IN THE COURT OF APPEALS OF IOWA
No. 14-0633
Filed May 20, 2015
PRO COMMERCIAL, LLC,
Plaintiff-Appellee,
vs.
K & L CUSTOM FARMS, INC., d/b/a
K & L LANDSCAPE & CONSTRUCTION,
INC.,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Story County, Dale E. Ruigh,
Judge.
A subcontractor appeals the district court’s ruling finding it breached the
terms of the subcontract. REVERSED AND REMANDED.
Todd W. Weidemann, Brian S. Koerwitz, and Monica L. Freeman of
Woods & Aitken, L.L.P., Omaha, Nebraska, for appellant.
Brenton D. Soderstrum of Brown, Winick, Graves, Gross, Baskerville &
Schoenebaum, P.L.C., Des Moines, for appellee.
Heard by Vaitheswaran, P.J., and Tabor and Mullins, JJ.
2
MULLINS, J.
K & L Custom Farms d/b/a K & L Landscape and Construction, Inc.
(K & L) appeals the district court’s decision concluding it breached the terms of a
subcontract with Pro Commercial, LLC. K & L claims the district court incorrectly
interpreted the terms of the subcontract and also should have awarded K & L
damages in its counterclaim for breach of contract against Pro Commercial.
Finally, K & L claims, in the event we affirm the district court’s decision regarding
the breach of contract, the district court erred in not giving it credit for the work it
performed under the contract with Pro Commercial.
I. Background Facts and Proceedings.
Pro Commercial decided to bid on a rest area construction project with the
Iowa Department of Transportation (IDOT). It requested subcontractors submit
bids for the project, and various subcontractors, including K & L, responded. The
plans and specifications prepared by the architect and engineers employed by
the IDOT were available to the subcontractors as they prepared and submitted
their bids to Pro Commercial. K & L submitted an estimate for the dirt work and
grading required for the project. On the estimate, K & L itemized descriptions of
the work it proposed to do along with the price associated with the work. The
estimate listed the following work descriptions:
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The total of all this work was $74,267.50.
Steve Aldred, estimator and project manager with Pro Commercial,
contacted Bruce Hovey, estimator with K & L, to discuss the bid. Aldred testified
he explained to Hovey, “I will want to make sure that you have everything in the
dirt work and you’re a hundred percent covered.” Aldred stated that Hovey had
to check with “Hector,” but Hovey eventually called back and said “Yes, we’re
complete.” Hovey also testified regarding the conversation he had with Aldred
but stated he told Aldred that “what [K & L was] doing was written out on the
proposal.” He then instructed Aldred to call the president of K & L, Kevin
Alexander, if he had other questions. Alexander testified he did have a
conversation with Aldred, but that conversation dealt with Aldred’s request for
K & L to remove the landscaping portion of the estimate.1 Alexander stated
Aldred never asked him about the scope of the dirt work.
1
K & L also bid to perform landscaping work for a cost of $46,851.00.
4
Pro Commercial took K & L’s estimate along with the estimates from the
other subcontractors and compiled them in order to submit a final bid to the IDOT
for consideration. The IDOT awarded the construction contract to Pro
Commercial, who in turn drafted contracts with the various subcontractors to do
the work,2 including K & L. The subcontract sent to K & L stated, in relevant part:
SECTION 1. The Subcontractor agrees to furnish all labor,
material and equipment, necessary to perform and complete all the
work for [the] Adair County Rest Area, . . . as described in Section 2
hereof, and in accordance with the Drawings, General Conditions of
the Contract, Supplementary General Conditions, Specifications,
and Addenda No. 1. (as supplied) inclusive prepared by Yeggy
Colby Associates.
SECTION 2. Scope of Work: The Subcontractor agrees to
promptly begin said work IMMEDIATELY after notification by said
Contractor, and complete all work IN ACCORDANCE WITH THE
SCHEDULE AS OUTLINED BY THE CONTRACTOR AND IN
ACCORDANCE WITH OTHER TRADES in accordance with this
Agreement upon Acceptance and notice to proceed by the Bonding
Company.
