J. CLANCY, INC., Plaintiff and Appellant, v. KHAN COMFORT, LLC, previously known as KHAN DEVELOPMENT, LLC; GHAZANFAR KHAN, individually; Defendants and Appellees, and FIRST INTERSTATE BANK, a Montana Banking Corporation; BLACK HILLS COMMUNITY ECONOMIC DEVELOPMENT, INC., a South Dakota Non-Profit Corporation; UNITED STATES SMALL BUSINESS ADMINISTRATION; BKM ENTERPRISES, INC. d/b/a WATCO POOLS, a Montana Corporation; RAPID FIRE PROTECTION, INC., a South Dakota Corporation; and LAWRENCE COUNTY, a political subdivision of the State of South Dakota, Defendants.
#28856-aff in pt & rev in pt-JMK
IN THE SUPREME COURT OF THE STATE OF SOUTH DAKOTA
OPINION FILED 02/10/21
2021 S.D. 9
THE HONORABLE MICHELLE K. COMER, Judge
APPEAL FROM THE CIRCUIT COURT OF THE FOURTH JUDICIAL CIRCUIT, LAWRENCE COUNTY, SOUTH DAKOTA. CONSIDERED ON BRIEFS SEPTEMBER 30, 2019.
SCOTT SUMNER, Rapid City, South Dakota, Attorney for defendants and appellees.
KERN, Justice
[¶1.] J. Clancy, Inc. (J. Clancy), a construction company owned by Jere Clancy, sued Ghazanfar Khan (Khan) and his company, Khan Comfort, LLC (Khan Comfort), seeking enforcement of mechanic’s liens it placed against the property. In the alternative, J. Clancy filed claims for breach of contract and unjust enrichment. Khan Comfort filed several counterclaims, including claims for overpayment and breach of contract.
[¶2.] After a bench trial, the circuit court concluded that J. Clancy’s mechanic’s liens were invalid and unenforceable because, in part, they were insufficiently itemized. It also held that a divisible, implied-in-fact contract, rather than an express contract, governed the relationship between the parties. The court rejected J. Clancy’s breach of contract and unjust enrichment claims against Khan Comfort and instead found that J. Clancy breached the contract due to nonperformance. It allowed J. Clancy to recover for the portions of the contract it had actually performed, but it ultimately determined that the value of J. Clancy’s work was less than the payments Khan Comfort had already made. Accordingly, the court ordered J. Clancy to reimburse Khan Comfort for the overpayment. We reverse the circuit court’s decision in part and remand for new determinations regarding breach and damages under the terms of the parties’ contract.
Facts and Procedural History
[¶3.] In 2012, Khan decided to convert his Comfort Inn hotel in Spearfish, South Dakota to a Hampton Inn (Spearfish project). After developing a product improvement plan (PIP) with Hilton Worldwide, the owner of the Hampton Inn brand, Khan began looking for a contractor to complete the work. Khan had
[¶4.] In March 2012, Khan, acting on behalf of Khan Comfort, signed a document (March document) that listed the specific work J. Clancy needed to complete when renovating the hotel. The document included tasks such as crafting vanity bases for the guest bathrooms, procuring equipment items for a fitness room, and providing materials for reconstructing the breakfast, pool, and meeting rooms at the hotel. The amount charged for the work listed in the March document amounted to $191,258.11, but the document did not include the cost of labor or installation. A J. Clancy representative did not sign the document, and Khan Comfort did not pay the required 50% deposit to confirm the agreement. Likewise, J. Clancy did not, at this time, begin working on the listed projects.
