### IN THE COURT OF APPEALS OF TENNESSEE AT KNOXVILLE October 16, 2003 Se ssion KATHY GARDENHIRE, ET AL 

### . v. REAL ESTA TE INSPECTION

SERVICE, INC., ET AL 

### . Appeal from the Chancery Court for Hamilton County No. 95-1240 Frank V. Williams, III, Chancellor

FILED JANUARY 29, 2004 No. E2002-02214-COA-R3-CV

Todd Gardenhireand his wife, Kathy Gardenhire (“the plaintiffs”), own a r esidence and lot on Signal Mountain. In 19 95, they contracted with Re al Estate Insp ection Se

rvice, I nc. and St

ephe n E ad y, doing business as Stephen Eady Company (collectively “the defendants”), for the construction of a sunroom addition, a swimming pool, and other work at their residence. L ater that same y ear, t

h e plaintiffs sued the defendants alleging that the de fendants had

failed to complete the work and that “much of the w ork” was no t accomp lished ac cording to the par

ties’ ag reemen t. The de fendant s answered and filed a counterclai m seek ing mone y a lleged ly d ue them f

or work p erformed in connection with the contract. Following a bench trial, the c ourt awarded the plaintiffs $35,000 and dismissed the defendants’ counterclaim. The defendants appeal. We affirm the judgment in part and revers e in part

and rema nd for fu rther pr oceedin gs. Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court

Affirmed in Part, Reversed in Part; Case Remanded C HARLES D. S USANO , J R ., J., delivered the opinion of the court, in which H ERSCHEL P. F RANKS , J., and W IL LI AM H. I NMAN , S R . J., joined. George M. Derrybe

rry, Chattanoog a, Tennessee, for the appellants, Real Estate I nspection Service, Inc . a nd St ep he n E ad y db a S te ph en Ea dy C om pa ny. Ronald J. Berke, Chattanoog a, Tennessee, for the appellees, Kathy Gardenhire and Todd Gardenhire. OPINION

I. On appeal, the defendants present the following issues for our review and resolution:-2- 1. Does the evidence preponderate a gainst the trial court’s factual findi ngs supporting its conclusions regarding the terms of the part ies’ contract? 2. Does the

evidenc e preponderate

agains t the tria

l court’sfactu a l findi ngs pertaining to the defendants’ alleg ed breaches of the pa rties’ contract? 3. Does the evidence preponderate a gainst the trial court’s decision that the d efenda nts are n ot entitle d to relief on their counter claim? 4. Does the evidence preponderate ag ainst the trial court’s factual finding s supporti ng its aw ard of $3 5,000 to the plaintiff s? II. As can be seen, these issues raise factual matters. Our review in such cases is de novo upon the record from the proceeding s below. Tenn. R. A pp. P. 13(d). This case comes to us accompanied by a presumption t hat th e trial court’s factual findings are correct. Id . This is a presumption we must honor unless the evidence preponderates ag ainst the trial court’s factual findings. Id

. III. Our initial fo cus is upon

the first two issuesraised b y th

e defendant. As to those issues, the trial cou rt made th

e followi ng findings and

reache d the follo wing co nclusions : First, I am of the opinion that the parties agreed that the are a outside the sun room was to be level after taking a step or two down from the door. * * * [Mr. Eady] also knew that the Ga rdenhires wanted

a pool at ground level with no steps up. And these things are not – these details about the ground level and

the lack of steps up to the pool and that sort of thing are not inconsistent with the written contract . . . . * * * The Court is convinced that the Gardenhires wanted and expressed to Mr. Eady that they

wan ted th e pool at ground level, and Mr. Eady expressed hi s belief that this could be done, even given the knowledge of both sides about the possible problems with rock.-3- * * * . . . the exact elevation and final location of the pool was something that was going to have to be determ ined during the course of construction, and it was . And I think the p arti es reac hed an agree ment on tha

t. * * * The drainage was understood by Mr. Eady to be a

way fr om the house. And I know th is bec ause i t’s sh own on his d rawin g dated 9-26 -95 which is Exhibit Num

