Preview:

Present:    All the Justices
KENNETH A. DAVIS
v.    Record No.  050215                                           OPINION BY JUSTICE ELIZABETH B. LACY
                                                                   November  4,  2005
STEPHEN HOLSTEN, ET AL.
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
Stanley P. Klein, Judge
In this appeal, Kenneth A. Davis asserts that the trial
court erred in ruling that substantial compliance does not
apply to an escrow agreement obligating him to remove and
replace synthetic stucco siding and rotten wood from a house
and seeks a reversal of the trial court's finding that he did
not comply with the terms of the agreement.    Because we
conclude that the trial court was correct in its application
of the law and that its findings of fact are supported by the
record, we will affirm the judgment of the trial court.
FACTS AND PROCEEDINGS
On July  11,  2002, Davis contracted to sell his Fairfax,
Virginia, home to Stephen E. and Tami S. Holsten.    At the time
of contracting, the house was coated with Exterior Insulation
Finishing System  (EIFS), a type of synthetic stucco, which had
caused water damage to the home.    Paragraph  33 of the sales
contract stated that prior to the date of settlement, Davis
would "have or cause to have the Stucco replaced with hard
coat Stucco."    If the repairs were not made prior to




settlement, Davis would escrow  $50,000 until "repairs are made
and Stucco is replaced along with any rotted or damaged wood."
Davis had not made the repairs by the date of settlement;
thus, he, the Holstens, and Virginia Settlement Group, L.L.C.
(VSG), an escrow agent, executed a contract entitled "Escrow
Agreement"  (the Agreement).    Paragraph  2 of the Agreement
incorporated the provisions of Paragraph  33 of the sales
contract and required Davis to deliver  $50,000 to VSG at
settlement and to engage a contractor to do the work within
ten days of the execution of the Agreement.    Under the
Agreement, when the obligations set out in Paragraph  2 were
completed, VSG would release the escrowed funds to Davis.    If
the obligations were not completed within one year, VSG would
pay the escrowed funds to the Holstens upon their written
notification that the repairs and replacement were not
completed.*    Paragraph  4 of the Agreement also provided that
Davis would indemnify the Holstens for losses, damages, costs,
and attorney's fees associated with completing the
reinstallation.
On August  19,  2002, Davis hired a contractor to perform
the work required under the Agreement.    The work did not
progress smoothly.    In an exchange of correspondence in early
* The parties later amended the escrow agreement to allow
Davis one year and one month to complete the work.
2




2003, the Holstens notified Davis of their dissatisfaction
with the contractor's progress, stating the work was
" 'complete' but not done."    In a February  6,  2003 letter,
Davis informed the Holstens that he had inspected the
reinstallation and believed he was entitled to the escrowed
money.    He stated that he had contracted for the repair work
within ten days of closing and that "[t]he stucco is replaced
along with any wood."    Davis told the Holstens he expected "no
delays" from them.
By a letter of the same date, Davis reported to VSG that
"the repairs are now completed" and that it should consider
the letter as Davis' demand for release of the escrowed funds.
In the letter, Davis acknowledged matters of disagreement
between himself and the Holstens but asserted that the
Agreement does not allow withholding release of the funds
"over a few very small details."
VSG refused to release the funds, stating that Davis'
demand "did not create an absolute right to receive" the funds
and that it could not release the funds "unless and until it
is clear that the terms of the escrow have been met."    Davis
then filed a Bill of Complaint against the Holstens and VSG
for specific performance of the Agreement and for breach of
contract.    He contended that since he had performed, or at
least substantially performed, all of his obligations under
3




