Legacy Builders, LLC v. Andrews

• Decision Date: 15 August 2014
• Docket Number: No. S–13–0231.,S–13–0231.
• Citation: 335 P.3d 1063,2014 WY 103
• Parties: LEGACY BUILDERS, LLC, a Wyoming Limited Liability Company and Joe Seneshale, an individual, Appellants (Defendants), v. Brittany ANDREWS and Brian Andrews, Appellees (Plaintiffs).
• Court: Wyoming Supreme Court

335 P.3d 1063

2014 WY 103

LEGACY BUILDERS, LLC, a Wyoming Limited Liability Company and Joe Seneshale, an individual, Appellants (Defendants)

v.Brittany ANDREWS and Brian Andrews, Appellees (Plaintiffs).

No. S–13–0231.

Supreme Court of Wyoming.

Aug. 15, 2014.

Representing Appellants: Clark D. Stith, Rock Springs, Wyoming.

Representing Appellees: Jacob A. Skog and V. Anthony Vehar, Vehar Law Offices, P.C., Evanston, Wyoming. Argument by Mr. Skog.

Before BURKE, C.J., and HILL, KITE,^* DAVIS, and FOX, JJ.

Opinion

FOX, Justice.

[¶ 1] Brittany Andrews and her husband Brian Andrews (the Andrews) contracted to purchase a newly constructed home from Appellants Joe Seneshale and his company Legacy Builders, LLC (collectively “Legacy”) in Rock Springs, Wyoming. The house had numerous structural and cosmetic flaws. The Andrews filed a complaint against Legacy for breach of contract and breach of implied warranty of habitability. After a bench trial, the district court awarded the Andrews judgment in the amount of $319,302 based on cost of repairs. On appeal, Legacy challenges: (1) the damage award, arguing that the cost of repair measure of damages was incorrect and that the correct measure of damages should have been the change in fair market value between the home as contracted and the home as actually constructed; (2) the district court's reliance on the Andrews' expert's testimony as to future damages; and (3) the district court's finding that expansive soils were the cause of the Andrews' damages. We affirm, but remand with instructions to correct the damage award.

ISSUES

[¶ 2] We address two issues on appeal:

1. When the cost of repairs in a homeowners' construction case alleging breach of contract and breach of warranty may be disproportionate to the loss in value to the home resulting from the breach, which party has the burden of establishing the lesser measure of damages?

2. Did the district court commit clear error when it relied on the Andrews' cost of repair estimates for items that were not yet damaged or when it found that expansive soils caused damages to the home's foundation?

FACTS

[¶ 3] The Andrews entered into a contract with Legacy for construction and purchase of a single-family residence in Rock Springs, Wyoming. In early March 2006, the Andrews closed on the house and lot for a total purchase price of $239,700.00.

[¶ 4] During construction, Legacy conducted a soils test on the property which revealed that it contained expansive soils. In his September 20, 2005 report to Legacy, the civil engineer who conducted the soils test recommended, “the owner should take certain precautions to minimize the possibility of any movement within the structure.” The civil engineer further recommended that a copy of his report be provided to the Andrews. Legacy never communicated with the Andrews about the engineer's conclusion and did not provide them with a copy of the report.

[¶ 5] Shortly after taking possession of the property, the Andrews became aware of defects in the home such as cracking and separation of drywall, warping of door and window frames, and lifting and buckling of the basement floor. They contacted Legacy by telephone and in writing to have the defects corrected. Later, on August 28, 2006, the Andrews sent a letter to Legacy notifying it of twenty-seven construction defects. On January 17, 2007, after Legacy failed to correct the defects, the Andrews sent the same letter to Legacy via certified mail. Though Legacy denied ever having seen the correspondence, its secretary signed the certified return receipt.

[¶ 6] The condition of the home continued to deteriorate, and in July 2007, the Andrews heard loud “cracking” noises and saw cracks forming in the drywall in their bedroom, the kitchen, living room, guest bedroom, hallways, and in the walls and floor of the basement.

[¶ 7] On July 18, 2007, the same civil engineer who conducted the previous soils testing conducted a post-construction field review of the home. In his report to Legacy, he noted that the home had experienced minor movement in the foundation and basement floor slab. He recommended, “[t]o prevent continued movement in the structure minimal amount of watering should be applied to the lawns. Drainage should be directed away from the structure as much as possible.” Once again, Legacy failed to provide this report to the Andrews or advise them of its recommendations.

[¶ 8] By the end of July 2007, the Andrews laid sod, and installed and began using a sprinkler system in the backyard, maintaining the original grade provided by Legacy. They also contracted with a third party who extended the original driveway.

