by the district court in
favor of a general contractor. AFFIRMED.
Todd J. Locher of Locher & Locher, PLC, Farley, for appellant.
Douglas M. Henry of Fuerste, Carew, Juergens & Sudemeier, P.C.,
Dubuque, for appellee Portzen.
Drew J. Gentsch of Whitfield & Eddy, P.L.C., Des Moines, for appellee
United Fire.
Heard by Doyle, P.J., Tabor, J., and Zimmer, S.J.*
*Senior judge assigned by order pursuant to Iowa Code section 602.9206 (2013).
2
DOYLE, J.
Cal-Co Insulation, Inc., a subcontractor on a commercial building
renovation project, appeals from the judgment entered by the district court in
favor of general contractor Portzen Construction, Inc. on the parties’ respective
breach-of-contract claims and the discharge of the bond posted by United Fire
& Casualty Company. We affirm.
I. Background Facts and Proceedings
In early 2011, Gronen Restoration, Inc. began accepting bids for a number
of construction contracts associated with a renovation project of the Caradco
building in Dubuque. Portzen Construction, Inc. prepared a bid for the contract
entitled “Concrete Flooring Systems”—a flooring portion of the project that
included installation of insulation in places, a layer of noise-retardant material,
and new concrete poured over the top. As part of its bid, Portzen wanted to offer
Gronen the option of either “rigid board” insulation or “spray foam” insulation.
To provide the spray foam insulation option, Portzen contacted Cal-Co
Insulation, Inc. to request a subcontractor bid. Portzen told Cal-Co the second
floor would require 633 cubic yards of insulation and the third floor would require
720 cubic yards of insulation.1 Cal-Co stated it would need to calculate its
numbers. Cal-Co called back later that day and told Portzen its cost would be
$14,185 to spray the second floor and $16,135 to spray the third floor, for a total
of $30,320.
1
To prepare the estimate of the amount of product that would be needed, Portzen owner
Michael Portzen calculated the volume of the area to be insulated by using more than
400 different elevation points on each floor.
3
The next day, June 2, 2011, Cal-Co met with Portzen at Portzen’s office.
Portzen showed Cal-Co the project plans, and emphasized that the floors of the
Caradco building were uneven and the layer of insulation would vary between
one inch and ten inches. Portzen also told Cal-Co the job would need to be done
in stages, meaning Cal-Co would have to do sections of the insulation rather than
complete the insulation at one time. After some discussion, Cal-Co stated the
extra “mobilizations” would add an additional $1000 to its bid. Portzen therefore
considered Cal-Co’s bid to be an even $32,000.
Portzen submitted its bid to Gronen later that day. Relying on Cal-Co’s
subcontractor bid, Portzen’s bid included the option to “use spray foam in lieu of
board insulation” for a $265,000 deduction in cost. Gronen accepted Portzen’s
bid with the spray foam insulation option and a contract between Gronen and
Portzen was signed. An agreement between Portzen and Cal-Co was drafted
but was not signed.
On June 13, Cal-Co sprayed a test section (approximately ten feet by ten
feet) with spray foam insulation. Cal-Co billed Portzen $840 for the test section.
On September 1, Cal-Co sprayed an entire apartment of the building
(apartment 222) as another test section. Cal-Co billed Portzen $5268 for the
spraying on apartment 222.
Around that time, Cal-Co became concerned the job was going to require
far more spray foam insulation than it had originally determined. Cal-Co
contacted its spray foam insulation supplier in an attempt to get a better price on
the insulation. Cal-Co and the supplier discussed the job site measurements.
The supplier calculated the total quantity of insulation Cal-Co needed for the job
4
to be between 106 and 125 “sets” of insulation,2 priced at approximately $1950
per set—for a total product cost of $206,700 to $243,750.
Cal-Co contacted Portzen regarding the fact that the job was going to
require more than $200,000 in product alone. To prevent the project from
coming to a standstill, Portzen asked Cal-Co to spray a section of the building
(approximately 5000 square feet) to buy some time to find a solution to the
problem. Between September 23 and September 28, Cal-Co sprayed 5160
square feet, for which it billed Portzen $10,986.
Meanwhile, Portzen met with Gronen to discuss miscalculation of cost for
the spray foam insulation portion of the project. Ultimately, Gronen hired Noonan
Insulation to finish the insulation job. Bel-Aire Home Improvements also
completed a small portion of the insulation. Portzen lost a total of $303,000 as a
result of Cal-Co not completing the insulation as originally planned.