[¶5.] In May 2012, Khan Comfort paid J. Clancy $20,000 as a deposit for work on the vanity bases and the fitness equipment. Upon receiving the deposit, J. Clancy began working on these specific items while the parties further negotiated the terms of an agreement. The next document, dated September 5, 2012 (September document), was J. Clancy’s “standard proposal.” It listed both the materials and labor that J. Clancy was willing to provide for Khan Comfort. The September document listed many of the same projects contemplated by the March document. However, it also enumerated several new projects and had a significantly higher total contract price of $308,922.28. With reference to labor
[¶6.] Khan, on behalf of Khan Comfort, signed the September document the same day that J. Clancy sent it to him on September 5, 2012, but a representative from J. Clancy did not sign it. The next day, Khan Comfort paid J. Clancy $154,000 (approximately 50% of $308,922.28) in partial payment for the renovations, as required by the September document. J. Clancy started renovations the next day on September 6. J. Clancy submitted several invoices to Khan Comfort as the project progressed and in conformance with the provisions of the September document. Jere Clancy testified that both the contract and the invoicing practices used in the Spearfish project were similar to the parties’ methods used in the prior Gillette renovation project.
[¶7.] As work progressed throughout the fall, the parties agreed to several change orders. Certain alterations were in writing while others were made orally. At some point, issues arose regarding whether J. Clancy was paying its subcontractors. To move construction along, Khan Comfort paid MLK Plumbing, which normally would have been J. Clancy’s duty, for work MLK Plumbing performed in the bathrooms. Khan Comfort also gave Horst Acoustical a credit of
[¶8.] Aside from the initial payment in September, Khan Comfort made no progress payments to J. Clancy until December 12, 2012, when J. Clancy requested that Khan Comfort make two payments toward the project to ensure the construction schedule proceeded as expected. Khan Comfort wired the payments to J. Clancy (each for $35,000), and J. Clancy acknowledged receipt of the payments at trial.
[¶9.] J. Clancy left the construction site in February 2013. According to the testimony at trial, J. Clancy’s property manager, Charles Moore, had walked through the premises with Khan to determine if additional work was necessary. Moore testified that Khan did not voice any dissatisfaction with the renovations during the walk-through even though the terms of the September document required that he do so within seven days of reviewing the work. Khan did not refute this contention at trial. Instead, he testified that he believed his dissatisfaction with the work was obvious because portions of the project were incomplete.
[¶10.] After the walk-through, Khan Comfort refused to make any further payments, which prompted J. Clancy to file two mechanic’s liens against the property. The first lien (filed on April 29, 2013) demanded payment of $97,713.28
[¶11.] On May 17, 2013, J. Clancy filed a ten-count complaint in circuit court against Khan Comfort and Khan, in his personal capacity, to foreclose his mechanic’s liens or, in the alternative, to recover for breach of contract and unjust enrichment for the materials and labor described in the liens. In response, Khan Comfort asserted several counterclaims, including claims for overpayment and breach of contract.3
[¶12.] In August 2018, the circuit court held a three-day bench trial to resolve the dispute. The court considered testimony from Jere Clancy, Charles Moore (J. Clancy’s property manager), and Ghazanfar Khan. At the close of the evidence, the court took the matter under advisement and later issued 91 pages of findings of fact and conclusions of law addressing the enforceability of the mechanic’s liens, the
[¶13.] The circuit court held that the documents attached to J. Clancy’s mechanic’s liens were insufficient to adequately itemize J. Clancy’s labor fees for the project. For example, the court found the liens defective and invalid because they did not include the dates on which the labor was performed, the number of hours worked, the hourly wages paid, and the types of improvements made. Therefore, the court denied J. Clancy’s claims seeking foreclosure on its mechanic’s liens in their entirety.
[¶14.] With reference to J. Clancy’s breach of contract claims, the circuit court held that neither the March nor the September document met the criteria for an express contract. Instead, the court concluded that the parties had an implied-in-fact contract. With respect to performance of the contract, the court found that J. Clancy’s work did not constitute either full or substantial performance. Finding J. Clancy’s partial performance “divisible into units or modules of performance[,]” the court concluded J. Clancy could recover only the reasonable value of the goods and services it supported with evidence at trial.
[¶15.] After a painstaking review of each contract invoice, the court concluded that the money Khan Comfort paid for J. Clancy’s services exceeded the value of the work completed. Accordingly, the court rejected J. Clancy’s claims altogether and found for Khan Comfort on its overpayment counterclaim (count 1). On December 6, 2018, the court ordered J. Clancy to reimburse Khan Comfort $33,442.92 for the
[¶16.] J. Clancy appeals, raising the following issues for our review, which we reorder and consolidate as follows:
- Whether the circuit court erred in resolving the parties’ breach of contract claims.
