Zepsa Const., Inc v. Randazzo, 3673.

• Decision Date: 15 September 2003
• Docket Number: No. 3673.,3673.
• Citation: 357 S.C. 32,591 S.E.2d 29
• Parties: ZEPSA CONSTRUCTION, INC, Respondent, v. Phillip A. RANDAZZO and Virginia M. Randazzo, Appellants.
• Court: South Carolina Court of Appeals

357 S.C. 32

591 S.E.2d 29

ZEPSA CONSTRUCTION, INC, Respondent, v. Phillip A. RANDAZZO and Virginia M. Randazzo, Appellants.

No. 3673.

Court of Appeals of South Carolina.

Heard May 13, 2003.

Filed September 15, 2003.

Withdrawn, Substituted and Re-filed January 7, 2004.

Rehearing Denied January 7, 2004.

Douglas Gay, of Rock Hill, for Appellants.

S. Jackson Kimball, III, of Rock Hill, for Respondent.

CURETON, J.:

In this action to foreclose a mechanic's lien, the master ordered judgment against Phillip and Virginia Randazzo in the amount of $50,846.00, and awarded attorney's fees to Zepsa in the amount of $8,123.40. The Randazzos appeal, arguing the master erred in: (1) including lost profits and overhead in the amount of the mechanic's lien; and (2) awarding attorney's fees to Zepsa. We affirm as modified.

FACTS

Phillip and Virginia Randazzo (collectively, "Randazzos"), owned and operated an Italian restaurant near Tega Cay Village Shopping Center in Fort Mill, South Carolina. In September 1996, they contacted Ed Zepsa, president of Zepsa Construction, Inc. ("Zepsa") to inquire about the design and construction of a new restaurant. After several months of discussions and negotiations, the parties entered into on May 14, 1997, a written construction contract for Zepsa to build the restaurant. The agreed price was $610,000.00. The terms of the contract required a deposit in the amount of $61,000.00 to be paid when the contract was signed.

On May 29, 1997, the Randazzos gave written "notice to proceed" with construction. At that time, they provided Zepsa with a check for $21,000.00, representing part of the agreed deposit. Zepsa did not begin work at this time because the Randazzos had not paid the full deposit. By letter dated July 1, 1997, Zepsa agreed to accept the remainder of the deposit in two installments. These installments were to be paid at the time of the first two payment requests after construction began. Zepsa began work on the site on July 7, 1997. Between July 15 and August 2, 1997, Virginia Randazzo (Virginia) spoke by phone with either Ed Zepsa or the project manager on four occasions. During these conversations, she asked about terminating the contract due to the Randazzos' marital problems, instructed Zepsa to stop work, and told Zepsa to continue to delay construction while the Randazzos tried to resolve their marital difficulties. On August 3, Virginia called Ed Zepsa and told him she did not want to continue with the project.

On August 4, the Randazzos contacted Ed Zepsa and instructed him to proceed with construction. In response, he submitted a payment request seeking payment of $8,674.00 for work that had been performed and $40,000.00 for the balance of the deposit. Also on August 4, Zepsa received a letter from the Randazzos' attorney requesting that Zepsa abide by the deposit payment schedule and proceed with the work. Zepsa resumed work on the project.

On August 11, Zepsa submitted a payment request for work performed through July and included a request for the next deposit installment. No payment was made for this completed work or the deposit installments. By letter dated August 28, 1997, the Randazzos' attorney gave notice of termination of the contract.

Zepsa timely filed a lis pendens and complaint on October 16, 1997. The complaint sought judgment against the Randazzos and foreclosure of a mechanic's lien that Zepsa had previously filed and served. The matter was referred with finality to the master. At the hearing, Zepsa presented uncontested evidence that Zepsa performed construction work on the job site in the amount of $10,846.00. In his order dated January 22, 2001, the master granted Zepsa judgment against the Randazzos in the amount of $50,846.00, which included the unpaid balance for work already performed and payment for the remaining deposit balance of $40,000.00. By order dated March 22, 2001, the master awarded Zepsa attorney's fees in the amount of $8,123.40, and costs in the amount of $1,490.60. The Randazzos appeal.

STANDARD OF REVIEW

"An action to foreclose a mechanic's lien is a law case in South Carolina." Keeney's Metal Roofing, Inc. v. Palmieri, 345 S.C. 550, 553, 548 S.E.2d 900, 901 (Ct.App.2001). "In an action at law, tried without a jury, the judge's findings will not be disturbed unless they are without evidentiary support." King v. PYA/Monarch, Inc., 317 S.C. 385, 388, 453 S.E.2d 885, 888 (1995). "His findings are equivalent to those of a jury in an action at law." Id. at 389, 453 S.E.2d at 888.

