Smith Masonry v. Wipi Group, USA, Inc.

2023 S.D. 48

• Court: South Dakota Supreme Court
• Decided: September 20, 2023
• Docket: 30007
• Status: Published

Opinion

#30007-r-PJD 2023 S.D. 48

IN THE SUPREME COURT OF THE STATE OF SOUTH DAKOTA

****

TOM SMITH DBA TOM SMITH MASONRY, Plaintiff and Appellant,

v.

WIPI GROUP, USA, INC., Defendant and Appellee,

and

LINCOLN COUNTY, SOUTH DAKOTA, Defendant.

APPEAL FROM THE CIRCUIT COURT OF THE SECOND JUDICIAL CIRCUIT LINCOLN COUNTY, SOUTH DAKOTA

THE HONORABLE DOUGLAS E. HOFFMAN Judge

JEFFREY L. BRATKIEWICZ of Bangs, McCullen, Butler, Foye & Simmons, LLP Sioux Falls, South Dakota Attorneys for plaintiff and appellant.

RONALD A. PARSONS, JR. of Johnson, Janklow & Abdallah, LLP Sioux Falls, South Dakota Attorneys for defendant and appellee.

CONSIDERED ON BRIEFS JANUARY 9, 2023 OPINION FILED 09/20/23 #30007

DEVANEY, Justice

[¶1.] Tom Smith Masonry (Smith Masonry) instituted a mechanic’s lien

foreclosure action against WIPI Group USA, Inc. (WIPI), seeking to recover the

unpaid balance due under the parties’ construction contract and an award of

attorney fees. WIPI answered, asserting that Smith Masonry failed to properly

complete the work called for in the contract. WIPI also asserted claims for breach of

contract, breach of express warranty, and breach of implied warranty of reasonable

workmanship. After a six-day bench trial, the circuit court determined that Smith

Masonry had a valid mechanic’s lien for the unpaid contract balance; however, the

court further determined that WIPI was entitled to an offset because Smith

Masonry’s work did not meet a reasonable standard for construction of this nature.

The court relied on principles of equity to deny both parties relief and ordered that

each party be responsible for their own attorney fees and costs. Smith Masonry

appeals, asserting the circuit court erred in multiple respects in denying its

requested relief and abused its discretion in denying an award of attorney fees. We

reverse in part and remand in part.

Factual and Procedural Background

[¶2.] Tom Smith owns and operates Smith Masonry, and at the time of the

contract at issue, his sons, Brent and Brady, worked for his company. On February

14, 2014, Smith Masonry entered into a contract with WIPI to construct a fence

along the front of WIPI’s property in an industrial park. The construction of the

fence was part of a larger project wherein WIPI was converting an industrial

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building into a commercial office space. WIPI acted as the general contractor for

the project, and counsel for WIPI drafted the contract with Smith Masonry.

[¶3.] WIPI agreed to pay Smith Masonry a total of $60,387, with 40% paid

as a down payment, 57% due “upon satisfactory completion of the work as

determined by both parties and as outlined in [the contract],” and 3%, retained by

WIPI for one year, to be paid to Smith Masonry after satisfactory completion of the

general guarantee contained in the contract. The contract stated that WIPI would

pay Smith Masonry $28,620 for the construction and installation of twelve stone

veneer columns for the fence and two additional stone veneer columns for a sign,

$24,827 for subcontractor American Fence’s portion of the work for fence panels and

a gate, and $6,940 for a sign base. The contract incorporated a drawing by Tom

depicting a rough layout of the columns and fence panels on the property. The

drawing indicated that the columns would be 20 inches by 20 inches in width, with

two-by-two-foot caps, and that square footings would be 46 to 48 inches deep. The

contract also incorporated a surveyed site plan showing the proposed location of the

columns and fence. Pursuant to the contract, if there were any change orders, they

were to “be made by written agreement of all the parties.”

[¶4.] After WIPI paid the down payment, but before any work on the project

began, the parties executed an addendum to the original contract. Under the

addendum, Smith Masonry agreed to construct a fence around the entire lot. This

change required an additional 40 masonry columns at a sum of $95,400 and

additional fence panels at a sum of $23,515. The contract indicated that the

columns would be 29 inches by 24 inches in width, 6 feet tall, and spaced 24 feet

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apart. Similar to the original contract, Smith Masonry was to construct the

columns, American Fence was to install the panels, and any changes to the scope of

the work were to “be made by written agreement of all the parties.” WIPI agreed to

pay an additional $118,915 under the same payment terms as the original contract.

A surveyed site plan depicting the proposed location of the columns and fence was

attached to the addendum.

[¶5.] When construction began, Smith Masonry subcontracted with Krueger

Excavation to perform the dirt work and pour the concrete footings. Smith Masonry

had Krueger Excavation pour circular (not square), 24-inch footings at a depth of 46

to 48 inches. Tom claimed that he used circular rather than square footings

because the auger drilled circular holes and the use of circular footings made it

easier for Smith Masonry to keep the fence within the property boundary lines.

