Jones v. J.H. Hiser Const. Co., Inc., 184

• Decision Date: 01 September 1984
• Docket Number: No. 184,184
• Citation: 484 A.2d 302,60 Md.App. 671
• Parties: Robert L. JONES, et ux. v. J.H. HISER CONSTRUCTION CO., INC. ,
• Court: Court of Special Appeals of Maryland

Page 671

60 Md.App. 671

484 A.2d 302

Robert L. JONES, et ux. v. J.H. HISER CONSTRUCTION CO., INC.

No. 184, Sept. Term, 1984.

Court of Special Appeals of Maryland.

Dec. 6, 1984.

Thomas E. Walker, Landover (Greenan, Walker, Steuart & Meng, Landover, on brief), for appellants.

John Edward Powell, Rockville, for appellee.

Argued before BISHOP, ADKINS, and GETTY, JJ.

ADKINS, Judge.

Appellee J.H. Hiser Construction Co., Inc. built a house for appellants Dr. and Mrs. Robert L. Jones. The house was erected under a written cost plus construction contract. When the Joneses failed to pay the full amount Hiser claimed under the contract Hiser sought a mechanics lien which in due course was imposed by the Circuit Court for Montgomery County in the amount of $43,505.18.

From that judgment the Joneses appeal. The issues presented are whether Hiser (1) was subject to a duty "to know of, keep track of and advise appellants that actual construction costs were substantially exceeding estimate costs" and (2) whether Hiser breached that duty. We answer both questions in the affirmative and vacate the judgment below.

Facts

The Joneses desired to build a home in Potomac, Maryland. They approached Hiser. After reviewing plans for a house similar to the one the Joneses wanted Hiser estimated total construction costs to be $200,000. This was within the Joneses' price range. The parties discussed the possibility of a flat fee or fixed-cost contract, but at Hiser's urging, the Joneses agreed to a cost-plus contract, which Hiser proceeded to draft. In pertinent part the contract provided:

Article 3. The Contractor accepts the relationship of trust and confidence established between him and the [Joneses] by this Agreement. He covenants with the [Joneses] to use his best skill and judgment in furthering [their] interests. He agrees ... to perform the Work in the best way and in the most expeditious and economical manner consistent with the interest of the [Joneses].

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* * * Article 5. The [Joneses agree] to pay the Contractor for the cost of the Work.... Such reimbursement shall be in addition to the Contractor's fee stipulated in Article 6.

Article 6. In consideration of the performance of the Contract, the [Joneses agree] to pay the Contractor ... as compensation for his services as follows: Total fee of $20,000 unless increased per the following adjustments: If the total cost of construction of said dwelling should exceed $225,000.00 (labor, material, subcontractors, etc.) then the builders [sic ] fee will be increased to equal ten percent ... of that Total Cost....

* * *

* * *

Article 11. All portions of the Work that the Contractor's organization has not been accustomed to perform shall be performed under subcontractors. The Contractor shall request bids from subcontractors.

Article 12. The Contractor shall ... keep such full and detail [sic ] accounts as may be necessary under this agreement....

Article 13. ... The following [schedule of periodic draws by Hiser] is based on estimated final cost for construction of dwelling to be $200,000.00....

After consulting with their lawyer the Joneses signed the contract. They also obtained, for construction loan purposes, an independent cost estimate of $204,582.50, including the contractor's fee. Work on the dwelling began in December 1980.

In May 1981 Hiser billed the Joneses for $95,000. Apparently, this was paid without question. Another bill came in August. It showed expenses to date of $145,287, and "Estimated total additional costs" of $112,850. After an allowance of $18,500 in "additional items not completed" it listed the "Total actual bill" as $239,637.00.

Because the Joneses had authorized certain changes in the house plan, they expected the total cost of their home to exceed $200,000. Nevertheless, the projected overrun of almost $40,000 concerned them. This is understandable in view of testimony produced at the trial indicating that a reasonable cost for the changes was about $24,000. There were discussions about cutting back costs during which Hiser indicated he could "bring the house in" for something between $235,000 and $240,000. The Joneses had sold their other home and were eager to move into the new one (they did so on August 29). They decided to proceed with construction.

Other bills from Hiser followed. A September bill showed total costs as $239,290 and a November bill showed them as $267,963. The final bill, submitted in January 1982, was for $276,251. This exceeded Hiser's August prediction by almost $40,000. Serious differences between the Joneses and Hiser erupted after the September bill was received and Hiser walked off the job in October. The Joneses apparently had others complete the house, for additional sums, so that Hiser's final bill of $276,251 was not in fact the total cost of the house.

In any event, the Joneses paid Hiser a total of $227,000 over the course of the project. Hiser claimed a balance of $48,250.98, after allowing credits of $2,685.62 against the total cost of $277,436.60. After allowing some adjustments by way of setoff, the trial court, as we have seen, granted a lien in the amount of $43,505.18.

Discussion

In the trial court the Joneses argued at length that Hiser had a duty to be aware of and to inform them about ongoing construction costs. They based this contention on the provisions of the contract and on the testimony of an expert who said that custom and usage in the construction industry so required. The trial judge did not accept this view. Although he mentioned the Joneses' theory of the case at one point in his oral opinion, he decided the case without further reference to it. Thus, he implicitly rejected it. We think he erred in doing so.

It seems to have been the trial judge's position that Hiser should get its lien because there was a cost-plus contract, because the Joneses requested certain cost-increasing changes, and because there was no substantial complaint about workmanship, and no evidence of double billing or padding of expenses. As to all of these facts he was correct. He was also correct in concluding that:

The $200,000 [total cost figure contained in the contract] was an estimate. It was not a warranty.

He did not err in finding that in view of the changes the Joneses had requested they should have been aware at least "right after" the August 1981 bill "that they were over the $200,000 target by a considerable amount." As we have already observed, the Joneses were so aware, and there is evidence indicating that they then accepted a target cost in the $240,000 range.

The judge went astray, however, in thinking that the overrun was "a result principally of [the] changes requested by the Joneses." As he noted, these changes in total amounted to under $24,000. There was no credible evidence to support a larger sum. These changes plus a reasonable deviation from the estimate (7 percent to 10 percent according to expert testimony below) might explain the difference between the original $200,000 target and the $240,000 figure. There were, however, no authorized changes not included in the $240,000, and a reasonable deviation of 7 percent to 10 percent cannot suffice to explain the difference between $240,000 and $277,000.

What is more significant, though, is that the judge overlooked the provisions of the contract. By this contract Hiser accepted a "relationship of trust and confidence" with the Joneses. It agreed to further their interests by performing "the Work ... in the most ... economical manner consistent with" their interests. It agreed to request bids from subcontractors. It agreed to "keep ... full and detail[ed] accounts." The Joneses were not experts in house construction; Hiser was. John Hiser, president of the corporation and supervisor of the Joneses' job, testified at length as to his expertise in such matters. Under the contract the Joneses were entitled to rely on Hiser to protect their financial interests. Where there exists a relationship of trust and confidence between parties to a contract one party may justifiably rely on the other's good faith and fair dealing. See Restatement (2d) Contracts, § 169, comment c (1979). It was not unreasonable for the Joneses to assume that Hiser would perform its duty to protect their pocketbook. At the very least...