Hopkins Const. Co. v. Reliance Ins. Co.

Decision Date21 September 1970
Docket NumberNo. 1088,1088
PartiesHOPKINS CONSTRUCTION CO., Inc., Appellant, v. RELIANCE INSURANCE CO., Inc., and Inlet Company, Inc., Appellees.
CourtAlaska Supreme Court

David B. Ruskin, Anchorage, for appellant.

H. Russel Holland, Anchorage, for appellees.

Before DIMOND, RABINOWITZ, and CONNOR, JJ., and MOODY and OCCHIPINTI, Superior Court Judges.

OPINION

CONNOR, Justice.

In May, 1964, Hopkins Construction Co., plaintiff-appellant, entered into a contract with Inlet Co., Inc., defendant-appellee, to do the major portion of construction work on the Kodiak Inn, in Kodiak, Alaska. The building was completed March 27, 1965. Reliance Insurance Co. is a surety of Inlet to secure payment for material and labor.

Suit was commenced by Hopkins Construction Co. September 15, 1965, to recover from Reliance $89,980.30 claimed to be due under the surety bond. In an amended complaint, defendant Inlet was also named and the amount prayed for was increased to $133,437.22. In its answer to the amended complaint Reliance stated as a defense that:

'Defendants allege that plaintiff has failed and neglected to perform its subcontract with Inlet Company, Inc. in accordance with the terms thereof, and that by reason of said neglect and failure, there is no obligation on the part of this defendant to pay any sum of money to plaintiff.'

In its third-party complaint against Frank Irick, owner of Kodiak Inn, filed September 1, 1966, Inlet alleged that certain changes ordered by the owner, Irick, had caused delay whereby Inlet was damaged and that Irick had failed to tender progress payments, which failure caused Inlet in turn to default in tendering its payments to Hopkins, thus precipitating this suit. To this third-party complaint Irick answered that some changes in the original plan had been made by Irick and his architect. Irick counterclaimed against Inlet alleging that Inlet had failed to perform certain of its obligations under the contract with Irick. Among other defaults and deficiencies in performance, Irick alleged that the 'corridor floors on both the second and third floors are squeaky.' Inlet answered this counterclaim by alleging that the changes and modifications instigated by Irick caused delays which increased the cost of performance; that Frank Irick was to perform the earth work and failed to do it in a timely and workmanlike manner and that portions of the work left unperformed were because of failure by Irick to provide sufficient funds. That portion of the suit involving Inlet and Irick was severed. The proceedings in question here concern only Hopkins, Inlet and Reliance.

Trial to the judge without jury commenced November 22, 1966, and on November 30, 1966, was continued until February 27, 1967. In the interim certain interrogatories to defendants were propounded by Hopkins:

'Interrogatory No. One: Do the Defendants claim that the construction of the Kodiak Inn so far as applicable to the subcontract between HOPKINS CONSTRUCTION COMPANY and the Defendant, INLET COMPANY, INC. was in any way deficient?

'Interrogatory No. Two: If the answer to the above Interrogatory is in the affirmative please state the specific deficiency or deficiencies and the estimated cost of correct or cure said deficiency or deficiencies.'

To Interrogatory No. One, Inlet answered 'Yes.' To Interrogatory No. Two, Inlet answered in part:

'Defendant alleges deficiencies as follows:

(1) Improper nailing and installation of floor plywood. Estimated cost of correction is $18,000.00, plus or minus, dependent upon the extent of carpet installation and replacement.'

Judgment was entered on November 12, 1968, under which Hopkins Construction Co. was awarded $39,801.50 less the sum of $15,164.80 as a set-off, plus interest from July 2, 1965. Hopkins was also awarded $21,789.81 for allowable extras, including overhead and profit, plus interest from December 29, 1964.

Hopkins Construction Co. has appealed, claiming that the trial court erred in allowing a set-off to Inlet. We agree with Hopkins that the set-off should not have been allowed.

The case before us raises two important issues: As between Hopkins and Inlet, who has the burden of establishing the facts upon which the set-off is based; and, resolving this, has that burden been met?

BURDEN OF PROOF

It is generally agreed that once substantial performance has been shown, a construction contractor is entitled to recover the contract price, less reasonable costs of remedying the defects in work or materials. 1 This rule is designed to avoid forfeitures on the part of a contractor or subcontractor who has substantially, if not perfectly, performed his contractual obligations. The rule prevents unjust enrichment by the one procuring the work, who might otherwise point to slight deficiencies, the causes of which are difficult to prove, to avoid payment of the contract price. 2 Application of this rule is consonant with placing the burden of proof on either party.

