Reilly Construction, Co., Inc. v. Bachelder, Inc.

IN THE COURT OF APPEALS OF IOWA

No. 15-1192
Filed April 27, 2016

REILLY CONSTRUCTION, CO., INC.,
Plaintiff-Appellant,

vs.

BACHELDER, INC.,
Defendant-Appellee.
________________________________________________________________

Appeal from the Iowa District Court for Winneshiek County, John J.

Bauercamper, Judge.

Reilly Construction Company, Inc. appeals the district court’s award of

damages in favor of Bachelder, Inc.. AFFIRMED.

Douglas A. Boese and John C. Beatty of Dunlap & Seeger, P.A.,

Rochester, Minnesota, and Richard D. Zahasky of Anderson, Wilmarth, Van Der

Maaten, Belay, Fretheim, Gipp & Zahasky, Decorah, for appellant.

Dale L. Putnam and Erik W. Fern of Putnam, Fern & Thompson Law

Office, P.L.L.C., Decorah, for appellee.

Considered by Vaitheswaran, P.J., and Doyle and Mullins, JJ.
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DOYLE, Judge.

Reilly Construction Company, Inc. (Reilly) appeals the district court’s

award of damages in favor of Bachelder, Inc. (Bachelder). Reilly argues

Bachelder failed to prove it was damaged by Reilly’s actions. Because the trial

court properly determined the amount of damages incurred by Bachelder, we

affirm.

The facts leading up to the first appeal are fully set out in Reilly

Construction v. Bachelder, Inc., No. 14-0817, 2015 WL 1331634, at *1-3 (Iowa

Ct. App. Mar. 25, 2015). To summarize briefly: Bachelder contracted with Reilly

to construct a pond on property it owns in Winneshiek County, and, to that end, it

paid Reilly $116,962.13 for the work it performed. However, the pond did not

hold water. Reilly billed Bachelder an additional $93,600 for the parts and labor it

expended in an effort to remedy the defect, but problems persisted. After

Bachelder refused to pay the additional expenses, Reilly filed a mechanic’s lien

and petitioned to foreclose on it. Bachelder counterclaimed for damages based

on Reilly’s alleged negligence, breach of contract, and failure to perform work in

a workman-like fashion. The trial court denied both claims. This court reversed

the denial of Bachelder’s claim and remanded the case for a determination of

Bachelder’s damages. See Reilly Constr., 2015 WL 1331634, at *9.

On remand, the district court found, in part:

Since this suit was filed, the water level in the pond has
varied greatly, depending upon the amount of rainfall. Following
rainy periods, the pond reaches levels that are aesthetically
pleasing. When dry periods occur, the pond nearly dries up. The
pond has been useless for recreational purposes for extended time
periods. The springs do not significantly assist the pond in
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maintaining a useable water level. No outside water source has
been added.
Expert testimony presented at trial by both sides established
that the site selected for the pond was not appropriate, based upon
the geology and soil types in the area, [as well as] the natural water
sources available from groundwater drainage in the area and the
existing natural springs. Furthermore, the use of agricultural water
runoff results in poor water quality for swimming and fish habitat.
Testimony by the expert witness retained by [Reilly] also
disclosed that the water level of the pond could be increased and
water quality improved if a supplemental water source were made
available . . . .
[Bachelder] agrees with the expert testimony presented,
which concludes that the pond is not repairable to perform in the
manner required by the contract. [Bachelder] is unwilling to take
any further action to attempt improvement, including the addition of
a supplemental water source. Instead, it seeks monetary damages
for breach of contract in an amount that would restore its land to the
condition it was in prior to the construction of the pond. In order to
accomplish the proposed restoration work, it obtained an estimate
from an earth-moving contractor for the cost of removing the
dam/berm across the valley. The estimate, which is in the total
amount of $98,000.00, also includes grading of the area,
reconstruction of the waterway, and installation of a silt fence.
[Bachelder] also seeks recovery of incidental damages of
$4028.33 for the purchase of sand, equipment, and grass seed for
use at the pond. It further asks for reimbursement of the prior
payments to [Reilly] in the amount of $116,962.13.
No evidence was presented regarding the feasibility or cost
of adding a supplemental water source, such as a well, to
supplement the water level and water quality of the existing pond,
to allow it to perform in the manner required by the original contract.
No evidence was presented to show that the work done on
this property by [Reilly] has affected the value of the property as a
whole, either positively or negatively, or impaired the use and
enjoyment of the property. Without a doubt, it is highly probable
that the proper construction of a recreational pond would have
enhanced the value of the property, both aesthetically and
financially. Certainly, the expenditure of the money paid already
without any significant benefit in return constitutes a loss.
[Reilly] claims that Bachelder has failed to prove the cost of
repair of the pond, which it maintains is the proper measure of
damages for breach of contract. It also alleges that an award of the
damages requested for removal of the pond structure would
constitute economic waste. It further argues that a refund of the
money already paid would result in a windfall to [Bachelder].
Finally, [Reilly] points out that there is no assurance or requirement
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that [Bachelder] would actually use any awarded damages to
remove the pond structure and “restore” the area to its former
condition.

