2017 Ohio 2601
Ohio Ct. App.2017Background
- Karen Gray contracted with Petronelli Design & Construction, Inc. (PDC) to build a residence under written contracts referencing architectural plans; construction began May 21, 2002.
- The contract distinguished fixed costs (PDC-paid items reimbursed via draws) and allowances (items Grays paid directly); change orders required written signatures.
- The Grays terminated PDC after substantial work; they paid PDC $158,152 and hired others to finish various items.
- Gray sued for breach of contract, fraud, and slander of title; PDC counterclaimed for unpaid contract balance and sought foreclosure on a mechanic’s lien.
- A magistrate found PDC breached (e.g., installed 12 instead of 13 basement block courses, omitted certain package items), awarded Gray $54,799.92 for cost to complete plus $5,000 diminution, but granted PDC quantum meruit recovery reduced by Gray’s damages, resulting in a net award to PDC of $6,949.08; the trial court adjusted credits and entered judgment for $6,323.08 and limited the lien to that amount.
- PDC appealed, raising four assignments of error (calculation of contract recovery, lien foreclosure, diminution award, and prejudgment interest); the appellate court affirmed.
Issues
| Issue | Gray's Argument | PDC's Argument | Held |
|---|---|---|---|
| Appropriate damages measure after contractor breach | Use cost-to-complete and diminution to make owner whole, offset by value of contractor work (quantum meruit) | PDC: entitled to contract price plus extras/allowances minus payments and cost-to-complete (net contract balance) | Court: magistrate correctly denied contract recovery to breaching PDC and applied cost-to-complete plus diminution minus quantum meruit offset (affirmed) |
| Sufficiency of cost-to-complete / allocation of fixed costs vs. allowances | Gray: magistrate’s cost-to-complete findings supported by evidence; allowances and Petronelli Package treated correctly | PDC: magistrate misapportioned fixed costs vs allowances, misvalued finish carpentry, and owed excess allowance reimbursement | Court: PDC failed to carry burden on appeal; magistrate’s allocations and valuations supported by record; arguments rejected |
| Diminution-in-value award ($5,000) for exposed I‑beam | Gray: homeowner testimony (owner-opinion rule) supported reasonable diminution award | PDC: no expert proof of value differential or cost to correct; testimony inadmissible/nonowner | Court: owner-opinion rule permits owner testimony on value differential; magistrate found testimony credible; award not against manifest weight |
| Foreclosure of mechanic’s lien (title report compliance) | Gray: PDC did not timely/file appropriate judicial title reports per local rule/statute | PDC: filed requisite title reports (records show filings) | Court: PDC did not demonstrate title reports complied with local rules; trial court’s refusal to foreclose lien was not shown erroneous |
| Prejudgment interest on award to PDC | Gray: PDC was not the aggrieved contractual creditor; quantum meruit award not subject to prejudgment interest | PDC: entitled to prejudgment interest from March 2003 on amount owed | Court: R.C. 1343.03 interest applies to judgments on money due under contract; because PDC breached and recovery was quantum meruit (not unpaid contract obligation), prejudgment interest not available |
Key Cases Cited
- Cleveland Elec. Illum. Co. v. Pub. Util. Comm. of Ohio, 76 Ohio St.3d 521 (court reviews questions of law de novo)
- F. Enterprises, Inc. v. Kentucky Fried Chicken Corp., 47 Ohio St.2d 154 (general measure of contract damages—position if fully performed)
- Hansel v. Creative Concrete & Masonry Constr. Co., 148 Ohio App.3d 53 (proper construction damages: reasonable cost to place building in contracted condition)
- Sites v. Moore, 79 Ohio App.3d 694 (breaching contractor not entitled to contract recovery; quantum meruit allowed for benefit conferred)
- Murray v. Marbro Builders., Inc., 53 Ohio App.2d 1 (quantum meruit prevents unjust enrichment when breaching contractor added substantial value)
- Smith v. Padgett, 32 Ohio St.3d 344 (owner-opinion rule: owners competent to testify to property value)
- Royal Elec. Constr. Corp. v. Ohio State Univ., 73 Ohio St.3d 110 (prejudgment interest serves to make aggrieved party whole; statutory framework)