Eastlake Const. Co., Inc. v. Hess

• Court: Washington Supreme Court
• Writing for the Court: PEARSON; WILLIAM H. WILLIAMS; BRACHTENBACH
• Citation: Eastlake Const. Co., Inc. v. Hess, 686 P.2d 465, 102 Wn.2d 30 (Wash. 1984)
• Decision Date: 21 June 1984
• Docket Number: No. 49191-7
• Parties: EASTLAKE CONSTRUCTION COMPANY, INC., Respondent, v. Leroy HESS and Jean M. Hess, husband and wife, Petitioners, Mohawk Insurance Company, and First Mutual Savings Bank; William Carey and Jane Doe Carey, his wife; and Kenneth Kemp and Jane Doe Kemp, his wife, Petitioners.

Page 30

102 Wn.2d 30

686 P.2d 465

EASTLAKE CONSTRUCTION COMPANY, INC., Respondent, v. Leroy HESS and Jean M. Hess, husband and wife, Petitioners Mohawk Insurance Company, and First Mutual Savings Bank William Carey and Jane Doe Carey, his wife; and Kenneth Kemp and Jane Doe Kemp, his wife, Petitioners.

No. 49191-7.

Supreme Court of Washington En Banc.

June 21, 1984.

Short & Cressman by David R. Koopmans, Andrew R. Maron, Janet Gray, Seattle, for petitioners.

R.M. Holt Law Firm, Ronald C. Kinsey, Jr., Issaquah, for respondent.

PEARSON, Justice.

Both parties to a construction contract appeal the Court of Appeals' decision, 655 P.2d 1160, which increased the trial court's award of damages and affirmed the dismissal of an action under the Consumer Protection Act.

Two substantial issues are presented in this appeal. The first requires us to determine the proper measure of the owners' damages for breach of a construction contract resulting in both remediable and irremediable defects in the structure. We hold that the appropriate formulation of damages is that set forth in Restatement (Second) of Contracts § 348 (1981). Accordingly, we affirm several items of damages awarded, but remand for the trial court to apply section 348 to certain other claimed items of damages which were not allowed at trial.

The second issue is whether the trial court and Court of Appeals were correct in ruling that the inducement element of the "public interest" requirement of the Consumer Protection Act, RCW 19.86, was not met in this case. We reverse on this issue and remand for a determination of whether the "inducement" and "potential for repetition" elements of the public interest requirement were satisfied. The remaining issues raised by Eastlake are patently without merit and will not be addressed in this opinion.

Plaintiff Eastlake Construction Company (Eastlake) brought this action in King County Superior Court to recover $13,719 allegedly owing on a construction contract. Eastlake had entered the contract with defendants Leroy and Jean Hess to erect a 5-unit condominium building in Issaquah. Defendants counterclaimed, alleging damages for breach of the contract and violations of the Consumer Protection Act. The trial court awarded defendants damages for breach of contract, less the amount owing to Eastlake under the contract, and dismissed the Consumer Protection Act action.

Defendants are the parents of a mentally retarded 25-year-old woman. They agreed with the parents of other retarded children to build a small condominium to provide a permanent home for their children. Mr. Hess assumed responsibility for the project and located a suitable piece of property at 245 Northwest Juniper in Issaquah. The property was owned by William Carey, a social friend of defendants and a principal in Eastlake Construction Company. Carey agreed to sell the land to defendants on condition that Eastlake was awarded the contract to construct the condominiums. Plans and specifications were drawn up by Mr. J.C. Smith, an architect hired by Hess, and Eastlake submitted a price of $118,600 to construct the building in accordance with these plans and specifications. On June 27, 1977, a "Lump Sum Construction Contract" incorporating these terms was signed by defendants as owners and by Mr. Kenneth Kemp on behalf of Eastlake. The contract provided that work was to begin within 10 days and the condominium to be substantially completed within 90 working days from the start. It provided further that Eastlake was to be paid as work progressed, with 10 percent of the contract price to be withheld until 30 days after acceptance of the construction by the owner.

Construction began in June and progressed smoothly until October. Progress payments were made to Eastlake on August 9, 1977 ($25,000); September 9, 1977 ($34,300); and October 10, 1977 ($28,880). After the October payment had been made, work ceased for 3 weeks, putting the project behind schedule. Hess subsequently determined that Eastlake had been overpaid for the work completed up to that point, and decided to withhold the November progress payment of $16,380. Eastlake refused to do any further work on the project until it received the additional progress payment, and construction ceased completely.

