Argentinis v. Gould

• Decision Date: 11 June 1991
• Docket Number: No. 14110,14110
• Citation: 592 A.2d 378,219 Conn. 151
• Court: Connecticut Supreme Court
• Parties: Takis ARGENTINIS v. Paul L. GOULD et al. Paul L. GOULD v. P.A. ARGENTINIS et al.

Page 378

592 A.2d 378

219 Conn. 151

Takis ARGENTINIS v. Paul L. GOULD et al.

Paul L. GOULD v. P.A. ARGENTINIS et al.

No. 14110.

Supreme Court of Connecticut.

Argued March 22, 1991.

Decided June 11, 1991.

Eugene E. Cederbaum, Bridgeport, for appellants (Paul L. Gould et al.).

Daniel B. Glass, Westport, for appellees (Takis Argentinis et al.).

Before SHEA, GLASS, COVELLO, BORDEN and FRANCIS X. HENNESSY, JJ.

GLASS, Justice.

The dispositive issue in this appeal is whether a builder's breach of a construction contract by failure of substantial performance permits the nonbreaching owner to collect damages unreduced by the outstanding balance of the contract price that the owner avoids paying by virtue of the breach. We conclude that the failure so to reduce an owner's damages affords the owner an unconscionable recovery in excess of his actual loss suffered by reason of the breach. Accordingly, we reverse the contrary judgment of the Appellate Court only as to the amount of the judgment.

The facts are as follows. In November, 1980, the builders, Paul L. Gould and Paul L. Gould, Inc. (Gould), contracted to build a house for the owners, P.A. Takis Argentinis and his wife, Ourania Argentinis (Argentinis). Under the terms of the contract Argentinis agreed to pay Gould a total of $344,000: $294,000 in cash as the construction progressed, and $50,000 by a promissory note secured by a purchase money mortgage.

On the date of the transfer of title in April, 1981, Argentinis was unable to move into the house because Gould had not completed various items of construction. The parties then executed a supplemental agreement adjusting the original contract price to reflect "certain legal offsets" asserted by Argentinis against the amount of the mortgage and note "by virtue of deficiencies and incompletion of construction leading to delayed occupancy." Pursuant to the supplemental agreement, the parties reduced the total contract price by $4000 to $340,000. The parties also "annulled" the original note and Argentinis agreed to execute a substitute note and purchase money mortgage in the amount of $43,000, to be held in escrow along with a $3000 cash payment by Argentinis pending Gould's completion of certain specified items of construction. Furthermore, the parties acknowledged that the release to Gould of the $3000 payment and the substitute note and mortgage "shall constitute the full balance of monies due [to Gould] for all work, services and materials previously furnished and to be furnished...."

In July, 1981, Argentinis moved into the house. The escrowed cash and documents were released to Gould, leaving an unpaid balance of $43,000 under the contract, as represented by the mortgage securing the note. Some of the items of construction specified in the supplemental agreement, however, remained incomplete. Thereafter, Argentinis discovered numerous defects in the structure and substructure of the house. Argentinis demanded that Gould repair the defects. Gould refused to make repairs unless Argentinis agreed to certain terms found unacceptable by Argentinis, who refused to make payments on the mortgage. Unable to reconcile their differences, the parties resorted to the courts. Argentinis instituted the first of the two underlying actions alleging that Gould had not substantially performed the contract and seeking damages for breach of contract. Gould commenced the second underlying action to foreclose the mortgage alleging that Argentinis had defaulted in payment. ¹

The actions were consolidated and tried before an attorney trial referee. In the breach of contract action, the referee found that Gould had breached the contract by failing to render substantial performance. The referee awarded Argentinis $73,068.75 in damages measured by the cost of repairing the construction defects. ² In the foreclosure action, the referee also found in favor of Argentinis on the ground that Gould's failure of substantial performance defeated his right to recover the balance of the contract price and hence his right to foreclose the mortgage. The Superior Court accepted the referee's report and rendered judgments thereon. Gould then appealed to the Appellate Court, which, relying in pertinent part upon Edens v. Kole Construction Co., 188 Conn. 489, 450 A.2d 1161 (1982), affirmed the judgments of the Superior Court in Argentinis v. Gould, 23 Conn.App. 9, 579 A.2d 1078 (1990).

