Construction Law Update, 2002, An Active Year for Appellate Decisions

by James R. Keller

This article appeared in 16 Missouri Lawyers Weekly 965, September 23, 2002.

This article examines some of Missouri's more important and interesting construction appellate decisions of 2002. Many of the cases contain multiple issues and perhaps only one of them is presented in this article. There are other cases that space limitations prevent from being discussed at all. It has been an active year.

Indemnity Clauses

Most construction contracts for projects of any significant size still include standard agreements published by the American Institute of Architects (AIA). Owners and contractors in Missouri no longer can safely rely on AIA provisions to protect themselves from their own negligence, according to the Western District in Nusbaum v. City of Kansas City, WD #60242, decided August 20. The court held that these provisions do not indemnify owners or contractors from their own negligence.

This result squarely contradicts a decision from the Eastern District inBuchanan v. Rentenbach Constructors, Inc. 922 S.W.2d 467 (Mo. App. E.D. 1996). Without resolution from Missouri's Supreme Court, which may or may not occur at some point, anyone using the AIA provisions should rewrite them to ensure protection.

The AIA contract for the owner and contractor is different from the one for the contractor and the subcontractor, but they contain essentially the same provision on indemnity. As an example of the language in dispute, the provision for subcontracts (4.6.1 AIA Document A401-1997) reads:

To the fullest extent permitted by law, the Subcontractor shall indemnify and hold harmless the Owner, the Contractor, Architect, Architect's consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorney's fees, arising out of or resulting from performance of the Subcontractor's Work under this Subcontract, but only to the extent caused in whole or in part by negligent acts or omissions of the Subcontractor, the Subcontractor's Subcontractors, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder.

This provision clearly protects a contractor from the negligent acts of its subcontractor, but according to the Western District, it does not protect a contractor from its own negligence.

Expert Testimony

Construction cases often require expert testimony to prove some element of plaintiff's theory of recovery. InJones v. Grant, 75 S.W.3d 858 (Mo. App. W.D. 2002), the Western District decided that the trial court abused its discretion by excluding the expert testimony of a general contractor because he was not licensed. The appellate court found that a general contractor could testify about the work of another general contractor who also was not licensed. General contractors do not have to be licensed in Missouri. Had the testimony been about the work of a licensed professional, such as a plumber or an electrician, then a license may have been necessary to testify.

An expert's testimony must be based on a "reasonable degree of certainty." While the necessity of using these exact words may be arguable, the testimony cannot be equivocal. Abbott v. Haga, 77 S.W.3d 728 (Mo. App. S.D. 2002). The testimony must be stronger than "in all likelihood" and "more imminent than not."

Two experts in Abbott testified on behalf of a homeowner in a breach of contract dispute with the contractor over the construction of a levee as a part of a pond built in the back yard. The dispute was whether the levee was going to fail at some point, thereby supporting the homeowner's claim for damages due to alleged defective work. The contractor already had won on its claim for the balance due on the contract.

Both experts testified that a cause outside of the contractor's control, such as geological factors, could have been the source of leaks in the levee. One of the experts could not testify with any certainty when or if the levee would fail and the other expert may have been more positive but he could not attribute the leaks solely to the contractor's work. Thus, the appellate court set aside the trial court's judgment in favor of the homeowner of $16,000 for faulty construction.

Quantum Meruit

Subcontractors often sue their contractors to recover for work performed under the theory of quantum meruit. This cause of action requires proof as to the reasonable value of the work. In Little Joe's Asphalt, Inc. v. Luebbert Const. Co., 74 S.W.3d 830 (Mo. App. W.D. 2002), the Western District defined reasonable value to be the "price usually and customarily paid for such services or like services at the time and in the locality where the services were rendered," citing Baker v. Estate of Brown, 294 S.W.2d 22, 27 (Mo. 1956).

The court concluded that Little Joe's Asphalt could not prove the reasonable value of its paving work on a parking lot merely by stating the standard price that it charges for a particular job. It had to show that the "rate claimed was objectively reasonable in the marketplace." Evidence of Little Joe's invoice was not enough.

The court noted, however, that when there is a reason to believe that plaintiff can prove the reasonable value, if given the opportunity again, a new trial should be allowed. "A case should not be reversed for failure of proof without remand unless the record demonstrates that all available essential evidence has been presented and that plaintiff could not recover in any event," quoting from McCardie and Akers Const. Co., Inc. v. Bonney,647 S.W.2d 193, 194-95 (Mo. App. ED 1983).

Mechanic's Liens

In a case of first impression in Missouri, the Western District decided that a subcontractor's mechanic's lien could not include the cost of rental machinery used on the land of a construction site, because 429.010 R.S.Mo. (the Mechanic's Lien Act) does not so provide. The case is Bush Const. Machinery, Inc. v. Kansas City Factory Outlets, et al, WD #60217 (Mo. App. W.D. 2002).

