Opinion
No. 106007153
November 1, 2011
MEMORANDUM OF DECISION
The plaintiff, Joseph Schott, LLC (the plaintiff), as general contractor, and the plaintiffs Greco Construction Co. and Brian Greco dba Greco Construction Co. (Greco), as subcontractors, bring this action against the defendants Jerilyn J. Medea and Kathleen G. McHugh, owners of a single-family home in Southport. The plaintiffs allege that they rendered services to the defendants in connection with the construction of a home for which they were not paid. The amended complaint is in five counts. The first count alleges that the plaintiff provided materials and services to the defendants pursuant to a contract for the construction of the home commencing November 26, 2007, that the defendants terminated the contract on February 20, 2009, and that the plaintiff is owed $38,000. The plaintiff filed a mechanics lien for which the defendants substituted an escrow fund of $57,000. The first count is brought pursuant to General Statutes § 49-37. In the second count, the plaintiff asserts a claim of breach of contract against the defendants. The second count alleges that "the fair and reasonable value of the services rendered and material furnished . . . for which Plaintiff Schott had not been paid by Defendants" is $81,723.00 and that the plaintiff owes subcontractors $48,061.00 for work performed in the construction for the home. In the third count, the plaintiff seeks damages for unjust enrichment.
In the fourth count, Greco brings an action on an escrow account substituted for a mechanic's lien, purportedly pursuant to General Statutes § 49-37, for services and materials Greco alleges it furnished in connection with the construction of the home and for which Greco alleges it is owed $23,737.50. The fifth count is an action for unjust enrichment by Greco in which he incorporates the allegations of the fourth count.
The plaintiff and Greco are represented by the same attorney.
The action was tried to the court. The parties filed post-trial briefs and subsequently provided oral argument at the request of the court. The court finds the following facts. Prior to October 2007, the defendants retained an architectural firm, Insite Architects, to design a new dwelling on their property in Southport, CT. Insite Architects prepared limited specifications for a new home. Prior to October 2007, the defendants terminated Insite Architects and entered into a contract with the plaintiff which provided that the plaintiff would act as the general contractor in the construction of the dwelling. Prior to entering into the contract, the plaintiff prepared a construction estimate based on Insite Architect's plans and specifications. The construction estimate stated that some items would be provided by the defendants and set forth costs and alternative costs. The construction estimate provided for a net construction cost total of $1,071,938.84. In negotiating the contract, the plaintiff represented to the defendants that by retaining the plaintiff the defendants would "get two for the price of one"; that is, the plaintiff would act as both architect and general contractor. Notably, both the plaintiff and the defendants had the benefit of counsel in negotiating the contract.
The contract, which referred to the defendants as "owner" and the plaintiff as "the Contractor," provided in pertinent part:
1. CONSTRUCTION: The Contractor, for the consideration hereinafter mentioned, does hereby agree to construct and erect a residential dwelling for the Owner (the "work") . . . in accordance with certain Plans and Specifications known as " contract documents/architectural drawings" which have been submitted by the Contractor to Owner, which Plans and Specifications are attached hereto and labeled SCHEDULES "A B" and are hereby made a part of and incorporated into this Agreement by reference . . .
2. MATERIALS: The Contractor shall furnish all materials including but not limited to any and all modules necessary to conform all work required by this Agreement and the attached SCHEDULES "A B."
3. PRICE: The Owner agrees to pay to the Contractor, and the Contractor agrees to accept the sum of Cost + 20% Capped @ $210,000 and no/100 ( $210,000) DOLLARS in accordance with the payment schedule set forth in SCHEDULE "C," in full payment for the performance of the work. The schedule may not be adjusted or amended without the written consent of both the Contractor and the Owner. All payments to the Contractor shall be made in accordance with the schedule and payment shall not be excused or delayed for any reason not caused by the Contractor. Payment according to the schedule shall be the responsibility of the Owner. All payment of subcontractors and materials shall be the responsibility of Contractor unless otherwise agreed herein.
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7. COMPLETION: The Contractor shall substantially complete all work set forth in SCHEDULE AA B@ [sic] within 365 days (12) calendar months from the date of Acommencement [sic] of the work@ [sic], provided that Contractor is promptly given access to the work site for commencement of the work, subject to any delays as specified herein. The date of Accommencement [sic] of the work@ [sic] shall be the first business day after payment due on the signing of the contract has been made . . . However, the Contractor shall not be liable for any delay in the construction and completion of said residential dwelling, if such delay or delays are due to strikes, inability to obtain materials and/or substitute materials, subcontractors, weather conditions, changes made by the Owner to the Plans and Specifications, or a delay in the delivery of materials or labor being supplied by Owner. Any delays not caused by the Contractor are not the responsibility of the Contractor and shall be added, day-for-day, to the time for the substantial completion of the work by the Contractor. Any change order or extra work shall also result in extending the time for substantial completion.
8. QUALITY OF WORK: (a) All the work to be done by the Contractor shall be performed in a skillful and good workmanlike manner and that upon completion, the work product will serve the purpose for which it was intended.
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10. DEVIATIONS: It is agreed that there will not be any deviation from the said Plans and Specifications unless the parties agree to said deviations in a writing signed by the parties. The Contractor shall have the right to determine the method of construction. Contractor shall have the right to make minor adjustments and corrections to the Plans and Specifications necessitated by field conditions.
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15. EXTRA WORK: The Owner, without invalidating this Agreement, may order extra work or request "change orders" by altering, adding to or deducting from the work, the Agreement price to be adjusted accordingly. The value of such extra work or change shall be determined by estimate submitted to the Owner by the Contractor. Said work and the amount to be paid for the same shall be specified in writing and signed by the parties. The Owner shall pay all requisite deposit sums when due and shall pay Contractor the balance for all extra work upon completion and presentation to the Owner of an invoice for said work.
