Homeowners Defeat Contractors in Two Cases

by James R. Keller

This article appeared in St. Louis Construction News & Review, p. 10, November-December, 2002.

Missouri homeowners scored two recent and significant appellate court victories on issues homeowners frequently face.

In one case, the Eastern District Court of Appeals decided that a homeowner could sue her contractor seven years after moving into the house. Missouri's five-year statute of limitations for breach of contract did not start until the homeowner knew of serious structural defects. Prior, minor punch-list items were not enough to trigger an earlier date. The case is Allen v. Kuehnle and Kuehnle Bros. Const. Co., No. ED 80727, decided October 8, 2002.

This result continues to lengthen the potential exposure and liability of all contractors. There now is a clear court trend in this direction.

In the other case, the Southern District Court of Appeals decided that homeowners could recover their costs to repair after their contractor walked off the job. This case is Erney v. Freeman d/b/a Phil's Custom Const., 84 S.W.3d 529 (Mo. App. SD 2002), decided September 19, 2002.

In Allen, the home was to occupy a quarter of the "footprint" of ground excavated by the contractor during removal of the prior house. After moving into the completed home in May 1993, the homeowner noticed various problems, prompting a punch list dated August 24, 1993.

The punch list contained 26 items including hairline cracks in the drywall, drywall tape pulling away from walls in certain places, two sections of the sidewalk that sloped, and some loose shingles. The contractor repaired or attempted to repair most of the items on the punch list.

In 1998, the homeowner began to notice "numerous new, more dramatic problems with her home," such as cracks in the foundation and exterior brick walls, a huge L-shaped crack in the family room, and drywall tape that was pulling away from the walls in nearly every room.

The homeowner decided to have her home pierced, per an engineer's advice. This process generated considerable dust and debris. While cleaning the dust, the homeowner developed a sore on her foot that became infected. This resulted in a hospital stay and medical costs of $3,667.

Allen sued in November 1999, claiming breach of contract, negligence and a recession of the contract. The contractor defended, in considerable part, on the grounds that Allen had waited too long to sue, given Missouri's five-year statute of limitations.

He argued that the homeowner knew of structural problems with the home more than five years before she filed the lawsuit. The trial judge agreed and granted summary judgment for the contractor, deciding that a trial was not necessary.

Missouri's statute of limitations requires the filing of a lawsuit within five years of the date when damages are sustained and capable of ascertainment. However, as the appellate court noted by citing Business Men's Assurance Co. of America v. Graham, 984 S.W.2d 501, 507 (Mo. 1999), the phrase "capable of ascertainment" has never been given a precise definition.

The issue was whether the punch list created in 1993 and the homeowner's knowledge about problems before 1995 were enough to provide notice to the homeowner of the structural problems. There was contradictory evidence on this point.

The appellate court concluded that material facts were still in dispute as to when structural problems were ascertainable; thus, the trial judge erred by granting the motion for summary judgment. By law, a summary judgment must be based on facts that are not in dispute.

In distinguishing other cases, the appellate court found the compelling difference to be that the homeowner's problems before 1998 were not problems related to settlement or faulty soil compaction. Rather, the prior problems were typical, common issues experienced during the construction of a new home.

The court relied heavily on the recent Missouri Supreme Court decision inBusiness Men's Assurance. In this case the chipping and falling of small pieces of marble from the side of a building in the 1960s was not enough notice to prevent a lawsuit when entire marble panels were falling off the building in 1985.

In Erney, homeowners had hired a contractor to finish their basement. The contract contained a one-year express warranty for workmanship after completion.

The homeowners filed a lawsuit contending that their contractor breached the contract by providing poor workmanship. The contractor counter sued, alleging that the homeowners breached the contract by refusing to allow the contractor to complete the work.

The appellate court determined that the contractor had breached the contract by not correctly installing insulation and by not providing proper electrical wiring, including wiring in compliance with federal and local codes. After learning of the problems during construction, the homeowners offered the contractor two options.

First, the contractor could stay on the job but the homeowners would select the subcontractors to complete the insulation and electrical work. Second, the contractor could return part of the payment received and the parties would "call it even, and go our separate ways."

The contractor rejected these options with an emphatic "no," walked off the job and never returned.

The contract did not provide the contractor with a right to cure. Thus, the appellate court concluded that the owners did not have to give the contractor an opportunity to repair or correct the defects before filing a lawsuit for breach of contract.

When a breach results from a combination of defective construction and a failure to complete the work, the owners' damages are calculated using the reasonable cost of reconstruction, repair and completion in accordance with the contract. By adding the homeowners' payments made to the original contractor to the additional payments made to the contractors hired to finish and repair the work, and then subtracting the original contract price, the difference--in this case $10,995-is the damage that the homeowners can recover from the original contractor.

James R. Keller is a partner at HERZOG, CREBS & MCGHEE, LLP, St. Louis, Missouri, where he concentrates on business litigation and construction law. He also is a neutral/arbitrator with the American Arbitration Association, a court-certified mediator in federal court and on the list of approved mediators in state court.