[¶6.] While Krueger Excavation was responsible for digging the holes for the

column footings and for pouring the concrete, Smith Masonry determined the

location of the holes. Tom and his son Brady both testified that the presence of

underground utilities played a role in where the holes ended up being dug and in

the number of columns Smith Masonry ultimately constructed. As a result, while

the contract called for 52 columns, Smith Masonry constructed 59 to avoid utility

lines and “for the spacing to work out[.]” The change in the number of columns

constructed and other changes raised the total cost of the project to $201,387. Tom

claimed that WIPI approved these changes and that change orders were drafted as

a result. However, WIPI never signed the change orders.

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[¶7.] In addition to constructing 59 rather than 52 columns, Smith Masonry

constructed larger columns than what the contract called for. While this increased

the cost of the columns, Smith Masonry did not charge WIPI for the increased cost.

According to Tom, larger columns were constructed “[f]or the general appearance of

the structure and to receive the fence and make sure it was finished and balanced

and proportionate.” Tom also claimed that WIPI approved the larger columns. In

regard to the spacing between the columns, Tom testified that Smith Masonry did

not space the columns 24 feet apart or place the columns in accord with the site

plan attached to the contract because the terrain made it impossible to do so. He

further testified that WIPI was aware of the inconsistent spacing and voiced no

objection.

[¶8.] In August 2014, WIPI advanced Smith Masonry $50,000. WIPI

claimed that Smith Masonry requested the advance because it needed to pay

subcontractors and to purchase materials. Around this same timeframe, Smith

Masonry requested final payment under the contract, and thereafter, Tom and

Brady conducted a walk around the property with Albino Aboug (the owner of WIPI)

to look at the columns. Tom testified that Albino expressed approval of the

columns, did not indicate there were too many, and did not express any concerns

about the spacing or aesthetics. As to these matters, Brady testified similarly to

Tom.

[¶9.] Brady also testified that by this time, American Fence had nearly

completed its work installing the panels. While American Fence had dug holes for

the posts that would become the gooseneck stand with a keypad for the front gate to

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slide back and forth, American Fence could not install the gate operator because

electricity had not been provided. According to Brady, WIPI believed Smith

Masonry was required to run electricity to the keypad so the gate operator could

function. Brady explained that after he informed WIPI that neither Smith

Masonry’s contract nor American Fence’s contained the requirement to run

electricity to the gate operator, the parties tried to address the issue. While

discussions were ongoing about the gate, the parties were also having conversations

about final payment to Smith Masonry and about American Fence’s request for

payment for its completed work. It is undisputed that WIPI did not make further

payment to Smith Masonry. It is also undisputed that American Fence stopped

work on the project in September 2014.

[¶10.] When American Fence stopped work, all of the fence panels had been

installed; however, some of the brackets needed adjusting to bring the fence panels

into alignment. Also, although the gate had been installed and the holes were

drilled for the gate operator, American Fence did not install the gate operator or

finish securing the gates because electricity was never provided.

[¶11.] Between September and December 2014, Smith Masonry and WIPI

had multiple conversations concerning final payment on the project, including

payment to American Fence. However, WIPI refused to remit further payments,

and American Fence filed a mechanic’s lien on WIPI’s property. Although Smith

Masonry was required under the contract to indemnify and defend against this

subcontractor lien, WIPI made a direct payment to American Fence for $38,000 to

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satisfy the lien. According to American Fence, it was not made whole by WIPI’s

payment but accepted it and released the lien based on an agreement with Tom.

[¶12.] Although WIPI paid American Fence to satisfy American Fence’s

mechanic’s lien, it continued to refuse to remit final payment to Smith Masonry.

On December 15, 2014, Smith Masonry filed a mechanic’s lien for $41,672 on WIPI’s

property, representing what Smith Masonry believed it was owed under the

contract. Thereafter, the parties communicated about concerns WIPI had related to

the fence project and Smith Masonry’s attempts to obtain final payment. At some

point in 2016, while communications were ongoing between Smith Masonry and

WIPI, American Fence went to WIPI’s property to attempt to address, at no

additional cost to WIPI, alignment issues that had occurred with the fence panels.

However, WIPI did not allow American Fence to do the work. WIPI also refused to

remit any additional payment to Smith Masonry.

[¶13.] In January 2017, Smith Masonry instituted this action to foreclose on

its mechanic’s lien. In its complaint, it claimed that it “timely and properly and

substantially completed its work in accordance with its agreement with” WIPI. It

further claimed that WIPI had made total payments in the amount of $159,714.90,

leaving a total unpaid balance of $41,672.20 as of September 23, 2014. Smith

Masonry requested that the circuit court find its lien valid and foreclose on the lien

to satisfy the amount owed. Smith Masonry also requested an award of attorney

fees.

[¶14.] In its answer, WIPI denied that Smith Masonry “properly completed

the work called for in the contract” and the addendum. It also asserted multiple

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counterclaims, including breach of contract, breach of express warranty, and breach

of implied warranty of reasonable workmanship. WIPI alleged that Smith

Masonry’s “faulty workmanship has resulted in stone columns that have heaved

and/or moved[,]” referring specifically to a failure to provide footings at a sufficient

depth. WIPI further alleged that the movement of the columns caused the steel

posts and crossbeams that connect the stone columns to move. WIPI asserted that

because of Smith Masonry’s faulty workmanship, the fence must be totally removed

and replaced at a cost in excess of the parties’ original contract price. WIPI sought

damages at an amount not less than $300,000.