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21. WARRANTIES: The Contractor warrants that all work performed and materials furnished by Contractor under this Agreement shall be in accordance with the Plans and Specifications.
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32. ATTORNEYS FEES: If a non-defaulting party must refer this contract to an attorney for the enforcement of the same pursuant to its terms, or a default of any of the other terms in this Contract, the defaulting party agrees to pay, in addition to any monies due, reasonable attorneys fees and costs to the non-defaulting party.
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35. ENTIRE AGREEMENT: This Agreement constitutes the entire agreement between the parties. No oral statements, promises, prior written agreements, or any understanding not embodied in this Agreement shall bind either party.
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38. MODIFICATIONS: This Agreement cannot be changed or modified orally, and any change or modification of this Agreement must be in writing and signed by the parties hereto.
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41. TERMINATION BY OWNER: The Owner may terminate this Agreement if the Contractor:
1. Persistently or repeatedly refused or fails to supply enough properly skilled workers or proper materials;
2. Fails to make payment to subcontractors for materials or labor in accordance with the respective agreements between the Contractor and the subcontractors;
3. Persistently or repeatedly disregards laws, ordinances, or rules, regulations or orders of a public authority having jurisdiction; or
4. Otherwise is guilty of substantial breach of a provision of this Agreement.
Prior to termination, the Owner shall provide the Contractor with Five (5) business days notice. If the Contractor fails to cure the default or engage in continuous good faith efforts to cure such default, the Owner may terminate this Agreement at the expiration of the Five (5) day period.
In the event the Owner terminates the Agreement as provided herein, the Contractor shall only be entitled to receive payment for the cost of the work actually executed. The Contractor shall not receive any fee including his additional 'Contractor's Fee,' i.e., 20% of the cost of the Project, on work not completed. In all events, the Contractor waives claims for consequential damages against the Owner arising out of or relating to this Agreement including but not limited to, damages incurred by the Contractor for principal office expenses including compensation of personnel stationed there, for losses of financing, business and reputation, and for loss of profit except for the Contractor's fee arising directly from the work actually completed.
42. PROGRESS PAYMENTS: The Contractor shall submit its invoices to the Owner for review. Each invoice shall be accompanied by supporting data such as invoices, bills, time-sheets and other documentation adequate to support the Contractor requested invoice amount. The Owner will review the Contractor's invoices and associated documentation within five business days from the date of submittal. The Contractor's invoice and all supporting data is to be submitted via hand-delivery, fax, or electronic mail and must be in a legible format.
In the event that the Owner disputes any or all of the amount set forth in the invoice, the Owner shall promptly set forth the reason therefore in writing. If the invoice is disputed and same is not provided to the Contractor within five days, time being of the essence, then all work submitted for approval therein shall be deemed accepted and payment shall be made to the Contractor. If the invoice is disputed, Contractor and Owner and Architect (if necessary) shall meet in person to resolve the existing dispute ("Meeting"). If the dispute cannot be resolved, both the Contractor and Owner agree that the invoice amount in dispute shall be placed in escrow held by the Owner's attorney and agree to take the matter to Arbitration . . ." (Emphasis added.)
Words or numbers that are underscored are handwritten in the original document.
None of the schedules referred to in the contract were physically attached to it. However, it is undisputed that schedules A and B are the plans and specifications of Insite Architects and schedule C is the construction estimate prepared by the plaintiff.
In February or March 2008, the existing structure was removed. The plaintiff began construction of the new home in March 2008.
The defendants obtained a bank loan to fund the construction, the amount of which was based on the plaintiff's construction estimate (that is, cost of construction plus the plaintiff's management fee). The construction loan agreement provided that the defendants had eighteen months from the date of the first draw on the loan within which to complete construction of the dwelling. If the home was not completed within that time, the defendants were required to pay the bank a penalty of $35,000.
Although, at the time of contracting, both parties anticipated that some changes would be made to the plans and specifications during construction, the defendants made many changes, some very costly. The plaintiff did not generally volunteer information as to the additional cost of changes when they were requested by the defendants or when alternatives were offered to the defendants by the plaintiff. The defendants' bank loan did not cover the expense of these changes which, in turn, required the defendants to expend their own monies.
The plaintiff provided the defendants with waivers of mechanics liens by the subcontractors, except for Greco.
In the summer of 2008, the defendants, concerned about the mounting cost of the home, began asking the plaintiff for an accounting. The defendants repeatedly asked for this information. The plaintiff provided a list of vendors' bills on an accrual basis and some subcontractor invoices, but did not provide canceled checks or information in the format reflected in Exhibit 3.
In the fall of 2008, the defendants' concern about the cost of their new home became even more heightened. The cost was far exceeding what they had expected. The defendants hired a bookkeeper to assist them with the accounting for the project. The bookkeeper's work was unsatisfactory and the defendants discharged her. They then hired an accountant, Steven Glazier. Glazier requested financial information from the plaintiff, which the plaintiff provided. Joseph Schott and Brian Greco met with Glazier on two occasions.
On or about February 20, 2009, the defendants verbally informed the plaintiff that it was being terminated. The next day, the defendants' attorneys had a letter delivered to the plaintiff bearing the "RE" line: "Notice of Termination of Construction Agreement — 129 Banks Place, Southport, CT." The letter stated, inter alia: "Please accept this letter as your notice that your services as general contractor on the construction project located at the above-referenced property are hereby terminated. This decision is effective immediately. Consider this letter your five (5) day notice under Paragraph 40 of the Agreement.
"Throughout the various stages of the construction process, the Owners have requested on numerous occasions your compliance with the contractual provisions of the above-referenced Agreement. Despite these numerous requests, both you and your company have been unable and unwilling to comply with your contractual requirements resulting in your substantial breach of the Agreement."