DISCUSSION

I. Mechanic's Lien

The Randazzos argue the master erred by including lost profits in the amount of the mechanic's lien when only a small portion of the contract work was actually performed.

Section 29-5-10 of the South Carolina Code of Laws defines a mechanic's lien. S.C.Code Ann. § 29-5-10 (1991 & Supp.2002).¹ This section provides in pertinent part:

(a) A person to whom a debt is due for labor performed or furnished or for materials furnished and actually used in the erection, alteration, or repair of a building or structure upon real estate or the boring and equipping of wells, by virtue of an agreement with, or by consent of, the owner of the building or structure, or a person having authority from, or rightfully acting for, the owner in procuring or furnishing the labor or materials shall have a lien upon the building or structure and upon the interest of the owner of the building or structure in the lot of land upon which it is situated to secure the payment of the debt due to him.

S.C.Code Ann. § 29-5-10(a) (1991).

In the instant case, the master granted a judgment against the Randazzos in the amount of $50,846.00 based on two grounds. First, the master found Zepsa's lost profits and overhead expenses were recoverable as an element of damages for the Randazzos' breach of the construction contract. Secondly, the master concluded "these elements of damage [were also] recoverable in a mechanic's lien foreclosure action." The master reasoned:

Since Zepsa is entitled to profits and overhead expenses, there is a reasonable and equitable basis for claiming the balance of the deposit as an integral part of the payment due under the contract, unrelated to actual work performed.

Thus, Zepsa is entitled to be paid the balance of the deposit due, along with the balance due for work which was performed.

Given Zepsa's recovery in its mechanic's lien action is limited to that as provided for in the mechanic's lien statute, the question becomes whether the overhead expenses and lost profits were lienable items. In concluding these items were recoverable under a mechanic's lien, the master relied on our Supreme Court's decision in Sentry Eng'g & Constr., Inc. v. Mariner's Cay Dev. Corp., 287 S.C. 346, 338 S.E.2d 631 (1985). In Sentry, a builder, Sentry, and a developer executed two separate agreements for the construction of a condominium. The first agreement provided for the cost of the construction and the second provided for the additional compensation of overhead and profit. As the project neared completion, Sentry filed a mechanic's lien for balances due under both agreements and change orders. Sentry exercised its right to arbitration and filed a claim in the amount of its mechanic's lien. Sentry later amended its arbitration demand to include claims for damages for wrongful termination of the construction contract. The American Arbitration Association (AAA) found Sentry was entitled to $503,271.00. The circuit court adopted the AAA's award as a judgment, granted Sentry summary judgment on its mechanic's lien foreclosure petition, assessed interest, and awarded Sentry attorney fees.

On appeal, the developer raised several issues, including the assertion the circuit court judge erred in holding that profit and overhead were components of "debt" under the mechanic's lien statute. Id. at 349, 338 S.E.2d at 633. Our Supreme Court rejected the developer's argument. The Court held "that overhead and profit, when stated as part of the contract price, are proper components of a mechanic's lien." Id. at 352, 338 S.E.2d at 635. The Court found that "`[s]uch items, as such and standing by themselves, are nonlienable, but they become lienable when they are included in a contract price or are reflected in the reasonable value of labor or materials furnished.'" Id. at 352, 338 S.E.2d at 634 (quoting 53 Am. Jur.2d Mechanics' Liens § 107 (1970)).

Based on our reading of Sentry, we believe the Supreme Court expanded the items that are recoverable under the mechanic's lien statute to include overhead and profit. However, this holding is only available in the limited situation where the terms of overhead and profit are agreed upon by the parties and are subsequently embodied within a contract.

In view of the specific facts of the instant case, Sentry is inapplicable for several reasons. Significantly, the parties in Sentry entered into a separate agreement that specifically provided for the recovery of overhead and profit. In contrast, Zepsa and the Randazzos did not execute an agreement providing for overhead and profit. Their contract is silent concerning these items. Even though Ed Zepsa testified the deposit constituted compensation for pre-construction or "up front" work, his testimony is not determinative of the agreed upon terms of the contract. There is no evidence the parties agreed to pay $61,000.00 as an upfront cost. Additionally, the account statement of the contract does not list overhead and profit as terms, but instead indicates the $61,000.00 is an additional amount that represents 10% of the $610,000.00 contract price. Furthermore, the construction in Sentry was substantially completed whereas only $10,000.00 of the $610,000.00 Zepsa project had been completed.

Because we find Sentry distinguishable, Zepsa is limited to recovery provided for by the strict terms of the mechanic's lien statute. This "statute provides that debts...