Metropolitan Transfer Station, Inc. v. Design Structures, Inc.

• Decision Date: 28 October 1982
• Docket Number: No. 2-66403,2-66403
• Citation: 328 N.W.2d 532
• Court: Iowa Court of Appeals
• Parties: 36 UCC Rep.Serv. 860 METROPOLITAN TRANSFER STATION, INC., Plaintiff-Appellant, Cross-Appellee, v. DESIGN STRUCTURES, INC., Defendant-Appellee; Len Construction Company, Merchants Mutual Bonding Company, and Leonard C. DePhillips, Defendants-Appellees, Cross-Appellants.

Page 532

328 N.W.2d 532

36 UCC Rep.Serv. 860

METROPOLITAN TRANSFER STATION, INC., Plaintiff-Appellant, Cross-Appellee, v. DESIGN STRUCTURES, INC., Defendant-Appellee;

Len Construction Company, Merchants Mutual Bonding Company, and Leonard C. DePhillips, Defendants-Appellees, Cross-Appellants.

No. 2-66403.

Court of Appeals of Iowa.

Oct. 28, 1982.

Lawrence F. Scalise and Ann Fitzgibbons of Scalise, Scism, Gentry, Brick & Brick, Des Moines, for plaintiff-appellant.

Ray Conley, Des Moines, for defendants-appellees-cross-appellants Len Const., Merchant's Mut. and Leonard C. DePhillips.

Heard en banc.

JOHNSON, Judge.

Plaintiff, Metropolitan Transfer Station, Inc., appeals from the amount of the damage award in its action for breach of contract due to defects in the construction of its garbage transfer station. Plaintiff contends 1) that it was entitled to damages for the interest it paid on a loan taken out to pay for the repair of the defects; 2) that it was entitled to lost revenues while the transfer station was closed for repairs; and 3) that the trial court abused its discretion by allowing testimony of a structural engineer, whose firm developed plans to repair the facility, on the grounds that he was an expert witness retained in anticipation of litigation and that his testimony was barred by Iowa Rule of Civil Procedure 122(d)(2). On cross-appeal, defendants, Len Construction Company and Leonard DePhillips, assert that the trial court should have found as a matter of law that the damage to plaintiff was caused by plaintiff's abuse of the structure and that there was not substantial evidence that the structural failure was caused by defective construction. Because defendants' notice of cross-appeal was untimely, we dismiss the cross-appeal. On plaintiff's appeal, we affirm in part and reverse in part.

Plaintiff is the owner of a garbage transfer station in Des Moines, Iowa. This is an enclosed building in which garbage trucks dump their loads; the garbage is then compacted, loaded on semi-trucks, and taken to the landfill. The purpose of the station is to avoid unnecessary long trips to the landfill by smaller garbage trucks. Plaintiff contracted with defendant, Design Structures, Inc., as the general contractor to design and perform all work required for construction of the facility. Defendant Len Construction Co., owned by defendant DePhillips, was hired as a subcontractor. Defendant Merchant's Mutual supplied the construction bond. Either just before or shortly after the facility was finished, plaintiff, defendant Len Construction, and defendant DePhillips, individually, executed a contract wherein defendants agreed to repair any damage in the concrete work caused by faulty construction that occurred within 36 months from the date of completion, and to reimburse plaintiff for any loss of revenue occasioned by faulty construction.

The concrete floor, a retaining wall, and the drives proved defective within a short time after the opening of the facility. When a fire required closing of the facility for a period in May, 1979, plaintiff decided to repair both the fire damage and the defective concrete work at the same time. A different construction company was hired to repair the concrete work, at an eventual cost of about $44,000. Plaintiff borrowed this money and paid $8,000 interest on it.

A default judgment was entered against defendant Design Structures before trial. At trial, defendants called as a witness John Hart, president of the firm which designed the repair work. Plaintiff objected to his testimony on the ground that Hart had been retained by plaintiff as an expert in anticipation of litigation and, thus, should not be allowed to testify. The court sustained the objection but allowed the testimony as an offer of proof, then in its decision reversed its ruling and held Hart's testimony admissible. Hart testified that the design of the facility was grossly deficient.

The court concluded that plaintiff's damages were caused one-half by defective design and one-half by defective construction and held defendants, Len Construction and DePhillips, liable for $22,000, one-half of the direct cost of the repairs. The court did not decide whether the interest expense should be part of the damages, although plaintiff had asked for interest in its petition and renewed the request in a posttrial rule 179(b) motion. Trial court denied both parties' posttrial motions with the comment that the result "did justice."