After receiving the notice of termination, the plaintiffs were locked out of the job site. They were permitted to re-enter and cleaned the house, photographed aspects of the project and removed its trailer from the job site.
At the time the plaintiff was terminated, the work was about 70% complete and the defendants had paid the plaintiff $160,163.39 of the contractor's fee, pursuant to paragraph 3 of the parties' agreement. About $400,000 of the bank loan remained. The plaintiff was ready, willing and able to complete the work.
The defendants hired a construction company operated by Mr. Robert Sprouls to finish the job. Sprouls was introduced to the defendants by Glazier. The parties have stipulated that the house was in "good shape" when Sprouls took over the job. Working continuously for six months, Sprouls finished the job, using many of the same subcontractors the plaintiff had retained. Sprouls estimated the cost to complete the work at $765,000 but finished the job for $700,000. However, Sprouls was unable to finish construction within the time period fixed by the bank. As a result, the defendants paid their mortgagee bank the $35,000 penalty.
On May 20, 2009, the plaintiff filed a certificate of mechanic's lien against the defendant's property with the town clerk of the town of Fairfield. The plaintiff claimed that defendants owed the plaintiff $38,000 for goods and services. Subsequently, the plaintiff and defendants agreed that the defendants would be permitted to substitute a sum of money held in escrow in lieu of the mechanic's lien. On February 18, 2010, the plaintiff and Greco brought this action.
Additional facts will be set forth as necessary.
The plaintiffs claim: (1) the defendants terminated the plaintiff without cause; (2) the plaintiff is entitled to damages of 20% of the cost of the subcontractor labor materials to finish the work, plus attorneys fees, as well as compensation for extra work, or, alternatively damages for unjust enrichment; (3) the defendants waived the contract requirement that change orders be signed by the parties or are otherwise equitably estopped from enforcing that requirement; (4) the plaintiff is entitled to profit it would have earned had it been allowed to complete the work; and (5) the plaintiff is entitled to compensation for design services it rendered. In addition, the plaintiff Greco seeks compensation for excavation services it provided.
The defendants argue that the plaintiff mismanaged the project; that the plaintiff was properly terminated for cause; that when the plaintiff was terminated, the project was at best 65-70% completed and that the plaintiff would have been unable to complete it on time; that based on the percentage of completion and the contract formula, the plaintiff should have collected a fee of only $147,000 at the time of termination, rather than a fee of $160,163; the plaintiff is not entitled to damages for extra work, nor for lost profits or design services. The defendants also argue that Greco's claim of unjust enrichment is barred because the work he did was not authorized and his claim for damages is barred by the rule of Renee Drywall Co. v. Strawberry Hill Associates, 182 Conn. 568, 573, 438 A.2d 774 (1980). Finally, the defendants have filed a counterclaim, alleging that they are entitled to damages for the plaintiff's mismanagement and deviations from the plans and specifications.
I A CT Page 22924
Although the first count of the plaintiff's complaint separately pleads a claim for payment out of the escrow account, the plaintiff concedes that this count is "subsumed by its claim for breach of contract." Accordingly, the court moves on to the second count.
B
In the second count, the plaintiff asserts a cause of action for breach of contract. "The elements of a breach of contract action are the formation of an agreement, performance by one party, breach of the agreement by the other party and damages." (Internal quotation marks omitted.) Hawley Avenue Associates v. Russo, 130 Conn.App. 823, 832, 25 A.3d 707 (2011). Since there is no question that there existed a written contract between the plaintiff and the defendants, the court turns to the issue of whether the plaintiff performed the agreement.
"One cannot recover upon a contract unless he has fully performed his own obligation under it, has tendered performance, or has some legal excuse for not performing." Automobile Ins. Co. v. Model Family Laundries, Inc., 133 Conn. 433, 437, 52 A.2d 137 (1947). The test is substantial performance. Kelley v. Hance, 108 Conn. 186, 187-88, 142 A. 683 (1928); see also Mortgage Electronic Reg. Systems v. Goduto, 110 Conn.App. 367, 373-74, 955 A.2d 544, cert. denied, 289 Conn. 956, 961 A.2d 420 (2008) (describing factors to consider in determining whether there has been substantial performance).
The defendants contend that the plaintiff failed to perform according to the agreement because it "mismanaged the project." The defendants argue that the plaintiff "woefully underestimated the cost of the project." (Defendants' Brief, p. 7.) However, the plaintiff based its estimate, in part, on the incomplete plans and specifications of Insite Architect, a firm retained by the defendants, and which plans and specification the defendants wanted the plaintiff to use in arriving at its estimate. Moreover, the defendants made extensive and expensive changes during construction. Although the plaintiff has the burden of proving that it performed the contract; DuBose v. Carabetta, 161 Conn. 254, 262, 287 A.2d 357 (1971); the defendants have failed to demonstrate how the plaintiff's estimate could constitute a failure to perform the terms of the contract.
The defendants complain that the plaintiff "requested a draw on the construction loan, thereby 'starting the clock' on the time to complete the construction and convert the construction loan to a permanent mortgage, even though he knew or should have know that the construction could not commence for another ninety (90) days due to the lack of necessary town approvals and permits." Again, the defendants have not demonstrated that this matter is ascribable to the terms of the contract, nor is there sufficient evidence that the plaintiff's draw on the construction loan was unreasonable.
Construction was delayed because the plaintiff had to obtain a permit from the local Inland Wetlands Agency.
The defendants argue that "Schott made man[y] unilateral changes with no input from the Owners" and that "[o]nce construction commenced, Schott failed to provide the Owners with accurate information on the costs being incurred, incurred costs due to changes in materials or design that were made without adequately informing the Owners and without costs estimates or written change orders as required by the contract." (Defendants' Brief, p. 8.)