[¶15.] A six-day bench trial was held on February 6–8, May 13–14, and May

16, 2019. Tom, Brady, and Brent each testified about the construction of the

columns. Tom acknowledged that the columns were not constructed in conformity

with the contract specifications, namely that there were more columns, the columns

were larger, and the columns were not spaced 24 feet apart. However, he testified

that each change was approved by WIPI and opined that the columns were

nevertheless constructed to masonry standards. When questioned about issues that

had been identified in WIPI’s pretrial expert witness disclosures (in particular,

Smith Masonry’s use of circular foundations that were smaller in diameter than the

constructed columns and whether this could cause the columns to shift), Tom and

Brady each opined that the circular foundations aligned with masonry standards

and provided a sufficient foundation for the constructed columns. Tom was also

questioned about Smith Masonry’s decision to not center some of the columns on the

foundations, which then resulted in these columns having a lip or ledge

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overhanging the footing. He testified that the placement decision was intentional

and was done for aesthetic reasons (i.e., to adjust spacing between columns) and

that the offset of the columns on the footings was not a problem because they would

still be adequately supported by the footings.

[¶16.] Tom, however, agreed that one of the columns was leaning, that there

were multiple fence panels out of alignment, and that there were connection issues

between the panels and columns. In Tom’s view, the one column that was

noticeably tipping was not something Smith Masonry could have controlled because

it was the result of the column being in the drainage way of the building’s gutter

system. He explained that “[w]ater is masonry’s worst enemy” because of “[t]he

frost cycles, the wet soils, all conditions related to the water.” He further claimed

that other than the one column, the rest “were nice and apportioned or in good level

or plumbness” and that they “were in line and true.”

[¶17.] In regard to the fence portion of the project, Matt Vogel explained that

American Fence had agreed to install 376 feet of five-foot tall, eight-foot wide black

ornamental steel fence panels between the masonry columns with intervening

support posts. The intervening support posts were installed with 36- to 42-inch

deep footings, and the spacing between two masonry columns dictated whether

American Fence installed one or two intervening support posts. According to Vogel,

attaching this type of fence to masonry columns is difficult. He testified that some

of the brackets he used for attaching the fence panels to the columns did not attach

right and that some panels were not aligned. He also testified that the front gate

American Fence installed had fallen to the ground.

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[¶18.] According to Vogel, the issues with the fencing were not Smith

Masonry’s fault, and he explained that American Fence would ordinarily make final

adjustments after completing the installation to remedy any issues. However, on

this project, American Fence did not conduct a walkthrough to address what he

regarded as “punch list” items because they stopped work on the project due to

nonpayment, and when they later attempted to return to the project to remedy

these issues, WIPI would not allow them to do so.

[¶19.] Smith Masonry also called Corey Visscher from Michaels Fence &

Supply as a witness. In March 2015, Visscher had been asked by counsel for WIPI

to examine WIPI’s fence to determine what could be done to repair it. He testified

that when he examined the fence, he could see alignment and attachment issues.

He further testified that he did not see anything wrong with the connections to the

masonry columns, but he noticed issues with the connections between the fence

panels and the fence posts. His proposal to remedy the “up and down look of the

fence” was to change the type of brackets used to one that could be adjusted

vertically when necessary, for a total cost of $1,555.96 plus tax.

[¶20.] For its case-in-chief, WIPI called Paul Reynolds as a witness to testify

about his knowledge of constructing foundations to account for the freeze/thaw cycle

based on his thirty years in the construction industry. WIPI had hired Reynolds’s

company to construct the office spaces, conference rooms, and a second floor in the

building on the site and to be in charge of constructing the façade on the outside of

the building.

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[¶21.] Reynolds testified that he was still working at the site when Smith

Masonry and American Fence were working on the fence project. He claimed that

he had noticed horizontal and vertical movement in the fence panels, bolts coming

off where the panels were connected to the columns, and some columns leaning.

Reynolds expressed his opinion that the foundations for the columns were not

constructed properly because the foundation did not encompass the entire column,

leaving edges or ridges along the foundation. The shape and size of the footing was

also problematic, according to Reynolds, because it was circular in shape and

smaller than the base of the column; therefore, if the dirt “freezes to a point, it is

going to start to push up.” He opined that this is “what happened in this situation.”

[¶22.] When asked, “What would be involved in trying to repair this,”

Reynolds replied that “[t]he simplest way but, unfortunately, the most expensive

way, would be to wipe them out and rebuild them.” He agreed that regardless of

whether repair or replacement is done, “either method is going to involve lots and

lots of labor” and each column would need to be repaired or replaced. However,

during cross-examination, he conceded that he could not say whether he saw any of

the foundations being installed and he only looked at a few columns where the fence

panels had fallen down. He also acknowledged that he did not look at the fence

posts and could not rule out that the posts could have caused the stress on the fence

panels.

[¶23.] WIPI also called surveyor Eric Meyer. WIPI had retained Meyer in

February 2017 to conduct a survey of the horizontal and vertical position of the

columns, the fence posts between the columns, and the points where the fences

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attached to the columns. Meyer testified that when he looked down the fence line,

“it didn’t look like it was all the same elevation” and “you could see it, they weren’t

lining up.” Regarding his survey, Meyer testified that he determined the elevation

and horizontal position of every post and column and whether the columns were

evenly spaced apart. He then conducted the same survey a year later in March

2018, so he could determine whether movement had occurred since 2017. Referring

to an exhibit he created, Meyer testified that all the columns within his survey,

except for one or two, registered measurable movement.

