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HomeMy WebLinkAbout01-1981 CIVIL H. EDWIN BERKHEIMER, PLAINTIFF LAWRENCE K. THOMPSON AND MARY LOUISE THOMPSON, a/k/a L.K. THOMPSON AND MARY ANN THOMPSON, DEFENDANTS IN RE: IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA 01-1981 CIVIL TERM CONSTRUCTION CONTRACT DISPUTE BEFORE BAYLEY, J. OPINION AND VERDICT Bayley, J., December 17, 2002:-- This dispute involving the construction of a house was bench tried on December 11, 2002. Plaintiff, H. Edwin Berkheimer, is a homebuilder. Defendants, Lawrence Thompson and Mary Thompson own a house in excess of 5,000 square feet in Dickinson Township, Cumberland County. design the house and draw specifications. In 1994, the Thompsons had an architect Construction was started by the Gettysburg Construct Company in 1995. That company stopped work after the house was framed, the windows were in, the plumbing was roughed in, some fixtures were in place, the electrical wiring was in, one air handler was in place, and a well was completed. Defendants had a $700,000 construction loan from the Keystone Financial Mortgage Company which was secured by a mortgage on their property. The loan was managed 01-1981 CIVIL TERM for Keystone by its loan officer, Todd Landis. Four hundred thousand dollars was expended when Gettysburg Construction left the job. Plaintiff has been a homebuilder since 1970. He has constructed ninety-six homes, most of which are over 3,000 square feet. Plaintiff initially met with the Thompsons in 1994, after their architect had drawn plans and specifications for a house. The Thompsons wanted him to build the house and finance the construction. Plaintiff was not willing to undertake the financing so he never submitted a construction bid. After Gettysburg Construction left the job, and the partially constructed house remained vacant approximately three years, defendants asked plaintiff to complete the project. Plaintiff and defendants never directly discussed a price to complete the house, a driveway and landscaping. Defendants went to Keystone and discussed the situation with Todd Landis. Landis then contacted plaintiff. Plaintiff would not give a fixed price to complete the house because it had been vacant for so long. Until he started construction he could not determine what part of the work completed by Gettysburg Construction had to be redone. Plaintiff was willing to complete the project on a cost plus ten percent basis. Todd Landis agreed that the $300,000 remaining on the construction loan was a working figure, and that the actual cost to complete the project could not be determined under these unique circumstances. Landis informed the -2- 01-1981 CIVIL TERM Thompsons that Keystone would (1) commit the remainder of the construction loan of $300,000 toward the completion of the project by plaintiff, and (2) an additional $5,000 that plaintiff needed to cleanup the property to get it ready to start construction, and (3) that they would have to pay plaintiff any cost to complete the construction above $300,000. Landis told plaintiff that any construction costs above $300,000 would have to come from the Thompsons. Plaintiff's attorney then drew up a construction agreement that plaintiff and the Thompsons signed in March, 2000. The agreement contains the following paragraphs: 5. That the OWNERS shall pay to the CONTRACTOR for the performance of the labor for the work and the furnishing of the materials the actual cost to the CONTRACTOR of all labor, materials and other proper charges together with a commission on all labor, materials and other proper charges of 10% of the gross amount of such costs not to exceed the sum of $300,000.00 payable to CONTRACTOR in amounts according to the draw schedule set forth below in paragraph 6. OWNERS shall be responsible for all costs, including labor and materials, plus a commission to CONTRACTOR of 10% for said costs which exceed the sum of $300,000.00. It is understood and agreed that in computing the cost to the CONTRACTOR of the labor and material to be performed and furnished hereunder, there shall be included the following items: (a.) The wages and salaries of all laborers, workmen, subcontractors and other employees who actually perform services upon the property mentioned herein, in doing the work required to be done under this agreement. (b.) The actual cost to the CONTRACTOR of all materials used in the completion of the construction of the building as herein provided. (c.) All expenses for transporting to the property mentioned herein of the materials used in the completion of the construction of said building. (d.) Such other expenses as the parties agree shall be included in the cost including but not limited to permit fees of various kinds. -3- 01-1981 CIVIL TERM 6. That the OWNERS shall pay to the CONTRACTOR for the true and faithful performance of all the covenants and conditions of this agreement according to the following draw schedule: (a.) Prior to commencement of work ...................... $5,000.00 (b.) Upon completion of mechanicals and insulation - 50,000.00 (c.) Upon drywall, grading, stone work, septic system installation and work on the existing vinyl siding being completed .......................................... 50,000.00 (d.) Upon installation of trim and completion on interior Painting ...................................................... 50,000.00 (e.) Upon installation of kitchen cabinets, plumbing Fixtures and light fixtures ............................... 50,000.00 (f.) Upon installation of floor coverings such as carpet, tile, tile and wood ............................................... 50,000.00 (g.) Upon completion of house and acceptance by lender ........................................................ 25,000.00 (h.) Extras not included in above draws .................. 