#24405, #24413-aff in pt, rev in pt & rem-BARNETT, Circuit Judge
2007 SD 111
IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
* * * *
ALL STAR CONSTRUCTION COMPANY, INC.,
a South Dakota Corporation, Plaintiff and Appellant,
v.
MARK KOEHN and ALICIA GARCIA, Defendants and Appellees.
* * * *
APPEAL FROM THE CIRCUIT COURT
OF THE SEVENTH JUDICIAL CIRCUIT
PENNINGTON, COUNTY SOUTH DAKOTA
* * * *
HONORABLE A.P. FULLER
Judge
* * * *
BARTON R. BANKS of
Banks, Johnson, Colbath,
Sumner & Kappelman, PLLC Attorneys for plaintiff
Rapid City, South Dakota and appellant.
MICHAEL C. LOOS of
Clayborne, Loos & Strommen, LLP Attorneys for defendants
Rapid City, South Dakota and appellees.
* * * *
CONSIDERED ON BRIEFS
ON AUGUST 28, 2007
OPINION FILED 10/31/07
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BARNETT, Circuit Judge.
[¶1.] All Star Construction Company, Inc., (All Star) appeals from a judgment
ordering it to "specifically perform under the terms of the contract and complete the
punch list items set forth in Exhibit 118 as revised from time to time on the record,
as well as the reconstruction and repair of the shower[.]" The judgment also ordered
Mark Koehn and Alicia Garcia (Homeowners) to "specifically perform under the
terms of the contract and pay to [All Star] the sum of $56,516.81 as the reasonable
value of the work completed and not yet paid."
[¶2.] We affirm in part, reverse in part, and remand.
FACTS AND PROCEDURAL HISTORY
[¶3.] Homeowners are practicing attorneys in Rapid City, South Dakota.
They decided to remodel their home and build an addition to it. They contacted All
Star and, on November 1, 2002, signed a form contract provided by All Star. The
contract contemplated that some items listed in the contract were allowances or
estimates. While figures were listed in the contract for these items, the contract also
stated that "estimates are provided for budgeting purposes only. More accurate
pricing can be provided when design and construction details have been furnished."
Additionally, the contract stated that "[a]llowance figures are included as actual costs
to the contractor. Final job expenses will be adjusted accordingly." (emphasis
supplied). Notably, the contract did not define actual costs.
[¶4.] In the contract All Star warranted that all work would be completed in a
workmanlike manner according to standard practices. The contract provided that
"any alteration or deviation from above specifications including extra costs will be
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executed only upon written orders, and will become an extra charge over and above
the estimate." (emphasis supplied).
[¶5.] The base contract price was $122,500 plus excise taxes. Approximately
$51,000 of this total was denominated as allowances, which could be revised when
changes were ordered by Homeowners, or as costs increased over the stated
allowances. All Star later claimed a fifteen percent markup for overhead as an actual
cost, and later reduced the markup claim to eight percent. Neither figure appears in
either the contract or the change orders. Furthermore, All Star admitted that
neither markup had ever been discussed with Homeowners during construction.
[¶6.] Throughout the course of the project Homeowners requested changes in
the plan and details. On four occasions All Star presented Homeowners with a
written change order, which they signed. The change orders described generally
what caused the extra bill, but did not specify whether an eight percent markup had
been added in. The change orders simply listed labor and materials. A fifth change
order was presented after the work was completed, and was not signed by
Homeowners. At trial Homeowners conceded that the amount listed on the fifth
change order was due and owing, with the exception of a possible unstated eight
percent markup. To further complicate matters, other changes were requested or
approved by Homeowners, and performed by All Star, yet neither side presented or
demanded a written change order at the time.
[¶7.] All Star admitted at trial that it was required to secure a signed change
order in every instance, and that it did not do so in all cases. However, All Star
contended, and the trial court agreed, that in such instances Homeowners were
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present and living in the home and not only requested the changes, but acquiesced
despite the lack of a written change order.
[¶8.] In mid-2003 Homeowners were significantly behind in payments owed
under the contract due to problems securing adequate financing. About this time,
Homeowners hosted a family reunion and asked that All Star leave the jobsite. Due
to the arrearages, All Star did not return to the home after the reunion, nor were
they asked by Homeowners to come back. Homeowners did obtain some additional
financing and were able to pay $90,000; however, this left almost $60,000 still owing.