Portzen filed a petition at law claiming Cal-Co breached its contract with
Portzen and seeking damages in the amount the actual cost of completion of the
insulation “exceeded the agreed price of $32,000,” plus interest and costs.
Meanwhile, Cal-Co filed an action in equity against Portzen and its bonding
company, United Fire & Casualty Company, seeking recovery on its mechanic’s
lien in the amount of $18,837 that Portzen discharged, for work completed by
Cal-Co that had not been paid by Portzen. The district court stayed Cal-Co’s
equity action pending the outcome of Portzen’s law action.
2
Each set of spray foam insulation is approximately 1000 pounds and covers about
4500 board feet. Witnesses at trial testified a “board foot” is a unit of measurement
twelve inches by twelve inches by one inch.
5
Following a bench trial, the district court determined a contract existed
between the parties and entered judgment in favor of Portzen on its breach-of-
contract claim. The court found, “Cal-Co had enough information to properly bid
the job. Cal-Co simply made a mistake.” The court further determined, “Portzen
acted to its detriment in reliance on [Cal-Co’s] promise. Substantial injustice
would result if the promise is not enforced.” The district court awarded Portzen
$303,000 in damages. The court also ordered Portzen to pay Cal-Co $1743 for
work it performed but was not paid for on a different part of the Caradco building.
Cal-Co filed a motion to enlarge, and Portzen filed a motion to provide for
payment and a motion to discharge bond. Following a hearing, the court entered
an order (1) denying Cal-Co’s motion, (2) specifying the terms of payment to
satisfy the parties’ respective judgments, and (3) discharging the bond posted by
United. Cal-Co now appeals.3,4
3
United, as appellee, joins the arguments made by Portzen on appeal. Insofar as
United alternatively claims Cal-Co waived any claims against United by not specifically
discussing “United,” we believe Cal-Co’s claims appropriately incorporate United and
address them as such.
4
Inexplicably, the parties failed to include any part of the trial transcript in their appendix,
even though portions of the transcript were referenced frequently in their briefs. Iowa
Rule of Appellate Procedure 6.905(2)(b)(3) prescribes the appendix “shall contain”
relevant portions of the transcript. There is a reason for the rule. Non-electronic district
court files are easily accessible to those judges who office in the Judicial Branch
Building, but these materials are not readily available to those judges who office outside
of Des Moines. Including relevant portions of the transcript in the appendix makes that
critical material readily and equally accessible to all judges on the panel considering the
appeal—whether they office in Des Moines or elsewhere. This court’s mandate is to
justly decide a high volume of appeals. See Iowa Ct. R. 21.12. Parties’ compliance with
appellate rules of procedure promotes judicial efficiency, thus aiding this court in doing
its work to meet that mandate. With full implementation of EDMS and electronic
appellate filing, the appendix may well go the way of the dinosaur. But until then,
parties’ compliance with current rules governing the preparation of appendices is
imperative.
6
II. Standard of Review
We review a breach of contract action for correction of errors at law. Iowa
Mortgage Ctr., L.L.C. v. Baccam, 841 N.W.2d 107, 110 (Iowa 2013); see Iowa R.
App. P. 6.907. “If substantial evidence in the record supports a district court’s
finding of fact, we are bound by its finding.” Iowa Mortgage, 841 N.W.2d at 110.
The district court’s legal conclusions and application of legal principles, however,
are not binding on the appellate court. See id. If the district court has applied
erroneous rules of law that materially affected its decision, we must reverse on
appeal. Land O’Lakes, Inc. v. Hanig, 610 N.W.2d 518, 522 (Iowa 2000).
We also review a claim for damages arising from the construction of a
building for error of law. Serv. Unlimited, Inc. v. Elder, 542 N.W.2d 855, 857
(Iowa Ct. App. 1995). Again, the findings of the district court are binding on us if
supported by substantial evidence. See id.
III. Timeliness of Appeal
Portzen contends Cal-Co’s notice of appeal was untimely. Portzen
asserts the post-judgment motion filed by Cal-Co amounted to nothing more than
a rehash of legal issues and, as a result, it was not a valid rule 1.904(2) motion
and did not toll the time for appeal. See Baur v. Baur Farms, Inc., 832 N.W.2d
663, 668-69 (Iowa 2013) (“When a rule 1.904(2) motion amounts to nothing more
than a rehash of legal issues previously raised, we will conclude the motion does
not toll the time for appeal.”). Cal-Co responds by claiming its rule 1.904(2)
motion did not simply rehash legal issues. Cal-Co points out that its motion
asked the court to amend its factual findings concerning the amount of work, and
at what price, Cal-Co agreed to provide. Cal-Co further points out that its motion
7
took issue with the court’s findings regarding Portzen’s damages. Upon review
of the record, we conclude Cal-Co’s motion was not merely a rehash of legal
issues and accordingly, it tolled the time for appeal. See Iowa Rs. App. P.