(Work Description)
In accordance with the contract documents, as listed on
Attachment “A,” furnish labor, material and equipment complete as
described by the following Specification Sections:
Division 1-General Requirements (as applicable to
your work); Division 31 Complete, Section 024100.
Supply all labor, material and equipment to provide all
dirt work, site clearing, subsoil work, building removal,
demolition, misc items per your quote in its entirety per plans
and specifications.
Work includes, but is not limited to:
A. 1 Electronic set of Submittals per your specifications
within 10 days.
B. Supply a schedule of values breaking out labor and
materials.
C. Attach current insurance certificate specific to this project
and naming Pro Commercial LLC as an additional
insured.
2
Pro Commercial acted as a project manager only and did not perform any of the
construction work.
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D. Supply Federal ID # and list of suppliers and
subcontractors.
E. Work per the attached construction schedule. Project to
begin April 19th and complete in December 2010. ALL
subcontractors will be required to work 6 days per week
unless approved by Pro Commercial.
F. Work per your proposal dated 3/17/10.
Both parties signed the subcontract, but disputes regarding the scope of
work K & L was to perform erupted almost immediately. K & L insisted it
contracted to perform only the work itemized in its estimate; whereas Pro
Commercial argued K & L was to perform all of the work described in Division 31,
which included the specifications for dirt work for the project. Division 31
included items such as digging the footings for the buildings and retaining wall,
supplying granular fill (rock) for the project, and excavating the sidewalk.
K & L agreed to do some of the work Pro Commercial requested, but
K & L insisted this work would be billed on a time-and-materials basis. Pro
Commercial asserted the cost of the work requested was included in the contract
price. In addition to disputing the scope of the work, disputes arose regarding
the timeliness and quality of K & L’s performance. Eventually Pro Commercial
stopped making further payments to K & L in July 2010, and K & L stopped
working on the project in November 2010. Construction on the rest area project
resumed in the spring of 2011, and Pro Commercial hired other subcontractors to
complete the dirt work on a time-and-materials basis.
Pro Commercial filed a petition against K & L in February 2012 to recover
the money it spent remediating K & L’s work under the subcontract. K & L filed a
counterclaim against Pro Commercial for the work it claims it completed but for
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which it was not compensated. The case proceeded to a bench trial in August
2013. The district court issued its “Findings of Fact, Conclusions of Law, and
Order” on March 17, 2014.
The court concluded the subcontract between Pro Commercial and K & L
included all the work described in Division 31. Any unilateral mistake made by
K & L regarding the scope of work called for in the contract would not excuse
K & L from performing the contract, the court stated. It thus concluded Pro
Commercial was entitled to $186,179.14 on its claim, and K & L failed to prove
what amount of money it would have been entitled to had the court concluded it
was entitled to payment under the counterclaim.
K & L appeals the district court’s decision.
II. Scope and Standard of Review.
A breach-of-contract claim tried at law to the district court is
reviewed by us for correction of errors at law. The district court’s
findings of fact have the effect of a special verdict. “The trial court’s
‘legal conclusions and application of legal principles are not binding
on the appellate court.’” We will reverse a district court’s judgment
if we find the court has applied erroneous rules of law, which
materially affected its decision. In contrast, the district court’s
findings of fact are binding on us if they are supported by
substantial evidence.
NevadaCare, Inc. v. Dep’t of Human Servs., 783 N.W.2d 459, 465 (Iowa 2010)
(citations omitted). Interpretation of a contract involves determining the meaning
of the words in a contract; whereas construction involves determining the legal
effect of such words. Fausel v. JRJ Enters. Inc., 603 N.W.2d 612, 618 (Iowa
1999). We review the district court’s interpretation as a legal issue unless the
interpretation depended on extrinsic evidence. Id. In that case, the “question of
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interpretation is left to the trier of fact unless ‘the evidence is so clear that no
reasonable person would determine the issue in any way but one.’” Id. (citation
omitted). “[W]e always review construction as a legal issue.” Id.