Since most construction projects involve rental equipment, this case has the potential to greatly influence how and when liens can be filed. It also promises to open the courthouses to more litigation about the range of this holding. For example, some construction lawyers point out that the decision does not address or resolve whether contractors and subcontractors can asset a lien for the cost of rental equipment or the operator for such equipment used by the operator during construction of otherwise lienable improvements.

The court in Bush recognized that courts in other states have gone both directions when faced with a similar issue, yet public policy probably should allow for such liens. The obstacle is that Missouri's Mechanic's Lien Act dates so far back with little change in its wording over the years (originating in 1821 when Missouri became a state), that the legislature never contemplated when it created the statute the modern-day use of rental equipment in construction projects. The Bush court urged the legislature to consider a change that will bring the Act into alignment with the realities of today's construction.

In Concrete Company of the Ozarks v. Reeder, SD # 24433 (Mo. App. SD 2002) the Southern District decided that under 429.013.2 R.S.Mo., the construction of a new garage that attached to an existing house by wooden stairs and a walkway was an "addition to" the residence and not a separate structure. Thus, a subcontractor could only secure a mechanic's lien on the property for the concrete it supplied if the owner executed the consent form for such a lien required in subsection 2 of 429.013.3. "The provisions of this section shall apply only to the repair or remodeling of or addition to owner-occupied residential property of four units or less." 429.013.1.

To reach this result, the appellate court consulted with BLACK'S LAW DICTIONARY 38 (6th ed. 1990) that defines an addition as "something added to another." The court also examined a 1933 decision where the Supreme Court of Missouri, when deciding a lease involving whether one building was an addition to another building, stated that the word addition implied physical contact. Mack v. Eyssell, 59 S.W.2d 1049, 1051 (Mo. 1933). Apparently, given these definitions, the evidence of physical contact in Reeder was enough.

Jury Instructions

Construction cases often require modifications to Missouri's approved jury instructions, given the unique facts and complicated elements of damages often present. Sometimes lawyers are reluctant to change an approved instruction to fit more closely to the particulars of their case but their failure to do so may result in reversible error. This is what happened inLowdermilk v. Vescovo Building and Realty Co., Inc., ED # 79055 (Mo. App. ED 2002).

Plaintiff homeowners sued their builders and realtors for breach of implied warranty in their new homes. They provided evidence at trial of many different problems with their homes, including that the foundations had not been damp proofed. At trial received $140,000 in actual damages and $260,000 in punitive damages.

Plaintiffs submitted over defendants' objection a damage instruction patterned after MAI 4.03 which directed the jury to award plaintiffs such sum as the jurors believed was the difference between the actual value of the house on the date it was sold and what its value would have been on that date had the house been as represented by defendant. MAI 4.03 is the standard approved instruction to use in misrepresentation cases.

The verdict-directing instruction limited itself to the issue of damp proofing. Defendants argued that the damage instruction should have been modified because it allowed the jury to assess damages on all defects that were in evidence, rather than limiting the damages to those proximately caused by the failure to damp-proof the foundation. The appellate court agreed and found the instruction to be "misleading." The instruction should have been modified, especially since the damages relating to the damp-proof issue only amounted to $35,520, far less than the total of all damages in evidence.

Statute of Limitations

In a recent case that may affect liability in many existing construction contracts, Missouri's Eastern District decided that an owner could sue the City of O'Fallon more than five years after completion of a project and after first noticing construction defects. The case is Evelyn Loeffler v. City of O'Fallon, 71 S.W.3d 638 (Mo. App. ED 2002).

This decision stretches the five-year period of time when a contractor and developer may be liable for allegedly poor workmanship in cases where they agreed by contract--without time limitation--to correct any problems. The result will force contractors to rethink open-ended offers and agreements to remedy construction defects.

The case is unusual because the homeowner's appeal brief did not comply with various rules of appellate procedure, such as not containing a detailed Table of Contents required under Rule 84.04(a)(1), not providing an adequate Points Relied On in violation of Rule 84.04(d)(1), and not setting out references in the Statement of Facts to the legal file as required in Rule 84.04(1). Then the appellate court reversed the trial court, yet another unusual event.

The appellate court decided that the City had contractually agreed to fix any defects after construction and had not limited the period of time to do so; thus, the lawsuit was timely under both Missouri's five- and ten-year statutes of limitations ( 516.120 and 516.110 respectively). The court stated that the homeowners should have given the builder an opportunity to correct the problems and thus the period did not start until the builder refused to "be responsible for" any problems. Id. at 643.

James R. Keller is a partner at Herzog, Crebs & McGhee, LLP, St. Louis, Missouri, where he concentrates on business litigation, construction law and ADR. He also is a neutral/arbitrator with the American Arbitration Association and a court-certified mediator in state and federal courts.