The defendants rely, inter alia, on paragraphs 10 and 15 of the contract. Paragraph 10 provides: "DEVIATIONS: It is agreed that there will not be any deviation from the said Plans and Specifications unless the parties agree to said deviations in a writing signed by the parties. The Contractor shall have the right to determine the method of construction. Contractor shall have the right to make minor adjustments and corrections to the Plans and Specifications necessitated by field conditions." Paragraph 15 states: "15. EXTRA WORK: The Owner, without invalidating this Agreement, may order extra work or request 'change orders' by altering, adding to or deducting from the work, the Agreement price to be adjusted accordingly. The value of such extra work or change shall be determined by estimate submitted to the Owner by the Contractor. Said work and the amount to be paid for the same shall be specified in writing and signed by the parties. The Owner shall pay all requisite deposit sums when due and shall pay Contractor the balance for all extra work upon completion and presentation to the Owner of an invoice for said work."
The plaintiff and the defendants were in frequent contact. Many of the changes were communicated in e-mails between the parties or discussed in person. The plaintiff and the defendants met regularly. The court is persuaded that, in general, no major changes were made to which the defendants did not agree, verbally or otherwise. The defendants got the house they wanted.
With respect to the defendants' complaint that the plaintiff did not provide them with sufficient information as to costs, the court observes that the contract contains no generalized requirement that the plaintiff provide the defendants with such information. "It is axiomatic that a party is entitled to rely upon its written contract as the final integration of its rights and duties." Zullo v. Smith, 179 Conn. 596, 601, 427 A.2d 409 (1980). Moreover, the plaintiff was vigilant about timely providing the defendants with waivers of mechanic's liens and provided all requested financial information to Glazier.
The court finds that the plaintiff substantially performed the contract until the plaintiff was locked out of the premises and prohibited from performing.
The next question is whether the defendants breached the agreement. Paragraph 20 of the contract states in relevant part: "The Owner shall at all times guaranty access to the work site." The plaintiff claims that the defendants breached the agreement when they terminated the plaintiff without cause, barring the plaintiff from the work site, and failed to afford the plaintiff the opportunity to cure any default. The defendants argue that they had cause to terminate the plaintiff because the cost of the project had spiraled out of control. The court agrees with the plaintiff.
Whether the plaintiff was terminated for cause requires that the court interpret the language of the parties' contract. "A contract must be construed to effectuate the intent of the parties, which is determined from the language used interpreted in the light of the situation of the parties and the circumstances connected with the transaction . . .
"[T]he intent of the parties is to be ascertained by a fair and reasonable construction of the written words and . . . the language used must be accorded its common, natural, and ordinary meaning and usage where it can be sensibly applied to the subject matter of the [writing] . . . Where the language of the [writing] is clear and unambiguous, the [writing] is to be given effect according to its terms. A court will not torture words to import ambiguity where the ordinary meaning leaves no room for ambiguity . . . Similarly, any ambiguity in a [written instrument] must emanate from the language used in the [writing] rather than from one party's subjective perception of the terms . . . If a contract is unambiguous within its four corners, the determination of what the parties intended by their contractual commitments is a question of law . . . When the language of a contract is ambiguous, [however] the determination of the parties' intent is a question of fact, and the trial court's interpretation is subject to reversal on appeal only if it is clearly erroneous . . ." (Citations omitted; internal quotation marks omitted.) Connecticut National Bank v. Rehab Associates, CT Page 22927 300 Conn. 314, 318-19, 12 A.3d 995 (2011).
Paragraph 41 of the contract provides that "[t]he Owner may terminate this Agreement if the Contractor:
"1. Persistently or repeated refused or fails to supply enough properly skilled workers or proper materials;
"2. Fails to make payment to subcontractors for materials or labor in accordance with the respective agreements between the Contractor and the subcontractors;
"3. Persistently or repeatedly disregards laws, ordinances, or rules, regulations or orders of a public authority having jurisdiction; or
"4. Otherwise is guilty of substantial breach of a provision of this Agreement.
"Prior to termination, the Owner shall provide the Contractor with Five (5) business days notice. If the Contractor fails to cure the default or engage in continuous good faith efforts to cure the default, the Owner may terminate this Agreement at the expiration of the Five (5) day period.
"In the event the Owner terminates the Agreement as provided herein, the Contractor shall only be entitled to receive payment for the cost of the work actually executed. The Contractor shall not receive any fee including his additional 'Contractor's fee,' i.e., 20% of the cost of the Project, on work not completed."
The defendants do not claim that the first or third grounds for termination are applicable. With respect to the second ground for default, the court finds that Greco had not been fully paid at the time the plaintiff was terminated. However, there is no evidence that this non-payment violated any agreement between the plaintiff and Greco. Therefore, the defendants may not rely on the second ground as a basis for termination.
With respect to the fourth ground for termination, the defendants argue that the plaintiff engaged in extra work to which the defendants did not agree in writing, in accordance with paragraphs 10 and 15 of the contract. The plaintiff argues that the defendants waived these provisions.
"Provisions in a written contract requiring written orders for changes in the work or for extra work may be waived by the parties so that the owner becomes liable for changes or extras done by oral direction." Von Langendorff v. Riordan, 147 Conn. 524, 528, 163 A.2d 100 (1960). If a party wishes to invoke the contractual provision that change orders or extra work be in writing, that party must timely invoke it. "Directions by the [defendants] to [the plaintiff] for the performance of work not called for by their contract are necessarily and of themselves a waiver of the requirement for written approval." Wexler Construction Co. v. Housing Authority, 144 Conn. 187, 193, 128 A.2d 540 (1956). "In this case the requirement of written orders for the extras allowed had been waived." Lippia Son, Inc. v. Jorson, 32 Conn.Sup. 529, 532, 342 A.2d 910 (App.Sess. 1975).
