Court Opinion

ID: 4249580
Source: CourtListenerOpinion
Date Created: 2018-02-28 21:19:39.474452+00
Date Added: 2024-06-11T08:42:41.006813
License: Public Domain

IN THE SUPREME COURT OF IOWA
                              No. 10–1278

                           Filed June 1, 2012

FLYNN BUILDERS, L.C.,

      Appellee,

vs.

MATTHEW P. LANDE
and CHRIS LANDE,

      Appellants.

      On review from the Iowa Court of Appeals.

      Appeal from the Iowa District Court for Boone County, William C.

Ostlund, Judge.

      On further review, appellants allege the district court and court of

appeals erred in holding the appellee was entitled to enforce its

mechanic’s lien.    DECISION OF COURT OF APPEALS AFFIRMED IN

PART AND VACATED IN PART; DISTRICT COURT JUDGMENT
REVERSED, AND CASE REMANDED FOR FURTHER PROCEEDINGS.

      Duane M. Huffer and Robert L. Huffer of Huffer Law P.L.C., Story

City, for appellants.

      Meredith C. Mahoney Nerem and John D. Jordan of Jordan &

Mahoney Law Firm, P.C., Boone, for appellee.
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APPEL, Justice.

       In this action to foreclose a mechanic’s lien, we address the

consequences of a contractor’s failure to render full and complete

performance.1 An owner and contractor entered into an agreement for
the construction of a new home. During construction, the owner refused

to pay the contractor after discovering markups on the cost of materials.

In response, the contractor halted construction and filed an action to

enforce a mechanic’s lien. The contractor subsequently filed a petition to

foreclose the mechanic’s lien. Although the contractor did not complete

construction, the district court found the contractor rendered substantial

performance under the contract and entered a judgment against the

owner.    The court of appeals affirmed, and we granted further review.

For the reasons expressed below, we affirm in part and vacate in part the

decision of the court of appeals, reverse the judgment of the district

court, and remand the case for further proceedings.

       I. Factual and Procedural Background.

       This case involves a dispute between Gregg Flynn (Flynn) and

Matthew and Chris Lande.            In early 2009, the Landes were seeking a

builder to construct a new home. Flynn, the owner of Flynn Builders,

L.C., submitted to the Landes a bid to construct the home for $259,576.

The bid included a line item for a “materials package” in the amount of

$61,223.77. The Landes accepted the bid, and Flynn began construction

in May 2009.

       1The  defendants raise six separate issues in their application for further review.
In the exercise of our discretion, we choose to only address the issue related to
substantial performance of the construction contract. As to the other issues raised on
appeal, the court of appeals’ opinion will stand as the final decision in this appeal. See
State v. Rodriguez, 807 N.W.2d 35, 37 (Iowa 2011).
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       Construction     continued      until   early   July   when     the   Landes

discovered the materials package included a $20,000 markup that Flynn

did not disclose.2 Though the markup did not increase the agreed upon
price, the Landes’ lender and the Landes refused to pay the markup.

Because the Landes and their lender refused to continue making

payments, Flynn stopped construction on the project and filed a

mechanic’s lien for $28,307.50 in the district court.

       In August 2009, Flynn filed a petition to enforce the mechanic’s

lien. In their answer, the Landes denied the existence of a contract and

made no counterclaim. The matter proceeded to trial in May 2010.

       During trial, Flynn testified that his duties as a general contractor

were nearly completed when he left the project. He explained that, while

the plumbing, drywall, paint, carpet, floor coverings, and trim remained

unfinished, arrangements had been made with various subcontractors to

complete the work. According to Flynn, “Everything was ready to go. . . .

[A]ll Matt [Landes] had to do is contact the individual sub[contractors],

even after I walked off, to have them come complete their jobs.” Brian

Stolte, an employee of Flynn, testified Flynn completed between eighty

and eighty-five percent of the project, possibly more, before leaving.

Stolte stated the insulation, drywall, trim, and flooring remained

unfinished when Flynn left.         The unfinished trim, which would have

taken two weeks to complete, included the installation of cabinets, doors,

and windows. Stolte further stated that a day of work remained with the

heating and air conditioning and the concrete was not poured in the

front of the garage. Stolte estimated that it would have taken a total of

five to seven weeks to complete the four-to-five month project.

