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Pursuant to Ind.Appellate Rule 65(D), this Memorandum Decision shall not be regarded as precedent or cited before any court except for the purpose of establishing the defense of res judicata, collateral estoppel, or the law of the case.

FILED
Feb 25 2009, 9:37 am
of the supreme court, court of appeals and tax court

CLERK

ATTORNEY FOR APPELLANTS: JOHN A. KRAFT Young, Lind, Endres & Kraft New Albany, Indiana

ATTORNEY FOR APPELLEES: NICHOLAS W. HAVERSTOCK Burgher & Burgher Corydon, Indiana

IN THE COURT OF APPEALS OF INDIANA
BRIAN MAGILL and MAGILL BUILDERS, LLC, Appellants, vs. JUSTIN LUTZ and AMANDA LUTZ, Appellees. ) ) ) ) ) ) ) ) ) )

No. 13A01-0803-CV-137

APPEAL FROM THE CRAWFORD CIRCUIT COURT The Honorable Roger Davis, Special Judge Cause No. 13C01-0604-CC-44

February 25, 2009 MEMORANDUM DECISION - NOT FOR PUBLICATION BAILEY, Judge

Case Summary Appellants-Plaintiffs/Counterclaim Defendants Brian Magill ("Brian") and Magill Builders, LLC ("LLC") (collectively, "Magill") appeal the judgment in favor of AppelleesDefendants/Counterclaim Plaintiffs Justin and Amanda Lutz based on the breach of a contract for the construction of a new home and fraud. We affirm in part, reverse in part and remand. Issues Magill raises several issues that we condense and restate as: I. Whether the trial court erred in its conclusion that Magill breached the construction contract; Whether the trial court erred in failing to award damages to Magill; and Whether the trial court erred in concluding that Brian and the LLC committed fraud. Facts and Procedural History The facts most favorable to the judgment are as follows. On January 20, 2006, the Lutzes and Magill entered into a contract for the construction of a new home. The parties orally agreed that the Lutzes would pay $98,000 for the house, and Magill would complete the construction by May 3, 2006. Magill began construction of the home and hired subcontractors and suppliers, including Stock Building Supply, Inc. To finance the house, the Lutzes obtained a home construction loan from First Harrison Bank ("FHB"). The terms of the loan prohibited the Lutzes from permitting a lien to be placed on the property. When Magill needed money for portions of the construction, it 2

II.

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would request an amount from the Lutzes, who would in turn request a draw from FHB. The first two draws were allegedly to pay for the lumber and windows. When Magill asked for a third draw, it said that it was also for lumber. Upon inquiring with FHB, the Lutzes were informed that Magill told FHB that the draw was for something other than lumber. By that time, Magill had informed the Lutzes that the price of the home had increased by approximately $9,000. Magill was constantly asking the Lutzes for more money, even to the point of showing up unannounced at Amanda's workplace to request more money. At this point, the Lutzes contacted their attorney due to their concerns about the increased price of the construction and poor workmanship. On March 1, 2006, Magill met with Nick Haverstock, the Lutzes's attorney, to discuss the Lutzes's concerns. Haverstock reduced their conversation to a letter that he sent to Magill: Dear Mr. Magill: I appreciate you taking the time yesterday to come in and meet with me. The following is my understanding of our conversation. Please let me know if you find any part to be inaccurate:       Justin & Amanda's home will be completed in early to mid-May for a cost of $112,607.00, unless unforeseen circumstances arise. This price includes an additional 5x19 laundry room that was not in the original plans. Justin & Amanda are not responsible for your excavator's tow bill caused by your excavator getting hung up on the property. You will re-grade the sides of the driveway after construction of the home is completed. Justin & Amanda will receive a $400.00 credit for the lack of plumbing that was agreed to be installed in their basement. You will try to get your excavator to give Justin & Amanda a $255 credit for some of the low quality rock that was hauled for the driveway.

Additionally I have requested the following items from you: 3

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An accounting of the first three draws that total close to $25,000.00. Copies of any bills, work orders, or invoices you have received from the subcontractors. 3. For future draws, a breakdown explaining what the money will be used for. 4. Accountings of where the money actually went after you have allotted it to your various workers, subcontractors, or own company. Plaintiff's Exhibit 7. Prior to being removed from the worksite, Magill informed Haverstock that he would not provide any of the requested information. After having additional issues as to which subcontractor would install the heating and cooling system, the Lutzes informed Magill, by way of Haverstock on March 16, 2006, that they no longer wished to continue the contractual relationship and that Magill was not to return to the property. Subsequently, Magill filed a mechanic's lien on the property for $58,153.93. Magill then filed a complaint to foreclose on the mechanic's lien, naming the Lutzes, FHB, and Stock Building Supply, Inc. as defendants. By this time, Stock Building Supply had also filed a mechanic's lien on the property for $14,000 for the lumber that was used in the construction. The Lutzes filed their answer to the complaint as well as a counterclaim alleging theft, slander of title, fraud, and breach of contract on the part of Magill. After FHB and Stock Building Supply filed their answers, FHB filed for summary judgment. FHB paid Stock Building Supply $14,000 in exchange for the assignment of its lien. Therefore, the outstanding issues from the complaint for summary judgment were the interest in the mortgage held by FHB and Magill's request to foreclose on its mechanic's lien. After reviewing the submissions, the trial court held that because the Stock Building Supply lien 4