The defendants also claim that the plaintiff mismanaged the work, resulting in cost-overruns and the plaintiff's inability to finish the job on time. The house cost far more than the defendants anticipated. However, the plans prepared by Insite Architect were incomplete and changes were foreseeable, the contract anticipated extra work and the defendants liberally made such changes. The design of the house, especially the interior, was a work in progress. However, the court also finds that the plaintiff did not always communicate the estimated cost of the changes the defendants desired.
For this to rise to the level of "cause" for contract termination, the plaintiff must have committed a "substantial breach of a provision" of the parties' contract. The term "substantial breach," indeed paragraph 41 of the contract in its entirety, was adopted from American Institute of Architects (AIA) Document A205, article 11, § 11.2.2. See 566 New Park Associates v. Blardo, 97 Conn.App. 803, 814 n. 8, 906 A.2d 720 (2006). The term "substantial breach" is not defined in the contract nor in AIA documents. Therefore, as observed supra, "[t]he intent of the parties is to be ascertained by a fair and reasonable construction of the written words and . . . the language used must be accorded its common, natural, and ordinary meaning and usage where it can be sensibly applied to the subject matter of the [writing] . . . Where the language of the [writing] is clear and unambiguous, the [writing] is to be given effect according to its terms. A court will not torture words to import ambiguity where the ordinary meaning leaves no room for ambiguity . . . Similarly, any ambiguity in a [written instrument] must emanate from the language used in the [writing] rather than from one party's subjective perception of the terms . . . If a contract is unambiguous within its four corners, the determination of what the parties intended by their contractual commitments is a question of law . . . When the language of a contract is ambiguous, [however] the determination of the parties' intent is a question of fact . . ." (Citation omitted; internal quotation marks omitted.) Connecticut National Bank v. Rehab Associates, 300 Conn. 314, 319, 12 A.3d 995 (2011).
The term "substantial breach" is ambiguous. The parties do not address what constitutes a "substantial breach" in their briefs. In the absence of any other guidance, the court interprets the term "substantial breach" as the equivalent of a material breach. See Brittle v. Shun, No. A08-0445 (Minn.App. 2009); Nisby v. Michael, 2007 Mass.App. Div. 103, 104 (2007); Rogers v. Relyea, 184 Mont. 1, 8, 601 P.2d 37 (1979); Black's Law Dictionary (7th Ed. 1999); Merriam-Webster Dictionary (2005) (defining substantial as material); see also In re DeRosa, 98 B.R. 644, 648 (R.I. 1989). Accordingly, the court turns to the question of whether the plaintiff's not communicating the estimated cost of changes was a material breach.
"In Bernstein v. Nemeyer, 213 Conn. 665, 672, 570 A.2d 164 (1990), our Supreme Court endorsed the use of the multifactor test set forth in the Restatement (Second) of Contracts . . . § 241, when determining whether a breach is material. Section 241 of the Restatement (Second) of Contracts provides: In determining whether a failure to render or to offer performance is material, the following circumstances are significant: (a) the extent to which the injured party will be deprived of the benefit which he reasonably expected; (b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived; (c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; (d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; [and] (e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing . . . The standards of materiality [are] to be applied in the light of the facts of each case in such a way as to further the purpose of securing for each party his expectation of an exchange of performances. [Section 241] therefore states circumstances, not rules, which are to be considered in determining whether a particular failure is material. 2 Restatement (Second), supra, § 241, comment (a)." (Citations omitted; internal quotation marks omitted.) Shah v. Cover-it, Inc., 86 Conn.App. 71, 75-76, 859 A.2d 959 (2004).
As discussed supra, prior to being terminated by the defendants, the plaintiff provided all requested financial information to Glazier. While the plaintiff did not invariably communicate the estimated cost of changes or extra work desired in advance, the court finds that this was not a substantial breach. First, the contract does not state that such estimates must be provided, only that "[t]he value of such extra work or change shall be determined by estimate submitted to the Owner by the Contractor." (Paragraph 15.) Second, the court is not persuaded that the defendants would not have proceeded with any changes because of the lack of cost information. Cost did not become a major concern to them until later in the plaintiff's tenure on the job. Third, the defendants have not quantified an amount by which they were harmed by the plaintiff's not providing estimates to them before the plaintiff embarked on extra work or making desired changes. Fourth, to hold that these isolated instances constitute a substantial breach would work a significant forfeiture to the plaintiff. Fifth, the plaintiff was never given an opportunity to cure; the plaintiff was locked out. Finally, the court finds, and the defendants virtually concede, that the plaintiff acted in good faith in the construction of the home.
The defendants argue that they had to pay a $35,000 penalty to the bank because the plaintiff did not perform the contract in a timely manner. Construction of the home was unquestionably delayed. The home was scheduled to be completed in March 2009. The plaintiff was terminated in January 2009. At that time only 70% of the home had been completed. It appears unlikely that the plaintiff would have been able to substantially complete the job within the 365-day period required by paragraph 7. It took Sprouls another six months to complete the job. As a result, the defendants had to pay the bank a $35,000 penalty. Paragraph 7 of the contract provides in pertinent part that "the Contractor shall not be liable for any delay in the construction and completion of said residential dwelling, if such delay or delays are due to . . . changes made by the Owner to the Plans and Specifications . . . Any delays not caused by the Contractor are not the responsibility of the Contractor and shall be added, day-for-day, to the time for the substantial completion of the work by the Contractor. Any change order or extra work shall also result in extending the time for substantial completion." The court finds that the changes desired by the defendants and constructed by the plaintiff were extensive. These changes included changes to the layout of both the first and second floors, a very expensive front door, addition of certain windows, the installation of a geothermal heating and air conditioning system, the conversion of a screened porch to a sun-room with windows, changes to the electrical system, expansion of the patio and several upgrades to the original specifications. Although the number of rooms did not change nor was the square footage significantly increased by these changes, they were sufficiently extensive that they caused a significant delay in the completion of the home.
