R.E.T. Corp. v. Frank Paxton Co., Inc.

• Decision Date: 19 January 1983
• Docket Number: No. 67470,67470
• Citation: R.E.T. Corp. v. Frank Paxton Co., Inc., 329 N.W.2d 416 (Iowa 1983)
• Parties: R.E.T. CORPORATION, a corporation and Hamilton Glen (Phase II), a limited partnership, Appellees, v. FRANK PAXTON COMPANY, INC., a corporation, d/b/a Frank Paxton Lumber Co., and Paxton Prestige Homes, Appellants.
• Court: Iowa Supreme Court

Page 416

329 N.W.2d 416

R.E.T. CORPORATION, a corporation and Hamilton Glen (Phase II), a limited partnership, Appellees, v. FRANK PAXTON COMPANY, INC., a corporation, d/b/a Frank Paxton Lumber Co., and Paxton Prestige Homes, Appellants.

No. 67470.

Supreme Court of Iowa.

Jan. 19, 1983.

Rehearing Denied Feb. 10, 1983.

Donald R. Breitbach and Randal J. Nigg, of Reynolds, Kenline, Breitbach, McCarthy, Clemens, McKay & Nigg, Dubuque, for appellants.

William C. Fuerste and Robert L. Sudmeier of Fuerste, Carew, Coyle, Juergens & Sudmeier, P.C., Dubuque, and James R. Hamilton and Willis J. Hamilton of Hamilton Law Firm, P.C., Storm Lake, for appellees.

Considered by LeGRAND, P.J., and UHLENHOPP, HARRIS, McGIVERIN, and CARTER, JJ.

HARRIS, Justice.

Defendant-builder and two architects were sued on a claim they had breached a building contract, express and implied warranties, and were negligent in supplying defective exterior wall components with factory affixed insulation. The trial court found defendant-builder liable to the plaintiff in the amount of $992,878.84 plus interest. Although the two architects were found negligent the trial court found their negligence was not a concurrent cause of plaintiff's injury. The defendant-builder has brought this appeal. We affirm.

In 1972 plaintiff ¹ built a 72 unit apartment complex in Dubuque, Iowa, named Hamilton Glen Phase I. The insulation in those apartments was installed on the construction site. The apartments were gas heated. Defendant provided the empty exterior wall components.

The venture proved an economic success so R.E.T. decided to build a second apartment complex on the same tract, to be called Hamilton Glen Phase II. The eight buildings of Phase II were to differ from Phase I in two respects. The insulation in Phase II buildings was to be shop-installed at defendant's Des Moines plant. And Phase II would have electric rather than gas heat. Plaintiff acted as its own general contractor on both projects.

The Phase II construction called for three and one-half inch reverse flange insulation in the exterior wall components. "Full thickness" insulation was specifically required in all exterior walls. The trial court found that the three and one-half inch reverse flange insulation was not used by defendant, that the exterior walls were not of full thickness, and that the insulation was not installed in such a way as to utilize the full thickness of the insulation used. Defendant apparently used mineral wool insulation batts that varied in thickness from two and one-half to three inches. The insulation was not stapled at the top or the bottom of the cavity. In one of the four units examined the insulation measured 2.12"' at its thickest point down to 0 at the site of the stud. The R-value was estimated to be 7 or less.

When apartments for Phase II were first opened in January of 1975 the tenants immediately complained of cold apartments and high heating bills. Plaintiff had an independent builder rip off an exterior wall covering to investigate. Plaintiff was told that lack of insulation was causing the problem. An engineer was called to inspect four apartments and concluded that retrofitting was necessary. Defendant denied anything was wrong. Plaintiff consulted with numerous experts and explored various ways to retrofit the walls economically. In August of 1977 a local insulation company was hired to blow foam insulation into the walls. This proved to be a mistake because the odor was most offensive and a number of sheet rock panels were blown off the interior walls.

In September of 1977 another local company successfully drilled holes in an apartment and blew cellulose insulation into the stud cavities. Plaintiff then purchased the necessary equipment and, using its own employees, retrofitted all the Phase II apartments. After the retrofitting was completed the tenants' complaints dropped. By this time, however, the complex was in serious financial trouble.

The tenants' complaints had forced the management to offer rent inducements and adjust the rents of complaining tenants. Vacancies increased and plaintiff could not increase its rents to cover its increasing costs. Although Phase I of Hamilton Glen had been a financial success the difficulty with Phase II resulted in the ultimate failure of Hamilton Glen (both Phase I and Phase II). The business went into receivership and the property was ultimately sold at a substantial loss.