III. Pro Commercial’s Breach-of-Contract Claim.
K & L claims the district court failed to give proper effect to the intent of the
parties at the time it entered into the contract when determining the scope of the
work under the contract. K & L claims that had the district court considered the
circumstances of the transaction, it would have noted that K & L proposed to do a
very specific list of work for $74,268 and this work did not include supplying over
$100,000 worth of rock, backfilling, or digging footings for the buildings and
retaining wall.
The intent of the parties is the cardinal principle of contract interpretation.
NevadaCare, 783 N.W.2d at 466. “[T]he most important evidence of the parties’
intentions at the time they entered into the contract is the words of the contract.”
Id. The court can also consider the words and conduct of the parties along with
extrinsic evidence such as “the situation and relations of the parties, the subject
matter of the transaction, preliminary negotiations and statements made therein,
usages of trade, and the course of dealing between the parties.” Id. “Long ago
we abandoned the rule that extrinsic evidence cannot change the plain meaning
of a contract. We now recognize the rule in the Restatement (Second) of
Contracts that states the meaning of a contract ‘can almost never be plain except
in a context.’” Pillsbury Co. v. Wells Dairy, Inc., 752 N.W.2d 430, 436 (Iowa
8
2008) (citations omitted). But “the words of an integrated agreement remain the
most important evidence of intention.” Id.
“Another relevant rule of contract interpretation requires that ‘[w]herever
reasonable, the manifestations of intention of the parties to a promise or
agreement are interpreted as consistent with each other and with any relevant
course of performance, course of dealing, or usage of trade.’” Id. “The rules [of
contract interpretation] do not depend on a determination that there is an
ambiguity, but we use them to determine ‘what meanings are reasonably
possible as well as in choosing among possible meanings.’” Id.
In the “scope of work” section of the contract at issue, the subcontractor
was to “furnish labor, material and equipment complete as described by the
following Specification Sections: Division I-General Requirements (as applied to
your work); Division 31 Complete, Section 024100.” This section went on to
state the subcontractor was to “supply all labor, material and equipment to
provide all dirt work, site clearing, subsoil work, building removal, demolition,
misc items per your quote in its entirety per plans and specifications.” The
section then provided the “work includes, but is not limited to: . . . Work per your
proposal dated 3/17/10.”
The district court acknowledged the contract was not very clear, but the
court determined that to interpret the contract as K & L requested would require
the court to ignore or attribute no meaning to the language of section 2 that
required the subcontractor to provide labor, material, and equipment to complete
Division 31.
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K & L correctly argues that Division 31 and Section 024100 included work
that Pro Commercial never intended for K & L to do, including trenching for
utilities, surveys, traffic control, barriers, and fencing. This work was done by
other subcontractors or by Pro Commercial itself. Since Pro Commercial never
intended for K & L to do this work, which was included in Division 31 and Section
024100, then K & L contends it goes to reason that “Division 31 Complete” in the
contract cannot mean for K & L to do all the work that is described in that section.
K & L asserts Division 31 and Section 024100 are specifications telling
contractors how to do the work, not what work to do. The project inspector for
the IDOT working on this project agreed with this characterization of the
specifications.
Testimony from Pro Commercial’s expert, Brent Thompson, also supports
this interpretation. Thompson is an estimator and project manager for the Elder
Corporation, and during cross-examination, he admitted he had written an email
to Pro Commercial’s attorney after his preliminary review of the record which
stated, “normally Division 31 specifications only clarify material and methods and
procedure for work as it applies to scope provided by the subcontractor.”
However, he also testified at trial that in his experience when the contract states
“Division 31 Complete” it means the subcontractor is required to provide all of the
sections that are listed in Division 31. Thompson went on to explain that if the
subcontractor does not want to provide some of the work set out in that division,
the subcontractor should have specifically excluded it from the proposal. In fact,
another contractor on the project had excluded some of the work Pro
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Commercial was seeking to have K & L do under Division 31. No such
exclusions were included in K & L’s estimate.
