955 N.W.2d 382
S.D.2021Background
- Khan Comfort, LLC hired J. Clancy, Inc. to renovate a Spearfish Hampton Inn; parties exchanged a March scope sheet and a more detailed September written proposal (the "September document").
- Khan signed the September document and wired a ~50% deposit ($154,000); J. Clancy began work and submitted invoices and change orders; work paused and J. Clancy left the site in Feb. 2013.
- J. Clancy filed two mechanic’s liens (one for vanities; one larger lien for materials/labor) and sued to foreclose or, alternatively, for breach of contract and unjust enrichment; Khan Comfort counterclaimed for overpayment and breach.
- The circuit court invalidated both liens as insufficiently itemized, concluded the parties had a series of divisible implied-in-fact contracts (not an express written contract), found J. Clancy breached and owed Khan Comfort for overpayment, and awarded Khan Comfort reimbursement plus interest.
- The South Dakota Supreme Court reversed in part: it held the September document was an enforceable express contract, reversed the liens’ invalidation (finding the vanity lien sufficient and the larger lien sufficient under Ringgenberg/Dakota Craft reasoning), affirmed that equitable restitution is unavailable where an express contract governs, and remanded to determine breach and damages under the express contract.
Issues
| Issue | Clancy's Argument | Khan's Argument | Held |
|---|---|---|---|
| Contract formation — express vs. implied | September document shows mutual assent and fixes essential terms; it created an express contract | No meeting of minds; parties operated under multiple implied-in-fact/divisible agreements | Court of Appeals (SD Supreme Ct.): September document is an enforceable express contract; trial court erred in treating relationship as divisible implied-in-fact contracts |
| Substantial performance / breach and remedies | J. Clancy substantially performed or is entitled to contract damages if owner breached by withholding progress payments | J. Clancy did not substantially perform and is limited to reasonable value; Khan offsets overpayments | Remanded: breach and damages must be decided under express-contract framework (progress-payment clause, termination, contract-price or saved-cost measure of damages) |
| Mechanic’s lien itemization (SDCL 44-9-16) | Liens substantially complied; vanities lien clearly itemized; larger lien valid because contract billed labor/materials as lump sums (Ringgenberg/Dakota Craft) | Liens failed to itemize labor (dates, hours, rates) and thus were invalid | Reversed: vanity lien valid; larger lien sufficiently specific under Ringgenberg/Dakota Craft to survive itemization challenge; trial court must determine foreclosure entitlement after breach/damage determinations |
| Unjust enrichment / conversion | Alternative equitable recovery for unpaid work/benefit conferred | Contract governs; equitable relief unavailable where valid express contract exists | Affirmed re unjust enrichment: equitable restitution barred because express contract governs; conversion claim not preserved on appeal and not addressed |
Key Cases Cited
- Koopman v. City of Edgemont by Dribble, 945 N.W.2d 923 (discussing de novo review of contract existence and when factual disputes make formation a fact question)
- Weller v. Spring Creek Resort, Inc., 477 N.W.2d 839 (defining implied-in-fact contracts and requirement that they contain elements of express contracts)
- Setliff v. Akins, 616 N.W.2d 878 (explaining implied contract requires assent by conduct and contains elements of express contract)
- Ringgenberg v. Wilmsmeyer, 253 N.W.2d 197 (mechanic’s-lien itemization: court may consider nature of business and lump-sum proposals for an entire project)
- Dakota Craft, Inc. v. Severson, 769 N.W.2d 434 (applying Ringgenberg; liberal but substantial compliance standard for lien itemization)
- Lytle v. Morgan, 270 N.W.2d 359 (mechanic’s liens are security interests and require contractual obligation)
- St. John’s First Lutheran Church in Milbank v. Storsteen, 84 N.W.2d 725 (where there is a valid express contract, there is no room for quasi-contract/unjust enrichment claims)
- Action Mech., Inc. v. Deadwood Historic Pres. Comm’n, 652 N.W.2d 742 (standards for reviewing trial findings and mechanic’s lien principles)