I. Scope of Review. Since this is an action at law, our review is on assigned error only. Iowa R.App.P. 4.

II. Damages. Plaintiff asserts that the trial court erred in awarding damages in the amount of $22,000. Specifically, plaintiff contends it is entitled to recover against defendants 1) lost interest and 2) lost revenue.

While trial court did not address plaintiff's claim for interest in its findings and conclusions, the court did address the issue of lost revenue. Plaintiff subsequently filed a timely motion to enlarge findings pursuant to Iowa Rule of Civil Procedure 179(b), specifically asserting the interest and revenue issues. Trial court summarily overruled plaintiff's motion.

"... [A] rule 179(b) motion is essential to preservation of error when a trial court fails to resolve an issue, claim, defense or legal theory properly submitted for adjudication." Arnold v. Lang, 259 N.W.2d 749, 753 (Iowa 1977). A rule 179(b) motion may be targeted at either conclusions of law or findings of fact. Suckow v. Boone State Bank & Trust Co., 314 N.W.2d 421, 424 (Iowa 1982). In the present case the trial court was presented with an issue omitted in its original findings and conclusions and was provided an opportunity to address the issue by plaintiff's 179(b) motion. Due to trial court's summary ruling, we conclude that trial court denied plaintiff's request for interest and, accordingly, find that plaintiff preserved the issue for our review.

A. Recovery of Borrowing Cost and Interest as an Element of Damages. Plaintiff asserts that it is entitled to recover from defendant an additional $4,000, which represents one-half the amount of interest plaintiff paid to a third party for borrowing money to repair its facility due to defendant's faulty construction. Plaintiff actually paid $8,000 in interest charges on the borrowed money but ascribes half of the amount to the co-defendant based upon the trial court's finding that the damages were to be apportioned fifty percent to Design Structures and fifty percent to Len Construction and Leonard DePhillips.

Initially, it is important to distinguish between interest as an item of damage or loss which is related to a substantive claim and interest based upon a percentage of the judgment as permitted under Iowa Code § 535.3 (1981). It is evident after an examination of plaintiff's argument, the record, and section 535.3 that plaintiff is seeking interest related to a substantive claim which is not governed by section 535.3. We must then address whether such interest is recoverable under general principles of damages. See United Telecommunications v. American Telephone & Communications Corp., 536 F.2d 1310, 1314 (10th Cir.1976).

"Under Iowa law, when a contract has been breached, the innocent party is generally entitled to be placed in a position he would have occupied had there been performance." Lakota Girl Scout Council, Inc. v. Havey Fund-Raising Management, Inc., 519 F.2d 634, 639-40 (8th Cir.1975).

"Where two parties have made a contract, which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be either such as may be fairly and reasonably be considered arising naturally--that is, according to the usual course of things--from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it."

Mihills Manufacturing Co. v. Day Brothers, 50 Iowa 250, 252 (1878) (quoting Hadley v. Baxendale, 25 E.L. & E., 398). Foreseeability of the type of damage is the focus of Iowa law. See DeWaay v. Muhr, 160 N.W.2d 454, 458-59 (Iowa 1968). "These damages are generally categorized as 'consequential damages.' " Walker Manufacturing Co. v. Henkel Construction Co., 346 F.Supp. 621, 635 (N.D.Iowa 1972).

The court has stated that "interest may be considered as an element of damages under the rule which permits its allowance in order to arrive at the sum which will be just and lawful compensation for the injury sustained." Richmond v. Sioux City Railroad Co., 33 Iowa 422, 502 (1871). By analogy, interest may be recoverable as a "consequential" damage under Iowa Code § 554.2715 (1981) within the meaning of the Uniform Commercial Code. The Iowa courts additionally permit the recovery of lost profits so long as the profits are not based upon conjecture and speculation. Shinrone, Inc. v. Tasco, Inc., 283 N.W.2d 280, 284-86 (Iowa 1979). See also Repinski v. Clintonville Federal Savings & Loan Association, 49 Wis.2d 53, 181 N.W.2d 351 (1970) (applying the standard for lost profits to lost interest).

Other jurisdictions have recognized that interest, as a borrowing cost, owed to third parties may be recoverable. See United Telecommunications, 536 F.2d at 1314 (interest recoverable where plaintiff "showed the amount of its borrowing cost and a nexus between these costs and the breach" of defendant in failing to register plaintiff's securities); New Amsterdam Casualty Co. v. Mitchell, 325 F.2d 474 (5th Cir.1963) (recovery of additional interest on construction loan because of builder's delay permitted); Herbert & Brooner Construction Co. v. Golden, 499 S.W.2d 541 (Mo.App.1973) (recovery of additional interest on construction loan because of builder's delay permitted); Thompson v. Hanson, 6 Wash.App. 1, 491 P.2d 1065 (1971) (trial court permitted recovery for interest...