Ducolon Mechanical, Inc. v. Shinstine/Forness, Inc.

• Decision Date: 01 May 1995
• Docket Number: No. 16335-7-II,16335-7-II
• Citation: 77 Wn.App. 707,893 P.2d 1127
• Court: Washington Court of Appeals
• Parties: DUCOLON MECHANICAL, INC., a Washington corporation, Appellant, v. SHINSTINE/FORNESS, INC., a Washington corporation; American Casualty Company, a foreign corporation, and The Corporation of The Presiding Bishop, The Church of Jesus Christ Of Latter Day Saints, a foreign corporation, Respondents.

Page 707

77 Wn.App. 707

893 P.2d 1127

DUCOLON MECHANICAL, INC., a Washington corporation, Appellant, v. SHINSTINE/FORNESS, INC., a Washington corporation; American Casualty Company, a foreign corporation, and The Corporation of The Presiding Bishop, The Church of Jesus Christ Of Latter Day Saints, a foreign corporation, Respondents.

No. 16335-7-II.

Court of Appeals of Washington Division 2.

May 1, 1995.

Terry R. Marston, II, Hintze & Wright, Seattle, for appellant.

Charles E. Robbins, Sumner, Michael V. Riggio, Kenyon E. Luce, P.S., Tacoma, for respondents.

BRIDGEWATER, Judge.

Ducolon Mechanical, Inc. (Ducolon), a subcontractor, appeals the trial court's order awarding it $3,136.66 as a result of the wrongful termination of a construction subcontract by Shinstine/Forness, Inc. (Shinstine), a general contractor. Ducolon also appeals the trial court's finding that it exercised bad faith in the performance of the subcontract. Ducolon admits, however, that it breached the subcontract. Shinstine cross-appeals the trial court's order denying it actual attorney's fees incurred after it submitted a CR 68 offer of judgment. We affirm.

In 1988, the Corporation of the Presiding Bishop, the Church of Jesus Christ of Latter Day Saints (LDS) awarded a contract to Shinstine for the construction of a church facility in Puyallup, Washington. Construction was to commence on January 16, 1989 and be completed by October 23, 1989.

Ducolon bid for the plumbing and the heating, ventilating and air conditioning (HVAC) portions of the project. Shinstine advised Ducolon that it may have made a mistake in the calculation of its bid because its bid of $119,245 was substantially lower than all others. Ducolon reviewed its bid and informed Shinstine that its bid was correct. Shinstine advised Ducolon for a second time that its bid was substantially lower than all other bids. Without reviewing its bid calculation, Ducolon increased it by approximately 10 percent. Shinstine accepted Ducolon's bid after Shinstine obtained a performance bond for Ducolon. The subcontract provided for attorney's fees and costs to the prevailing party in the event of litigation.

Ducolon commenced work at the site in March 1989. By December 1989, Ducolon was well behind schedule. Shinstine extended Ducolon's completion deadline. Shinstine terminated the subcontract after inspecting the project and finding that Ducolon's work was both defective and behind schedule. Shinstine replaced Ducolon with Air Systems Engineering. Air Systems completed Ducolon's work for $16,268. Half of that amount was attributable to completion of Ducolon's work and the other half to correcting Ducolon's work. The building was substantially completed 30 days behind schedule.

Ducolon filed a materialmen's lien foreclosure action pursuant to RCW 60.64 and a suit for wrongful termination of its subcontract against Shinstine and LDS. Shinstine and LDS counterclaimed, alleging breach of contract. Shinstine and LDS made a CR 68 offer of judgment for $17,500 that was not responded to by Ducolon. The case proceeded to a bench trial in Pierce County.

Shinstine argued that Ducolon could not recover an amount in excess of the original contract price of $127,377. Ducolon argued that it was entitled to recover its actual cost of performance (alleged to be $180,073) less progress payments of $89,746 made by Shinstine. Ducolon attributed the difference between the original contract price and its actual costs to a $50,000 bid error. During trial, Ducolon stated that it had not recognized the bid error when Shinstine brought the possibility of a bid error to its attention during the bid process.

In support of its argument, Ducolon offered a "Claim Breakdown" sheet prepared by its accountant, showing actual costs (direct, overhead, and profit) of $180,073. The accountant who prepared the form and a Ducolon consultant testified that Ducolon actually incurred $180,073 in costs. The only testimony as to the value of the work to the owner or Shinstine was that of Douglas Shinstine. He testified that the value of the work was equal to the contract price. The trial court entered no finding of fact as to actual costs incurred by Ducolon.

The trial court found that Shinstine wrongfully terminated the subcontract because its notice of termination was defective. It also found that Ducolon materially breached the contract by delaying the completion of the project by about 30 days. Further, it found that Ducolon failed to exercise good faith in performing the contract and by bidding the project too low, despite having been advised by Shinstine that its bid was low.