       2A   markup is defined as “[a]n amount added to an item’s cost to determine its
selling price.” Black’s Law Dictionary 1059 (9th ed. 2009).
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      According to Matt Lande, “[t]he whole house was pretty much

studs” when Flynn stopped working on the project.             He stated the

basement doors and garage doors were not installed and that the siding

was only partially completed.      Lande also testified that he, not Flynn,

was in fact the general contractor on the project. Lande explained he

understood the agreement to be that Flynn would frame, side, and

shingle     the   house,   and   both   Flynn   and   Lande   would   recruit

subcontractors to build the house.

      Following trial, the district court held, inter alia, Flynn was entitled

to enforce the mechanic’s lien because Flynn substantially performed the

contract.    The court concluded Flynn was a general contractor of the

project and that the general contracting markup fee of $20,000 was

“appropriate and in accordance with standards of the industry.”           The

court stated that Matt Lande acted in large part as a general contractor

during construction. Addressing the substantial performance issue, the

court found that Flynn’s completion of eighty percent of the project

amounted to substantial performance of the contract. The court stated

“the credibility of the parties was given substantial weight in reaching

[the court’s] ultimate conclusion.” The court entered a judgment in the

amount of $16,574.75, plus interest, against the Landes.         The Landes

appealed.

      On appeal, the Landes argued the district court erred in finding

Flynn substantially performed.      The Landes noted the home was only

eighty to eighty-five percent complete when Flynn stopped working on

the project.       The Landes observed a number of items remained

unfinished on the project, including installing insulation, drywall,

flooring, and trim. The Landes also asserted Flynn breached the contract
                                    5

by walking off the job before completing the project. The court of appeals

affirmed.

      The court of appeals reasoned that Flynn substantially performed

the contract because the home was “framed, enclosed, roofed, sided (with

a minor exception), and the electrical and plumbing were roughed-in.”

The court explained evidence in the record established the home was

seventy to ninety-five percent complete when Flynn left the project. The

court further noted the record was devoid of any indication of bad faith

on the part of Flynn or that the unfinished portion of the home impaired

the structure as a whole.    The Landes filed an application for further

review, which we granted.

      II. Standard of Review.

      Actions to enforce mechanic’s liens are in equity.       Carson v.

Roediger, 513 N.W.2d 713, 715 (Iowa 1994).       Our review is therefore

de novo. Id. In our de novo review, the district court’s fact findings are

given weight, but we are not bound by them. Id. This court has stated

in mechanic’s lien cases, “involving as they do numerous charges and

counter charges which depend entirely on the credibility of the parties,

we have frequently held the trial court is in a more advantageous

position than we to put credence where it belongs.” McDonald v. Welch,

176 N.W.2d 846, 849 (Iowa 1970).

      III. Discussion.

      A. Law    Related     to   Mechanic’s   Liens    and   Substantial

Performance. Mechanic’s liens were not recognized at common law and

are purely a creature of statute. See Clemens Graf Droste Zu Vischering

v. Kading, 368 N.W.2d 702, 708 (Iowa 1985); Roger W. Stone, Mechanic’s

Liens in Iowa, 30 Drake L. Rev. 39, 41 (1980) [hereinafter Stone].

Mechanic’s lien statutes are designed to protect “persons who have
                                    6

supplied labor or material for the construction, improvement, or repair of

a building or other structure by giving the lienholders security

independent of their contractual remedies against the owner of the

property, if any.” Stone, 30 Drake L. Rev. at 42. Although mechanic’s

lien statutes are in derogation of the common law, they are liberally

construed “ ‘with a view to promote its objects and assist the parties in

obtaining justice.’ ”   Gollehon, Schemmer & Assocs., Inc. v. Fairway-

Bettendorf Assocs., 268 N.W.2d 200, 201 (Iowa 1978) (citation omitted).

      The Iowa territorial government enacted the first mechanic’s lien

statute in Iowa in 1838. The Statute Laws of the Territory of Iowa 349

(1839); Stone, 30 Drake L. Rev. at 41.         Though the statute has

undergone a series of amendments since its adoption, Stone, 30 Drake L.