The district court concluded:

There is no evidence of the cost of any additional work that
could be done that would result in a recreational pond that would
provide the type of recreational activities that the court of appeals
decision determined to be a requirement of the contract. The
plaintiff has also rejected this option.
There is no evidence of any monetary diminution in the value
or profitability of the property. There is evidence that the work
already done and the expenditures already made have not
enhanced the use and value of the property as contemplated by the
contract. These facts were confirmed by the court of appeals in its
decision.
Removal of the pond structure to restore the property as
proposed by [Bachelder] involves an expenditure of nearly
$100,000.00 with no clear economic benefit to [Bachelder]. This
work will not make the property useful for any other purpose and
will have no apparent effect on use, value, or profitability of the
farm. There is no assurance that the work would be performed and
the money spent for that purpose. Therefore, an award of
damages based upon that concept of damages would constitute
economic waste.

The court determined Bachelder’s damages to be the $116,962.13 it paid

Reilly to construct the pond plus the $4028.33 it incurred for incidental expenses

related to the pond’s construction, for a total award of $120,990.46 in damages.

Reilly now appeals.

Both parties assert that our standard of review is for corrections of errors

at law. Under this standard, the trial court’s factual findings have the effect of a

special verdict. See Iowa R. App. P. 6.907. While the factual findings are

binding upon us if supported by substantial evidence, we are not bound by the

district court’s application of legal principles or conclusions of law. See Revere

Transducers, Inc. v. Deere & Co., 595 N.W.2d 751, 763 (Iowa 1999).
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“The purpose of a damage suit is compensation; the goal is to place the

injured party in as favorable position as though no wrong had occurred.” R.E.T.

Corp. v. Frank Paxton Co., 329 N.W.2d 416, 421 (Iowa 1983). “Damages in

defective construction cases may include diminution in value, cost of construction

or completion as required under the contract, or loss of rentals.” Serv. Unlimited,

Inc. v. Elder, 542 N.W.2d 855, 857 (Iowa Ct. App. 1995). Typically, the cost of

correcting the defects or completing the omissions is the proper measure of

damages in a defective construction case. Id. at 858. However, if the cost of

repair is grossly disproportionate to the result or the benefit obtained, or would

involve unreasonable destruction of the contractor’s work, damages may be

calculated based on diminution in value. Id. A combination of the various

damage elements may be employed in certain circumstances in order to render

the injured party whole. See R.E.T. Corp., 329 N.W.2d at 421. Finally,

“[d]amages are limited to the actual loss.” Id.

Reilly argues Bachelder failed to produce evidence of the cost of repairing

the pond or loss of rentals. It further argues that because the evidence shows

there has been no diminution in the value of the property, it would be economic

waste to award Bachelder damages for the cost of removing the pond structure

from the property. On this basis, Reilly argues the court’s award of $120,990.46

in damages to Bachelder is unsupported and in error.

Like the pond it built, Reilly’s argument does not hold water. The evidence

presented shows the site of the pond is not suitable for a pond structure because

the underlying soils in the pond area are permeable and ineffective in holding

water. As a result, the pond cannot maintain a permanent pool of water without
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the addition of a supplemental water source. The fact that the pond cannot be

adequately repaired without economic waste does not relieve Reilly of its duty to

compensate Bachelder. Nor does it mean Bachelder was not damaged. Reilly’s

argument overlooks the $116,962.13 Bachelder expended for the pond’s

construction, plus the $4028.33 in additional costs. Because the pond does not

function, it is of no value. While the land’s value was not diminished by the

pond’s construction, it was also not benefited. In other words, Bachelder’s

position has not improved in exchange for the $120,990.46 it spent. This cost,

for which it received no benefit, is the amount of Bachelder’s damages. See

Vorthman v. Keith E. Myers Enters., 296 N.W.2d 772, 777 (Iowa 1980) (“The

measure of damages for breach of warranty is the loss directly and naturally

resulting, in the ordinary course of events, from the breach.”); Bause v. Anthony

Pools, Inc., 23 Cal. Rptr. 265, 267 (Cal. Dist. Ct. App. 1962) (holding damages

for defectively constructed pool that was not capable of being repaired included

the amount the owner paid the contractor, as well as the costs of removing the

pool and refilling the hole); Bowling v. Jones, 300 S.W.3d 288, 295-96 (Tenn. Ct.

App. 2008) (holding an award for monies spent by owner in constructing a house

was the proper measure of damages where the house was defectively

constructed and of no value).

Bachelder contracted with Reilly to construct a recreational pond. As a

result of Reilly’s breach, the pond is useless to Bachelder, and it is therefore of

no value to Bachelder. Under the circumstances presented, we agree the district

court employed the proper measure of damages. In order to place Bachelder in

as good a position as if the breach had not occurred, it should be reimbursed the
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$116,962.13 it paid Reilly, plus the $4028.33 in additional costs it incurred.

Accordingly, we affirm the district court’s judgment.

AFFIRMED.