was on the property for so long that the Lutzes defaulted on the FHB mortgage and owed FHB a total of $47,898 as well as attorney's fees. The trial court later issued a decree of foreclosure as to the mortgage and dismissed FHB as a defendant. As to Magill's lien, the trial court held that it was void based on the doctrine of unclean hands. The trial court based this conclusion on Magill's failure to pay its subcontractors as it received payments from the Lutzes and its alteration of one of the its subcontractor's invoices to increase the amount owed. On May 15, 2007, the Lutzes and Magill, the remaining parties to the litigation, agreed to an entry permitting the respective parties to amend the complaint and counterclaim. The trial court judge also recused due to an inadvertent out-of-court conversation about the case, so the parties selected Judge Roger Davis of the Harrison Superior Court to be appointed as special judge in the case. Magill's amended complaint alleged that, based on its contract with the Lutzes, it had incurred $42,916.57 in bills payable to its subcontractors in the partial construction of the home but had only received payments from the Lutzes totaling $24,900. The Lutzes amended their counterclaim to aver that Brian should be personally liable for their damages on their counterclaims, alleging that Magill Builders, LLC is Brian's alter ego. After a two-day bench trial, the trial court held that the contract was for a specific price, and per the contract, modifications could only be done by written work order. Because no written work orders were in evidence, there were no modifications. As Magill requested thousands of dollars above the contract price within a short time, performed poor workmanship, and failed to pay subcontractors that resulted in a lien on the property, the trial

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court concluded that the LLC breached the contract. As to Indiana Code regarding construction warranties on real property, the Lutzes were not required to comply with this statute as Magill did not provide notice to the Lutzes upon entering into the contract that Magill had the right to cure defects. The trial court awarded damages to the Lutzes of $6159 as to the breach of the contract by Magill. The trial court also concluded that the LLC was not Brian's alter ego, so Brian was not personally responsible for the breach of the contract damages. However, as to the fraud claim, the trial court found that Brian had committed fraud by altering one of the subcontractor's invoices to increase the amount due by one thousand dollars and by failing to pay its subcontractors from the money paid by the Lutzes. The trial court determined that the damages that resulted from Brian's and LLC's fraudulent acts were the attorney's fees of $10,500 that the Lutzes were required to pay to FHB in the foreclosure action. This appeal ensued. Discussion and Decision Standard of Review The trial court entered findings of fact and conclusions of law pursuant to Indiana Trial Rule 52(A). Therefore, our standard of review is two-tiered: we first determine whether the evidence supports the trial court's findings, and second, we determine whether the findings support the judgment. Purcell v. Southern Hills Invs., LLC, 847 N.E.2d 991, 996 (Ind. Ct. App. 2006). Findings of fact are clearly erroneous when the record lacks any reasonable inference from the evidence to support them, and the trial court's judgment is

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clearly erroneous if it is unsupported by the findings and the conclusions that rely upon those findings. Id. In determining whether the findings or the judgment are clearly erroneous, we consider only the evidence favorable to the judgment and all reasonable inferences to be drawn therefrom. Id. In conducting our review, we cannot reweigh the evidence or judge the credibility of any witness, and must affirm the trial court's decision if the record contains any supporting evidence or inferences. Id. However, while we defer substantially to findings of fact, we evaluate questions of law de novo and owe no deference to a trial court's determination of such questions. Id. Magill appeals from a negative judgment on his complaint. "A party who had the burden of proof at trial appeals from a negative judgment and will prevail only if it establishes that the judgment is contrary to law." Troutwine Estates Dev. Co. v. Comsub Design and Eng'g, Inc., 854 N.E.2d 890, 896 (Ind. Ct. App. 2006), reh'g denied, trans. denied. "A judgment is contrary to law when the evidence is without conflict and all reasonable inferences to be drawn from the evidence lead only to one conclusion, but the trial court reached a different conclusion." Id. I. Breach of Contract First, Magill contends that the trial court erred in concluding that the LLC, and not the Lutzes, breached the contract. In challenging this conclusion, Magill also argues the finding that the parties did not modify the terms of the construction contract is not supported by the evidence. We first address the finding regarding the lack of contract modification.