1.904(2); 6.101(1)(b). We proceed to the merits of the appeal.
IV. Sufficiency of Evidence to Prove the Existence of an Oral Contract
Cal-Co contends the district court erred in finding there was sufficient
evidence of an oral contract between Cal-Co and Portzen for Cal-Co to provide
633 cubic yards of spray foam insulation for $14,185 and 720 cubic yards of
spray foam insulation for $16,135. Portzen counters that the evidence presented
at trial was sufficient to support the district court’s judgment.
The existence of an oral contract, as well as its terms and whether it was
breached, are ordinarily questions for the trier of fact. Dallenbach v. Mapco Gas
Prod., Inc., 459 N.W.2d 483, 486 (Iowa 1990). To prove the existence of an oral
contract, the proponent must show the terms are “sufficiently definite for a court
to determine with certainty the duties of each party, the conditions relative to
performance, and a reasonably certain basis for a remedy.” Gallagher, Langlas
& Gallagher v. Burco, 587 N.W.2d 615, 617 (Iowa Ct. App. 1998). Where a
contract appears to exist, courts are reluctant to find it too uncertain to be
enforceable. Audus v. Sabre Commc’ns Corp., 554 N.W.2d 868, 872 (Iowa
1996). Accordingly, the question here is whether the terms of the
communications between Cal-Co and Portzen were definite enough to form a
contract.
From the testimony at trial, the district court heard vastly different
accounts of the interactions that took place between Cal-Co and Portzen during
8
the relevant two-day time period during which an agreement between the parties
was apparently reached. For instance, Ross Pierce, president of Cal-Co,
unequivocally denied ever going to Portzen’s office on June 2 to review the job
plans. Pierce also testified he did not remember “receiving a total cubic yard
number” from Portzen, and to the contrary, stated he had provided Portzen with
Cal-Co’s board-foot “rate” and allowed Portzen to calculate the total numbers.
In reaching its factual findings, the district court relied on the testimony of
Portzen estimators Ben Mumm, Andrew Noble, and Michael Portzen, which
contradicted the testimony of Pierce. The court found Portzen provided
information about the job to Cal-Co (including, significantly, that the second floor
would require 633 cubic yards of insulation and the third floor would require 720
cubic yards of insulation), Cal-Co calculated its numbers, and Cal-Co informed
Portzen it would cost a total of $30,320 to spray the two floors. The district court
also found Pierce met at Portzen’s office to review the plans and at that time,
stated Cal-Co would need an additional $1000 for the extra “mobilizations”5
required for the job. Using the numbers provided by Pierce ($30,320 + $1000),
Portzen then submitted its bid to Gronen, which included an option for using Cal-
Co’s spray foam insulation for $32,000. Portzen subsequently mailed a
subcontract agreement to Cal-Co setting forth a price of $32,000 for the work to
be performed. Cal-Co did not respond to the agreement, but performed work on
the Caradco building for Portzen shortly thereafter.
Cal-Co’s claim focuses on the factual discrepancies in the record on this
issue. Our role as the reviewing court is not, however, to dissect the record
5
I.e., trips to the job-site.
9
anew to reach our own factual findings. Rather, the district court’s findings of fact
have the effect of a special verdict and are binding upon us if supported by
substantial evidence. Iowa Rs. App. P. 6.904(3)(a); 6.907. Evidence is
substantial where a reasonable mind would accept it as adequate to reach a
conclusion. Land O’Lakes, 610 N.W.2d at 522. In determining whether
substantial evidence supports the trial court’s judgment, we view the evidence in
the light most favorable to judgment. Id.
In reaching its findings, the district court stated:
. . . Ross Pierce was told the correct volume (cubic yards) of
insulation needed. He was specifically advised by his provider that
he should bid the job in board feet, not cubic yards and that he
should go to the job site personally to measure the job. Michael
Portzen used many different elevation points and calculated
precisely the volume of insulation needed for the project. Cal-Co
had enough information to properly bid the job. Cal-Co simply
made a mistake.
....
There was a clear and definite promise between the parties.
The promise was made with Cal-Co’s clear understanding that
Portzen was seeking an assurance on which Portzen could rely.
Portzen acted to its detriment in reliance on that promise.
Substantial injustice would result if the promise is not enforced.
We conclude substantial evidence supports the district court’s findings.