ber 11. A nd this wasdone in

September when the pool was under construction to show that his understanding was that the dirt, the fill shou l d slope away f rom the house so that the water did not drain towards the house. And this had to be understood in conjunct

ion with the

Garden hires’ e xpectati on that this pool was notgoing to have steps up to it, that it was going to be c onstructed at ground level. And so the

whole issu e about th

e draina ge situa tion is tied to the con struction , th e find [sic] location and elevation of the pool * * * And so when Mr. Eady

told Mrs. Gardenhire t

hat s he could stop excavation of rock and have only a three-inch rise in the pool from the ground level, this fixed the location and height above g round of the pool, and the subse quent fa ilure to c onstruct

the pool to

those specifications was the fault of Mr. Eady and not [of] the Gard enhires

. * * *

. . . the location of the pool andthe depth of the pool and the height of the pool was fixed as a part of the con tra ct because the parties agreed on it then. And the failure at that point of Mr. Eady to know that he could b

uild it to tha

t point and

it be only three inches high was his fault. He

should hav e known w hat h e wa s saying. The Gardenhires were faced with the prospect of having to spend a lot [of] money because they knew they

had to pay for

the excavation of that rock. And for Mr. Eady

to then complete the pool through the work of h is subcontractor

and tell the Gardenhires that it was going to be one foot

–at least one foot too high was a breach of c ontract on the part of Mr.-4- Ea dy. This put the

Garden hires in w

hat I thin k is an impossibl[e] position. And they fac ed a choice b etween

two undes irable o

ptions: Either to build the

steps up to

the pool, which they thoug htwa s r is ky, or to slope the ground in such a way that the water ran

back towards the house. * * * Mrs. Gardenhire even gets ba c k up on the witness stand and denies that Mr. Eady eve

r discussed with her that by [raising ] the ground level and constructing it as it ac tually turned ou t, that the w ater wou

ld flow back up to against house. * * * Mr. and Mrs. Gardenhire wrote back to [Mr. Eady ] in which they repeated their co ntention th at they had ag reed to a rise of the pool in the amount of three inches in order not to incur more expense for the rem oval of rock. And Mrs. Gardenhire say s I agreed to do this, b u t it was later that they c ame back to her and told her that it was going to be a foot high, and

that she either had a choice of taking ste ps – a step wall acr

oss the le ngth of the pool coming out of the sun room or s he cou ld raise the ground level so that the pool and deck would be fairly level wit h the entr y of the sun ro om. And the

contents of these letters are con sistent wit

h the testimony

as I have . . . heard it today and would find essentially that that is exactly what happened. We do not find

it neces sary

or appro priate to recite t he evide nce – pro and con – on these t wo issues. Suffice it to say that

there is an abundance of evidence to support the trial court’s findings of fact as to (1) the p arties’ agree

ment and ( 2) the defendant s’ brea ches. I n any event, th e issue f or us is whether the evide nce – whe

n viewed in its totali

ty – prepond erates against

the fa ct s f ou nd by the trial court on these two matters. It clear ly does not. Accor

dingly, we

affirm the trial court’s factual findi ngs as to the parties’ agreement, the de fendants’ breaches of that ag reement, and the trialcourt’s conclusion that the defendants are liable to the plaintiffs for the damages caused by those bre aches. IV. The defendants argue that the trial cour t erred in dismissing their counterclaim. They argue that after deducting pay

ments made t o them by the plaintiffs and after crediting the contra ct price for those allowances pertaining to wo rk not p erformed by them, there remains a balance due of $20,197.22. They

ask us to mo dify

the trial court’s judgmen

t so as toaward th

em a set- off ag ainst the judgment awarded to the plaintiffs. We decline to do so.-5-

