Cite as Youngstrom v. Mongkeya,11 FSM Intrm. 550 (Kos. S. Ct. Tr. 2003)

[11 FSM Intrm. 545]

CIVIL ACTION NO. 84-02

Hearing: January 29, 2003, March 20, 2003
Decided: May 20, 2003

APPEARANCES:

HEADNOTES

Contracts

When a construction contract did not require the plaintiff contractor to perform or pay for any landfilling equipment or landfill materials or to be responsible for payment to any sub-contractor for landfilling equipment or landfill materials and when there was no written Contract Change Order, executed by the parties, as required by General Condition # 1 of the construction contract regarding payment for landfilling equipment or landfill materials, the plaintiff contractor, pursuant of the construction contract's terms, is not responsible for payment of the landfilling equipment costs or the landfill material costs. Youngstrom v. Mongkeya, 11 FSM Intrm. 550, 553 (Kos. S. Ct. Tr. 2003).

Contracts – Formation

A contract is a promise between two parties for the future performance of mutual obligations which the law will enforce in some way. For a promise to be enforceable, there must be an offer and an acceptance, definite terms, and consideration for the promise. Youngstrom v. Mongkeya, 11 FSM Intrm. 550, 554 (Kos. S. Ct. Tr. 2003).

[11 FSM Intrm. 551]

Contracts – Formation

When in the parties' verbal promises, a critical definite terms was missing: the cost for the landfilling equipment and landfill materials were unknown, the parties did not form an enforceable contract with respect to the obligation to pay for the landfilling equipment and the landfill materials. Youngstrom v. Mongkeya, 11 FSM Intrm. 550, 554 (Kos. S. Ct. Tr. 2003).

Attorney, Trial Counselor and Client ; Contracts

An experienced, certified trial counselor admitted to practice law in Kosrae is held to a higher standard regarding knowledge of contract requirements. He should have known that a valid, enforceable contract requires the material term of the cost. Youngstrom v. Mongkeya, 11 FSM Intrm. 550, 554 (Kos. S. Ct. Tr. 2003).

Contracts; Remedies – Restitution

Where no contract existed for lack of definite terms, the court may use its inherent equity power to fashion a remedy under the doctrine of restitution. Youngstrom v. Mongkeya, 11 FSM Intrm. 550, 554 (Kos. S. Ct. Tr. 2003).

Remedies – Restitution

The court has wide discretion in the award of damages in restitution cases to achieve fairness. Once a claimant's entitlement to damages is established, the amount of damages is an issue for the finder of fact. Youngstrom v. Mongkeya, 11 FSM Intrm. 550, 555 (Kos. S. Ct. Tr. 2003).

Remedies – Restitution

When the plaintiff has already paid the full amount of costs for which both the plaintiff and defendant are equally responsible, the defendant is liable to the plaintiff for half of those costs. Youngstrom v. Mongkeya, 11 FSM Intrm. 550, 555 (Kos. S. Ct. Tr. 2003).

COURT'S OPINION

YOSIWO P. GEORGE, Chief Justice:

This matter was called for trial on January 29, 2003. Trial was continued on March 20, 2003. Albert Welly represented the Plaintiff. Defendant appeared on his own behalf, pro se. Pursuant to this Court's order, the parties filed additional documents and briefs on February 19, 2003. The following witnesses testified at the trial: Vernon Youngstrom, Mathias Mongkeya, Taylor Talley, Berley Aracely and Robert R. George..

This matter is an action for breach of contract and unjust enrichment. The Plaintiff contractor seeks reimbursement of equipment and materials costs which he incurred or paid during the construction of the Defendant's house. Following the trial, documents submitted and briefs filed by the parties, I took the matter under advisement. This memorandum of decision sets for the Court's decision and reasoning..

I. Finding of Facts

Based upon the evidence presented at trial, I make the following findings of facts. Defendant's plans for a new residential house moved forward in August 1999, when the architectural design and plans were completed. The Defendant, prior to finalizing financing of his new house, arranged to complete landfilling work at the construction site. Sometime before June 14, 2001, the Defendant took.

[11 FSM Intrm. 552]

action on his own to contract with 4 Star Construction to provide the equipment and labor for the landfilling work. The Defendant also made arrangements to purchase fill materials from Deacon Tolenna Palsis. The Defendant did not receive an invoice from 4 Star or from Deacon Tolenna Palsis when the landfilling work was completed. The amount charged by 4 Star for landfilling equipment and labor, and by Deacon Tolenna Palsis for the fill materials only became known months later, in November 2001, after construction of the house was complete..

Some time after the landfilling was completed, the Defendant then arranged financing for the construction costs through USDA Rural Development, Kosrae Office, under the "RH 502 Program". The landfilling was completed before the loan agreement was finalized. Rural Development was aware of the landfilling activities. However, Rural Development was not informed of the cost of the landfilling equipment or the landfill materials at that time. Defendant was provided financing for construction of his home by Rural Development in the amount of $61,050.00. The Plaintiff was selected as the contractor for the project..