K & L presented testimony that it is standard in the construction industry in
the Des Moines area for concrete subcontractors to dig foundation footings,
rather than subcontractors in charge of dirt work. We note that in interpreting
contracts, courts can look to the usages of trade. See Peak v. Adams, 799
N.W.2d 535, 544 (Iowa 2011). However, the usages of trade and customs in
business cannot be used to change, vary, or defeat the express terms of a
contract. See Farmers’ & Merchants’ Bank of Ireton v. Wood Bros. & Co., 118
N.W. 282, 285-86 (Iowa 1908) (“While proof of custom may be competent to
explain words or terms of doubtful signification, or to show a trade usage by
which certain words or expressions are given an arbitrary or technical meaning, it
is the well-established rule in this state that proof of custom or usage is not
admissible to defeat a contract or to vary its express terms.”); Rindskoff Bros. v.
Barrett, 14 Iowa 101, 105 (1862) (“It is hardly correct to say that a contract
(express) is controlled by a custom, but that it may be affected by it is too well
settled to now admit of doubt.”).
The issue in this case is what does the phrase “Division 31 complete”
mean with respect to the scope of work K & L was to perform. K & L submitted a
very specific list of work to Pro Commercial, which included prices for each
itemized work description. The proposed itemized price list added up to $74,268,
the ultimate price of the contract between K & L and Pro Commercial. The
itemized list did not include such things as digging footings or supplying the
11
granular fill. K & L asserts the cost of the granular fill alone for this project was
over $100,000, and it would be illogical for Pro Commercial to believe the
granular fill, which was not included in the itemized list of work, would be
included with the other work at a cost of $74,268. In addition, the word
“complete” cannot be logically interpreted to mean all work in Division 31 as Pro
Commercial asserts. Pro Commercial admits there was work within Division 31
that K & L was never expected to perform: trenching for utilities, surveys, traffic
control, barriers, and fencing. Other subcontractors contracted with Pro
Commercial to perform this work, and Pro Commercial has never sought for
K & L to do this work. Therefore “complete” cannot mean what Pro Commercial
asserts that it should mean.3
But the word “complete” must mean something. Iowa Fuel & Minerals,
Inc. v. Iowa State Bd. of Regents, 471 N.W.2d 859, 863 (Iowa 1991) (“[A]n
interpretation which gives a reasonable, lawful, and effective meaning to all terms
is preferred to an interpretation which leaves a part unreasonable, unlawful, or of
no effect.”). K & L asserts that Division 31 is meant only to inform the contractor
how the work is to be performed, not what work to perform. Therefore, with that
industry understanding of what Division 31 is, “complete” in this context would
mean the dirt work K&L was to perform had to be done in
compliance/conformity with all of the directions listed in Division 31. In contrast,
the contract stated “Division 1-General Requirements (as applicable to your
work)” which would mean under K & L’s interpretation that the specification in this
3
In the famous words of Inigo Montoya from the movie, The Princess Bride, “You keep
using that word. I do not think it means what you think it means.”
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section only had to be followed to the extent it applied to the work K & L was to
perform.
This interpretation is consistent with the following paragraph in the
contract that directs K & L to “[S]upply all labor, material and equipment to
provide all dirt work, site clearing, subsoil work, building removal, demolition,
misc items per your quote in its entirety per plans and specifications.” (Emphasis
added.) This paragraph would be redundant if we were to interpreted “Division
31 Complete” to be a description of what work K & L was to perform rather than a
description of how to perform the work.
We conclude the district court erred in interpreting the contract to require
K & L to perform all of the work described in Division 31 and Section 024100.
Therefore, we reverse the district court’s conclusion that Pro Commercial proved
its breach-of-contract claim against K & L. Because we conclude the contract did
not require K & L to perform all of the work described in Division 31, we must
address K & L’s claims of quantum meruit and unjust enrichment. K & L is
entitled to recover for the work it performed that was outside of its estimate
because we conclude such work was not within the terms of the subcontract.