“It is well settled that

equitable set-off will not be allowed where it would work injustice.” Fed. Sur. Co. v. U

nion Indem. Co ., 161 Ten n. 6 21, 624 , 33 S. W. 2d 4 21, 421 (19 30) . In the instant case, it is clear that the plaintiffs will never have precisely w

hat they contra

cted for. At best, they will only have

a condition “equivalent” to that for which they contracted. Furthermore, eve n to reach that stage of equivalency , the plaintiffs are once again g oing to have to go through the disruption that residential mo di fi ca ti on co ns tr uc ti on al wa ys brings. Equity militates ag ainst the allowance of asetoff. The evidenc e does no t prepond erate a gainst t he trial c ourt’s d ecision to dismiss the counter claim. V. As to the final issue – whether the evidence preponderates against the awa rd of damages of $35,000 – our review of therecord persuades us that, because of a paucity of evidence touching upon the cost of the repairs that the trial court found to be necessa ry , the evid

ence is i ncomplet

e on this critical subject. Ac co rd in gl y, we conclude that the evidence prese ntly before us doe s not justify an award of $35,000. The evidence does not preponderate ag ainst the trial court’s factual findings as to the repa irs that will be

necessa ry to corre ct the defendant s’ brea ches of c ontract : And again, going

to the Plain

tiffs’ c laim for d ama ges based on a diminution in value, I’m not impressed with the arg ument that that necessa rily diminishesthe value

of their houseor

propert y. I t seems to me that I have . . . got to come up with some figure here tha twill allow them to g o out t

h ere and do some work of some sort that was going to allevia

te what seemed t o me to be s ome serio us proble ms withregar

d to water under this house, water that is flowing down the hill, that is flo wing ac

ross the g round, tha

t is flowing

into the crawl space below the sun room and is actually getting into a part of the house whe

re it nev er was. * * * There is a problem with the installation o f the sun roof because it’s leaking, and there was a problem ther e. * * * I think the Plain tiffs are entitled to a judgment. I think they have some serious problems, andI think its going to require a good deal of work out there to fix it. The – it se ems to me th at at some point, and-6- of course they ’re going to decide this, but at some point they are going to give u

p this hope

of being able to mainta

in the pool in the condition it’s in without steps going up to it. It seems to me from the questions that [counsel for the defendants] asked of one of the witnesse s, perhapsthe Plainti ffs’ expe rt, and the drawings that

were made on the bla

ckboard up here, that it is pe

rfectly possible to construct a level p atio, a le

vel walk a

rea out t o the pool an d put in some steps up to the pool, which again, i s not going to be what the Garden hir es contracted for, but again, there is no way that I

can see that it is reasonably possible save te aring out of the poo l and removing more rock

to give them what they contra ct for. And again, I think that’ s Mr. Eady ’s fault. I’m not n ecessa ril y bl aming th

em. It’s just that I don’t think that it’s reasonable at this point to awa r d them what they cla

im to be the diminution in the value of they [sic] party when it se ems to me th

e real ta sk here i s to come up with an amount t hat the Cou

rt finds r easonab le to go o

ut and mak

e some corrections to the construction, especially with reg ard to the removal of dirt at the possible entry into the sun room, the removal of dirt or other measures taken in sun room to prevent water fro m col lecting there, and other things that are g oing to take up a good built [sic] of time. The trial court

did not conclude, as did the plaintiffs, that the appropriate measure of damag es, given the facts of

this case , is the diffe

rence b etween

(1) the v alue tha

t their pr operty would hav e had if

the defendants had properly

performed their contract and (2) the va lue of the property a s “improved,” albeit improperly, by

the defe nd ants. The trial court rejected this approach, conc luding that the proper measure of damages in this case is the cost of repairing the improperly -performed work. Our review of the record convinces us that the facts of this case bring into play

the measure of damages adopted by the trial c ourt, as more fully de veloped in the next section of this opinion. VI. In Eden fiel d v. Woodla wn Manor, Inc ., 62 Tenn. App. 280, 462 S.W.2d 237 (1970), the plaintiff contracted with the defendant for the const

ructi o n and purchase of a residential condomini

um. 462 S.W.2d at 238. The plaintiff alleged, among other things, that t he defendant breached its contract in that it failed to install the heating and air conditioningducts in the unit in fu ll compliance with the written specifications and engineering drawings. Id . at 239-40. Through the testimonyof two witnesses, the plaintiff established “ that the reasonable cost of removing the unacce ptable ducts and installing ducts to meet the specification requirements would be $11,099.” Id

