Rodgers v. Walker

• Court: Court of Appeals of Tennessee
• Decided: July 30, 1998
• Docket: 03A01-9708-CH-00371
• Status: Published

Opinion

I N T H E C O U R T O F A P P E A L S A T K N O X V I L L E FILED July 30, 1998

Cecil Crowson, Jr. A L F O R D R O D G E R S a n d ) K N O X C O U N T Y Appellate C ourt Clerk S U Z A N N E R O D G E R S ) 0 3 A 0 1 - 9 7 0 8 - C H - 0 0 3 7 1 ) P l a i n t i f f s - C o u n t e r - ) D e f e n d a n t s - A p p e l l e e s ) ) v . ) H O N . F R E D E R I C K D . M c D O N A L D , ) C H A N C E L L O R D O N W A L K E R ) ) D e f e n d a n t - C o u n t e r - ) A F F I R M E D A S M O D I F I E D P l a i n t i f f - A p p e l l a n t ) a n d R E M A N D E D

J . T H O M A S J O N E S O F K N O X V I L L E F O R A P P E L L A N T

D A V I D A . L U F K I N O F K N O X V I L L E F O R A P P E L L E E S

O P I N I O N

G o d d a r d , P . J .

Alford and Suzanne Rodgers filed a complaint in Knox

County Chancery Court seeking damages arising from the

construction of their home. The suit was brought against the

general contractor, Don Walker. The Rodgerses alleged a breach

of the construction contract on the part of Mr. Walker and sought

damages for excessive costs and unreasonable delay in

construction. Mr. Walker answered the complaint and filed a counter-

claim seeking a past due balance on the project. The alleged

unpaid balance was $95,543.08 for costs of completing

construction plus a 15 percent contractor’s fee.

The Chancellor's final judgment, which incorporated his

memorandum opinion, awarded the Rodgerses a money judgment

against Mr. Walker in the amount of $24,256.16.

After the conclusion of post-trial motions, the

Chancellor reduced the money judgment to an even $24,000. A

timely notice of appeal was promptly filed by Mr. Walker, and

this appeal followed.

The Rodgerses and Mr. Walker entered into a

construction contract dated July 14, 1994. The contract was a

preprinted form titled “Sales or Construction Contract,” with

blanks to be filled in as to certain information. The blanks

were filled in and other language was added to the preprinted

form. Several pages were attached to the contract setting forth

various materials, including proposed allowances and house plan

sketches.

The Rodgerses submitted the contract to Home Federal

Savings Bank in order to obtain a construction loan. The

Rodgerses and Mr. Walker both signed a construction loan

agreement provided by Home Federal stating that the house was to

be completed no later than 360 days from the signing of the

construction contract.

2 Paragraph 3 of the contract relates to price and terms

and provides in part: “HOME to be built on a ‘COST PLUS 15%’

(ESTIMATED cost is $230,000.00).”1 The parties added this

language to the preprinted contract in typewritten form. Mr.

Walker’s first estimate for the house was $298,000, but the

Rodgerses made it clear they could not afford that price.

Paragraph 5 relates to the completion and delivery date

of the residence. The blank line for the number of days was

filled in such that paragraph 5 states:

It is agreed that the property will be ready and tendered for delivery on or before the expiration of 210 days from the date of this contract. Otherwise, the purchaser will have the option of canceling this contract and obtaining a refund of his earnest money deposit.

However, at the end of paragraph 5, the parties added: “If LOAN

is approved within thirty (30) days.” The loan was not approved

within 30 days.

At the time of the contract the parties intended that

Mr. Walker would build the Rodgerses a two level, 3,200 square

foot house. The house that was ultimately constructed was a

three level, 4,800 square foot house. The additional level and

square footage were the result of a basement being added, because

the slope of the lot and soil conditions made it more efficient

to put in a lower level. Mr. Walker had an opportunity to view

the land where the house was to be built before the parties

entered into the contract.

1 T h e e s t i m a t e d c o s t o f $ 2 3 0 , 0 0 0 f o r t h e h o u s e i n c l u d e d t h e p r i c e o f a s w i m m i n g p o o l ( $ 2 2 , 0 0 0 ) , w h i c h w a s n o t t o b e b u i l t b y M r . W a l k e r .

3 The Rodgerses were in Europe when the decision was made

to add the basement. When the Rodgerses returned to surprisingly

find their home had a basement they did agree to pay for the

extra work. Later, a letter was sent to the Rodgerses stating

that the cost overrun attributed to the added basement was

$10,064. There is conflicting testimony regarding decisions to

finish the basement and other changes and additions made during

the construction process.