The trial court calculated Ducolon's award on the basis of Restatement (Second) of Contracts § 374(1) (1979). Section 374(1) which states that "the party in breach is entitled to restitution for any benefit that he has conferred by way of part performance or reliance in excess of the loss that he has caused by his own breach". Thus, the trial court subtracted progress payments and the cost to complete and repair Ducolon's work from the original subcontract price of $127,377, arriving at $3,136.66 instead of the $90,326 requested by Ducolon. No award of actual attorney's fees and costs was made, the court ruling that neither party had prevailed. However, the court awarded Shinstine statutory costs of $197 and statutory attorney's fees of $125 under RCW 4.84.080 because Ducolon did not improve its position by going to trial. Shinstine paid $3,136.66 and the court also dissolved Ducolon's lien, finding the lien had been satisfied. Following entry of judgment, Ducolon commenced this appeal and Shinstine and LDS cross-appealed.

I

Ducolon argues that the trial court erred in measuring its award. In particular, Ducolon argues that if it could avail itself of equitable relief in the form of restitution, it would be entitled to recover the actual amount of money it spent in partially performing the contract.

The trial court awarded Ducolon restitution on the basis of Restatement (Second) of Contract § 374(1) (1979) (hereafter Restatement 2d). Although Washington courts generally characterize restitution and quantum meruit as "equitable form[s] of recovery", CKP, Inc. v. GRS Constr., 63 Wash.App. 601, 615, 821 P.2d 63 (1991), review denied, 120 Wash.2d 1010, 841 P.2d 47 (1992), quantum meruit and restitution under Restatement 2d § 374 are legal remedies. See 5 Arthur L. Corbin, Contracts § 1102 (1964); 1 Dan B. Dobbs, Law of Remedies § 4.1(2) (Pract. ed. 1993). ¹

In this case, the legal remedy is adequate because Restatement 2d § 374(1) permits Ducolon to recover an amount equal to its alleged actual costs if its actual costs are equal to the benefit it conferred to Shinstine. ^{2 2} Therefore, the only issue related to the measure of Ducolon's award we need address is whether the trial court erred in finding that Ducolon was entitled to recover the reasonable value of its services to Shinstine, as measured by the original contract price less Shinstine's cost to complete and repair. We find no error.

A

In Washington, a defaulting subcontractor is entitled to restitution of its part performance measured by the reasonable value of its services to the general contractor. See Fuller v. Rosinski, 79 Wash.2d 719, 723, 488 P.2d 1061 (1971) (contractor who breached a construction contract by not installing a "proper lawn" allowed to recover the value of his work); Golob v. George S. May Int'l Co., 2 Wash.App. 499, 468 P.2d 707 (1970). ³ We hold that Restatement 2d 374(1) is an appropriate basis for measuring a defaulting plaintiff's restitution. Accord Bailey-Allen Co. v. Kurzet, 876 P.2d 421 (Utah App.1994); see also Laurence P. Simpson, Contracts § 204 (2d ed. 1965); Dobbs, at §§ 12.7(1), 12.20(2); Corbin, at § 1112.

In quantum meruit and restitution cases, Washington courts measure the reasonable value of the benefit conferred to the defendant in a variety of ways. See i.e., Losli v. Foster, 37 Wash.2d 220, 232, 222 P.2d 824 (1950) (actual cost of labor and materials); Irwin Concrete, Inc. v. Sun Coast Properties, Inc., 33 Wash.App. 190, 653 P.2d 1331 (1982) (contract price). Although early Washington cases limited recovery to the contract price, later cases suggest that this rule is not applicable in all cases. See Dravo Corp. v. L.W. Moses Co., 6 Wash.App. 74, 91, 492 P.2d 1058 (1971) (citing early cases), review denied, 80 Wn.2d 1010 (1972); see generally Joseph M. Perillo, Restitution in the Second Restatement of Contracts, 81 Col.L.Rev. 37, 44-45 (1981); U.S. for Use of Bldg. Rentals Corp. v. Western Cas. & Sur. Co., 498 F.2d 335, 338 (9th Cir.1974) ("The contract price, while evidence of reasonable value, is neither the final determinant of the value of performance nor does it limit recovery."). While many jurisdictions permit a non-defaulting contractor to recover in excess of the contract price, few, if any, oppose the view espoused by the Restatement 2d ⁴ and permit a defaulting contractor to recover in excess of the contract price. See, e.g., U.S. for Use of Palmer Constr., Inc. v. Cal. State Elec., Inc., 940 F.2d 1260 (9th Cir.1991) (defaulting subcontractor cannot recover in excess of contract price); see also 5 Corbin, at § 1113 (Supp.1994). Corbin adopts this rule, stating that in cases where the plaintiff defaults

the plaintiff should not be allowed to profit by his own default, and for this reason, his recovery is not permitted to be in excess of the full contract price, even though the value received by the defendant from the plaintiff's part performance was greater than that amount.

5 Corbin, at § 1113.

Ducolon cites no authority for the proposition that a defaulting plaintiff can recover an amount in excess of the contract price from a defaulting defendant. The Restatement 2d rule that a defaulting contractor cannot recover in excess of the contract price is sound, we approve of its application in this case where Ducolon's...