There is no question under this record that the parties discussed the job plans,
contemplated the measurements and scope of the project, and agreed upon a
definite amount for which Cal-Co would be compensated for completing the job.
“In order to find that an oral contract existed, there must be sufficient evidence of
its terms to ascertain the duties and conditions established.” Audus, 554 N.W.2d
at 871. We affirm on this issue.
10
V. Duty of Further Inquiry
Cal-Co contends even assuming, arguendo, Cal-Co quoted a price of
$30,320 for spray foam insulation, “the quote would have been too good to be
true, triggering Portzen’s duty to make inquiry concerning the accuracy of the
quote.” Cal-Co points out its bid was $300,000 less than the lowest bid for rigid
board insulation (the other insulation option Portzen included in its bid to
Gronen), but “no one at Portzen thought to investigate the vast discrepancy.”
According to Cal-Co, “Portzen should bear the brunt of its mistake.”
Cal-Co relies on authority from other jurisdictions and general contract
principles to support its proposition that Portzen had a duty to investigate an offer
too good to be true. See, e.g., Speckel v. Perkins, 364 N.W.2d 890, 893 (Minn.
Ct. App. 1985) (“A duty to inquire may be imposed on the person receiving the
offer when there are factors that reasonably raise a presumption of error. An
offeree will not be permitted to snap up an offer that is too good to be true . . . .”)
(internal citation and quotation marks omitted) (citing 1 Williston on Contracts
§ 94 (3d ed. 1957)). Portzen counters that any duty to inquire was not triggered
under these circumstances. Portzen points to the fact that the district court made
factual findings Portzen did not know or should not have known Cal-Co’s bid was
too good to be true.
Again, the district court’s findings of fact have the effect of a special
verdict and are binding upon us if supported by substantial evidence. Iowa Rs.
App. P. 6.904(3)(a); 6.907.
Clearly, there was no fraudulent conduct on the part of
Portzen. The fighting factual issue seems to be whether Portzen
knew, or reasonably should have known, that Cal-Co’s bid was so
11
low as to make that bid “too good to be true.” Both parties have
legitimate arguments to support their position and the issue is a
close call. The difference between the Cal-Co spray foam bid and
the next lowest bid is extreme. The Cal-Co bid was only 10% of the
next lowest bid. However, only the Cal-Co bid involved spray foam
insulation. All of the other bids involved rigid (traditional Styrofoam)
insulation. Portzen had essentially no prior experience with spray
foam insulation. There is nothing to suggest that Portzen had ever
applied spray foam insulation or that Portzen knew anything about
the pricing of spray foam insulation. Ross Pierce had been in the
business of measuring and pricing jobs for years. He had been
applying spray foam insulation since 2004. He had attended a four-
day course specifically pertaining to spray foam insulation. He has
access to his sales rep, and he has dealt with that same rep for five
years. The Court cannot find that Portzen knew or reasonably
should have known that the bid was “too good to be true.”
We conclude substantial evidence supports the district court’s findings. It
is apparent Portzen had no prior experience using spray foam insulation and
Portzen contacted only one spray foam insulation provider (Cal-Co) in collecting
bids to provide an alternative for spray foam insulation. Cal-Co was a local
company and an experienced spray foam insulation provider. Michael Portzen
testified he believed rigid insulation work was “a lot more labor intensive” than
spray foam insulation work. Like the district court, we cannot find that Portzen
knew or reasonably should have known Cal-Co’s bid was too good to be true.
VI. Damages
Cal-Co contends the district court’s award of damages to Portzen was
improper because the court failed to reduce the award by $185,000 due to the
price adjustment Gronen made on its contract with Portzen after the pricing error
of the spray foam insulation bid by Cal-Co was discovered. Cal-Co further claims
the court erred in offsetting Portzen’s damage award by $18,837 for work Cal-Co
performed that “remains unpaid.” Although Cal-Co sets forth these claims in
12
separate sections of its brief, we will address them collectively because they
implicate the proper amount of damages in this case.
The purpose of awarding damages in a breach of contract action is to
place the injured party in the position it would have occupied if the contract had
been performed. Flom v. Stahly, 569 N.W.2d 135, 142 (Iowa 1997).
Damages for breach of contract are limited to those injuries which
may reasonably be considered as arising naturally from the breach
of contract itself, or such as may reasonably be supposed to have
been in the contemplation of the parties, at the time of contracting,
as a probable result of the breach.
R.E.T. Corp. v. Frank Paxton Co., Inc., 329 N.W.2d 416, 420 (Iowa 1983).