Throughout construction the Rodgerses were presented

with monthly statements for costs of materials and services, plus

Mr. Walker’s 15 percent contractor’s fee. The Rodgerses paid all

of the statements sent to them except for the last one which

totaled an unexpected $95,543.08. Before the submission of the

last invoice, the Rodgerses had already paid approximately

$220,000.

The residence was not completed within the 210-day

period provided for in paragraph 5 of the construction contract.

Mr. Walker admitted at trial that there was a two-month delay in

obtaining the stucco contractor which appeared to be a major

reason for the delay. Eventually, the Rodgerses moved into the

house in early August of 1995, before it was completed and more

than a year after the contract was signed. Soon thereafter, the

Rodgerses’ attorney sent Mr. Walker a letter terminating him from

the job because of undue delay.

During the construction process, the Rodgerses

attempted to close on the permanent mortgage on numerous

occasions but were unable to do so because of Mr. Walker’s

4 delays. In June 1995, when the Rodgerses were preparing to close

their permanent mortgage, Mr. Walker provided the Rodgerses with

a document titled “Approximate Cost to Finish,” wherein he

estimated that it would cost approximately $46,300 to finish the

house. The Rodgerses used this figure to obtain a final closing

for a permanent mortgage. As stated above, the final bill

provided to the Rodgerses was approximately $50,000 more than the

estimate given only a few months earlier.

After terminating Mr. Walker, the Rodgerses hired

Herman Love to finish the house. Mr. Love finished the house and

was paid $24,669.90 for his costs and services.

The Chancellor awarded the Rodgerses $63,611.16 on

their claim for damages and awarded Mr. Walker $39,355 on his

counter-claim. The balance of the awards left Mr. Walker owing

the Rodgerses approximately $24,000. As stated above, Mr. Walker

then timely filed his notice of appeal to this Court on December

15, 1997.

The following issues, which we restate, are presented

by Mr. Walker:

I. Did the Chancellor err in calculating damages by using the estimated costs rather than the actual costs?

II. Did the Chancellor err by subtracting the 15 percent contractor’s fee from the amount owed to Mr. Walker by the Rodgerses?

III. Did the Chancellor err in awarding the Rodgerses construction loan interest as part of their damages?

5 IV. Did the Chancellor err in awarding the Rodgers damages for items that were not “punchlist” items but were additional work not covered by the contract with Mr. Walker?

Mr. Walker contends that the Chancellor improperly used

the estimated cost rather than the actual cost in calculating

damages under the cost plus contract between the parties. Issues

involving a trial judge’s contract interpretation have no

presumption of correctness on appeal. Hillsboro Plaza

Enterprises v. Moon, 860 S.W.2d 45 (Tenn.App.1993). However, in

cases such as this, where the case was tried without a jury,

there exists a presumption of correctness as to findings of fact

by the trial court. Rule 13 of the Tennessee Rules of Appellate

Procedure. However, no presumption arises as to questions of

law. Campbell v. Florida Steel Corporation, 919 S.W.2d 26

(Tenn.1996.) The case sub judice involves both questions of law

(contract interpretation) and of facts. The first issue before

this Court is one of proper contract interpretation.

There is no question that the construction contract

entered into between the Rodgerses and Mr. Walker was a cost plus

15 percent agreement. The Chancellor made such a ruling early in

the trial and the Rodgerses do not dispute that ruling. Mr.

Walker argues that the Chancellor’s final ruling on damages

contradicted the holding that the contract was cost plus because

Mr. Walker felt the damages were based on the final estimate of

$46,300 instead of his actual costs.

6 Generally, damages under a cost plus contract are based

on the actual costs incurred in building the house. When an

estimate is provided in a cost plus contract it is simply

that--an estimate, not a fixed price or guaranteed maximum.

Davis v. Sliney, an unpublished opinion of this Court, filed in

Jackson on July 21, 1988. Mr. Walker argues that the Davis case

is very similar to this case. In Davis, the contractor provided

a final estimate to complete the house of between $18,000 and

$20,000, but the final bill was for a little over $39,000. The

Court of Appeals held the contract was cost plus and that the

contractor was entitled to his actual costs. Mr. Walker claims

the same result should follow here because there is no dispute

that Mr. Walker incurred the expenses he is asserting.

The problem with Mr. Walker’s reliance on Davis is that

there is no discussion in that case referring to a provision like

paragraph 7 in the contract with the Rodgerses. Paragraph 7,

titled “CHANGES AND ADDITIONS” states:

If proposed construction or under construction, it is understood that any additions or changes not included in plans and specifications are to be agreed upon between the contracting parties and are to be confirmed in writing as the work progresses.