25,000.00 $305,000.00 Plaintiff used the $5,000 to do the cleanup at the construction site. The house had been vacant so long it was invaded by animals. There was extensive mold. Once construction started, plaintiff replaced some flooring that was damaged. Doors were replaced because they had been ruined by water due to Iocksets that were not in place. Some stone was replaced. Extensive areas of vinyl was in shambles and was replaced. The front porch area was severely damaged and was replaced. This required changing the front door and pouring new concrete steps. The house had extensive windows facing a western exposure. Plaintiff believed that the heating/air conditioning system in the specifications was not sufficient to provide enough heat or cooling. A subcontractor, Monroe Mechanical Company, came to the same conclusion. The Thompsons agreed that a different type of heating/air conditioning system would -4- 01-1981 CIVIL TERM have to be installed. They approved a subcontract with Monroe Mechanical which installed the system. The air handler that had been placed on the second floor by Gettysburg Construction is not used in that system and remains on the property. The total material and labor for all this work was $17,516. Plaintiff and his workmen were on the job every workday from April through the beginning of December, 2000. The work included the addition of a patio requested by the Thompsons that was not in the specifications. It also included some other work in the basement and adding stone that was not in the specifications. In October, 2000, plaintiff prepared a list with prices, which he showed to defendants, setting out that he had already expended $191,717.22 for labor and materials. Plaintiff was close to completing of the project, and he told defendants that the final cost would exceed the remainder of the draws available on their loan from Keystone. At that point, a draw had been held up for a month because defendants had not paid interest on the loan.~ Plaintiff continued to work on the property. At the end of November, plaintiff asked defendants what they were going to do about the costs in excess of $300,000 available from the bank, and defendants told him that it was his problem. Plaintiff obtained an occupancy permit for defendants in the beginning of December. Defendants moved in the house and changed the locks. Plaintiff did not return to the project. Plaintiff received the remainder of the draws available on the construction loan less $20,000 ~ At the request of defendants, plaintiff had loaned them $2,000 on August 4, 2000. The loan was repaid. -5- 01-1981 CIVIL TERM that was put in escrow for a driveway and landscaping. Defendants later used those funds to complete those items. Plaintiff claims that the total cost of his labor and materials was $306,423.67.: His ten percent commission is $30,642.37, for a total of $$$?,066.04. Defendants maintain that their contract with plaintiff was to complete the project for $300,000, and that only extras not provided for in the 1994 specifications would be charged for the cost of materials plus ten percent. They maintain that the first time they realized there was a problem regarding their understanding of the contract was when plaintiff approached them in October, 2000, stating that the cost to complete the project would exceed $300,000. Defendants completed the project after plaintiff left the job. They maintain in a counterclaim that plaintiff owes them $13,400.89 for completion of construction, and $14,400 for his failure to give them credit for allowances pursuant to the architect's specifications, for a total of $2?,800.89. Defendants acknowledged at trial that they are responsible for extras at costs plus ten percent for the (1) patio, $6,200, (2) cost of shipping some trim from a company in North Carolina, $800, and (3) cost to repair of the front porch, $800. These come to $7,800 plus ten percent, $780, for a total of $8,580.3 Defendants maintain that they are not responsible for the cost of Materials and subcontractors totaled $283,556.67. Labor was $22,867. 3 Plaintiff testified that he did other work directed by defendants that was not provided for in the specifications totaling $17,450. Defendants did try to keep within the allowances provided for in the specifications. Plaintiff notes that if this had been a fixed price contract, defendants would have been entitled to allowances of $10,880. -6- 01-1981 CIVIL TERM the upgraded heating and air conditioning system of $3,890, because they did not know about the changes until plaintiff mentioned them. Defendants make no claim that any work performed by plaintiff was less than in a workmanlike manner. In support of their position that this was a fixed price contract for $300,000, plus $5,000, defendants note that the construction agreement contains the following paragraphs which it maintains are contradictory to a costs plus contract. 4. That the OWNERS may order extra work or make changes by altering, adding, or deducting from the work; provided, however, that all extra work shall be paid by OWNERS when ordered. Any deductions due OWNERS shall be deducted from the final draw due CONTRACTOR. All changes requested by OWNERS shall be acknowledged in writing by both OWNERS and CONTRACTOR. 10. That there shall be no changes, alterations or additions made in the plans and specifications unless OWNERS agree to pay any additional costs resulting from such changes, alterations or additions. Said changes, alterations or additions must be set forth in writing and signed by the parties. 