The court finds that the plaintiff did not commit a substantial breach of the contract and that the defendants did not terminate the plaintiff for a reason referable to paragraph 41. Accordingly, the court finds that the defendants breached the agreement.
Because the court finds that the defendants breached the agreement by terminating the plaintiff for a reason referable to paragraph 41, it is unnecessary to determine whether the defendants afforded the plaintiff an opportunity to cure as required by paragraph 41.
Moreover, paragraph 41 provides, in relevant part: " Prior to termination, the Owner shall provide the Contractor with Five (5) business days notice. If the Contractor fails to cure the default or engage in continuous good faith efforts to cure such default, the Owner may terminate this Agreement at the expiration of the Five (5) day period." (Emphasis added.)
The defendants never gave the plaintiff notice and opportunity to cure as provided by this provision. Indeed, the defendants never identified in what manner the plaintiff was in default of its obligations under the contract. The February 19, 2009 letter to the plaintiff and Greco by the defendants stated: "Please accept this letter as your notice that your services as general contractor on the construction project located at the above-referenced property are hereby terminated. This decision is effective immediately. Consider this letter your five (5) day notice under Paragraph 40 of the Agreement." Even if the final sentence rendered the document ambiguous, the letter later instructed the plaintiff "to remove all of your personal belongings and tools from the job site by February 27, 2009 at the latest." Moreover, the letter never identified how the plaintiff was in default of one or more of the four reasons for termination for cause. Nor was such a ground mutually obvious.
"Under termination clauses, the owner may be given the right to terminate the contractor 'for cause' or 'for default.' R. Cushman, [Construction Litigation: Representing the Owner] (2d Ed. 1990) § 3.27, p. 123-25. Many contracts have procedures that require more than simple notice. These procedures will be enforced. R. Cushman, supra, § 8.9, p. 271 n. 77, citing Multi-Service Contractors, Inc. v. Town of Vernon, 193 Conn. 446, 455, 477 A.2d 653 (1984) (holding contractor's noncompliance with contract conditions and notice provisions were inexcusable). In a contract containing a termination clause requiring the owner to give notice to the contractor that, unless the noted defaults are cured, the contractor will be terminated, the failure to provide this notice will invalidate the termination. (Emphasis added.) 1 S. Stein [Construction Law (Matthew Bender 1998)] § 4.13[1][b], citing Providence Washington Ins. Co. v. Beck, 255 N.E.2d 600 (Mass. 1970) (holding contractor's failure to comply with seven-day notice provision under contract before termination was substantial breach); see also United States v. Centex Construction Co., 638 F.Sup. 411, 413 (W.D.Va. 1985) (subcontractor's claims barred because of its failure to notify general contractor within seven days after additional work performed); Service Steel Erectors Co. v. SCE, Inc., 573 F.Sup. 177, 178-79 (W.D.Va. 1983) (same). [I]f a party fails to give proper notice, that party cannot terminate the contract. Id., citing Cuddy Mountain Concrete v. Citadel Construction, 121 Idaho 220, 824 P.2d 151, 158 (1992) (holding general contractor breached its contract with subcontractor by failing to give seven-day written notice of termination).
"[W]hen a particular form of notice, or length of time, is stipulated to in the contract . . . compliance is necessary, and giving the prescribed notice is an essential prerequisite to termination of the contract. 1 S. Stein, supra, § 4.13[1][c]. The termination must be in good faith. 1 S. Stein, supra, § 4.13[2], citing Dinnis v. Roberts, 35 Conn.App. 253, 257, 644 A.2d 971, cert. denied, 231 Conn. 924, 648 A.2d 162 (1994) (holding proof of homeowner's bad faith precludes homeowner from repudiating contract violative of Connecticut Home Improvement Act). If an owner wrongfully terminates a contractor ". . . [the owner] will be found in material breach of the contract. 1 S. Stein, supra, § 4.15[5]." (Internal quotation marks omitted.) Bouchard v. Boyer, Superior Court, judicial district of New London, Docket No. 543089 (May 17, 1999). The court finds that the defendants breached their contract with the plaintiff.
II
The court turns to the issue of damages. "The general rule in breach of contract cases is that the award of damages is designed to place the injured party, so far as can be done by money, in the same position as that which he would have been in had the contract been performed . . . In making its assessment of damages for breach of a construction contract the trier must determine the existence and extent of any deficiency and then calculate its loss to the injured party." (Citation omitted.) Beckman v. Jalich Homes, Inc., 190 Conn. 299, 309-10, 460 A.2d 488 (1983). "It is also a rule of law that in all cases of prevention of performance, where the plaintiff has been deprived by the defendant of the benefit of the contract, the plaintiff is entitled to recover what he has lost by the act of the defendant." (Internal quotation marks omitted.) Kastner v. Beacon Oil Co., Inc., 114 Conn. 190, 193, 158 A. 214 (1932). "In a breach of contract action, although the injured party should receive a damages award that places him in the same position that he would have occupied had the contract been performed properly, he nevertheless is entitled to retain nothing in excess of that sum which compensates him for the loss of his bargain . . . Guarding against excessive compensation, the law of contract damages limits the injured party to damages based on his actual loss caused by the breach." (Internal quotation marks omitted.) Landry v. Spitz, 102 Conn.App. 34, 51, 925 A.2d 334 (2007).
The defendants paid $1,167,180.58 to the plaintiff. From that amount, the plaintiff paid subcontractors $1,007,017.19. At the time of its termination, the plaintiff had taken a fee of $160,163.69. The cost to complete the work after the defendants terminated the plaintiff was $700,000.