For two years there was no final construction or payment. Homeowners submitted a
"punch list," a list of finishing work that was not completed. All Star admitted that
some of the finishing work was in fact not completed, but argued that its
nonperformance was excused by Homeowners' nonpayment. Additionally, the parties
agreed that an expensive waterfall shower leaked, though they could not agree on the
cause. Eventually All Star sued for payment under the contract. Homeowners
sought an offset for unfinished or non-workmanlike efforts.
[¶9.] The case was heard at a court trial. After all evidence had been
submitted, the trial court ruled from the bench. The trial court asked Homeowners if
they wanted to amend their answer to seek specific performance. Homeowners so
moved. The motion was granted over All Star's objection. The trial court ordered All
Star to go back in the home, fix the leaking shower, and complete the work listed on
the punch list. The trial court further ordered the Homeowners to "specifically
perform" their part of the contract, by paying All Star $56,581.86. All Star sought
prejudgment interest under SDCL 21-1-13.1. However, the trial court denied this
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claim on the ground that it had not awarded damages, but had instead awarded
specific performance of $56,581.86.
[¶10.] The trial court denied All Star's claim for an eight percent markup on
any changes which were approved by Homeowners but not evidenced by a written
change order. The written change orders do not specify whether they contain an
eight percent markup. It is unclear whether the court intended that Homeowners be
responsible for such a charge on the written change orders. Homeowners contend
that they stipulated to all charges in the five change orders, except for any unstated
eight percent markup.
[¶11.] All Star raises four issues on appeal:
Whether the trial court erred in ordering All Star to
specifically perform under the contract.
Whether the trial court erred in failing to award
prejudgment interest to All Star.
Whether All Star is entitled to an eight percent markup on
labor and materials charged under change order number
five.
Whether All Star is entitled to eight percent overhead or
markup on the allowance overruns under the contract.
[¶12.] Homeowners filed a notice of review and raise one issue:
Whether Homeowners waived the requirement that all
changes be in writing.
STANDARD OF REVIEW
[¶13.] We review the trial court's findings of fact under the clearly erroneous
standard. City of Deadwood v. Summit, Inc., 2000 SD 29, ¶ 9, 607 NW2d 22, 25.
"Conclusions of law are reviewed under a de novo standard, giving no deference to
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the circuit court's conclusions of law." Id. The equitable remedy of specific
performance is addressed to the sound discretion of the court, to be granted or denied
according to the facts and circumstances in each instance. Stugelmayer v. Ulmer,
260 NW2d 236, 238 (SD 1977). We review the decision of the trial court regarding an
equitable remedy under the abuse of discretion standard. Ziegler Furniture and
Funeral Home, Inc, v. Cicmanec, 2006 SD 6, ¶ 14, 709 NW2d 350, 354.
ANALYSIS AND DECISION
ISSUE ONE
[¶14.] Whether the trial court erred in ordering All Star to specifically
perform under the contract.
[¶15.] All Star contends that the trial court erred by ordering it to specifically
perform the work itemized on the punch list. We agree.
[¶16.] Specific performance was not pleaded or tried. Neither party requested
specific performance in the pleadings. Specific performance was never litigated or
mentioned by either party during the evidentiary phase of trial.
[¶17.] The first mention of specific performance in this case came not from a
party, but from the trial court as it issued its bench ruling. The court stated, "I was
hoping that the defendant would make a motion based upon the evidence in this case
to amend its pleadings to allege specific performance. Does the defense?" Counsel
for defense took the trial court's suggestion:
If it will help the Court with its decision, we'd so move. My
sense was if the Court is looking for an explanation on
items that specifically Mr. Declerq testified to, that under
the law, his testimony serves equally as establishing what
the owner offset would be, but if it's specific performance,
one way or the other, we're asking that the shower be done
within the context of the suit.
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[¶18.] The court then stated, "If you move for specific performance, then
I know what my decision is going to be." Counsel for the defense replied,
"We've so moved, Your honor." Counsel for All Star immediately objected,
argued the illegality of such an order, and moved to amend All Star's
pleadings:
From the plaintiff's perspective, with all due respect, I
don't believe that the Court can legally order specific
performance unless it can also find a breach of contract. In
our submissions to the Court, we acknowledge that there
were some items remaining to be completed on this job.