19. That where OWNERS exceed the stated allowances as per the specifications attached hereto, the excess shall be paid in full to the CONTRACTOR at the time of the final draw. If OWNERS do not exceed said allowances, they shall receive a credit for any amounts less than the allowances, and these credits shall be credited against the CONTRACTOR'S final draw. Plaintiff maintains that the construction contract was essentially a generic contract that was specifically made a cost plus ten percent contract in paragraph 5. Therefore, he acknowledges certain of the provisions are contradictory. A determination of the intention of the parties is the paramount consideration in the interpretation of a contract. Clearfield Volunteer Fire Department v. BP Oil, Inc., 412 -7- 01-1981 CIVIL TERM Pa. Super. 29 (1992). When the words of a contract are clear and unambiguous, the intent of the parties is to be discovered from the express language of the agreement. Steuart v. McChesney, 498 Pa. 45 (1982). Paragraph 5 provides that the owner shall pay the contractor for labor and materials plus ten percent: [o]f such costs not to exceed the sum of $300,000.00 payable to CONTRACTOR in amounts according to the draw schedule set forth below in paragraph 6. OWNERS shall be responsible for all costs, including labor and materials, plus a commission to CONTRACTOR of 10% for said costs which exceed the sum of $300,000.00. (Emphasis added.) The paragraph is not absolutely clear and unambiguous. Therefore, we took extrinsic evidence. See Rusiski v. Pribonic, 511 Pa. 383 (1986). The person who really finalized the arrangement of this contract between the parties was Todd Landis. Defendants could not proceed unless Keystone Mortgage, which had a substantial interest in the long delayed project, was willing to release the remainder of the unexpended funds on the $700,000 construction mortgage. Landis testified that this was a cost plus contract because of (1) the unique circumstances of the partially constructed house remaining vacant for so long, and (2) the specifications being based on 1994, not 2000 prices. These circumstances caused plaintiff not to commit to complete the project for $300,000. Notwithstanding, the bank would not commit more than the $300,000 balance available on the construction loan plus $5,000 to make the -8- 01-1981 CIVIL TERM site ready for construction. We believe the testimony of Landis that he told the Thompsons that they would be responsible for any construction costs that exceeded the $300,000. It was on this basis that the construction agreement was drafted by plaintiff's attorney. Paragraph 5 can be read consistent with plaintiff's position. The contract does not say that the contractor will complete the project for $300,000. It provides that the owner shall pay for the work and materials plus ten percent "not to exceed the sum of $300,000 payable to CONTRACTOR in amounts according to the draw schedule set forth in paragraph 6." The paragraph provides that the owners shall be responsible for "all costs, including labor and materials, plus a commission to CONTRACTOR of 10% for said costs which exceed the sum of $300,000." It does not say that only extras over a contract price will be reimbursed on that basis. Defendants do not claim that plaintiff told them that he would complete the construction for $300,000. Rather, they deny that Todd Landis told them that they would be responsible for construction costs above the remaining $300,000 on their mortgage loan, and they assert that they believed that the construction agreement limited their cost to $300,000, plus $5,000, plus extras at cost plus ten percent. We find their position to be unreasonable. We believe plaintiff when he testified that the contract was for cost plus ten percent basis for all construction. Under the circumstances it would have been foolhardy for him to have entered into a fixed price contract. Just as he expected there was a considerable amount of work in -9- 01-1981 CIVIL TERM the long vacant house that had to be redone at considerable expense.4 Accordingly, we find that the construction agreement was a cost plus ten percent contract for all work to be done by plaintiff. Plaintiff mistakenly doubled billed defendants $3,344.42 for various material costs. He has also been paid $1,140 for a chandler that he delivered to defendants after he left the job. Thus, we find that the total cost of materials plus ten percent owed plaintiff on the project is $332,581.62 ($337,066.04 claim minus $4,484.42). As part of their counterclaim, defendants maintain that plaintiff removed topsoil that had been excavated from the property which could have been used for landscaping, and that they had to pay $400 to replace that topsoil. We do not find this claim credible. Since this was a cost plus ten percent contract, defendants' counterclaim for their costs above $300,000 to complete construction, and credit for allowances pursuant to the architects 1994 specifications, will be denied. Plaintiff has been paid $279,915. He is owned $52,666.62, with six percent prejudgment interest from December 1, 2000.5 4 In judging credibility, we also note that defendants' position with respect to the cost of upgrading the heating/air conditioning system is not credible. If it was not for plaintiff, the system as originally designed would not have adequately heated and cooled the property. Plaintiff had defendants consult with Monroe Mechanical on what was necessary to properly heat and cool their huge home, and defendants agreed to the upgrade. Trying to say that plaintiff was responsible for this extra cost under their interpretation of the agreement that he was responsible to complete the project for $300,000, is incredulous. Fernandez v. Levin, 519 Pa. 375 (1988). -10- 01-1981 CIVIL TERM 2000. VERDICT AND NOW, this day of December, 2002, we find: (1) In favor of plaintiff on his claim against defendants. (2) In favor of counterclaim defendant on the claim of counterclaim plaintiffs. (3) Plaintiff is awarded $52,666.62 with six percent interest from December 1, By the Court, Anthony L. DeLuca, Esquire For Plaintiff Robert G. Frey, Esquire For Defendants :sal Edgar B. Bayley, J. -11-