The plaintiff claims that it should be awarded an additional contractor's fee of $89,081.34. The court disagrees.
This was not, as the plaintiff contends, a simple "cost-plus" contract. A cost-plus contract is one "in which payment is based on a fixed fee or a percentage added to the actual cost incurred." Black's Law Dictionary (9th Ed. 2009). Rather, the plaintiff's fee was limited. The contract provides that "[t]he Owner agrees to pay to the Contractor, and the Contractor agrees to accept the sum of Cost + 20% Capped @ $210,000 and no/100 ( $210,000) DOLLARS . . ." (Emphasis in original.) The underlined words and numbers were manuscripted by the defendant McHugh. The "common, natural and ordinary meaning and usage" of the word "cap" is "an upper limit." The Merriam-Webster Dictionary (2005). Even if the language of the contract were deemed ambiguous, thereby rendering the parties' intent a question of fact; O'Connor v. Waterbury, 286 Conn. 732, 744, 945 A.2d 936 (2008); it is evident that the parties intended at the time of contracting that the defendants would not pay the plaintiff more than $219,000 for the construction of the house. Since the plaintiff had already been paid a fee of $160,163.69 and the cost to complete the house was $700,000, the plaintiff is entitled to damages in the amount of $49,836.31.
To the extent the plaintiff seeks to exceed the cap, such a claim is necessarily based on extra work and change orders. As discussed supra, paragraph 15 provides in relevant part: "The value of such extra work or change shall be determined by estimate submitted to the Owner by the Contractor." Since the plaintiff did not provide such estimates to the defendants, it may not now recover for that work above the cap.
Judgment shall enter in favor of the plaintiff Joseph Schott, LLC and against the defendants in the amount of $49,836.31 on counts one and two.
III
The plaintiff claims that it is entitled to lost profit equaling one-half of the remaining contractor's fee. The court disagrees. As discussed supra, the plaintiff's fee was capped. Moreover, paragraph 41 of the contract provides in relevant part: "In all events, the Contractor waives claims for consequential damages against the Owner arising out of or relating to this Agreement including but not limited to . . . loss of profit except for the Contractor's fee arising directly from the work actually completed." The plaintiff is not entitled to damages for loss of profit.
The plaintiff also claims it is entitled to damages in the nature of unjust enrichment for architectural or design services it provided but which are not provided in the contract.
"[W]herever justice requires compensation to be given for property or services rendered under a contract, and no remedy is available by an action on the contract, restitution of the value of what has been given must be allowed . . . Under such circumstances, the basis of the plaintiff's recovery is the unjust enrichment of the defendant . . . A right of recovery under the doctrine of unjust enrichment is essentially equitable, its basis being that in a given situation it is contrary to equity and good conscience for one to retain a benefit which has come to him at the expense of another . . . With no other test than what, under a given set of circumstances, is just or unjust, equitable or inequitable, conscionable or unconscionable, it becomes necessary in any case where the benefit of the doctrine is claimed, to examine the circumstances and the conduct of the parties and apply this standard . . . Unjust enrichment is, consistent with the principles of equity, a broad and flexible remedy . . . Plaintiffs seeking recovery for unjust enrichment must prove (1) that the defendants were benefitted, (2) that the defendants unjustly did not pay the plaintiffs for the benefits, and (3) that the failure of payment was to the plaintiffs' detriment . . ."This doctrine is based upon the principle that one should not be permitted unjustly to enrich himself at the expense of another but should be required to make restitution of or for property received, retained or appropriated . . . The question is: Did [the party liable], to the detriment of someone else, obtain something of value to which [the party liable] was not entitled?" (Citations omitted; internal quotation marks omitted.) New Hartford v. Connecticut Resources Recovery Authority, 291 Conn. 433, 451-52, 970 A.2d 592 (2009).
Although the defendants may have benefitted from the plaintiff's architectural or design services, they did not unjustly fail to pay for those services. As observed supra, in negotiating the contract, the plaintiff represented to the defendants that by retaining the plaintiff the defendants would "get two for the price of one." That is, the plaintiff would act as both architect and general contractor. The plaintiff essentially admitted this on cross-examination. For this reason, the plaintiff is not entitled to damages for unjust enrichment.
IV
In the third count of the amended complaint, the plaintiff asserts a general claim for unjust enrichment. As just observed, unjust enrichment applies whenever "justice requires compensation to be given for property or services rendered under a contract, and no remedy is available by an action on the contract . . . Indeed, lack of a remedy under the contract is a precondition for recovery based upon unjust enrichment." Gagne v. Vaccaro, 255 Conn. 390, 401, 766 A.2d 416 (2001). Since the plaintiff has a remedy under the contract, it may not have a recovery for unjust enrichment.
V
The plaintiff Greco claims damages in the nature of unjust enrichment, attorneys fees pursuant to General Statutes § 52-249 and judgment on an escrow fund substituted for a mechanic's lien for excavation it performed in connection with the project.
Additional facts are necessary to the disposition of the parties' claims as to Greco. Brian Greco was the plaintiff's construction manager as well as the owner of Greco Construction Co. Greco performed excavation services for the installation of "infiltrators," which were required by the town and necessary for the project. He brought his own machine to the job site to do this work.
The plaintiff paid the subcontractors as they did their work and obtained mechanic's lien waivers from them. There is no record, however, of the plaintiff paying Greco nor did the plaintiff obtain a lien waiver from Greco. Neither the plaintiff nor the defendants received a bill or a lien waiver from Greco before the plaintiff was terminated. Not long before the defendants terminated the plaintiff, Joseph Schott asked the defendant McHugh for $6,600 to pay Greco. At that time, Greco's bill for services was over $20,000. McHugh paid $6,600 to the plaintiff in good faith. However, Joseph Schott testified, he did not pay Greco and did not tell the defendants he was not paying Greco. Rather, he paid the money to other contractors.