the Agreement, the Holstens and VSG had breached their duty to
him by failing to release the  $50,000 in escrow.    Prior to
trial, VSG paid into court the escrowed funds and was
dismissed as a party.
At trial, various experts testified regarding the stucco
reinstallation.    Ronald E. Wright, an expert in engineering
and in providing estimates for costs related to residential
construction, testified on behalf of Davis.    The trial court
refused to allow Wright to testify whether, in Wright's
opinion, the work the Agreement required was "substantially
complete."    The trial court concluded such testimony was not
relevant; the contracting parties "could have said substantial
performance  .  .  .                                              .    But the parties didn't do that  .  .  .
Every contract has a term of reasonableness that is part of it
.    But that is a far cry from substantial completion."
Davis objected to this ruling.    Wright was allowed to testify
that he estimated the total cost to repair the installation
was  $4,692 and that apart from the specific repairs about
which he had testified, the installation was "complete."
Stanley Yeskolski, a certified EIFS inspector, testified
for the Holstens.    Prior to the litigation, the Holstens had
engaged Yeskolski to inspect the property and prepare a stucco
inspection report.    At trial, Yeskolski testified on proper
stucco reinstallation procedures and on the shortcomings of
4




the repair work.    He testified that, among other things,
crucial expansion joints were not installed at the front of
the house and all the EIFS had not been removed from the
exterior of the home.    Yeskolski did not "think the
installation was complete" because of the elements left out or
performed incorrectly.
The Holstens also called Ralph D.(Donnie) Davis, a
specialist in EIFS repair and restoration.    Based on his
inspection of the home prior to the reinstallation and his
visual observations of the home after reinstallation, he
opined that all of the rotten wood under the synthetic stucco
had not been removed.    Donnie Davis, like Yeskolski,
identified a number of problems with the stucco reinstallation
and recommended "completely removing it, put[ting] it in the
dumpster, and start[ing] over" at a cost he estimated to be in
excess of  $50,000.
At the close of Davis' case in chief, the trial judge
granted the Holstens' Motion to Strike Count I for specific
performance because VSG had paid the funds into court and was
no longer a party to the case.    After the parties rested, the
trial court, again relying on the language of the Agreement,
concluded that the greater weight of the evidence did not show
that the conditions for release of the escrowed funds were met
because EIFS stucco remained under a bay window and control
5




and expansion joints reasonably necessary for appropriate
repairs had not been installed.    Accordingly, the trial court
held that Davis had not carried his burden of proof to show
that the Holstens had breached the Agreement and entered
judgment in favor of the Holstens.    From that decision, Davis
appeals to this Court.
DISCUSSION
Although Davis raises three assignments of error on
appeal, his basic contention is that under the facts of this
case, "a reasonable person could find that Davis completed, or
at least substantially completed, his obligations under the
escrow agreement."    We begin by considering Davis' claim that
the trial court erred in concluding that substantial
compliance does not apply to the Agreement in this case.
The Agreement
The Agreement the parties executed does not contain any
reference to substantial completion; nevertheless, Davis
contends that substantial compliance applies to all
construction contracts and the Agreement is in the nature of a
construction contract.    Even if the Agreement is not a
construction contract, Davis argues this Court should apply
the principle of substantial compliance because performance
here cannot be measured in terms of strict compliance in the
absence of a definition of "completion."    He also states that
6




the indemnity provision in Paragraph  4 of the Agreement is
rendered meaningless if substantial compliance is inapplicable
to this Agreement.    We consider these arguments in order.
A.
Davis argues that this Court has held that substantial
compliance applies to contracts and specifically to
construction contracts.    See, e.g., Buena Vista Co. v.
McCandlish,  92 Va.  297,  304-05,  23 S.E.  781,  783-84  (1895);
Kirk Reid Co. v. Fine,  205 Va.  778,  787-89,  139 S.E.2d  829,
835-37  (1965).    Davis asserts that because the Agreement in
this case incorporated Paragraph  33 of the original sales
contract, "it should be determined in terms of contract law
and equity" and if a party has substantially received the
benefit of the bargain, that party should be compelled to
complete its part of the bargain by paying for the benefit
received.    Continuing, Davis argues that the obligations under
the Agreement are in the nature of construction obligations
and, therefore, the Agreement is a construction contract
subject to the principle of substantial compliance.    We
disagree with Davis.
First, the Agreement is not a construction contract.    The
Agreement does not anticipate that Davis would engage in any
construction activities.    Davis' obligations under the
Agreement were limited to contracting for the repair work
7