. at 240. The jury re

turned a verdict, approved by the trial court, for $ 12,464, including the testified-to repairs of $11,099. Id . at 239.-7-

On appeal, the defendant in Edenfield argued that the proper measure of damag es was “the difference

between the value of the apartment as it was constructed by de fendant’s contractor and its value as reconstructed

in accordance with the specifications.” Id

. at 240. The plaintiff countered by arguin g that “ the cost o f recon structing th e air conditioning system so a s to meet the specifications,” id ., was the proper m easure of damag es. In affirmi ng the tr

ial cour t’s judg ment, the

Court of A

ppeals qu oted, with

approva l, 13 Am. Jur. 2d as “support[ing] plaintiff’s insistence,” id . at 241:

The fundame

ntal prin ciple which underlies the decisions regar ding the measure of damages for de fects or omissions in the performance of a building or construction contract is that a party is entitled to have what he contr acts for or its equivalent. What the e quivalen t is depends upon the c i rcumstances of the case, among w hich is the consideration of whether th e de fect or omission is remediable without teari ng down what h as been done b y the cont ractor and reb uild ing. As a general

rule, the measure of damage s is the cost of correcting the defect s or completing the omissions, rather than the diffe rence i n value between what ought to have been done in the performance of th e contract and what has been done, wher e the correct

ion o r completion would not involve unreasonable destruction of the work done by t h e contract or and the

cost ther eof woul d not be g

rossly disproportionate to the results to be obtained. Id . (quoting 13 Am. Jur. 2d Building and Construction Contracts § 79. VII. In the instan

t case, t he plaint iffs unde rstanda bly focused on (1) monies they had pa id to the defenda nts and (2) monies pa

id to others following

the defe ndants’ c essation

of work o n the proj ect. In addition, each of the plaintiffs testified as to values in support of their theory that the defe ndants’ breaches diminished the value of their property . The only evidenc e addressing the gener al subject of future re

pairs tha t would be necessary because of deficient construction on the part of the defenda nts was the testimon y of an expert pre sented by the plaintiffs. He testified that a French drain to address the plaintiffs’ water problem w ould cost a

pproximate

ly $6,000. Thus, we have very little evidence to support the cost-of-repairs measure of damages correctly

found by the

trial court to apply to the facts of this ca se. While we agree with the defe ndants’ argument that the evidence is not sufficient to support a damage award of $35,000, we cannot agree that this failure s houl d result in a dismissal of the p laintiff s’ complain

t or a re duction of

damage s to the $6, 000 figu re. I n view of the trial c ourt’ s-8-

finding of liability

– a finding with whic h we whole

hearte dly agree – we belie

ve such a result would be paten tly u nfair a nd unjust. We hold that this case must be remanded to the trial court for a new trial, but only on the issue of damages. See Tenn. Code Ann. § 27-3-12 8 (2000). The par ties have alread y ha d a full and fair hearing on the issue of liability and there is no reason to h ave a new trial on this issue. The breaches have been established by the trial court, and we affirm the trial court’s holding a s to these breach es. On remand, each side will be permitted to put on proof regarding the

cost of performing the repair s that the t

rial cou rt found w ould be ne cessar y to place the prope

rty in an equi valent sta

te to the one that would have existed had the defendant not breached the contract. The trial court will then be in a position to render judgment based on the evidence dealing with the necessary cost of repair s. VIII. The judgment of the trial court as to the liability of the defenda nts is affirmed. The portion of that judgment as to damages is reverse d, and this case is remanded for a new trial, but solely on the issue of d amage s, pursuant to the instructions set forth in this opinion. Exercising our discretion, we tax the cos ts on appe al to the a ppellant s, Real Es tateInspection Service, Inc. and Stephen Eady db a S te ph en Ea dy C om pa ny.

_______________________________ CHARLES D. SUSANO, JR., JUDGE