[¶24.] To supplement Meyer’s testimony about the fact of movement, WIPI

called Karl Liester, a geotechnical engineer, to testify about the cause of the

movement of the columns, fence posts, and panels. Liester testified that he visited

the site in November 2017, and based on his visual observation, he could see that

some columns and fence panels were out of alignment. As part of his testimony,

multiple photographs were admitted into evidence depicting what Liester had

observed during his November 2017 inspection; during part of an excavation

conducted on one column in March 2018; and from another site visit in May 2019.

Through these pictures, Liester described the vertical and lateral movement

occurring with the fence panels and the vertical movement of the steel fence posts.

[¶25.] In regard to the columns, Liester testified, consistent with Tom’s

opinion, that one column on the north end of the gate is noticeably leaning, but he

also testified that the entire row of columns on the east end was starting to lean

out. In Liester’s view, the possible causes for this movement “would be expansive

soils, soft soils, frost heave, some type of structural damage[.]” He further

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explained that if the foundations for the columns were not constructed correctly, the

freeze/thaw cycle could move the structures. According to Liester, constructing the

columns with larger footings and placing the columns squarely on top of the

footings, as depicted in Tom’s drawing that was made part of the contract, could

have minimized the problems he identified. He also testified that it is “very likely”

the fence as currently constructed will continue to experience movement if not

repaired and claimed that while adjusting the fence panels would probably provide

a temporary fix, this would not fix the movement in the columns.

[¶26.] However, on cross-examination, Liester agreed that multiple other

factors could cause movement in the columns, including wind, gravity, tectonic

activity, vandalism, settlement, the high water table at this location, frost, surface

water drainage, grading, etc. He conceded that movement could still have occurred

had Smith Masonry constructed larger and deeper footings. He also agreed that he

could not say whether any of the columns other than the one he excavated had “an

overhang” and agreed that not every single column would have to be removed. He

further agreed that other forms of remediation such as adjustments to the fence

panels should probably be tried before removing columns. He did not express an

opinion on cost of any repairs.

[¶27.] As its last witness, WIPI called Keith Stroh as an expert related to

construction standards and WIPI’s damages. However, a dispute arose concerning

the permissible scope of his testimony. Smith Masonry asserted that WIPI

disclosed Stroh only as an expert as to cost of repair or replacement, not on the

cause of the alleged damage, and objected to Stroh testifying beyond these disclosed

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matters. While WIPI disagreed with this characterization of Stroh’s expert

disclosure, the parties agreed to a continuance for WIPI to update its expert

disclosure. In a supplemental report, Stroh opined that the columns failed to meet

masonry standards and that WIPI sustained $650,000 in damages. But this report

never became part of the trial record because the trial never resumed. In

September 2021, WIPI and Smith Masonry agreed to have the circuit court decide

the case on the existing trial record.

[¶28.] On October 27, 2021, the circuit court issued a memorandum decision

detailing its findings and conclusions, and after receiving Smith Masonry’s

objections, the court issued supplemental findings and conclusions on December 29,

2021. The court found that Smith Masonry proved “a legally enforceable agreement

and obligation to pay for all the work completed.” It further found that Smith

Masonry “has a valid Mechanic’s Lien for the work completed.” However, in the

court’s view, “the issues in this case turn on the quality of the work, rather than

deviations from the original plans[.]”

[¶29.] In that regard, the court found “that at least some of the masonry

columns failed to meet a reasonable standard of care for the application and specific

geological conditions at the site.” In particular, the court determined that the

construction of the footings and the placement of the columns on the footings

allowed “surface ground heave due to frost to leverage the columns and cause them

to tilt out of plomb [sic]” and that column shifting “caused some of the metal fencing

panels to twist and fail.” The court rejected Smith Masonry’s contention that

climate and seasonal weather fluctuations inherently cause movement of structures

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and that the construction of the columns met industry and construction standards,

finding instead that “the evidence shows that [Smith Masonry’s] construction

practices resulted in shifting [of] the columns that was unreasonable and outside

the tolerances allowed for quality construction of this nature.”

[¶30.] The circuit court did not enter specific conclusions determining

whether WIPI proved its counterclaims. However, the court agreed with Smith

Masonry’s assertion that the counterclaims “are meritless because, among other

reasons, adequate notice and opportunity to remediate the alleged defects was

never provided” and WIPI did not allow Smith Masonry “to come in and mitigate

the harm caused by the slightly off-kilter columns.” The court further determined

that WIPI’s interference “with reasonable efforts by American Fence and [Smith

Masonry] to secure and attach the fencing panels in a way that would have

significantly mitigated [WIPI’s] damages” amounted to a “breach of [WIPI’s] implied

duty to allow reasonable access to its property for work to be performed to correct

any warranty issues.”