- Whether the circuit court erred in holding that the mechanic’s liens were not sufficiently itemized pursuant to SDCL 44-9-16.
- Whether J. Clancy may bring a claim for conversion or unjust enrichment.
Analysis and Decision
I. Whether the circuit court erred in resolving the parties’ breach of contract claims.
[¶17.] J. Clancy challenges Khan Comfort’s argument and the circuit court’s conclusion that an implied-in-fact contract controlled the parties’ business transactions. In J. Clancy’s view, the evidence establishes that both parties assented to all material terms in the September document, creating an express contract. J. Clancy also argues that the circuit court erred when it concluded that J. Clancy did not substantially perform its contract obligations.4
Status of the Contract
[¶19.] The “[e]lements essential to existence of a contract are: (1) [p]arties capable of contracting; (2) [t]heir consent; (3) [a] lawful object; and (4) [s]ufficient cause or consideration.”
[¶20.] An implied-in-fact contract is created when “the intention as to [the contract] is not manifested by direct or explicit words by the parties, but is to be gathered by implication or proper deduction from the conduct of the parties, language used, or acts done by them, or other pertinent circumstances attending the transaction.” Id. (emphasis added).5 Because “[a]n implied contract . . . must contain all the elements of an express contract,” Setliff v. Akins, 2000 S.D. 124, ¶ 63, 616 N.W.2d 878, 895 (emphasis omitted), both express and implied-in-fact contracts require mutual assent. For implied contracts, however, assent occurs when, after reviewing the facts objectively, “a party voluntarily indulges in conduct reasonably indicating assent[.]” Id. ¶ 13, 616 N.W.2d at 885.
[¶21.] The circuit court analyzed the circumstances surrounding the parties’ business relationships and their testimony at trial and concluded that the parties never agreed to a single, express, written contract. Instead, the court determined
[¶22.] While Khan Comfort argued at trial that disputed facts existed concerning the existence of a written contract, Khan’s own testimony was contrary to this assertion. “[A] party to a lawsuit cannot claim the benefit of a version of relevant facts more favorable to his own contentions than he has given in his own testimony.” Law Capital, Inc v. Kettering, 2013 S.D. 66, ¶ 13, 836 N.W.2d 642, 646. In reviewing the record, it is apparent that Khan Comfort agreed to the terms of an express contract as shown by its affirmation of the terms of the September document in its answer and statement of undisputed material facts filed in response to J. Clancy’s motion for summary judgment.6 Prior to trial, however, counsel for Khan Comfort changed course, arguing that the September document did not reflect the parties’ agreement. Instead, as Khan Comfort’s counsel explained at length in his pretrial brief, “[i]n all sincerity, legal counsel for Khan Comfort, LLC, has struggled with how to seek to characterize the terms of the business relationship between J. Clancy, Inc., and Khan Comfort, LLC.”
[¶23.] At trial, Khan Comfort’s counsel claimed that he began “with the belief and understanding that the parties thought they had a contract [September document][;] as things have developed, it appear[ed] to [counsel] that the evidence
[¶24.] Nevertheless, in support of this theory that the September document lacked mutual assent, Khan Comfort pointed to a series of invoices that J. Clancy sent to Khan Comfort before Khan Comfort signed the September document. Khan Comfort’s approach, however, seeks to ignore the stated terms of the express agreement in the September document and overlooks the undisputed facts in the record. Khan admitted that he signed the September document and wired 50% of the contract price ($154,000) to J. Clancy on September 6, 2012 as required by the
[¶25.] Here, in light of the conduct of the parties surrounding the September document, Khan’s signature constituted an unqualified acceptance. “[A]s a general principle, one who accepts a written contract is conclusively presumed to know its contents and to assent to them, in the absence of fraud, misrepresentation, or other wrongful act by another contracting party.” Inst. of Range & the Am. Mustang v. Nature Conservancy, 2018 S.D. 88, ¶ 25, 922 N.W.2d 1, 8. “To permit a party, when sued on a written contract, to admit that he signed it but to deny that it expresses the agreement he made . . . would absolutely destroy the value of all contracts.” Dinsmore v. Piper Jaffray, Inc., 1999 S.D. 56, ¶ 12, 593 N.W.2d 41, 44. Khan’s signature on the September document and his payment by wire constitutes an absolute and unqualified acceptance of the terms of the document. Moreover, upon receipt of the payment, J. Clancy immediately began the hotel renovations. Such conduct by the parties hardly suggests that they were laboring under a series of implied-in-fact agreements without basic, mutual assent to the September document. Rather, J. Clancy’s continuing performance and submission of invoices to Khan Comfort, as required under the September document, and Khan Comfort’s payments to J. Clancy evince mutual assent.