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A. Modification In its order, the trial court noted that the construction contract provided that "[a]ny and all changes done to [sic] contract after signing will be done only by written work order." Appellant's Appendix at 81 (emphasis in original). The trial court found that there were no changes to the contract, including price, because there was no evidence presented that the parties agreed to changes via written work orders. Parties to a contract may mutually modify the contract. Sees v. Bank One, Indiana, N.A., 839 N.E.2d 154, 161 (Ind. 2005). "Even a contract providing that any modification thereof must be in writing, nevertheless may be modified orally." Id. Thus, it is clear that the trial court's statement that written work orders were a prerequisite for a modification of the contract is in error. The evidence indicates that there was at least one modification of the contract, namely the change in the location and size of the laundry room.1 Both parties testified that they agreed to put a larger laundry room in the garage for an additional amount. The evidence deduced at trial was that the laundry room changes were going to cost approximately fifteen hundred dollars. We remand to the trial court to include this additional cost in its findings and modify the judgment accordingly. The parties also hotly contest whether the letter Haverstock sent to Magill after their conversation constituted a modification of the contract. Magill disagrees with the trial court's interpretation that the letter was not a modification of the contract. At best, the letter

1

The parties also agreed to add plumbing to the basement. However, the plumbing was not installed because, according to Brian, the rock and water table underneath the basement would make it hard to put in a sewer pit. Thus, the end price of the home was not affected.

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represents an offer for modification. Modifications, which are also contracts, must have all the elements of a contract: offer, acceptance and consideration. Stelko Elec., Inc. v. Taylor Comty. Schs. Bldg. Corp., 826 N.E.2d 152, 159 (Ind. Ct. App. 2005). Haverstock and Magill met for the purpose of ironing out concerns raised by the Lutzes regarding the construction of the home. The letter, drafted by Haverstock, reads in part: "The following is my understanding of our conversation. Please let me know if you find any part to be inaccurate." Appendix at 91. Brian testified that after the meeting, Haverstock indicated that he would speak with the Lutzes about their discussion. Also, Brian told Haverstock that he would consult an attorney and later inform Haverstock of his decision on providing an accounting of the expenditures to date. At most, Haverstock's letter summary of the meeting was an offer by his clients to modify the terms of the contract. However, Brian, as representative of the LLC, did not accept this offer because, after consulting with an attorney, he refused to provide any accounting or invoices from suppliers or subcontractors, which were terms of the offer for modification. Therefore, no additional modifications were made beyond that of the expanded laundry room. B. Breach of Contract Second, Magill contends that the trial court erred in finding that it breached the contract as opposed to the Lutzes. The elements of a breach of contract action are the existence of a contract, the opposing party's breach thereof, and damages. Fairfield Dev., Inc. v. Georgetown Woods Sr. Apts. Ltd. P'ship, 768 N.E.2d 463, 473 (Ind. Ct. App. 2002), trans. denied. Whether a party has committed a material breach of a contract is a question of

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fact. Frazier v. Mellowitz, 804 N.E.2d 796, 802 (Ind. Ct. App. 2004). The trial court found that Magill breached the contract by the unjustified $14,000 increase in the price of the home and construction defects.2 Magill contends that the price increase of the home was not a valid basis for the breach of the contract because the Lutzes agreed to the price increase. As discussed above, the only modification made to the contract was the larger laundry room. After Magill rejected the modification offer, which included the substantially increased price of $112,607, by refusing to provide an accounting of the money drawn to that point, the original contract terms, plus the modification for the expanded laundry room, were controlling. Thus, the price of the home was $99,500, as disclosed by the evidence at trial. As the home was not completed at this time, the Lutzes were not required to tender the entire purchase price. However, contrary to the agreed upon price, Magill was insisting upon a higher price. "The demanding of the other party a performance to which the party has no right under the contract constitutes such an anticipatory breach." Eden United, Inc. v. Short, 573 N.E.2d 920, 929 (Ind. Ct. App. 1991), trans. denied. A demand for an amount above that contract price in the middle of this contract without mutual assent does not amount to a breach but the repudiation of the contract. "Repudiation of a contract must be positive, absolute, and unconditional in order that it may be treated as an anticipatory breach."

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Magill also contends that pursuant to Indiana Code Section 32-27-3-2(a) the Lutzes were required to provide written notice of any defect to the construction professional and the opportunity to repair it. However, to trigger this provision, the construction professional must provide the home owner with notice of the right to cure construction defects. Ind. Code

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