[¶31.] In its conclusions of law, the court determined that WIPI was entitled

“to a sum of damages or, in the alternative, an offset against the balance due” under

the contract because of Smith Masonry’s non-conforming work. The court then

determined that an offset was warranted. With regard to the amount of offset, the

court noted that “there was no evidence presented of any diminution of value to the

property, either before or after the thwarted remediation work[,]” and the court

rejected WIPI’s claim that the entire fence structure “must be razed and rebuilt[.]”

The court also found that “the actual cost of remediation wasn’t established with

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exactitude at trial,” but it nevertheless concluded that WIPI was entitled to an

offset of the entire lien amount.

[¶32.] Further, the court determined that given the “absence of any precise

calculation afforded by the incomplete evidence on both sides of the respective

claims, principals [sic] of equity apply to allow for the wholesale offset of any money

damages awarded to either party.” The court then valued the parties’ claims as

equal due to wrongdoing by both parties. In that regard, the court stated that the

value WIPI received for Smith Masonry’s work “is equivalent to what was paid, and

the balance due under the mechanic’s lien would be unjust enrichment to [Smith

Masonry]. Conversely, the cost to remediate the flaws in [Smith Masonry’s]

work/diminution in the value of the property as a whole due to [Smith Masonry’s]

poor workmanship are equivalent to the unpaid balance forfeited by [Smith

Masonry].” Finally, the circuit court denied Smith Masonry’s request for an award

of attorney fees, concluding that “each of the parties shall assume its own costs and

disbursements herein, including attorney fees.”

[¶33.] Smith Masonry appeals, asserting the following restated issues:

1. Whether the circuit court erred in denying Smith Masonry a judgment of foreclosure on the mechanic’s lien for the full amount of the recorded lien.

2. Whether the circuit court erred in denying Smith Masonry’s request for an award of attorney fees.

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Standard of Review

[¶34.] We review the circuit court’s findings of fact for clear error. Mathis

Implement Co. v. Heath, 2003 S.D. 72, ¶ 9, 665 N.W.2d 90, 92. However, a court’s

conclusions of law are reviewed de novo. Action Mechanical, Inc. v. Deadwood

Historic Preservation Comm’n, 2002 S.D. 121, ¶ 12, 652 N.W.2d 742, 748

Analysis and Decision

1. Whether the circuit court erred in denying Smith Masonry a judgment of foreclosure on the mechanic’s lien for the full amount of the recorded lien.

a. Whether Smith Masonry fully performed under the contract

[¶35.] Smith Masonry claims that the evidence presented at trial established

that it completed the masonry portion of the fence project and thus fully performed

under the contract. It deems “immaterial” that American Fence’s portion of “the

fencing aspect of the project had not been finished” because American Fence, not

Smith Masonry, was responsible for that portion of the project. 1 Finally, Smith

Masonry asserts that because it fully performed, it is entitled to full payment under

the contract.

1. Smith Masonry further asserts that “[a]s a matter of law, WIPI’s settlement with American Fence released [Smith Masonry] from any further legal obligations or responsibilities concerning the fencing aspect of the project.” It directs this Court to Estate of Williams v. Vandeberg, for the proposition that “a release of an agent is a release of the principal even when the release contains an express reservation . . . .” 2000 S.D. 155, ¶ 15, 620 N.W.2d 187, 191. But there is no evidence in the record that WIPI and American Fence executed a release. The record establishes only that WIPI paid American Fence $38,000 to facilitate completion of the project and to have American Fence’s lien released.

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[¶36.] A review of the record reveals that American Fence was Smith

Masonry’s subcontractor. In fact, Smith Masonry’s complaint refers to them as

such. American Fence did not have a contract with WIPI. Rather, American Fence

was identified in Smith Masonry’s contract with WIPI. Also, as Tom testified,

Smith Masonry was responsible for paying American Fence for its work under the

contract. Because it is undisputed that American Fence did not fully complete its

portion of the work on the project, the fencing project as a whole was not complete

and Smith Masonry cannot prevail on its claim that it fully performed and was, in

that regard, entitled to full payment under the contract.

b. Whether Smith Masonry substantially performed under the contract

[¶37.] Alternatively, Smith Masonry claims that, at the very least, it

substantially performed under the contract and would thus be entitled to recover

the unpaid contract balance. It notes that the circuit court did not specifically find

that the doctrine of substantial performance applied; however, in its view, the

circuit court’s rulings suggest it did because the court reduced the amount of the

lien by what it regarded to be deficient construction practices.

[¶38.] As this Court explained in Ahlers Building Supply, Inc. v. Larsen, the

party seeking to recover the contract price has the burden of proving substantial

performance of the contract. 535 N.W.2d 431, 435 (S.D. 1995). Further, “[t]he

question of substantial performance is a question of fact[.]” Id.

[¶39.] Here, the circuit court did not specifically determine whether Smith

Masonry substantially performed under the contract. The court found that some of

the work on the project was defective, “thus entitling [WIPI] to a sum of damages

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or, in the alternative, an offset against the balance due as a result of the non-

conforming work.” However, the court also found “that the facts at trial established

a legally enforceable agreement and obligation to pay for all the work completed”

and that Smith Masonry proved it has a valid mechanic’s lien for the work

completed.