Thereafter, we granted Gould's petition for certification to appeal limited to the following questions: (1) "Did the Appellate Court correctly enter judgment affirming the trial court's decision that [Argentinis] was entitled to compensatory damages in his suit for breach of construction contract and that [Argentinis was] also entitled to judgment in the foreclosure action?"; and (2) "Was the Appellate Court correct in finding justification for its judgment in Edens v. Kole Construction Co., [supra]?" Argentinis v. Gould, 216 Conn. 821, 581 A.2d 1054 (1990). Agreeing that Argentinis was entitled to compensatory damages in the breach of contract action as well as judgment in the foreclosure action, we answer the first certified question in the affirmative. Our negative answer to the second certified question, however, necessitates a reversal of the amount of the judgment in favor of Argentinis in the breach of contract action. In light of their convergence, we address both questions together.

Gould claims that the Appellate Court misapplied Edens v. Kole Construction Co., supra, thereby reaching a result that afforded Argentinis a "double recovery" and imposed an unwarranted penalty upon Gould for his conceded breach of the contract by failure of substantial performance. According to Gould, the damages awarded to Argentinis in the breach of contract action sufficiently compensated him for his injury resulting from the breach. Gould asserts that the additional forgiveness of Argentinis' mortgage debt in the foreclosure action, notwithstanding Gould's failure of substantial performance, impermissibly overcompensated Argentinis for that injury. To the extent that Gould claims that the sum of Argentinis' damages in the breach of contract action should have been reduced by $43,000, the amount of the unpaid balance of the contract price as represented by the mortgage note, we agree.

In rejecting Gould's contention that the referee should have reduced Argentinis' damages for breach of contract by the amount of the unpaid balance of the contract price, the Appellate Court interpreted Edens as formulating a rule that such a reduction "is proper only if the contract has been substantially performed...." Argentinis v. Gould, supra, 23 Conn.App. at 14, 579 A.2d 1078. Concluding that the referee correctly found that Gould had not substantially performed the contract, the Appellate Court held that the reduction sought by Gould properly had been refused. Id., at 15, 579 A.2d 1078. The Appellate Court further found "no double recovery for Argentinis. He had paid for the work to the extent actually completed and was owed the reasonable cost of restoring this work to the condition for which he had contracted." Id. Insofar as Edens may be construed to sustain this reasoning or to sanction the result reached by the Appellate Court with respect to Argentinis' damages in the breach of contract action, we conclude that Edens no longer can be considered good law. ³

Generally, when a builder breaches a bilateral construction contract by an unexcused failure to render substantial performance, he cannot maintain an action on the contract to recover the unpaid balance of the contract price because substantial performance, a constructive condition of the owner's duty to pay the balance, has not been satisfied. See 2 Restatement (Second), Contracts § 237, comment (d); 3A A. Corbin, Contracts (1964) §§ 701, 710; see generally Lach v. Cahill, 138 Conn. 418, 421, 85 A.2d 481 (1951); Sheketoff v. Prevedine, 133 Conn. 389, 392-93, 51 A.2d 922 (1947). The balance of the contract price, therefore, is not "due" the builder. See 3A A. Corbin, supra, § 701. Edens remains viable inasmuch as it stands for this proposition, and the Appellate Court, relying upon Edens, properly concluded that Gould's failure of substantial performance precluded him from prevailing in the foreclosure action. We diverge from the reasoning of the Appellate Court, however, and Edens insofar as it is consistent therewith, at the point where it was found necessarily to follow from Argentinis' nonliability in the foreclosure action that he was entitled to collect damages in the breach of contract action exceeding the sum necessary to compensate him for his actual loss...