IV. K & L’s Counterclaim.
In response to Pro Commercial’s breach-of-contract petition, K & L
asserted a counterclaim for breach of contract for Pro Commercial’s failure to pay
K & L for the work it performed under the contract and for unjust enrichment for
the value of the work K & L did that was outside the scope of the contract. The
district court summarily rejected these claims after agreeing with Pro
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Commercial’s interpretation of the contract. As we reverse the district court’s
decision, we proceed to address K & L’s claims.
K & L’s president, Kevin Alexander, testified he notified Pro Commercial
that they would charge for work done outside the scope of their estimate on a
time-and-materials basis. Yet, Pro Commercial insisted that K & L perform the
work asserting that work was within the scope of the contract. In addition, Pro
Commercial last paid K & L for work completed under the contract in July 2010,
though K & L continued to work on the project until November 2010, submitting
invoices to be paid. K & L asserts it is entitled to recover $43,721.20 for extra
work performed that was outside the scope of the contract and $48,530.50 for
work it did under the contract. Pro Commercial did pay K & L for some of the
work performed under the contract in the amount of $26,989.31, and K & L
acknowledged Pro Commercial should receive a credit in the amount of $3275
for the cost to correct work that K & L performed improperly. So the total K & L is
seeking from Pro Commercial is $61,987.39.4
A. Unjust Enrichment. “The doctrine of unjust enrichment is based on
the principle that a party should not be permitted to be unjustly enriched at the
expense of another or receive property or benefits without paying just
compensation.” State ex rel. Palmer v. Unisys Corp., 637 N.W.2d 142, 154 (Iowa
2001). There are three elements to unjust enrichment: “(1) defendant was
enriched by the receipt of a benefit; (2) the enrichment was at the expense of the
plaintiff; and (3) it is unjust to allow the defendant to retain the benefit under the
4
$43,721.20 + 48,530.50 – 26,989.31 – 3275.00 = $61,987.39
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circumstances.” Id. at 154–55. K & L claims it is entitled to recover for the work
it performed on the project that was not part of the contract but that Pro
Commercial demanded K & L perform. See Nepstad Custom Homes Co. v.
Krull, 527 N.W.2d 402, 407 (Iowa Ct. App. 1994) (“A builder may recover from an
owner for extras ordered or agreed upon which were not covered by the
contract.”); see also Maasdam v. Estate of Maasdam, 24 N.W.2d 316, 321 (Iowa
1946) (“But there may be an implied contract on a point not covered by an
express contract.”).
Pro Commercial received the benefit of K & L performing work that was
not within the scope of the contract. K & L performed the work after informing
Pro Commercial that K & L would bill for the work on a time-and-materials basis.
The work was performed, and it is unjust to allow Pro Commercial to benefit from
the work, as the work in question was part of the completed project for which Pro
Commercial was paid by the IDOT, without paying K & L for the work. We agree
K & L has proven its claim for unjust enrichment in this case for the work
performed that was not part of the contract.
The record is clear regarding K & L’s damage claim for work completed
that was not under the contract. The record discloses invoices provided to Pro
Commercial for work including the completion of the construction entrance;
backfilling; excavation of footings for the storage building, main building, and
retaining wall; and over-excavation for the sidewalks. The total of the invoices
submitted to Pro Commercial for work K & L completed but that was not part of
the contract was $43,721.20. Pro Commercial is given a credit for $3275 to
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correct work that K & L performed improperly. We conclude K & L is entitled to
judgment entered in its favor in the amount of $40,442.20.
B. Breach of Contract. Next, K & L claims Pro Commercial breached
the written contact by failing to timely pay the invoices it submitted for work that
was covered under the contract. To establish a claim for breach of contract, a
party has to prove:
(1) the existence of a contract, (2) the terms and conditions of the
contract, (2) that [plaintiff] has performed all of the terms and
conditions required under the contract, (4) the defendant’s breach
of the contract in some particular way, and (5) that plaintiff has
suffered damages as a result of defendant’s breach.