The Chancellor’s ruling emphasized that--although the contract

was cost plus--all provisions in the contract must be considered

in calculating damages. He interpreted paragraph 7 as placing a

duty on Mr. Walker to keep the Rodgerses reasonably informed of

increasing costs beyond the estimate of $230,000.2 The

2 T h e c o n s t r u c t i o n i n t e r e s t a g r e e m e n t w i t h H o m e F e d e r a l a l s o i n c l u d e d a p r o v i s i o n t o i n f o r m H o m e F e d e r a l i n w r i t i n g o f a n y c h a n g e s o r a d d i t i o n s t h a t w o u l d s u b s t a n t i a l l y i n c r e a s e t h e c o s t o f c o n s t r u c t i o n .

7 Chancellor’s opinion stated, “There must be some point at which

an owner receives some protection even under a cost plus percent

contract so as not to end up finding themselves in a position

where they owe a tremendous additional amount of money that was

unexpected.”

We agree with the Chancellor’s statement, but only when

a cost plus contract contains a provision like paragraph 7--the

type of provision that places a specific duty on the contractor

to get written confirmation of additions and changes that add

substantial costs to the construction of the house. If the cost

plus provision is to be enforced so must all other valid

provisions in the contract.

The Chancellor held that in light of paragraph 7 the

$50,000 of additional charges were unreasonable without the

matter being agreed upon in writing. Therefore, the Chancellor’s

final judgment did not contradict his ruling that the contract

was cost plus. The damages were simply calculated on what the

Rodgerses could reasonably be expected to pay pursuant to Mr.

Walker’s breach of paragraph 7.

Mr. Walker argues in the alternative that even if

paragraph 7 does allow for such a calculation of damages the

Rodgerses waived strict compliance with the provision. The

Rodgerses did admit to asking for some small changes and not

requiring written confirmation for those. However, there is much

disputed testimony as to which party was responsible for the

major changes that resulted in the huge additional expenses. It

8 is clear that the basement, which was the main reason for the

extra costs, was added without the Rodgerses' prior approval.

Regardless of the Rodgerses conduct, the written change

order requirement cannot be waived. “The clear meaning of

Tenn.Code Ann. § 47-50-112(c) prevents giving effect to oral or

implied waivers of the terms of a contract which requires a

written waiver." Barnett v. Willis, an unpublished opinion of

this Court filed in Nashville on June 13, 1990. The Court in

Barnett held that T.C.A. 47-50-112 supersedes prior case law that

holds the requirement of a written change order in an express

contract can be waived by the owner’s conduct. Therefore, we

hold that paragraph 7 was not waived and Mr. Walker was obligated

to provide such written change orders.3

Mr. Walker next argues that even if the Chancellor’s

general calculation of damages is proper, the Chancellor erred in

subtracting the 15 percent contractor’s fee from the balance owed

Mr. Walker. Mr. Walker was allowed to recover $46,300 as

reasonable costs the Rodgerses had to pay. However, the

Chancellor decided to subtract from that figure Mr. Walker’s 15

percent fee even upon no clear evidence the fee was even included

in the balance due.

We understand why Mr. Walker was not allowed to recover

his contractor’s fee on the amount that was held to be

unreasonable and required written confirmation. We do not see

3 M r . W a l k e r ’ s o w n e x p e r t w i t n e s s a d m i t t e d a t t r i a l t h a t a c o n t r a c t o r s h o u l d p r o v i d e b u y e r s w i t h w r i t t e n c o n f i r m a t i o n o f m a j o r c h a n g e s t h a t w i l l r e s u l t i n e x c e s s i v e c o s t o v e r r u n s .

9 any reason why Mr. Walker is not entitled to his contractor’s fee

on the costs that were reasonable for the Rodgerses to pay.

The Rodgerses are to receive damages that would put

them in the same position they would have been in had Mr. Walker

not breached the contract. They should not profit by the

defendant’s breach. Hennessee v. Wood Group Enterprises, Inc.,

816 S.W.2d 35 (Tenn.App.1991). Although Mr. Walker did not put

forth sufficient evidence to show that the 15 percent fee should

be added to the balance due, subtracting the fee would be

punitive to Mr. Walker and allow the Rodgerses to profit.

Therefore, we hold that it was error for the Chancellor to

subtract Mr. Walker’s contractor’s fee from the reasonable

balance due by the Rodgerses.

Mr. Walker also argues that the Chancellor erred in

awarding the Rodgerses construction loan interest as an element

of damages. Paragraph 5 of the construction contract provided

that the Rodgerses could cancel the contract and obtain a refund

of their earnest money if the construction of the house was not

completed on time. Mr. Walker does not dispute that he breached

the contract by not finishing the construction on time. However,

he claims that the Rodgerses did not assert their contractual

rights to damages and thus waived any right to recover damages

for the delay. Mr. Walker would be correct if it was not for the

provision that was added to the end of paragraph 5 by the parties

which states: “If the LOAN is approved within thirty (30) days.”

