Flynn Builders, L.C. v. Lande, No. 3-1073 / 13-0848, 2014 Iowa App. LEXIS 81 (Iowa Ct. App. Jan. 23, 2014)
In a third appellate decision for the same case, the Iowa Court of Appeals has ruled that a homebuilder was excused from substantial performance and was entitled to foreclose its mechanic’s lien against a partially-completed home. The court found that the builder was excused from substantial performance because the buyer breached the contract by refusing to make further payments after learning that the contract price included a $20,000 materials markup.
Defendants had hired the builder to construct their home for a set price. A dispute arose after the defendants learned that the price included an undisclosed mark-up of $20,000 for materials. The defendants’ lender and the defendants refused to pay the builder any further sums after discovering the markup. Consequently, the builder stopped construction and filed a mechanic’s lien in the amount of $28,307.50. At the foreclosure trial, the builder testified that most of his duties were complete. The house still required plumbing, drywall, paint, carpet, floor coverings, cabinets, doors, and windows, but the builder only needed to contact subcontractors who had already agreed to perform the work to complete those tasks. The evidence showed that the four-to-five month project could have been completed in another five-to-seven weeks. The trial court, finding that 80 percent of the work had been completed, ruled that the builder had “substantially performed” the contract and could enforce the lien. The appellate court affirmed the trial court’s judgment in favor of the builder in the amount of $16,574.75. On appeal, the Iowa Supreme Court reversed, ruling that the builder had not substantially performed. The court ruled that although the house was 80 to 85 percent complete, a significant amount of work remained to be performed. The remaining work, the court ruled, affected the actual habitability of the house. The court then remanded to the district court for a determination of whether the lack of substantial performance might be excused by the conduct of the defendants or whether the hidden markup had any impact on the enforceability of the lien.
On remand, the district court—apparently ignoring the Supreme Court’s holding—again found that the builder had “substantially performed” the contract. The district court went on to hold, however, that the builder was excused from further performance under the contract because the defendants had “in essence” breached the contract by refusing to pay the builder. The district court found that the so-called hidden markup was irrelevant because the defendants had agreed to pay a certain price and there was no additional cost to them. The district court awarded the builder $16,296.00 or 80 percent of the lien it was seeking.
The Court of Appeals found that the district court exceeded its jurisdiction when it ruled again that the builder had substantially performed the contract. The Iowa Supreme Court had already decided that there was no substantial performance and the district court was required to honor that ruling. Although it struck that portion of the district court’s holding, the Court of Appeals affirmed the district court’s judgment, finding that the district court correctly made the required findings on remand. The district court properly found that the builder was excused from further performance under the contract because the defendants breached the contract by refusing to pay any additional money to the builder. The Court of Appeals also agreed with the district court’s conclusion that the hidden markup did not materially affect the parties’ contractual obligations. There was no evidence that the lack of an express markup induced the defendants to enter into the contract. Although the district court had denied the builder’s request for attorney fees, the Court of Appeals awarded the builder $5,000 in appellate attorney fees. If experience is any teacher, we will see this case again.