[¶40.] “It must be remembered that substantial performance is not full

performance and that the party who relies on the doctrine has breached his

contract.” Ahlers Bldg. Supply, 535 N.W.2d at 435 (citation omitted). When a

contractor has breached a construction agreement and seeks to recover for the work

performed, the remedy available to the contractor depends on whether the

contractor has substantially performed the contract. “If performance was

substantial, the contractor is entitled to recover the contract price less deductions

for defects in performance. If performance was not substantial, the contractor is

entitled, at most, to the value of the benefit that he conferred upon the owner under

a theory of quantum meruit or unjust enrichment, and not the contract price minus

defects.” Id. (internal citations omitted) (quoting Van Den Hoek v. Bradwisch, 273

N.W.2d 152, 154 (S.D. 1978)).

[¶41.] Based upon the circuit court’s determination that Smith Masonry was

entitled to enforce the terms of the agreement, less any defects, we can only

conclude that the circuit court found Smith Masonry had substantially performed.

“[B]y the nature of the damages it awarded, the court obviously found [the

contractor] substantially performed its contract.” Id. A review of the circuit court’s

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decision supports that the doctrine of substantial performance applies under the

circumstances presented.

c. Whether the circuit court erred in wholly offsetting the amount of Smith Masonry’s mechanic’s lien

i. Contract Warranties

[¶42.] Smith Masonry claims that the circuit court ignored “the express

contract terms and conditions” when it reduced the amount of, or eliminated, Smith

Masonry’s recoverable mechanic’s lien. In particular, Smith Masonry claims that

WIPI is not entitled to compensation for defects related to the columns under the

general guarantee provisions in its contract with Smith Masonry.

[¶43.] Looking at the relevant contract provisions here, WIPI agreed to pay

Smith Masonry 57% “of the contract sum upon satisfactory completion of the work”

under the contract and was to retain 3% of the contract sum for one year with the

amount being paid after satisfactory completion of the general guarantee provision

of the contract. The general guarantee provides:

The Contractor shall remedy any defect due to faulty material or workmanship and pay for any damage to other work resulting therefrom which shall appear within the period of one year from final payment.

(Emphasis added.)

[¶44.] Smith Masonry acknowledges that in withholding final payment when

such was requested in 2014, WIPI expressed concerns related to the faulty

workmanship in the installation of the fence panels. However, Smith Masonry

claims that WIPI did not express a concern about faulty construction of the columns

until after Smith Masonry filed its lawsuit in 2017 to foreclose its mechanic’s lien.

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In Smith Masonry’s view, WIPI’s only concerns prior to that point related to the

number of columns and spacing between them not conforming to the contract

terms—claims that were rejected by the circuit court in its finding that WIPI had

“tacitly approved” these deviations. Thus, Smith Masonry claims that the general

guarantee expired even though final payment has not been remitted. It further

asserts that even if it “had a theoretical warranty obligation to WIPI,” its obligation

under the warranty “disappeared the moment WIPI refused to pay [Smith Masonry]

the contract balance” because such nonpayment was a material breach of the

contract relieving Smith Masonry of any duty to perform warranty work.

[¶45.] While a review of the record supports that WIPI did not initially

express an issue with the construction of the columns, Smith Masonry’s contractual

guarantee related to the fence project as a whole, not just its masonry work on the

project. Moreover, as early as January 2015, WIPI identified issues with the

misalignment and bowing of the fence, and as the circuit court identified from the

evidence at trial, the misalignment and twisting of some fence panels was caused by

the shifting of columns to which they were attached.

[¶46.] Importantly, nothing in the guarantee requires WIPI to immediately

identify the cause of the defect. Thus, the fact that it did not claim until later that

the issues with the fence were caused by faulty construction of the columns does not

relieve Smith Masonry of its obligations to remedy the defects. Because there is

evidence establishing a lack of “satisfactory completion of the work,” the general

guarantee had not expired.

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[¶47.] Nevertheless, Smith Masonry asserts that any defects related to the

fence panels were excluded by American Fence’s express warranty. American

Fence’s warranty provides that it “shall not be liable for and this warranty does not

apply to any failure, defect or damage resulting from and/or connected with . . .

[a]ny alteration, adjustment, settling or materials as a result of freeze thaw cycle,

further settling of soil, and varied precipitation that may cause ground swell. This

includes gates, gate posts, and associated alignments. This is a natural process that

cannot be predicted nor prevented and thus cannot be warranted.”

[¶48.] Although the record contains evidence to support that the fence panels

moved because ground freeze caused the fence posts (not just the columns) to rise,

circumstances specifically excluded under American Fence’s warranty, there is

testimony from Vogel that when American Fence stopped work on the project in

2014, there were workmanship issues unrelated to ground freeze with how some of

the fence panels attached to the masonry columns. Vogel referred to his notes

indicating that some panels had issues with the brackets attaching to the columns

and that there were issues with certain bolts and connectors. He testified, “I’m not

proud of this at all. Those are tough to put on these styles of columns.” Thus, as it

relates to at least some of these defects, American Fence’s warranty exclusions do

not apply.

ii. Principles of Equity

[¶49.] Smith Masonry claims the circuit court erred in applying equitable

principles to “allow for the wholesale offset of any money damages awarded to

either party” because an express contract controls and WIPI’s counterclaims and

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requests for an offset arise out of the same express contract. Although an action to

foreclose on “a mechanic’s lien is an action in equity[,]” Action Mechanical, 2002

S.D. 121, ¶ 13, 652 N.W.2d at 748, “an obligation must exist under either an express

or implied contract[,]” id. ¶ 35, 652 N.W.2d at 753. And when, as here, there is no

dispute that an express contract governs the right to recover under the mechanic’s

lien and neither party seeks damages in equity, equitable principles such as unjust

enrichment and unclean hands are inapplicable.