Here, Portzen was entitled to recover the damages it incurred to complete
the contract following Cal-Co’s discharge from the project to the extent that
completion costs exceed the unpaid balance of the contract price. See 6 Philip
L. Bruner and Patrick J. O’Connor, Bruner & O’Connor On Construction Law
§ 19:78 (July 2013) (“Damages incurred to complete the contract following the
owner’s just termination of the contract for default or the contractor’s wrongful
repudiation of the contract or wrongful abandonment of the project, are
recoverable to the extent that completion costs exceed the unpaid balance of the
contract price. The damage measure is the reasonable cost to complete the
contract in conformance with its terms, less unpaid contract funds.”); 22
Am.Jur.2d Damages § 83, at 118-19 (1965) (“[A] contractor that performed
defective work for a premises owner was entitled to recover breach-of-contract
damages in the amount of the remaining contract price less the premises owner’s
cost to complete or repair the contractor’s work. However, if the cost to complete
or repair exceeds the remaining contract price, the premises owner is entitled to
13
judgment for the excess.”); see also Kieffer v. Farrell, No. 10-1277, 2011 WL
2696392, at *2-3 (Iowa Ct. App. July 13, 2011) (holding after the owner had given
the contractor a reasonable opportunity to complete the work and repair
deficiencies, the owner could take over the work and offset against the contract
balance the sums incurred in doing so).
The district court determined Portzen suffered damages in the amount of
$303,000 as a result of Cal-Co’s breach. The district court relied on exhibits
submitted by Portzen and the testimony of Michael Portzen and Portzen’s
controller, Jayme Kluesner, to reach its conclusion. Specifically, Portzen
submitted into evidence an exhibit prepared by Kluesner entitled “Calculation of
Damages,” indicating the invoices paid to Noonan Insulation and Bel-Aire Home
Improvement by Portzen totaled $362,328.86. Cal-Co’s bid price of $32,000 was
deducted from that number, resulting in $330,328.86 in damages. Kluesner
testified he then pro-rated the damage award from $330,328.28 to $303,000 to
account for 126 sets of insulation rather than 136 sets of insulation—in order to
match the amount of insulation Cal-Co agreed to spray.6
With regard to Cal-Co’s claim concerning the pricing adjustment
addendum that was incorporated into the signed contract between Portzen and
Gronen indicating Noonan Insulation would finish the insulation job and Gronen
would pay an additional $185,000 to Portzen, we believe the district court
properly determined Portzen was entitled to recover the full $303,000 in
damages without accounting for the price adjustment made by Gronen. To
account for the unexpected extra cost of the insulation portion of the project,
6
The project ultimately required ten additional sets.
14
Portzen discounted the services it provided to Gronen. Michael Portzen testified
the $185,000 was absorbed by Portzen through deductions and credits given on
the project at issue coupled with Portzen’s other contracts with Gronen on the
Caradco building. As Michael Portzen testified:
Q. What happened with the $185,000 that Gronen agreed to
pay you as an addition? Where did that go? A. That’s—well,
$55,000 of it got saved by our costs on the concrete job. Another
$130,000 is going to come off our mechanical contract.
Q. So those are funds that, in fact, Gronen is not going to
pay you? A. Yes.
While the evidence is not crystal clear, we nevertheless believe substantial
evidence supports the court’s finding that Portzen’s damage award should not be
reduced by $185,000.
With regard to Cal-Co’s claim that Portzen’s damage award should be
offset by $18,837 for work Cal-Co performed that “remains unpaid,” we believe
the damage calculation submitted by Portzen essentially included a credit of
$32,000 to Cal-Co for work it performed (and did not perform) under its contract.
“The purpose of a damage suit is compensation; the goal is to place the injured
party in as favorable position as though no wrong had occurred. Damages are
limited to the actual loss.” R.E.T. Corp., 329 N.W.2d at 421.
In this situation, Portzen’s damages would be the cost of completion,
reduced by the amount outstanding on the contract with Cal-Co. See 6 Bruner
& O’Connor Construction Law §§ 19:77, 19:78. Even though Cal-Co only
performed work in the amount of $17,094,7 based on Portzen’s damage
7
Cal-Co persists it is owed $18,837, but Cal-Co fails to mention the district court entered
judgment against Portzen in the amount of $1743 to compensate Cal-Co for its work on
a portion of the project unrelated to the instant contract ($18,837+$1743=$17,094).
15
calculation sheet, Cal-Co received a credit for its entire bid of $32,000. We
conclude the district court properly awarded damages to Portzen.
VII. Conclusion
We have considered all issues presented on appeal and conclude the
judgment of the district court should be affirmed.
AFFIRMED.