However, until such time as the contractor has received
payment due, that performance is illegally [sic] excused.
And to the extent that maybe submissions or my complaint
don't [sic] adequately set forth that, we would likewise
move to amend to include that.
[¶19.] This brief exchange between counsel and the court does not meet the
requirements of SDCL 15-6-15(b) which provides, in part, "[w]hen issues not raised
by the pleadings are tried by express or implied consent of the parties, they shall be
treated in all respects as if they had been raised in the pleadings." In American
Property Services, Inc. v. Barringer, 256 NW2d 887, 891 (SD 1977), we outlined the
test which must be met before a party may be awarded relief not requested in the
pleadings:
The test for allowing an adjudication of an issue under
FRCP 15(b) and SDCL 15-6-15(b) tried by implied consent
is whether the opposing party will be prejudiced by the
implied amendment, i.e., did he have a fair opportunity to
litigate the issue, and could he have offered any additional
evidence if the case had been tried on the different issue.
Moore's Federal Practice ¶ 15.13(2) at 993; Lomartira v.
American Automobile Insurance Co., 1967, 2 Cir 371 F2d
550; Deitz v. Bowman, 1975 DCSD, 403 FSupp 1111.
Where there has not been a fair opportunity for a party to
be heard on the issue and/or additional evidence could have
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been offered, any implied amendment would be prejudicial
and no trial by implied consent exists.
[¶20.] In this case, All Star was prejudiced by the trial court's ruling that All
Star could not be awarded prejudgment interest because the court awarded specific
performance of $56,581.86 rather than awarding that amount as damages. All Star
did not have a fair opportunity to litigate whether specific performance was an
appropriate remedy; the issue was initially raised by the trial court when it delivered
its ruling from the bench. Had All Star known that specific performance was a
possible remedy it may well have presented evidence regarding whether or not the
remaining work was of the type that any contractor could perform, a question
common to specific performance cases. Because the trial court raised this issue at
the end of trial, we can only speculate on how the evidence might have come in
differently. There was no evidence from either side at trial on the issue.
[¶21.] Although our previous cases suggest that leave to amend pleadings
should be granted to conform the case to the evidence adduced at trial, this rule is
not without limits. In Oesterling v. Oesterling, 354 NW2d 735 (SD 1984), the trial
court proposed an affirmative defense at the end of evidence, and relied on that
defense in ruling for the defendant. Plaintiff was not given any legitimate
opportunity to contest the defense. We reversed, holding that affirmative defenses
must be pleaded as such, and finding that the plaintiff in that case had no notice that
she would be called upon to respond to the court's suggested defense. The present
case is similar.
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[¶22.] Thus, the issue of specific performance was not tried by implied consent.
SDCL 15-6-16(b); Barringer, supra. The trial court abused its discretion in ordering
specific performance.
ISSUE TWO
[¶23.] Whether the trial court erred in failing to award All Star
prejudgment interest.
[¶24.] Prejudgment interest on contract damages is governed by SDCL 21-1-
13.1:
Any person who is entitled to recover damages, whether in
the principal action or by counterclaim, cross claim, or
third-party claim, is entitled to recover interest thereon
from the day that the loss or damage occurred, except
during such time as the debtor is prevented by law, or by
act of the creditor, from paying the debt.
This Court has recently held that an award of interest under this statute is
mandatory. Bunkers v. Jacobson, 2002 SD 135, ¶ 44, 653 NW2d 732, 744 ; City of
Aberdeen v. Rich, 2003 SD 27, ¶ 19, 658 NW2d 775, 781. Prejudgment interest is
allowed from the date of the loss regardless of whether the damages were known
with certainty. City of Aberdeen v. Rich, 2003 SD 27 at ¶ 19, 658 NW2d at 781.
[¶25.] In this case, the trial court concluded that damages were not easily
ascertainable and ordered Homeowners to specifically perform their obligations
under the contract and pay All Star $56,516.81. The trial court further ordered that
"no prejudgment interest is awarded since no damages are assessed." Simply
couching an award of damages in terms of specific performance cannot operate to
defeat SDCL 21-1-13.1 and this Court's holdings in Bunkers and City of Aberdeen. If
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this were the case, every judgment awarding contract damages could be relabeled an
order for specific performance, and prejudgment interest would never be mandatory.