[¶26.] Further, the essential terms of an express contract were present in the September document. The document listed the subject matter of the work to be
[¶27.] Accordingly, “[w]here there is a valid express contract existing between parties in relation to a transaction fully fixing the rights of each, there is no room for an implied promise.” Koopman, 2020 S.D. 37, ¶ 20, 945 N.W.2d at 928. “[A]n express contract precludes the existence of a contract implied by law or a quasi-contract.” Jurrens v. Lorenz Mfg. Co. of Benson, Minn., 1998 S.D. 49, ¶ 6, 578 N.W.2d 151, 153. Therefore, the circuit court erred in holding that a divisible implied-in-fact contract, rather than an express contract defined by the terms of the September document, controlled the parties’ rights and obligations.
Breach of the September document
[¶28.] The circuit court’s starting point for determining breach should have been the express terms of the September document.8 Under the terms of the agreement, Khan Comfort was obligated to make periodic progress payments to J. Clancy. Section 5(B) of the September agreement provides that:
The balance of the Contract Price will be paid to Contractor via progress payments which may include ordered, but not delivered imported goods. Contractor shall periodically present to Owner statements for progress payments. The owner will then issue checks to the Contractor without any reduction, setoff or holdback for such progress payments within ten days of presentation of the statements for the progress payments. If payment is not received by Contractor within ten days of presentation of statements for progress payments, Contractor may immediately cease performance until such payments are received.
Under this provision, J. Clancy had the right to demand progress payments from Khan Comfort, after providing invoice statements. Notably, Khan Comfort did not have the authority to hold back progress payments even if the goods were not yet delivered. Further, if Khan Comfort did not provide J. Clancy progress payments within ten days, J. Clancy had the right to immediately stop construction.9
[¶29.] Because the circuit court’s findings of fact and conclusions of law do not address this provision, the circuit court must determine, on remand, which party is in breach under the framework of the express contract.10 This is a question
II. Whether the circuit court erred in holding that the mechanic’s liens were not sufficiently itemized pursuant to SDCL 44-9-16.
[¶30.] J. Clancy contends that the circuit court erred by invalidating its liens upon the property and concluding that it failed to meet the itemization requirement of
[¶32.] After determining a contractual obligation exists, “[a] lien claimant need not elect between the remedy of pursuing its rights under contract and the remedy under the lien; the two remedies are concurrent and may be pursued simultaneously or in succession, although there can be only one satisfaction.” 56 C.J.S. Mechanics’ Liens § 373 (2020).12 The “election-of-remedies rule . . . does not
[¶33.] Here, there was an express agreement governing the rights and duties of the parties, and J. Clancy’s liens will properly attach to Khan Comfort’s property if they complied with the provisions of
[¶34.] J. Clancy cites Ringgenberg v. Wilmsmeyer in support of its position that the itemization attached to its lien statements is sufficient to support the validity of the liens. 253 N.W.2d 197, 201 (S.D. 1977). In Ringgenberg, the Court analyzed the itemization requirement and reasoned that a court “should not decide substantial compliance in a vacuum. Care should be taken to consider the nature of
[¶35.] Ringgenberg has been successfully applied in cases where the parties’ agreement covers both material and labor, and, because of the nature of the work performed, it was “not necessary, even if possible, to furnish further detail as to materials or labor.” 253 N.W.2d at 201. In such cases “[w]here the work is contracted for as an entirety for a specific amount,” and where “[t]he information provided is sufficient to allow the owner to ascertain and verify the correctness of the lien[,]” the liens were upheld as valid under
[¶36.] Our review, therefore, requires an assessment of J. Clancy’s lien statements to determine whether they comply with
[¶37.] J. Clancy’s larger lien statement claimed $97,713.28 for unpaid materials and labor resulting from work completed under the September document and seven change orders. J. Clancy attached to the lien statement the September document and the change orders which set forth an itemized list of the materials provided, including the price per item. Additionally, J. Clancy attached various invoices for materials and labor. The circuit court concluded that J. Clancy’s failure to itemize its labor costs under
[¶38.] As we examine the lien statement for its compliance with
[¶40.] In denying the validity of J. Clancy’s mechanic’s lien, the circuit court found that J. Clancy did not prove that $97,713.28 was “due and owing” for the labor it actually performed and materials it had provided. This determination was based upon the court’s conclusion that J. Clancy had breached the terms of an implied contract and was only entitled to the reasonable value of its services.15
