Central Iowa Grading, Inc. v. UDE Corp.

• Decision Date: 25 June 1986
• Docket Number: No. 85-543,85-543
• Citation: 392 N.W.2d 857
• Parties: CENTRAL IOWA GRADING, INC., Plaintiff-Cross-Appellant, v. UDE CORPORATION, a/k/a United Design & Engineering Corp., Defendant, Nelson-Roth, Inc. and United Missouri Mortgage, Defendants-Appellants.
• Court: Iowa Court of Appeals

Page 857

392 N.W.2d 857

CENTRAL IOWA GRADING, INC., Plaintiff-Cross-Appellant, v. UDE CORPORATION, a/k/a United Design & Engineering Corp., Defendant Nelson-Roth, Inc. and United Missouri Mortgage, Defendants-Appellants.

No. 85-543.

Court of Appeals of Iowa.

June 25, 1986.

David M. Duree and James A. Bingley of Leritz, Reinert & Duree, St. Louis, Mo. and Michael Vinyard of Vinyard & Curran, Ottumwa, for defendants-appellants.

Dan L. Dudley of Murray, Davoren & Dudley, Des Moines, for plaintiff-cross-appellant.

Heard by OXBERGER, C.J., and DONIELSON and SCHLEGEL, JJ., but considered en banc.

HAYDEN, Judge.

Defendant owners appeal a judgment for plaintiff in a mechanic's lien foreclosure action. They assert that 1) the subcontractor had no lien rights since the contractor breached its contract with the owner and the cost of completion exceeded the contract amount; 2) the subcontractor was not entitled to a lien for extra work performed without written change orders; 3) the trial court erred in finding that contractor's failure to waive the contractual requirement for written change orders was irrelevant and that evidence was insufficient to establish any waiver; and 4) evidence was insufficient to establish that certain extra work conferred any benefit on the property. We affirm in part and reverse in part.

In June 1980, defendant Nelson-Roth, Inc. contracted with UDE Corporation for the construction of a low-income housing project, which was then to be sold to the Low Rent Housing Authority. Thereafter, UDE subcontracted with Central Iowa Grading, Inc. (CIG) to perform all the site grading for a lump sum of $50,000.00. Of this amount, $9,860.00 is still owing.

CIG also performed certain extra work not contemplated by the subcontract. Pursuant to the contract between Nelson-Roth and the housing authority, all claims for extras were required to be by written change orders. Similar provisions were in the general contract between Nelson-Roth and UDE, and the subcontract between UDE and CIG.

Three requests for change orders totalling $2,485.00 were approved by UDE and Nelson-Roth. CIG also performed approximately $38,000.00 worth of extra work at the oral direction of UDE. Although UDE indicated that written change orders would be forthcoming, none were executed for this work.

UDE failed to pay plaintiff for the additional work performed. Nor did the contractor pay the balance owing under the terms of the subcontract. On February 13, 1981, CIG timely filed a mechanic's lien in the amount of $57,249.56. Nelson-Roth was given notice of the filing and promptly notified UDE that it was withholding payment in the amount of the plaintiff's lien.

The relationship between Nelson-Roth and UDE subsequently became strained. Nelson-Roth eventually terminated the agreement with UDE and completed the project at an additional cost of $300,000.00.

In April 1981, CIG filed this suit in equity to foreclose its mechanic's lien against Nelson-Roth and to establish the priority of its lien over the mortgage of the United Missouri Mortgage Company.

At trial, CIG presented evidence of the work it performed, some of which was alleged by the owner to have conferred no benefit to the property. The trial court found that UDE had waived the writing requirement for the extra work and that the work performed by CIG was in furtherance of the ultimate goal of the contract between UDE and the owner. The court also determined that whether Nelson-Roth waived the written change order requirement was irrelevant as to CIG's right to establish its claim. Judgment was entered for CIG in the amount of $50,343.07, representing $9,860.00 owed under the subcontract, $2,485.00 for extra work approved by Nelson-Roth and UDE, and $37,998.07 for work which was not approved by Nelson-Roth.

Nelson-Roth and United Missouri Mortgage appealed this result. CIG filed notice of cross-appeal, but raised no additional issues.

Our review of this equitable action is de novo. Iowa R.App.P. 4. While we give deference to the findings of the trial court, we are not bound by them. Iowa R.App.P. 14(f)(7).

I.

Defendants argue the trial court erred in finding that CIG had any lien rights because UDE allegedly breached its contract and Nelson-Roth's cost of completion exceeded the contract amount.

A subcontractor's right to a lien is governed by the statutory provisions set forth in chapter 572 of the Iowa Code. Section 572.16 provides in relevant part: "Nothing in this chapter shall be construed to require the owner to pay a greater amount than is provided in the owner's contract with the principal contractor." Thus, where the principal contractor commits such a substantial breach that he is not entitled to payment, the right of the subcontractors to enforce their liens is also lost. Kawneer Mfg. Co. v. Renfro & Lewis, 186 Iowa 1344, 1347, 173 N.W. 899, 900 (1919).

In the present case, there is insufficient evidence to support defendants' claim that a substantial breach occurred. The only evidence cited by defendants was the testimony of James Nelson, Vice-President of Nelson-Roth. He testified that the housing authority was disenchanted with UDE and that Nelson-Roth ultimately terminated the project...