While there is general agreement as to the soundness of the substantial performance rule, consensus as to which party must sustain the burden of proving the recoupment as well as the amount is not so readily available. We realize that there is ample authority to sustain Inlet's claim that Hopkins must bear the burden. 3 We are convinced, however, that the better of the available rules is that which places upon Inlet the burden of establishing its recoupment. 4

In United States for Use of Acme Maintenance Engineering Co. v. Wunderlich Contracting Co., 228 F.2d 66 (10th Cir. 1955), the court, in a factual setting similar to this one, stated the general rule as follows:

'It is a settled rule that in a subcontractor's action against the contractor, where a substantial performance of the contract is shown, the contractor, in order to avail himself of a set-off, has the burden of proving damages sustained on account of defective work done by the subcontractor.' (Citations omitted.) 228 F.2d, at 68.

The practical performance of building contracts can be fraught with some complexity. It may involve various interrelated duties and performances. The determination of whether recoupment should be allowed in a given case may turn on establishing an underlying performance on the part of a person other than the subcontractor or contractor who is seeking recovery. For example, the squeaky floors in the instant case may or may not have been caused by defects in performance of the work which was supervised by Hopkins. The squeaking may have been caused by faults in the earth-moving work attributable to the owner, Irick. These defects may either have caused the undermining of the foundation, or have necessitated the structural alteration of the building which in turn may have weakened it, or allowed the flooring to become damp, in turn causing warping, shrinkage and attendant squeaking.

There are practical considerations which persuade that the burden should rest with Inlet. It was Inlet's responsibility to establish the terms of the project as a whole. Inlet was in a position to inspect and supervise the construction as it progressed. It was within its power to guard against performance which deviated from the plans and specifications. Accordingly, it is not unfair to place on Inlet the burden of proving the cause of particular defects which it claims exist.

Other compelling reasons argue strongly that the burden should fall upon Inlet. Ultimately it is the dissatisfied party who knows best what particular phase of the construction is unsatisfactory to it. It is within its discretion to set forth and explain the defects claimed. It is a much heavier burden for the party claiming a right to the contract price not only to demonstrate substantial performance, but to prove negatively that all defects asserted on defense are attributable to other causes than his own workmanship. Such a burden would, in the instant case and in many similar cases, result in a waste of trial time.

There might be cases in which the facts and contractual relationships require a different allocation of the burden of proof. But we find no reason in this case for departing from the aforementioned rule.

SUFFICIENCY OF THE EVIDENCE

In order to recover its claim, Inlet had the burden to show (1) that the floors in Kodiak Inn squeaked, (2) that the squeaking was caused by defects in construction attributable to Hopkins, and (3) the extent of damage thereby caused.

The parties are in accord that the floors squeak. They do not agree as to the cause of the squeaking. 5

In order to determine whether Inlet has sustained its burden of proof, it is necessary to assemble certain of the facts concerning the construction of the building. Kodiak Island Improvement Co. was the owner of Kodiak Inn. This company was essentially the alter ego of Frank Irick. Frank Irick was in charge of excavation for the building. Apparently, during the course of excavation, Irick came upon solid rock and was unable to excavate to the level originally called for in the plans. As a result, certain changes were made in the plans. For instance, two rooms in the motel unit were deleted. There was some testimony that a considerable amount of water ran or stood under the building while it was being constructed. This was described by one witness as a 'trout stream.' There was also testimony that certain of the piers or plinths under the building had to be made longer because of the change in elevation which was caused by the failure in excavation or by changes made in the elevation of the street following the 1964 earthquake. Certain of these piers were made of wood rather than concrete, possibly to compensate for the additional length made necessary by the previously described condition.

There is considerable divergence of opinion as to the cause of the squeaking. Bergstrom, project manager and estimator for Inlet at the time of construction, was of the opinion that the squeaking...

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  • Vance v. My Apartment Steak House of San Antonio, Inc.
    • United States
    • Texas Supreme Court
    • 23 Mayo 1984
    ...the dissatisfied party who knows best what particular phase of the construction is unsatisfactory to it." Hopkins Construction Co. v. Reliance Ins. Co., 475 P.2d 223, 226 (Alaska 1970). The owner, having responsibility for and usually supervising any repair work, is in the better position t......

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