After the plaintiff was terminated, Greco sent the defendants an itemized bill in the amount of $23,737.50, showing 190 hours of work from February 15, 2008 to January 8, 2009 and claiming an hourly rate of $125.
As stated supra, "[t]he elements of unjust enrichment are well established. Plaintiffs seeking recovery for unjust enrichment must prove (1) that the defendants were benefitted, (2) that the defendants unjustly did not pay the plaintiffs for the benefits, and (3) that the failure of payment was to the plaintiff['s] detriment." (Internal quotation marks omitted.) Rossman v. Morasco, 115 Conn.App. 234, 248, 974 A.2d 1, cert. denied, 293 Conn. 923, 980 A.2d 912 (2009), quoting Vertex, Inc. v. Waterbury, 278 Conn. 557, 573, 898 A.2d 178 (2006).
The defendants complain that Brian Greco was part of Schott's management team and, therefore, that Greco is claiming damages for work done while he should have been supervising the work of others. While Greco was an owner and manager of the plaintiff, the defendants cite no authority for the proposition that this bars him or his company from being compensated for services rendered which benefitted the defendants.
Whether the defendants unjustly did not pay Greco is another question. The defendants have pleaded as a special defense that they "made good faith payments to [the plaintiff], through whom [Greco] asserts his lien, in an amount as to substantially reduce of [sic] extinguish [Greco's] lien. See Conn. Gen. Stat. §§ 49-33 and 49-36."
General Statutes § 49-33(f) provides that the amount claimed by a subcontractor as a mechanic's lien may be diminished by "bona fide payments, as defined in section 49-36, made by the owner before receiving notice of such lien or liens." This is the statutory basis for the rule set forth in Rene Dry Wall Co. v. Strawberry Hill Associates, supra, 182 Conn. 568, on which the defendants rely. "If . . . a general contractor receives progress payments that are not turned over to those who have done the work represented by the progress payments, and ultimately defaults entirely, the owner making such payments and completing such a job is protected as long as the owner acts in good faith and reasonably, as defined by the statutes." Id., 573.
General Statutes § 49-36 provides in relevant part in subsection (c): "In determining the amount to which any lien or liens may attach upon any land or building, or lot or plot of land, the owner of the land or building or lot or plot of land shall be allowed whatever payments he has made, in good faith, to the original contractor or contractors, before receiving notice of the lien or liens."
Greco makes no claim that the defendants' payment to the plaintiff was not bona fide, a question of fact; id.; on which Greco has the burden of proof. Hubbell, Hall Randall Co. v. Pentecost, 89 Conn. 262, 268, 93 A. 672 (1915). However, the court finds that the defendants' $6,600 payment was paid over to subcontractors other than Greco. Therefore, neither General Statutes § 49-33(f) nor the rule of Rene Dry Wall Co. v. Strawberry Hill Associates, supra, 182 Conn. 568, is a defense to Greco's claim. The defendants have stipulated that the plaintiff did not misappropriate any monies. Greco remains unpaid for the services it rendered. The court finds that the defendants unjustly did not pay the Greco $23,737.50 for the benefits Greco conferred, and that the failure of payment in that amount was to Greco's detriment.
VI
The defendants have filed a multi-count counterclaim, the gist of which, as recounted in their brief, is that the plaintiff (1) mismanaged the project in all aspects of the construction process including unnecessary delays in the commencement of construction and in managing the financial account of the project, and (2) deviated from the plans and specifications resulting in excessive additional costs without obtaining estimates for same or informing the owners of additional costs or obtaining written change orders for the additional costs.
The defendants have the burden of proof on their counterclaim; Robinson v. Atterbury, 135 Conn. 517, 523, 66 A.2d 593 (1949); by a fair preponderance of the evidence. Epstein v. Heimovitch, 99 Conn. 665, 666, 122 A. 561 (1923).
The plaintiff took a long time on this project, and the defendants did not always receive from the plaintiff all of the financial information they wanted, when they wanted it, or in the format they desired. However, the defendants have not demonstrated that the plaintiff breached any provision, express or implied, of the parties' agreement nor have they proved that the plaintiff unreasonably delayed construction.
With respect to the defendants' claim that the plaintiff deviated from the plans and specifications, the defendants have not proven that they did not essentially get the house they desired. The defendants stipulated that when Sprouls took over construction, the house was in good condition. They made clear at trial that there was no issue as to the quality of the plaintiff's work. The contractual requirement that change orders be in writing was, as discussed supra, repeatedly waived. In most instances, changes were discussed with the defendants, in emails or in person. Moreover, they have not proven by what amount they were allegedly damaged by any changes made without consultation. The court finds the issues for the plaintiff on the counterclaims.
Judgment shall enter for the plaintiff Joseph Schott, LLC and against the defendants in the amount of $49,836.31 on counts one and two of the complaint. Judgment shall enter in favor of the defendants and against the plaintiffs on the third count of the complaint. Judgment shall enter in favor of the plaintiff Greco and against the defendants in the amount of $23,737.50 on counts four and five of the complaint. Judgment shall enter in favor of the plaintiff Joseph Schott, LLC and against the defendants on each count of the counterclaim.
Paragraph 32 of the contract provides: "If a non-defaulting party must refer this contract to an attorney for the enforcement of the same pursuant to its terms, or a default of any of the other terms in this Contract, the defaulting party agrees to pay, in addition to any monies due, reasonable attorneys fees and costs to the non-defaulting party."
Counsel for the plaintiff and the defendants shall consult with each other in an effort to agree on the award of attorneys fees. If an agreement is reached, they shall advise the court of the stipulation so that final judgment may enter. If an agreement is not reached within 45 days, they shall promptly advise the court and schedule an evidentiary hearing with the court clerk.