Rev. at 41–42, Iowa caselaw has developed a requirement that in order to

enforce a mechanic’s lien, the work must be substantially performed by

the contractor, Keys v. Garben, 149 Iowa 394, 395, 128 N.W. 337, 337

(1910); see also S. Hanson Lumber Co. v. De Moss, 253 Iowa 204, 208,

111 N.W.2d 681, 684 (1961); Farrington v. Freeman, 251 Iowa 18, 23, 99
N.W.2d 388, 391 (1959); Peterman v. Hardenbergh, 250 Iowa 931, 933,

97 N.W.2d 152, 154 (1959); S.D. & D.L. Cota Plastering Co. v. Moore, 247
Iowa 972, 978, 77 N.W.2d 475, 478 (1956); Huffman v. Hill, 245 Iowa
935, 938, 65 N.W.2d 205, 206 (1954). The more recent applications of

the substantial performance doctrine in Iowa appear in published

decisions of the Iowa Court of Appeals. See, e.g., Nepstad Custom Homes

Co. v. Krull, 527 N.W.2d 402, 406 (Iowa Ct. App. 1994); Moore’s Builder &

Contractor, Inc. v. Hoffman, 409 N.W.2d 191, 194 (Iowa Ct. App. 1987).

Our caselaw in this regard is consistent with the law in a significant

number of states. See 53 Am. Jur. 2d Mechanic’s Liens § 49, at 133–34

(2006).
                                     7

      In Huffman, the court explained that “a technical, exact and

perfect performance is not necessary” in an action to foreclose a

mechanic’s lien. Huffman, 245 Iowa at 938, 65 N.W.2d at 206. So long

as the builder substantially performs the contract, the builder “is entitled

to the contract price less reasonable damages on account of slight

defects in performance.”   Id. This court elaborated on the substantial

performance doctrine in Farrington, stating,

      “ ‘Substantial performance,’ as defined by the cases, permits
      only such omissions or deviations from the contract as are
      inadvertent or unintentional, are not due to bad faith, do not
      impair the structure as a whole, are remediable without
      doing material damage to other parts of the building in
      tearing down and reconstructing, and may without injustice
      be compensated for by deductions from the contract price.
      So much is allowed in building contracts because of the
      hardship to the contractor if slight, unintentional deviations
      should bar his recovery.”

Farrington, 251 Iowa at 24, 99 N.W.2d at 391 (quoting Littell v. Webster

Cnty., 152 Iowa 206, 215, 131 N.W. 691, 694 (1911)).

      The concept of substantial performance in the mechanic’s lien

context is derived from contract law.     In Farrington, for example, the

court’s definition of substantial performance was taken directly from a

breach of contract case. See Farrington, 251 Iowa at 24, 99 N.W.2d at

391; Littell, 152 Iowa at 215, 131 N.W. at 694. In the area of contracts,

“[s]ubstantial performance is performance without a material breach,

and a material breach results in performance that is not substantial.”

II E. Allan Farnsworth, Farnsworth on Contracts § 8.16, at 518 (3d ed.

2004); see also 5 Philip L. Bruner & Patrick J. O’Connor, Jr., Bruner &

O’Connor Construction Law § 18:12, at 892–93 (2002) (“Substantial

performance means the contractor has completed its work to such an

extent that it cannot be said to have materially breached the contract.”);

Richard A. Lord, Williston on Contracts § 44:55, at 232–33 (4th ed. 2000)
                                     8

(“A breach of a contract is not material if substantial performance has

been rendered.”).

      B. Application of Law to Facts. With these principles in mind,

we now turn to the facts in this case. In our de novo review, we conclude

Flynn did not substantially perform the contract.      We note that more

than simply punch-list items remained to be completed when Flynn left

the project. See Cont’l Ill. Nat’l Bank & Trust Co. v. United States, 101 F.

Supp. 755, 758 (Ct. Cl. 1952) (holding unfinished punch-list items did

not amount to material breach); Pettit v. Hampton & Beech, Inc., 922 A.2d
300, 305 (Conn. App. Ct. 2007) (substantial performance even though

punch-list items totaling $5000 unfinished). Flynn himself testified that,

although he made arrangements with subcontractors to complete the

house, the plumbing, drywall, paint, carpet, floor coverings, and trim

remained unfinished.     According to Stolte, Flynn’s own witness, the

unfinished trim included the installation of cabinets, doors, and

windows.   Stolte also stated the heating and air conditioning was not

complete and the concrete had not been poured in front of the garage.

Stolte estimated it would take an additional five to seven weeks to

complete the project.    All told, Stolte believed Flynn completed only

eighty to eighty-five percent of the project when the contract was

terminated. See Carefree Bldg. Prods., Inc. v. Belina, 564 N.Y.S.2d 852,

854 (App. Div. 1991) (holding, as a matter of law, contractor failed to

substantially perform when deficiencies represented twenty-five percent

of contract price); Jerry B. Wilson Roofing & Painting, Inc. v. Jobco-E.R.

