No Mechanic’s Lien, But Contractor Entitled to Payment for Unpaid Services, Despite Shoddy Work

Overview

The Iowa Court of Appeals has agreed that a contractor did not obtain a mechanic’s lien because he did not “substantially complete” the work he agreed to perform in renovating the outside of an old brick building. The court ruled, however, that the district court should have allowed him compensation for the time and materials he expended toward the project before being discharged by the building owner.

Facts

The husband and wife defendants owned a building in Fayette, Iowa. The wife (hereafter referred to as the defendant) developed a plan to operate a prom and bridal shop in the building, and Upper Iowa University awarded her a $100,000 grant to start the business. To receive the grant, however, the defendant had to improve the appearance of the building.

On July 20, 2012, the defendant entered into a written contract with the plaintiff to perform work to improve the building facade. The contract specified that the work would cost the defendant between $15,000 and $20,000, depending upon the costs of time and materials necessary to complete the work. The contract did not specify a completion date.

The defendant alleged that she and the plaintiff agreed that the work was to be completed no later than September 23, 2012. The plaintiff denied agreeing to such a deadline.

The plaintiff began work tuck-pointing the existing brick façade of the building, and the defendant paid him $5,000 for his early work. On September 22, 2012, however, she discharged the plaintiff from the project, stating that it was not being completed in a timely manner or up to her quality standards. The parties agreed that the work was not completed.

The defendant then contacted another contractor to work on the project. Several of his employees completed some tuck-pointing over a two-and-one-half day period, and the contractor charged the defendant $1,968.49. He told the defendant that it would cost an additional $8,950 to “complete and fix problems.” The defendant did not engage him to complete the work.

On September 28, 2012, the plaintiff submitted a bill to the defendant for $10,000, which he said represented unpaid labor and materials he had expended for the defendant’s project.

District Court

In October of 2012, the defendant received the $100,000 grant. Two months later, the plaintiff filed a mechanic’s lien, pursuant to Iowa Code chapter 572, in the amount of the $10,000 he believed he was owed for his work on the project.

The defendants denied owing the plaintiff anything and filed a counterclaim, alleging that the plaintiff should pay them $8,950 for the cost of repairing his work.

The district court ruled in favor of the defendants, finding that because the plaintiff had not “substantially completed” the project, he could not enforce a mechanic’s lien. Specifically, the district court ruled that the plaintiff had failed to perform material portions of the contract by not completing it by September 23, 2012. The district court also found that because the plaintiff had not completed his work in a good, workmanlike manner, he should pay the defendants the $8,950 requested in their counterclaim.

Iowa Court of Appeals

On appeal, the Iowa Court of Appeals affirmed in part and reversed in part. The court agreed that the plaintiff had not acquired a mechanic’s lien because he had failed to show “substantial performance” of the contract. The court also found that the exception to this substantial performance requirement—that the contractor’s inability to complete the project was due to the owner’s obstruction—did not apply since the defendant discharged him because of his own failure to timely complete the project.

In so finding, the court agreed that the defendant had shown that there was an “oral agreement” separate from the written agreement that required the plaintiff to complete the project by September 22, 2012. The court held that the parole evidence rule did not bar the admission of the evidence proving the oral agreement because the oral agreement was an “inducement for the execution of the contract.” The court explained that the parole evidence rule does not preclude a party from attempting to show that a writing was induced (at least in part) by an oral agreement. The court noted in reaching this conclusion that the district court was in the best position to evaluate the credibility of the parties with respect to the purported oral agreement.

However, the court disagreed with the district court’s ruling in other respects. Specifically, the court found that the plaintiff was entitled to a quantum meruit recovery for the value of his work. The court noted that the effect of the district court opinion was that the plaintiff would have a negative net recovery of $4,950 for his work and materials, and that the defendants would have a net out-of-pocket cost of only $5,000 for work that was originally estimated to cost them $15,000 to $20,000.[1] This, the court found, was not appropriate.

The court affirmed that the amount due on a contract could be reduced by the cost of completing unfinished work or remedying defective work. This was, however, a reduction of, not a bar to, the quantum meruit recovery. The court stated that the district court had failed to consider the amount to which the plaintiff would have been entitled but for the reduction for defects. The bid submitted by the second contractor did not differentiate between what needed to be fixed due to the plaintiff’s poor workmanship and what still need to be completed. The court stated that the plaintiff should not be responsible for the cost of completing the project because he was discharged before he could complete it.

The court thus found that the defendants were to pay the plaintiff for the reasonable cost of his labor and materials, but that the defendants were entitled to an award for the cost necessary to correct the plaintiff’s defective work. On remand, the district court was to determine the amount to which the plaintiff was entitled for unpaid labor and materials and the portion of the $8,950 bid that was for correcting the plaintiff’s work. The defendants were entitled to a credit for that amount.

Conclusion

This case illustrates the principle that even those who breach a contract are generally entitled to compensation for benefits they bestow upon the other party. Quantum meruit is an equitable remedy, not a contract remedy. Contract damages for the plaintiff would have started with the contract price, less amounts expended by the defendants to correct the plaintiff’s poor work and complete the project. Here the court declared that the amount due to the plaintiff should not be discounted for the cost of finishing the project. Rather, it was to be based upon the value of the time and materials expended, minus the amount to be paid by the defendants to correct that work. The contract price is not a factor in this calculation.