On June 14, 2001, the parties executed a construction contract which outlined the duties and responsibilities of each party. The construction contract was a standard contract, USDA FmHA Form 1924-6. The contract provided that the Plaintiff contractor would provide materials and labor to construct Defendant's home in exchange for the amount of $61,050. The Plaintiff contractor was required to "[p]erform all works as describe on the development plan or do construction work as stated in the plans and specification.".

There was no development plan submitted by either party into evidence. The plans for the Defendant's house, prepared in August 1999, contained pages with the building layout and the elevation drawings for each side of the building. The plans did not include or reference any landfill work or fill materials. The construction contract also contained several conditions relating to changes in work, inspection and completion of work. General Condition # 1 requires that any changes in the plans and specifications must be made in writing, by a "contract change order.".

The cost estimate prepared by Rural Development for Defendant's house contained a summary of material cost estimates and total project cost. The total project cost was calculated by adding up six components: total cost of materials, labor cost, equipment cost, markup and contingencies, soil poisoning/treatment, and others (appraisal fee, A&E/Plot plan, appliances). The cost estimate did not include any specific estimate for landfilling work. The cost estimate did not include any specific estimate for landfill materials. The cost estimate was approved by the Defendant on June 14, 2001..

At the signing of the contract on June 14, 2001, Rural Development and the Plaintiff contractor were informed of the landfilling work and fill materials placed at Defendant's construction site. The costs of the landfilling work and the fill materials were not known by the Defendant at that time, and therefore not provided to Rural Development or to the Plaintiff. Even though none of the parties knew the cost of the landfill work and materials, the parties discussed an arrangement for payment for these costs. Rural Development informed the parties that the Plaintiff contractor would be responsible for payment of the landfill equipment and fill material costs, from the total contract amount of $61,050. In order to account for additional equipment costs for the landfilling activities, the parties and Rural Development agreed to raise the equipment allowance in the loan from 3% to 10% of material costs. This increase was made with the parties' agreement that the contractor would pay the landfill equipment costs and materials from the proceeds of the loan, even though the parties did not know the amount of these costs at that time. The cost estimate for the Defendant reflects a 10% allowance for equipment costs. However, the cost estimate does not have any reference to landfilling or fill materials. Furthermore, the construction contract did not include any specific reference to the landfilling or the fill materials.

[11 FSM Intrm. 553]

The construction of the Defendant's house was completed in mid-November 2001. The final inspection report, dated November 20, 2001, completed by Rural Development, lists all items of development as completed 100%. The inspection report was signed by Plaintiff's representative and the Defendant on November 20, 2001. The parties met at Rural Development for the closing conference, when final payment was to be made to the Plaintiff contractor. At that conference, two invoices were presented to the Plaintiff, for the pre-construction landfilling work authorized by the Defendant and completed by 4 Star Construction, in the amount of $1,440, and for the landfill materials purchased from Deacon Tolenna, in the amount of $775. Plaintiff was required to pay these amounts to the Defendant, before final payment was released to the Plaintiff. Plaintiff paid these amounts to the Defendant, under protest, because he needed the final payment from Rural Development in order to pay Plaintiff's construction employees.

This lawsuit followed, with Plaintiff's claims for reimbursement of the payments he had made for equipment rental, landfilling equipment rental and the landfill materials costs.

II. Legal Analysis

A. USDA-FmHA Construction Contract.

The construction contract executed by the parties is a standard Form FmHA 1924-6, provided by the financing institution, USDA Rural Development. The form contains spaces to fill in the names of the Defendant owner and Plaintiff contractor, amount of the contract, length of the contract, and payment schedule. The contract also contains a space where the contractor's duties under the contract are specified, under section (A) of page 1. Rural Development entered, by typewriter, the duties of the contractor as follows: "Perform all works as describe on the development plan or do construction work as stated in the plans and specifications." The Court has carefully reviewed the evidence presented in this matter to determine what obligations were imposed on the Contractor under the construction contract. There had been no "development plan" submitted by the parties, therefore the Court cannot consider or rely upon that document. Therefore, the Rural Development has specified the duties of the contractor as to "do construction work as stated in the plans and specifications." The parties have submitted the plans and specifications, prepared in August 1999 for Defendant's house, and approved by the parties and Rural Development on June 14, 2001. The only construction duties and costs that the Plaintiff was responsible are those listed in the plans. The plans include the layout and the elevation views of the Defendant's house to be constructed. These plans, as accepted by Rural Development, do not include any reference to landfilling the construction site or placement of any fill materials at the construction site. Therefore, the construction contract did not require the Plaintiff contractor to perform or pay for any landfilling equipment or landfill materials. The construction contract did not require the Plaintiff contractor to be responsible for payment to any sub-contractor for landfilling equipment or landfill materials.

Furthermore, there was no written Contract Change Order, executed by the parties, as required by General Condition # 1 of the construction contract regarding payment for landfilling equipment or landfill materials. Therefore, pursuant to the terms of the construction contract, the Plaintiff contractor is not responsible for payment of the landfilling equipment costs or the landfill material costs.