Kelly Assocs., Inc., 513 N.Y.S.2d 263, 265 (App. Div. 1987) (fifteen

percent); Fuchs v. Saladino, 118 N.Y.S. 172, 176 (App. Div. 1909) (fifteen

percent). While “[n]o mathematical rule relating to the percentage of the

price, of cost of completion or of completeness can be laid down to
                                          9

determine substantial performance of a building contract,” Plante v.

Jacobs, 103 N.W.2d 296, 298 (Wis. 1960), the work left unfinished in

this case was much more than a technical or inadvertent omission;

rather, the omissions materially affected the habitability of the house.

See Nelson v. Hazel, 406 P.2d 138, 144 (Idaho 1965) (“The mere fact that

a shell was constructed containing the rooms outlined in the contract,

does not in itself mean that the contract was substantially performed.”).

      We acknowledge the record demonstrates Matt Lande agreed to

perform some tasks that are ordinarily the responsibility of a general

contractor.      But    the    owner’s   willingness   to   take     on   additional

responsibilities      does    not   absolve   the   builder’s   responsibility    to

substantially perform the work the builder agreed to perform.                 While

Matt Lande had the ability to contact Flynn’s subcontractors to complete

the work, the responsibility to complete the project was Flynn’s in his

capacity as general contractor. As observed by the Wisconsin Supreme

Court,

      the owner has a right to contract for the completed structure
      or work and in the building of a house the contract price
      pays for the relief from trouble and personal effort on the
      part of the owner in respect to building.

Kreyer v. Driscoll, 159 N.W.2d 680, 681–82 (Wis. 1968) (holding $50,000

contract for building of house not substantially performed when $4650

remained); see also Harris v. Desisto, 932 S.W.2d 435 (Mo. Ct. App.

1996) (stating the general contractor “cannot argue that he had

substantially performed under the agreement when it is obvious that [the

developer] had performed in his stead and that [l]ogically, under a claim

of substantial performance, [the general contractor] cannot claim the

benefits   of   the    [developers’]   efforts   precipitated   by    [the   general

contractor’s] breach as a basis for avoiding the effect of the breach”);
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Local Union No. 964, United Bros. of Carpenters & Joiners of Am. v.

Lighting Servs., Inc., 557 N.Y.S.2d 764, 765 (App. Div. 1990) (holding

that, although certificate of occupancy had been delivered, evidence in

the record established work that should have been done by the

contractor was performed by others).

      C. Disposition.    Having determined Flynn did not substantially

perform the contract, we recognize that there may be additional legal and

factual issues that were not reached by the district court that could have

an impact on the disposition of this case.     The district court did not

address, for instance, the factual disputes in the record for the reason

Flynn walked off the job and whether lack of specific performance might

be excused by the conduct of the Landes. See Horsfield Constr., Inc. v.

Dubuque Cnty., 653 N.W.2d 563, 573 (Iowa 2002) (stating that

anticipatory repudiation “excuses performance on the part of the non-

breaching party”).      The district court also did not address the

significance, if any, of the hidden nature of the markup on the ability of

Flynn to enforce a mechanic’s lien.        We intimate no view on these

questions, but remand the case on the current record for further

proceedings. See, e.g., Lewis Elec. Co. v. Miller, 791 N.W.2d 691, 694–96

(Iowa 2010) (reversing based on lack of evidence of substantial

performance and remanding for new findings “on the basis of the current

record”); Sauder v. Union Produce Coop., 592 N.W.2d 695, 698 (Iowa

1999) (remanded for findings on an issue the district court did not

consider “on the existing record”).

      IV. Conclusion.

      For the reasons discussed above, we hold that the trial court erred

in concluding that Flynn had substantially completed work for the

Landes. On this issue, we vacate the opinion of the court of appeals,
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reverse the judgment of the district court, and remand the case for

further proceedings. The opinion of the court of appeals is affirmed as to

all other issues raised in this appeal.

      DECISION OF COURT OF APPEALS AFFIRMED IN PART AND

VACATED IN PART; DISTRICT COURT JUDGMENT REVERSED, AND

CASE REMANDED FOR FURTHER PROCEEDINGS.