The dispute continued until January, when, according to Hess's testimony, Carey informed him that the project was completed and that Eastlake intended to sue if not paid the balance owing on the contract. On January 14, 1978, at Hess's request, the architect, Smith, inspected the project and issued a written report. The report detailed work still to be completed, work to be corrected, and work not in compliance with the specifications. On January 25, 1978, Hess met with the principals of Eastlake. At this meeting, according to Hess, Eastlake agreed to complete construction by February 8, 1978, and Hess agreed as a sign of good faith to pay Eastlake a further $16,781 on the contract price. Subsequently, Hess paid Eastlake the agreed sum and Eastlake performed some further construction work. By the end of February, however, construction had not been completed to Hess's satisfaction.

Accordingly, Hess undertook to complete the construction himself, assisted by two carpenters. His itemized costs for completing the project total $7,979.80. A certificate of occupancy for the condominiums was issued by the City of Issaquah on May 31, 1978.

On July 14, 1978, Eastlake filed suit seeking $13,719 allegedly owing on the construction contract. Defendants counterclaimed, alleging that Eastlake had breached the contract and had violated the Consumer Protection Act.

The nonjury trial began on June 9, 1980. It was not disputed at trial that Eastlake had not been paid $13,719 of the contract price of $118,600. The principal factual dispute centered around the nature and extent of Eastlake's breaches of the contract and the measure of damages for those breaches. The trial court heard considerable testimony that Eastlake had delayed completion of the project, had failed to complete the work contracted for, and had performed work and used materials not in accordance with the contract specifications. The trial court found that Eastlake had breached the construction contract in a number of respects. These findings, and the damages allowed by the trial court, may be summarized as follows.

A. Breaches for which the trial court allowed damages.

1. Eastlake wrongfully abandoned the project in February 1978, and defendants were allowed the reasonable cost of completing construction to make the condominiums habitable, $7,979.90.

2. Defendants were allowed the reasonable rental value of the condominiums from the time construction should have been completed until the actual completion date, $4,262.50.

3. Defendants were allowed damages for the reasonable cost of work specified in the plans, but not completed by Eastlake: insulating waste pipes, $807.44; installing recirculating fans, $1,031.10.

4. Defendants were allowed damages for the reasonable cost of repairing and replacing work performed by Eastlake which did not conform to the specifications: repairing the roof, $4,414.01; replacing balcony guardrails, $1,580.76; repairing and replacing washer and dryer closets, $751.84; replacing nonvented kitchen hood fans, $926.53; and replacing interior doors, $787.22.

5. Defendants were also allowed $75 for installation of cable television and $200 for light fixture underrun.

6. Defendants were also allowed damages for the installation of kitchen cabinets not in accordance with contract specifications.

The court declined to award the cost of replacement of these cabinets because this would constitute unreasonable economic waste. Instead, the measure of damages was the difference between the value of the specified cabinets ($8,725.50) and the cost of the cabinets actually installed ($3,700): $5,0252.50.

B. Breaches for which the trial court allowed no damages.

The trial court found that Eastlake had breached the construction contract in a number of other respects, but that these breaches "did not result in substantial damage to the building nor result in a substantial loss of value to the building". Defendants were not allowed damages for these breaches.

The trial court found that Eastlake departed from the specifications as follows:

1. Installation of 1-inch foam insulation under the concrete floors, rather than 1 1/2 inches.

2. Installation of plastic rather than cast iron waste lines.

3. Installation of electrical service panels in the bedrooms rather than the hallways.

4. Installation of the wrong grade of felt under the siding.

5. Use of insufficient caulking materials and exterior stain.

6. Installation of galvanized roof jacks rather than lead roof jacks.

7. Installation of acoustic ceiling materials rather than orange peel texture.

8. Installation of one piece of insulation in a party wall instead of two pieces.

9. Installation of blown-in rock wool rather than fiberglass batts for ceiling insulation.

In making these findings, the trial court rejected the testimony of a real estate appraiser. This witness testified that the value of the condominiums as constructed by Eastlake was $23,000 per unit, and that the value if constructed according to contract specifications would have been $39,000 per unit. The trial court found the witness's testimony unpersuasive because he used two different and incompatible methods of valuation to arrive at the two figures.

The trial court found a total of $27,841.70 in damages to defendants, against which was offset the $13,719 owing on the construction contract, for an award on the counterclaim of $14,122.70.

Defendants presented an offer of proof in support of their claim that Eastlake's breach of the construction contract violated the Consumer Protection Act. Defendants offered to produce five witnesses who would testify to untimely, erratic,...