within ten days of the execution of the Agreement and
depositing  $50,000 with the escrow agent.    Davis was entitled
to the escrowed funds if within one year and one month the
EIFS stucco was removed and replaced with hard coat stucco and
the rotted or damaged wood was removed and replaced.
Construction activities were necessary to meet the obligations
under the agreement; nevertheless, the Agreement was not a
construction contract between Davis and the Holstens.    The
relevant construction contract was between Davis and the
contractor he engaged to perform the repairs.
Similarly the parties' incorporation of Paragraph  33 of
the sales agreement did not make the Agreement a sales
contract.    The sales contract was completed at closing.    The
Agreement was a separate contract and compliance or default
under the Agreement had no effect on the sale of the house.
B.
The Agreement, as titled by the parties, was an escrow
agreement.    It set out specific conditions for the release of
the escrowed funds and made no reference to or provision for
substantial compliance with those conditions.    We have not had
occasion to consider whether an escrow agreement, a contract
in which a third party holds property that is to be released
to another party to the contract upon completion of certain
conditions precedent, see Humphreys v. R. & M. R. R. Co.,  88
8




Va.  431,  451,  13 S.E.  985,  992  (1891), should be subject to
substantial completion.
Davis argues that courts have required parties to comply
strictly with the provisions of an escrow agreement only when
completion of the conditions precedent was straightforward.
See, e.g., Jones v. Gregg,  293 S.W.2d  545,  551  (Ark.  1956)
(describing a seller providing an abstract of good and
marketable title); In re Creative Data Forms, Inc.,  41 B.R.
334,  336  (Bankr. E.D. Pa.  1984)  (discussing a debtor
defaulting on loan repayments); Commonwealth Land Title Ins.
Co. v.  1616 Reminc Ltd. P'ship,  13 B.R.  948,  951  (Bankr. E.D.
Va.  1981)  (regarding a defendant who refused to release funds
in escrow when the condition governing release was simply the
passage of four years).    Davis contends the conditions in this
Agreement are not straightforward because the term
"completion" is open to interpretation.    Thus, Davis asserts
that strict compliance should not be applied.
We do not find Davis' arguments persuasive.    Rather, we
agree with the clear weight of authority that, unless the
agreement provides otherwise, substantial performance will not
be applied to an escrow agreement and compliance must be
strict.    See, e.g., Commonwealth Land Title Ins. Co.,  13 B.R.
at  951  (strictly construing term in escrow agreement which
required disbursement of any remaining funds in escrow after
9




four years from date of contracting); In re Creative Data
Forms, Inc.,  41 B.R. at  336-37  (declining to release  $100,000
held in escrow account for debtor because the debtor failed to
make some repayments on money it had borrowed); Jones,  293
S.W.2d at  551  (declining to apply substantial performance to
release of escrowed funds, when release was conditioned upon
sellers of real estate timely providing an abstract of good
and marketable title); Love v. White,  363 P.2d  482,  484  (Cal.
1961)(holding:    "In this state the terms and conditions of an
escrow must be performed.    The doctrine of substantial
performance does not apply, and no title passes prior to full
performance of the terms of the escrow agreement."); Watts v.
Mohr,  194 P.2d  758,  761  (Cal. Ct. App.  1948)  (refusing to
apply substantial performance and to order release of funds
from escrow where one party had failed to deliver timely to
escrow agent a  $6000 note and deed of trust to complete real
estate transaction); Taft v. Taft,  26 N.W.  426,  430  (Mich.
1886)  (holding:    "performance of the condition must be
absolute and accurate, and cannot be dispensed with on any
otherwise substantial performance."); Hart v. Barron,  204 P.2d
797,  808  (Mont.  1949)  (finding part performance did not apply
to escrow agreement for sale of land where buyer did not
timely pay taxes or obtain a loan, both of which were
conditions precedent to escrow agent delivering deed to
10