[¶26.] The trial court erred in denying prejudgment interest.
ISSUE THREE
[¶27.] Whether All Star is entitled to an eight percent markup on
change order five.
[¶28.] The parties dispute whether All Star is entitled to overhead on the extra
labor and materials charged under change order five. All Star asserts that during
trial Homeowners stipulated to the overhead markup in change order five by
stipulating to change order five itself. The trial court struck the eight percent
markup for overhead from change order five.
[¶29.] Change order five, dated October 30, 2003, was not executed by
Homeowners, but was stipulated at trial to be included in amounts due under the
contract, subject to offsets or credits due Homeowners. Homeowners assert that this
stipulation was limited to the claims and charges set forth in writing, as opposed to
All Star's present claim for additional recovery for items not supported by the
original contract and written change orders.
[¶30.] "Oral stipulations of the parties in the presence of the court are
generally held to be binding, especially when acted upon or entered on the court
record, and need not be signed by the parties or their attorneys." Matter of Estate of
Eberle, 505 NW2d 767, 770 (SD 1993). "While no particular form of stipulation is
required when made orally in open court except that it be noted in the minutes, its
terms must be definite and certain in order to render the proper basis for a judicial
decision." Id.
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[¶31.] In this case, the Homeowners did not stipulate to the eight percent
markup in change order five. No such markup percentage appears in the change
order itself. The record reflects that counsel for the Homeowners did stipulate to the
change orders: "[w]e'll stipulate that [the change order] is what it says it was, that
they were presented to my clients; and that they're due and owing under the
contract, subject to offsets." (emphasis added). However, at the time of this
stipulation, neither attorney made any mention of whether an eight percent markup
was included within change order five. Finally, appellees' counsel stated that his
parties' stipulation was "subject to offsets." In other words, it was subject to
anything that might be owing to the Homeowners by way of the contract. This
stipulation was not sufficiently definite to enable the court to give it an exact
meaning. Therefore, it was proper for the trial court to not give the stipulation any
weight with respect to the eight percent overhead markup on change order five.
ISSUE FOUR
[¶32.] Whether All Star is entitled to its overhead on the allowance
overruns under the contract.
[¶33.] The trial court struck the eight percent overhead markup from all of the
allowance overruns. All Star claims it is entitled to an eight percent markup for
company overhead on the allowance overruns under the terms of the contract which
provide that "allowance figures are included as actual costs to the contractor." All
Star asserts that the phrase "actual costs" encompasses overhead.
Contract interpretation is a question of law reviewable de
novo. Because we can review the contract as easily as the
trial court, there is no presumption in favor of the trial
court's determination. When the meaning of contractual
language is plain and unambiguous, construction is not
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necessary. If a contract is found to be ambiguous the rules
of construction apply. Whether the language of a contract
is ambiguous is. . . a question of law.
Ziegler Furniture and Funeral Home, 2006 SD 6 at ¶ 14, 709 NW2d at 354.
[¶34.] In determining ambiguity we have stated:
A contract is not rendered ambiguous simply because the
parties do not agree on its proper construction or their
intent upon executing the contract. Rather, a contract is
ambiguous only when it is capable of more than one
meaning when viewed objectively by a reasonably
intelligent person who has examined the context of the
entire integrated agreement.
Singpiel v. Morris, 1998 SD 86, ¶ 16, 582 NW2d 715, 719.
[¶35.] Applying these principles to the language of the contract in this
case, ambiguity does exist. The relevant provision states "[a]llowance figures
are included as actual costs to the contractor. Final job expenses will be
adjusted accordingly." (emphasis added). On its face, the contract does not
define what is meant by the phrase "actual costs." Thus, the phrase "actual
costs" could be capable of more than one meaning when viewed objectively by a
reasonably intelligent person who has examined the context of the entire
integrated agreement.
[¶36.] The inquiry is whether the parties intended to include an eight
percent markup for overhead as "actual costs" under contract. All Star admits
that the eight percent overhead markup was never discussed at the time of
contract formation. In fact, the markup was not discussed at all between the
parties until All Star submitted its final settlement summary, and that
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summary claimed a fifteen percent markup on the allowance overruns. Only
at trial did All Star reduce its request for overhead markup to eight percent.
