996 N.W.2d 368
S.D.2023Background
- Smith Masonry contracted with WIPI to build stone-veneer masonry columns and coordinate fence installation; the parties executed an addendum expanding the scope and price to about $201,387.
- Smith Masonry changed footing shape/size, built 59 (vs. 52) larger columns, and placed some columns differently; American Fence (subcontractor) installed panels but stopped work for nonpayment.
- WIPI paid $159,714.90 (including a $38,000 payment to American Fence to release a lien) and withheld final payments; Smith Masonry recorded a mechanic’s lien for $41,672.20 and sued to foreclose.
- WIPI counterclaimed, alleging defective footings/placement caused column movement, panel misalignment, and damages requiring extensive repair; experts offered conflicting opinions on cause and extent of damage.
- The circuit court found Smith Masonry had a valid mechanic’s lien and had substantially performed but that some columns were built below a reasonable standard; the court applied equitable principles and offset the lien to zero, denied attorney fees, and denied certainty of repair costs.
- The South Dakota Supreme Court reversed in part: it held WIPI failed to prove repair costs with reasonable certainty so the full offset was improper, ordered foreclosure judgment on the lien, and remanded for the trial court to reconsider attorney-fee findings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Entitlement to full foreclosure of mechanic’s lien | Smith Masonry performed (or at least substantially performed) and is entitled to full payment and foreclosure of lien. | WIPI argued defects (footings/placement) justify withholding payment and offsetting lien. | Court of Appeals (S.D. Sup. Ct.): Smith Masonry substantially performed; WIPI failed to prove repair costs, so wholesale offset was improper—foreclosure should be entered. |
| Application of substantial-performance doctrine and measure of damages | If not full performance, Smith Masonry says substantial performance entitles it to contract price less defects. | WIPI says defects are severe and require large remediation (possibly full replacement). | Court: Substantial-performance doctrine applies; measure is contract price minus cost of defects, but WIPI must prove repair costs with reasonable certainty. |
| Use of equitable principles (wholesale offset / unclean hands) | Smith Masonry argued contract governs and equitable offsets/unjust enrichment were inapplicable. | WIPI relied on equity to offset Smith Masonry’s lien against its alleged damages. | Court: Trial court erred in applying equitable wholesale offset where an express contract governs and no equitable claim was properly pled—contract remedies control. |
| Attorney fees under SDCL ch. 44 (mechanic’s liens) | Smith Masonry sought fees as prevailing party given outcome and defeat of large counterclaim. | WIPI maintained fees should be denied; trial court exercised discretion to deny. | Court: Trial court failed to make required findings when denying fees; remanded for reconsideration and factual findings in light of corrected legal rulings. |
Key Cases Cited
- Mathis Implement Co. v. Heath, 665 N.W.2d 90 (discusses review standard and damage measure when contractor substantially performs)
- Action Mechanical, Inc. v. Deadwood Historic Preservation Comm'n, 652 N.W.2d 742 (mechanic’s-lien foreclosure is in equity; legal/conclusion standards)
- Ahlers Bldg. Supply, Inc. v. Larsen, 535 N.W.2d 431 (substantial-performance doctrine and contractor’s burden)
- J. Clancy, Inc. v. Khan Comfort, LLC, 955 N.W.2d 382 (where express contract governs, equity will not displace contractual remedies)
- McKie v. Huntley, 620 N.W.2d 599 (damages require reasonable certainty and reasonable basis for calculation)
- Hoffman v. Olsen, 658 N.W.2d 790 (trial court must make findings when ruling on attorney-fee requests)