[¶50.] As the Court in J. Clancy, Inc. v. Khan Comfort, LLC explained,

“equity will not interfere” in a case when a contract controls the parties’

relationship. 2021 S.D. 9, ¶¶ 43, 44, 955 N.W.2d 382, 397 (noting that “where there

is a valid express contract existing between parties in relation to a transaction fully

fixing the rights of each, there is no room for an implied promise, or [claim] on

quantum meruit” (citation omitted)). In its complaint, Smith Masonry alleged it

had substantially performed the agreement with WIPI and was entitled to recover

the balance owed under the express terms of the agreement. Smith Masonry did

not seek any recovery in equity.

[¶51.] Moreover, there is nothing in the record or the court’s findings to

support that Smith Masonry acted with unclean hands. The only evidence of acting

“improperly or unethically in relation to the relief” requested is that relating to

WIPI’s actions. See Adrian v. McKinnie, 2002 S.D. 10, ¶ 17, 639 N.W.2d 529, 535

(explaining conduct that would constitute unclean hands). As the circuit court

determined, WIPI “made absurd counterclaim demands that could never be justified

under the facts or law.” Therefore, the circuit court erred in applying equitable

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principles when determining whether Smith Masonry can recover the amount

unpaid by WIPI under the contract.

iii. The Decision to Allow an Offset

[¶52.] Smith Masonry contends the circuit court’s finding that the

misalignment issues with the metal fencing were caused by its deficient

construction practices relating to the columns was “improperly based on the

theories and opinions of WIPI’s retained expert Keith Stroh,” who did not testify at

trial. Smith Masonry further argues that because Stroh did not testify, “there is no

basis for the trial court’s findings and conclusions that [Smith Masonry] failed to

properly construct the masonry columns” and no evidence in the record to support

“that the masonry columns moved excessively or were misaligned.”

[¶53.] In response, WIPI directs this Court to the testimony of Reynolds,

Meyer, Liester, Vogel, Tom, and his sons. In particular, it claims that the testimony

and evidence at trial support the circuit court’s determination that the footings were

inadequate for the columns Smith Masonry constructed. It further claims that the

testimony and evidence establish that the inadequate footings caused the columns

to move and lean when the ground began to heave due to frost, which then caused

the fence panels to move, twist, bend, and break off from the brackets.

[¶54.] In its reply brief, Smith Masonry acknowledges that Reynolds and

Liester testified that the columns were deficiently constructed and that they both

relied on exhibits in support. 2 However, Smith Masonry claims that such testimony

2. Smith Masonry claims that because the circuit court “did not mention these witnesses or exhibits in its decision[,]” this Court cannot assume the court (continued . . .) -23- #30007

is insufficient to support reducing the amount of its recoverable mechanic’s lien

because the testimony “was grossly unreliable.” Alternatively, Smith Masonry

asserts that even if the circuit court did not err in finding that its construction of

the fence was defective, the court erred in offsetting the full amount of its

mechanic’s lien because WIPI failed to prove the amount “of recoverable damages

for any alleged defect” and the record does not contain evidence that would support

an offset of $41,672.20 (the full amount of the mechanic’s lien) in alleged repair

costs.

[¶55.] This Court has said that when there is “substantial performance, the

proper measure of damage is the contract price less the cost of the defect.” Mathis,

2003 S.D. 72, ¶ 12, 665 N.W.2d at 93. In its counterclaim and at trial, WIPI

asserted that it would be required to demolish all of the columns and build anew to

remedy Smith Masonry’s deficient performance under the contract. On appeal, it

claims the testimony from Liester and Reynolds supports its contention that labor

and costs for repair would be substantial and involve a redo of the project. It then

contends that “[g]iven the more than $200,000 cost for the original fence and

acknowledgement that many of the materials could not be reused, it took no great

leap to conclude there was an adequate evidentiary basis to find with reasonable

________________________ (. . . continued) relied on the testimony of these witnesses. But “[d]oubts about whether the evidence supports the court’s findings of fact are to be resolved in favor of the successful party’s ‘version of the evidence and of all inferences fairly deducible therefrom which are favorable to the court’s action.’” Osman v. Karlen & Assocs., 2008 S.D. 16, ¶ 15, 746 N.W.2d 437, 443 (citations omitted).

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certainty that such costs would exceed or at least equal the $41,672.20 equitable

interest sought to be enforced against the property.”