Royal Indem. Co. v. Factory Mut. Ins. Co., 786 N.W.2d 839, 846 (Iowa 2010).
The contract provided all invoices from the subcontractor must be
submitted by the 25th day of the month to be considered for payment the
following month, and the application for payment must be made on the approved
form. The contract also provided that Pro Commercial will pay K & L a total of
$74,268 in monthly payments for the work called for in the contract so long as
K & L was in full compliance with the agreement.
Pro Commercial claims that the obligation for it to pay K & L arose only if
K & L was in full compliance with the agreement. Pro Commercial asserts K & L
failed to comply with the agreement by not being present on the worksite six days
a week when its presence was needed, and failing to do the work we concluded
above was not part of the contract agreement. Because K & L was not in full
compliance with the agreement, Pro Commercial asserts it did not breach the
contract by failing to pay K & L for the work performed.
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There is no question there was a contract between K & L and Pro
Commercial, and the terms and conditions of that contract are clear. It is
undisputed that K & L submitted requests for payment under the contact and two
of those requests were paid in the total amount of $26,989.31. It is undisputed
Pro Commercial stopped paying K & L for work performed in July 2010. It is also
undisputed K & L stopped working in November 2010, and Pro Commercial did
not call K & L back to the job site in the spring of 2011 to complete its
performance. Instead, Pro Commercial obtained substitute performance from
other contractors to complete the work K & L was to perform under the contract
and to complete work that was outside the scope of the contract.
K & L did not complete the work required by the contract. But, “[i]t is now
the settled doctrine in this State that a party who has failed to perform in full his
contract may recover compensation for the part performed, less the damages
occasioned by his failure.” Wolf, Carpenter & Angel v. Gerr, 43 Iowa 339, 341
(1876). Thus, the issue then becomes what amount K & L can recover for its
partial performance under the contract.
The district court concluded that even if K & L could prove Pro
Commercial breached the terms of the contract, “the evidentiary record was
inadequate to establish any damages.” The court noted the record disclosed
several billing errors and lax business practices by K & L.
Jenna Wilson, K & L’s vice president, testified she calculated the amount
of work completed under the contract, and in her opinion, the amount K & L was
entitled to recover totaled $48,530.30. Of this amount, Pro Commercial had
17
already paid K & L a total of $26,989.31 for the work K & L had performed up to
July 2010 under the contract. Further requests for payment were made by K & L;
however, the evidentiary record to support these requests was severely lacking.
Both Jenna Wilson and Kevin Alexander testified K & L generated invoices and
requested Pro Commercial pay for work that was not completed by K & L. Both
testified that K & L requested payment for demolishing the rest area building, the
vending building, and a wooden garage, and completing the grading, but this
work was not in fact done by K & L. It was done by other contractors Pro
Commercial employed in the spring of 2011 to complete the work.
The evidence presented to support K & L’s damage claim for work
completed under the contract was convoluted at best. It was K & L’s burden to
prove the amount of damage it suffered because of Pro Commercial’s breach.
See Royal Indem., 786 N.W.2d at 846. We agree with the district court that
K & L failed to provide sufficient evidence to prove its breach-of-contract claim
against Pro Commercial because it failed to prove its claim for damages. We
therefore award it no further amount for the work K & L claimed to have
completed under the contract.
V. Conclusion.
We find the district court erred in concluding the contract at issue required
K & L to perform work that was not included in its estimate. We reverse the
district court’s decision holding Pro Commercial proved its breach-of-contract
claim. Because K & L failed to prove the amount of money it is entitled to
recover for its partial performance of the contract, it is not entitled to recover
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under its breach-of-contract counterclaim any amounts beyond those already
paid by Pro Commercial. However, we conclude K & L it entitled to a judgment in
the amount of $40,442.20 for work completed that was outside the terms of the
written contract under its unjust-enrichment claim. We remand the case to the
district court for the entry of an order of judgment consistent with this opinion.
REVERSED AND REMANDED.