[¶37.] The plain and ordinary meaning of the phrase "actual costs" in a
contract between a contractor and a homeowner does not necessarily include
overhead. This Court has allowed a contractor to recover overhead expenses
against a homeowner when the construction contract unambiguously stated
that the contractor was entitled to a percentage mark-up for profit and
overhead on all items. Bunkers, 653 NW2d at 738. However, in Bunkers the
trial court denied the contractor's claim for excise tax as an actual cost.
[¶38.] Finally, because the language in the All Star contract is
ambiguous, the ambiguity must be resolved in favor of the non-drafting party.
Zochert v. Nat'l Farmers Union Property & Gas Co., 1998 SD 34, ¶ 5, 576
NW2d 531, 532. All Star drafted the contract in this case and thus the
ambiguity will be resolved in favor of Homeowners. In this case, "actual costs"
cannot be read to include overhead.
[¶39.] The trial court did not err in refusing to allow the charge of eight
percent for overhead on all of the allowance overruns.
ISSUE FIVE
[¶40.] Whether Homeowners waived the requirement that all changes
be in writing.
[¶41.] The contract in this case provided, "[a]ny alteration or deviation from
above modifications involving extra costs will be executed only upon written orders,
and will become an extra charge over and above the estimate." Homeowners dispute
whether All Star can recover any amount for the extra work and materials supplied
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at Homeowners' request, or for the allowance overrun costs incurred, where All Star
did not execute a written change order for such changes. The trial court concluded
that Homeowners could not avoid paying for the extra work and materials. The trial
court relied on Reif v. Smith, 319 NW2d 815 (SD 1982).
[¶42.] This Court held in Reif:
Generally, provisions [requiring written change orders]
prevent contractors from recovering for alterations or
extras not subject to a written order. Such provisions,
however, are impliedly waived by the owner where he has
knowledge of the change, fails to object to the change, and
other circumstances exists which negate the provision; i.e.
the builder expects additional payment, the alteration was
an unforeseen necessity or obvious, subsequent oral
agreement, or it was ordered or authorized by the owner.
319 NW2d at 817. Additionally, repeated or entire disregard for contract provisions
acts as a waiver of the written change order provision. Id.
[¶43.] The contract in Reif included the following provision: "Section 15. Work
shall be changed and contract price and completion shall be modified only as set out
in written change order." 319 NW2d at 817. Problems arose in Reif when the
original building plans proved inadequate and required numerous changes during
the construction. The owners repeatedly visited the construction site and were aware
of problems created by the plans and the changes. Yet, none of the changes or
additions were made pursuant to written change orders as specified in Section 15.
When the contractor had nearly finished the interior work, he gave the owners a bill
for the balance due on the contract plus the extra labor and material due to changes.
The owners refused to pay the bill, ordered the contractor off the premises, and
refused to let him complete the work. Because owners had knowledge of the changes,
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failed to object to the changes, and authored the contract including Section15, they
were held liable for the costs of the changes.
[¶44.] The facts of this case are remarkably parallel to those in Reif. Here,
Homeowners provided the plans for this construction project. When those plans
proved defective, changes became necessary. While some changes were reflected in
five separate change orders, Homeowners repeatedly requested extra work, upgraded
various allowance items without requesting a bid proposal or a written change order
in advance, and did not request a written change order after the fact. Just as the
owners in Reif were found to have notice by frequently visiting the construction site,
here Homeowners lived in the home while all the work was being done. Thus, the
trial court correctly concluded that Homeowners waived the contract provision
requiring written change orders when Homeowners requested or had knowledge of
the changes, and failed to object to those changes or to the lack of a written change
order.
[¶45.] The trial court did not err in refusing to allow the charge of eight
percent for overhead on the work performed by All Star under change order five.
CONCLUSION
[¶46.] We affirm in part, reverse in part, and remand for the calculation of
both parties' damages in accordance with this opinion.
[¶47.] GILBERTSON, Chief Justice, and ZINTER and MEIERHENRY,
Justices, concur.
[¶48.] KONENKAMP, Justice, disqualified.
[¶49.] BARNETT, Circuit Judge, for SABERS, Justice, disqualified.
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