[¶ 9] In late August 2007, the Andrews contracted Rick Wright, owner of Rocky Mountain Home Inspection Services, to assess the damage to their home. In his report, Mr. Wright provided photos and comments, and generally concluded, “[s]ettlement, heaving and bearing wall movement have caused cracking and movement to the upstairs drywall throughout the main floor walls and ceilings.”

[¶ 10] The Andrews repeatedly sought to have Legacy repair the damage, but were unsuccessful. On July 2, 2010, they filed a complaint alleging causes of action for breach of contract and breach of implied warranty of habitability.

[¶ 11] At the bench trial, the Andrews presented expert testimony on helical piers designed to stabilize the foundation. Their expert testified that helical pier installation would cost $111,830, based on his inspection of the home. Legacy's expert testified the cost would be $44,800. The trial court accepted the Andrews' expert testimony and rejected Legacy's as being speculative and not supported by evidence because the Legacy expert had not inspected the home.

[¶ 12] Rick Wright, the Andrews' expert, testified that after installing the helical piers, the existing defects as well as some additional collateral damage resulting from the stabilization process would need to be remedied at an estimated cost of $199,472. In contrast, Legacy's expert estimated the cost of remedying existing and collateral damage from the helical pier installation at $21,000, also conceding at trial to another $10,000 to $15,000 for other items. Again, the trial court accepted the Andrews' expert's testimony as credible evidence of the nature and extent of repairs necessary after stabilization by the installation of helical piers.

[¶ 13] The trial court ruled that Legacy breached the construction contract and the implied warranty of habitability, and awarded a total of $319,302 in damages, consisting of: (1) $111,830 for the cost of repairing the foundation with helical piers; (2) $199,472 for repairs resulting from unworkmanlike construction, including repairs that would be required after installation of the helical piers; and (3) $8,000 for the cost of temporary housing during the pendency of the repairs.¹ In its Amended Findings of Fact, Conclusions of Law and Judgment, the district court further noted,

12. Although [Legacy] urge[s] this Court to calculate damages on the basis of change in value, [Legacy] failed to provide evidence regarding change in value and only offered cost of repair evidence to rebut [the Andrews'] cost of repair evidence.

The record contains no indication that Legacy attempted to present evidence to support using an alternative measure of damages. Legacy timely filed this appeal.

DISCUSSION

I. When the cost of repairs in a homeowners' construction case alleging breach of contract and breach of warranty may be disproportionate to the loss in value to the home resulting from the breach, which party has the burden of establishing a lesser measure of damages?

[¶ 14] At trial, the Andrews requested damages in an amount sufficient to repair their home. Legacy did not advocate or present evidence on any other measure of damages, instead opting to present its own cost of repair evidence in an effort to minimize the damage award. Legacy now contends the cost of repair damages are disproportionate and that damages should have been calculated according to the “diminution in market value”—the difference in market value between the property as constructed, and the property as it would have been if the home builder had fully performed.

[¶ 15] We hold that the lesser of the two measures of damage—cost of repair or diminution in value—should generally be awarded for breach of contract and breach of warranty. However, when the defendant has failed to present diminution of value evidence, cost of repair damages can be awarded even when they may be disproportionate.

[¶ 16] Whether a trial court “employed the proper methodology or legal standard to calculate the damages award is an issue of law, which we review de novo. ” Knight v. TCB Constr. & Design, LLC, 2011 WY 27, ¶ 16, 248 P.3d 178, 183 (Wyo.2011).

A. Damages for breach of contract

[¶ 17] Contract damages are intended to give the injured party the benefit of the bargain—to place the injured party in the same position he would have been if the breach had never occurred. See, e.g., McCullough v. Golden Rule Ins. Co., 789 P.2d 855, 859 (Wyo.1990) (“Wyoming generally recognizes the benefit of the bargain damages in relation to contractual damages.”); see also Restatement (Second) of Contracts § 347 (1981). The objective of the law is to compensate the injured party for breach, not to provide them a windfall. Madison v. Marlatt, 619 P.2d 708, 713–14 (Wyo.1980).

[¶ 18] Wyoming applies the Restatement (Second) of Contracts § 348 to determine contract damages, Graham v. State, 2001 WY 5, ¶ 10, 16 P.3d 712, 715 (Wyo.2001), and both parties agree that § 348(2) governs our decision. That section provides:

(2) If a breach results in defective or unfinished construction and the loss in value to the injured party is not proved with sufficient certainty, he may recover damages based on

(a) the diminution in the market price of the property caused by the breach, or

(b) the reasonable cost of completing performance or of remedying

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