The loan was not approved within 30 days, thus making paragraph 5

void.

1 0 Without valid provisions for a completion date and one

restricting recovery, the Chancellor properly calculated damages

based upon a reasonable time for completion and foreseeable

damages. The Chancellor looked to both the 210-day completion

time period in the construction contract and the 360-day period

in the loan agreement with Home Federal in order to determine a

reasonable time for completion. The Chancellor concluded that a

360-day completion period was reasonable because it was 150 days

longer than what Mr. Walker had contracted for originally and

also because Mr. Walker had signed the agreement with Home

Federal giving him notice that the construction loan was based on

a 360-day completion period.

Because Mr. Walker signed the construction loan

agreement, the Chancellor held that construction loan interest as

an element of damages was foreseeable. We agree with the

Chancellor’s holding on this issue but rule that he erred in

awarding the Rodgerses $14,400 in interest.

As stated above, the Rodgerses should only be put back

in the position they would have been in had Mr. Walker fully

performed the contract. If the construction was completed on

time the Rodgerses would not have had to pay the additional

construction loan interest, but they would have had to pay a

mortgage payment upon conversion of the construction loan to a

permanent mortgage. Therefore, the Rodgerses are entitled to the

$14,400 minus the interest on their monthly mortgage payments

based on a reasonable rate the Rodgerses could have obtained at

the end of the 360-day completion period. A reasonable monthly

1 1 mortgage payment must be determined in order to recalculate the

total construction interest the Rodgerses should be awarded.

I n a d d i t i o n , t h e r e s h o u l d b e a d d e d t o t h e f o r e g o i n g t h e

a m o u n t o f i n t e r e s t t h e R o d g e r s e s h a d t o p a y b e c a u s e t h e h o u s e w a s

n o t c o m p l e t e d w i t h i n t h e 3 6 0 - d a y p e r i o d . T h i s w o u l d b e

c a l c u l a t e d b y d e t e r m i n i n g t h e t i m e p e r i o d - - i f a n y - - b e t w e e n t h e

e n d o f t h e 3 6 0 - d a y p e r i o d a n d t h e d a t e t h e p e r m a n e n t l o a n w a s

o b t a i n e d . F o r e x a m p l e , i f i t i s d e t e r m i n e d t h e d e l a y w a s a

p e r i o d o f t h r e e m o n t h s , t h e i n t e r e s t a s t o t h e l a s t t h r e e m o n t h s

o f t h e l o a n s h o u l d b e a d d e d t o t h e i n t e r e s t i n i t i a l l y d e t e r m i n e d

t o b e o w e d .

Mr. Walker’s final argument is that the Chancellor

erred in awarding the Rodgerses damages for items that were not

“punchlist” items but were additional work not covered by the

contract. Although the Chancellor is best suited to make these

factual determinations and we review them under a presumption of

correctness, we do hold that one item was included in the

Rodgerses' damages that was clearly not covered by the contract.

The trial record made it quite clear that the $24,669.90 paid to

Mr. Love for the additional work needed on the house included a

$5000 charge for banister work. These banisters were not part of

the contract between the Rodgerses and Mr. Walker and, thus, are

not the responsibility of Mr. Walker to pay. Therefore, the

$5000, plus Mr. Love’s 15 percent contractor’s fee on that

amount, should be subtracted from Mr. Love’s total charges,

resulting in a new balance of $18,669.90.

1 2 However, we also find that the Chancellor made a

similar error in calculating the balance due to Mr. Walker. Mr.

Walker’s balance due of $46,300 included a charge of $5,500 for

pool work. Mr. Walker admitted at trial that these were costs of

the pool builder and not his. Therefore, the $5,500 plus his 15

percent contractor’s fee should reduce the balance due. The

final payment owed by the Rodgerses to Mr. Walker would then

total $39,975. We find no error in all the other items included

by the Chancellor in the damage calculations.

Our corrections to the damage award results in Mr.

Walker recovering $39,975 for unpaid costs. The Rodgerses are

entitled to the $18,669.90 they had to pay Mr. Love and the

$24,541.26 spent on materials to finish the house, totaling

$43,211.16. The Rodgerses are further entitled to the

construction interest remaining after reasonable mortgage

payments have been subtracted. Therefore, the sum result is an

award of $3,236.16 plus the remaining construction interest for

the Rodgerses.

For the reasons stated above, the judgment of the

Chancery Court is affirmed as modified and remanded for

recalculation of interest the Rodgerses should recover in

accordance with this opinion and collection of the judgment and

costs below. Costs of appeal are adjudged against the Rodgerses

and their surety.

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ H o u s t o n M . G o d d a r d , P . J .

C O N C U R :

1 3 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ D o n T . M c M u r r a y , J .

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ C h a r l e s D . S u s a n o , J r . , J .

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