[¶56.] The problem with WIPI’s argument is that the circuit court specifically

rejected WIPI’s claim “that the entire fence structure is unfit for its intended

purpose and must be razed and rebuilt at a tremendous cost, exceeding the overall

contract price[.]” Rather, the court found that “only a few of the columns would

need to be repaired or replaced, and the flexing of the metal fence panels could be

remediated by the use of panel fasteners with play or tolerances.” The court noted

that “other than that, the columns are aesthetically pleasing and consistent with

the contract.” Moreover, the court found that WIPI breached an “implied duty to

allow reasonable access to its property for work to be performed to correct any

warranty issues” when it “interfered with reasonable efforts by American Fence and

[Smith Masonry] to secure and attach the fencing panels in a way that would have

significantly mitigated [WIPI’s] damages.” 3

[¶57.] As previously stated, because it is apparent the circuit court found

Smith Masonry met its burden of proving that it substantially performed, Smith

3. Relevant to this finding by the circuit court, “[t]he law imposes upon a party injured from another’s breach of contract or tort the active duty of making reasonable exertion to render the injury as light as possible.” Arrowhead Ridge I, LLC v. Cold Stone Creamery, Inc., 2011 S.D. 38, ¶ 16, 800 N.W.2d 730, 735 (citation omitted). Therefore, “[i]f, by his negligence or willfulness, he allows the damages to be unnecessarily enhanced, the increased loss, that which was avoidable by the performance of his duty, falls upon him.” Id. “The burden is on the breaching party to prove that ‘damages would have been lessened by the exercise of reasonable diligence on the part of the non- breaching party.’” Casper Lodging, LLC v. Akers, 2015 S.D. 80, ¶ 67, 871 N.W.2d 477, 498 (citation omitted). Here, the circuit court appears to have concluded that Smith Masonry proved that WIPI failed to mitigate its damages.

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Masonry was entitled to recover the contract price less any defects. See Ahlers

Bldg. Supply, 535 N.W.2d at 435; Barton Masonry, Inc. v. Varilek, 375 N.W.2d 200,

202 (S.D. 1985) (providing that “a party who sues to recover on a construction

contract has the burden of proving substantial performance of that contract”).

However, WIPI did not present any testimony or evidence establishing the cost

necessary to remedy Smith Masonry’s defective performance under the contract. It

is well settled that “damages must not be speculative; that is, the damages must be

reasonably certain.” Excel Underground, Inc. v. Brant Lake Sanitary Dist., 2020

S.D. 19, ¶ 51, 941 N.W.2d 791, 805. As the Court in McKie v. Huntley explained,

Proof of damages requires a reasonable relationship between the method used to calculate damages and the amount claimed. See Swenson v. Chevron Chemical Co., 89 S.D. 497, 234 N.W.2d 38, 43 (1975). In applying this rule, we refrain from dictating any specific formula for calculating damages. Instead, we apply a “reasonable certainty test concerning the proof needed to establish a right to recover damages.” Drier v. Perfection, Inc., 259 N.W.2d 496, 506 (S.D. 1977) (citations and internal quotations omitted). Reasonable certainty requires proof of a rational basis for measuring loss, without allowing a [fact finder] to speculate. Id. at 506 (quoting Kressly v. Theberge, 79 S.D. 386, 112 N.W.2d 232, 233 (1961) (further citations omitted)).

2000 S.D. 160, ¶ 18, 620 N.W.2d 599, 603–04. Therefore, “[o]nce the existence of

damage has been shown by a preponderance of the evidence, a claimant must

produce only the best evidence available to allow a [fact finder] a reasonable basis

for calculating the loss.” Id. ¶ 20, 620 N.W.2d at 604.

[¶58.] Here, accepting the circuit court’s findings that WIPI was entitled to a

reduction in the amount of Smith Masonry’s mechanic’s lien for Smith Masonry’s

deficient performance under the contract, WIPI was required to produce evidence to

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allow the court a reasonable basis to calculate the cost of repair. It did not do so.

Because WIPI did not present any evidence of cost of repair such that the court

could determine an amount to offset from the remaining amount due under the

contract, and given the court’s determination that WIPI failed to mitigate at least

some of its damages, the court erred in denying Smith Masonry’s request for an

award of the amount due under the contract. Therefore, the court’s denial is

reversed, and the matter is remanded for the court to enter a judgment of

foreclosure in favor of Smith Masonry on its mechanic’s lien.

2. Whether the circuit court erred in denying Smith Masonry’s request for an award of attorney fees.

[¶59.] Smith Masonry contends that an award of attorney fees was warranted

under the circumstances because it defeated a $650,000 counterclaim, and

assuming this Court finds in its favor on appeal, it was successful on its mechanic’s

lien action. Under SDCL 44-9-42, “[t]he court shall have authority in its discretion

to allow such attorney’s fees and receiver’s fees and other expenses as to it may

seem warranted and necessary according to the circumstances of each case, and

except as otherwise specifically provided in this chapter” on mechanic’s and

materialmen’s liens. “This Court has consistently required a trial court to enter

findings of fact and conclusions of law when ruling on a request for attorney’s fees.”

Hoffman v. Olsen, 2003 S.D. 26, ¶ 10, 658 N.W.2d 790, 793. Here, the circuit court

did not enter any findings of fact on Smith Masonry’s attorney fee request; it simply

ordered that both parties are responsible for their own attorney fees. In light of the

court’s erroneous application of principles of equity and determination that WIPI is

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entitled to a wholesale offset of the amount due on the contract, the court is directed

on remand to reconsider the attorney fee request and to make necessary findings.

[¶60.] Reversed in part and remanded in part.

[¶61.] JENSEN, Chief Justice, and KERN, SALTER, and MYREN, Justices,

concur.

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