Rural Development, as the financing institution, and as the provider of the standard form construction contract, failed to include the landfill equipment and fill material costs into the contract. Due to this failure, the Plaintiff contractor cannot be held responsible for payment of the landfill equipment costs and landfill materials under the terms of the construction contract.

[11 FSM Intrm. 554]

B. Verbal Promises at Opening Conference.

At the opening conference for execution of the documents for construction of the Defendant's house, the issue of payment for landfill equipment and landfill materials costs were discussed by the parties and Rural Development. The parties and Rural Development acknowledged and understood that the Defendant had arranged for pre-construction landfilling and placement of fill materials at the construction site. This landfilling activity had been completed by the date of the opening conference, June 14, 2001. However, the cost for the landfilling equipment and landfill materials was unknown to the parties and to Rural Development. The Defendant, who had arranged for the landfilling equipment and landfill materials, also failed to provide an invoice or other evidence of these costs. Despite this failure, the parties agreed that the Plaintiff contractor would pay for the landfilling equipment and landfill materials from the loan proceeds. In order to pay for the additional landfilling equipment costs, the parties agreed to raise the equipment allowance from 3% to 10% on the Cost Estimate. Therefore, the Plaintiff contractor was provided the amount of $3,918.86 for equipment cost allowance for the construction project.

A contract is a promise between two parties for the future performance of mutual obligations which the law will enforce in some way. Malem v. Kosrae, 9 FSM Intrm. 233 (Kos. S. Ct. Tr. 1999). For a promise to be enforceable, there must be an offer and an acceptance, definite terms, and consideration for the promise. O'Byrne v. George, 9 FSM Intrm. 62 (Kos. S. Ct. Tr. 1999). In the verbal promises made by the parties, a critical definite terms was missing: the cost for the landfilling equipment and landfill materials were unknown. Therefore, the parties did not form an enforceable contract with respect to the Plaintiff's obligation to pay for the landfilling equipment and the landfill materials.

Based upon the evidence presented in this case, I find both parties equally at fault with respect to the payment obligations for the landfilling equipment and landfill material costs. I find the Defendant Owner at fault for failing to submit the landfilling costs to the Plaintiff contractor and Rural Development before the construction contract and loan agreement were executed. The Defendant, as an experienced, certified trial counselor admitted to practice law in the State of Kosrae, is held to a higher standard regarding knowledge of contract requirements. The Defendant should have known that a valid, enforceable contract requires the material term of the cost. However, the Defendant, who arranged the landfilling equipment and materials, did not provide the costs of those items prior to execution of the construction contract. I also find the Plaintiff contractor at fault for promising to pay for items which were not listed in the Cost Estimate and the Construction Contract. The Plaintiff 's represented and verbally promised to pay for the landfill equipment and materials at the opening conference. Accordingly, I find that both parties, the Plaintiff and Defendant, are equally responsible for the costs which were not included in the Cost Estimate, plans and specifications, and the construction contract.

Where no contract existed for lack of definite terms, the court may use its inherent equity power to fashion a remedy under the doctrine of restitution. Jim v. Alik, 4 FSM Intrm. 198 (Kos. S. Ct. Tr. 1989). Here, where both the Plaintiff and the Defendant are equally liable for the landfilling equipment and material costs, and where the Plaintiff has already completely paid for those costs, it is proper to determine a remedy under the doctrine of restitution.

Plaintiff contractor was provided an additional allowance for equipment costs, therefore the interests of justice require that the entire equipment allowance be applied to equipment costs. Plaintiff has submitted his equipment costs as follows: $468 for concrete mixer rental, $280 for backhoe rental, $2142.75 for rental of Public Works equipment, and $1,440 for landfilling equipment to 4 Star. The total equipment costs for the project equal $4,330.75, which is $411.89 more than the equipment

[11 FSM Intrm. 555]

allowance provided in the Cost Estimate.

Therefore, the amount of $411.89 in equipment costs exceeds the contractor's equipment allowance provided by the Cost Estimate. There are also $775 in landfill materials costs which were not included in the Cost Estimate. Thus, the total amount of costs which were not included in the Cost Estimate is $1,186.89.

This Court has wide discretion in the award of damages in restitution cases to achieve fairness. Once a claimant's entitlement to damages is established, the amount of damages is an issue for the finder of fact. Kosrae v. Langu, 9 FSM Intrm. 243 (App. 1999). Based upon the evidence presented in this case, I find that both parties, the Plaintiff and Defendant are equally responsible for the costs which were not included in the Cost Estimate, in the total amount of $1,186.89. Therefore, each party is liable for payment of 50% of $1,186.89 or $593.45. Since the Plaintiff has already paid the entire amount for the landfill equipment and material costs, Plaintiff is entitled to reimbursement of the Defendant's share of $593.45. Accordingly, the Defendant is liable to the Plaintiff, in the amount of $593.45.

III. Judgment.

Judgment is entered in favor of the Plaintiff and against the Defendant in the amount of $593.45.