buyer); Valentine Oil Co. v. Powers,  59 N.W.2d  150,  157  (Neb.
1953)  (refusing to order release of funds in escrow and citing
inapplicability of substantial performance to escrow
agreements where a party to oil and gas escrow agreement
failed to continue drilling for oil as required by agreement).
Furthermore, we reject Davis' argument that we should not
strictly apply the provisions of this Agreement because of
uncertainty over the word "completion."    A principle of
interpretation applicable to escrow agreements applies to all
such agreements, not just to some escrow agreements.    As the
trial court observed, it is not the province of the courts to
add words to parties' contracts and their failure to provide a
definition of "completion" does not provide a basis for
applying a principle of construction other than that
applicable to escrow agreements.
C.
Finally, we reject Davis' argument that strictly
construing the Agreement negates the indemnity provision in
Paragraph  4.    Davis argues that Paragraph  4 obligates him to
indemnify the Holstens if they had to complete the tasks of
removing and replacing the EIFS stucco and rotten wood, even
if Davis had received the escrowed funds.    Paragraph  4,
however, refers to situations in which the Buyer, the
Holstens, has received some of the escrowed funds and
11




obligates Davis to "indemnify and hold harmless  [the Holstens]
from any loss or damages, including all costs and attorney's
fees, as a result of any expense that  [the Holstens] may incur
in completing  [Davis'] work as stated herein."    As the trial
court correctly stated, this provision protects the Holstens
and makes Davis responsible in the event the cost of
completing the work exceeds  $50,000.
In summary, the trial court correctly declined to apply
substantial compliance to the Agreement and, accordingly, did
not err in refusing to allow Davis' expert to testify
regarding substantial completion of the repairs.
The Evidence
Davis also claims on appeal that the trial court erred in
finding that he failed to complete his obligations under the
Agreement.    Because the trial judge heard the evidence ore
tenus and was able to judge the credibility of the witnesses,
we must afford his decree the same weight as a jury verdict
and uphold his findings unless they are plainly wrong or
without evidence to support them.    See Shooting Point, L.L.C.
v. Wescoat,  265 Va.  256,  264,  576 S.E.2d  497,  501  (2003)
(citing Tauber v. Commonwealth,  263 Va.  520,  526,  562 S.E.2d
118,  120  (2002); Chesterfield Meadows Shopping Ctr. Assocs.,
L.P. v. Smith,  264 Va.  350,  355,  568 S.E.2d  676,  679  (2002)).
Further, we will construe the facts in the light most
12




favorable to the Holstens, who prevailed below.    See Tauber,
263 Va. at  525,  562 S.E.2d at  120  (citing Hoffman Family,
L.L.C. v. Mill Two Assocs. P'ship,  259 Va.  685,  696,  529
S.E.2d  318,  325  (2000)).
Davis argues that the trial court erroneously relied on
the conditions the Holstens imposed in their correspondence
with Davis and, thus, enlarged Davis' obligations when
determining Davis failed to complete the Agreement.    For
example, although the Holstens sought a warranty for the
repair work and a home inspection in that letter, the
Agreement did not impose as a condition precedent to the
release of the funds either an extended warranty on the stucco
installation or a home inspection.    Further, the Agreement
made no mention of performance in a workmanlike manner.    Thus,
Davis concludes that the trial court imposed conditions not
present in the Agreement on the release of the escrowed funds.
The record does not support Davis' contention.    The trial
court did not base its ruling on the Holstens' demands.
Rather the trial court found the job incomplete based on
expert testimony, uncontroverted at trial, that EIFS stucco
was left under the bay window in violation of an express term
of the Agreement and that some expansion joints, necessary for
the replacement of the stucco, were not installed.    Donnie
Davis also testified that not all the rotten wood under the
13




stucco had been removed and replaced.    Finally, Davis himself
acknowledges that the contractor failed to remove EIFS stucco
from beneath the bay window.
This record supports the trial court's conclusion that
Davis did not carry his burden of proof in his breach of
contract count to show that he had strictly complied with the
provisions of the agreement and, therefore, that he was
entitled to release of the funds.
For the foregoing reasons, we will affirm the judgment of
the trial court.
Affirmed.
14

Download 1050215.pdf

Virginia Law