The trial court found that defendant had breached its contract with plaintiff, breached both express and implied warranties, and negligently installed the insulation it used. It specifically found that this financial disaster would not have occurred in the absence of the breaches and negligence found. The trial court awarded damages of $105,344.26 for repair costs, $237,534.58 for lost rents, and $650,000 as the difference between the fair market value of the property (that the sale should have realized) and the reduced price (finally obtained). Damages totalled $992,878.84.

I. This was a law action tried to the court and hence it is reviewed for corrections of error of law. Iowa R.App.P. 4. The trial court's findings of fact have the force of a special verdict and are binding on us if supported by substantial evidence. Iowa R.App.P. 14(f)(1). We view the evidence in the light most consistent with the judgment. Our deference to the trial court's finding of facts does not extend to its determinations of law. Blunt, Ellis & Loewi, Inc. v. Igram, 319 N.W.2d 189, 192 (Iowa 1982).

II. Defendant first challenges the factual findings that it breached its contract, as well as express and implied warranties, and was negligent in installing the insulation and that these failures were the proximate cause of plaintiff's damage. The question is whether substantial evidence supports the findings. As is customary in such disputes, the evidence was conflicting; there was evidence to support the contentions of both plaintiff and defendant. The trial court obviously believed plaintiff's evidence and rejected much of defendant's.

Although defendant offered considerable evidence to refute plaintiff's there was plainly a factual issue for the finder of fact to resolve. Evidence supporting the trial court's finding included witnesses who examined the four apartments and their testimony that they were "representative of what we could expect to see" in the others. Only Phase II tenants, not Phase I tenants, complained about high heating bills. The Phase II turnover rate was 35 percent while the Phase I turnover rate was 12 to 14 percent. Tenants' complaints went down after retrofitting was completed. Electric bills were 10 to 30 percent lower after retrofitting. Both properties became rundown because they were losing money. Phase I money was used in an attempt to rescue Phase II. Rent reductions had to be offered to keep tenants from moving. Phase I suffered from the tarnished reputation of its sister-complex.

Evidence can be contradictory and remain substantial. See Schiltz v. Cullen-Schiltz & Assoc., Inc., 228 N.W.2d 10, 18 (Iowa 1975). The trial court's findings were supported by substantial evidence and defendant's contention to the contrary is without merit.

III. Defendant next contends the trial court was wrong in absolving plaintiff of contributory negligence. We could but we choose not to reject this assignment on the basis of defendant's failure to plead contributory negligence as an affirmative defense. See Iowa Code § 619.17 (1981). Rather, we point out that it was defendant's burden to introduce evidence of contributory negligence. ² To be entitled to a reversal on this assignment defendant would have to show that contributory negligence was established as a matter of law. This is an exceptionally heavy burden. See Iowa R.App.P. 14(f)(10). Defendant did not discharge the burden.

Defendant believes plaintiff should have done something between 1974 (when the Phase II project was constructed) and 1977 (when retrofitting was completed). Even if this claimed failure amounted to contributory negligence it occurred after the improper installation by defendant. Contributory negligence necessarily consists of actions which occur before or at the time of defendant's wrongful act. Hence defendant's claim in this record, if established, would not amount to contributory negligence. See 22 Am.Jur.2d, Damages, § 31 at 52-53 (1965) (distinguishing doctrine of avoidable consequences).

IV. Separate assignments challenge the damage award. The first complains of the fact that the trial court added three damage components together to reach the $992,878.84 award. The three components will be described further because each is the subject of a separate assignment. The first challenge to the damage award is a general one, whether damages were properly added together. Defendant supports this general damage assignment with two arguments. The first is a recasting of the lack of substantial evidence contention we rejected in division II above. We give it no further consideration.

Defendant then argues the trial court applied the wrong measure because the "cost rule" should have been used and was the sole measure of damages. See Busker v. Sokolowski, 203 N.W.2d 301, 304 (Iowa 1972). The trial court found that "no single rule of damage ... will effect just compensation to the plaintiff." It reached this conclusion after finding for the plaintiff on each of two grounds: tort and contract. The trial court said: "Plaintiff's action against defendant ... alleges breach of contract, breach of expressed warranty, breach of implied warranty, and negligence. To treat these theories separately as to damages seems inconsequential. Recovery as to any would be identical." (Emphasis added.)

We disagree. There is a clear distinction between the two theories of recovery "... in that damages not even anticipated are recoverable in tort, while only such damages as...