III. Whether J. Clancy may bring a claim for conversion or unjust enrichment.
[¶41.] J. Clancy also argues that the circuit court erred when it rejected its conversion and unjust enrichment claims. To support this claim of error, J. Clancy contends that Khan Comfort received $371,661.08 in goods and services but only paid $244,000 for them. In J. Clancy’s view, this entitles it to a judgment for conversion because the facts in the record demonstrate that Khan Comfort interfered with its property, namely the improvements it made to the hotel, without the legal right to do so. See generally Rensch v. Riddle’s Diamonds of Rapid City, Inc., 393 N.W.2d 269, 271 (S.D. 1986). However, J. Clancy did not present the argument to the circuit court that Khan Comfort converted its property. It is our policy not to address unpreserved claims on appeal. People in Interest of M.S., 2014 S.D. 17, ¶ 17 n.4, 845 N.W.2d. 366, 371 n.4. Therefore, we decline to address J. Clancy’s conversion claim.
[¶42.] J. Clancy also contends that it is entitled to recover $127,661.08 for its unjust enrichment claim, because it provided Khan Comfort with goods and services without receiving payment. “Unjust enrichment contemplates an involuntary or nonconsensual transfer, unjustly enriching one party. The equitable remedy of restitution is imposed because the transfer lacks an adequate legal basis.” Johnson v. Larson, 2010 S.D. 20, ¶ 8, 779 N.W.2d 412, 416. In contrast, where “there is a valid and enforceable contract, . . . liability for compensation or other resolution of the breach is fixed exclusively by the contract.” Id. ¶ 9, 779 N.W.2d at 416.
[¶43.] Although parties are free to plead in the alternative, generally “[w]here a party seeks damages pursuant to both a statutory and an equitable claim, the very existence of the statutory claim[] bars recovery on the equitable claim[.]” CMI Roadbuilding, Inc. v. Iowa Parts, Inc., 920 F.3d 560, 566 (8th Cir. 2019) (applying analogous Iowa law). This is because, unless fraud or bad faith exists, a claimant alleging breach of contract generally has a “full, adequate and complete” remedy available at law. Holzworth v. Roth, 78 S.D. 287, 291-92, 101 N.W.2d 393, 395-96 (1960). See also Mealy v. Prins, 2019 S.D. 57, ¶ 43, 934 N.W.2d 891, 903 (holding that a party cannot use unjust enrichment to circumvent a statute of limitations for breach of contract). “There is no question but what, where there is a valid express contract existing between parties in relation to a transaction fully fixing the rights of each, there is no room for an implied promise, or [claim] on quantum meruit.” Burch v. Bricker, 2006 S.D. 101, ¶ 18, 724 N.W.2d 604, 609-10.
[¶44.] The trial court rejected J. Clancy’s unjust enrichment claim, holding that the implied-in-fact contract “controls the relationship between” the parties. We note that while J. Clancy acknowledges the trial court’s holding that a contract controlled this transaction, it does not attempt to argue, as Holzworth requires, that equity is appropriate because no adequate legal remedy exists. Because the court decided this action based on the parties’ relative remedies at law, equity will not interfere in this case, even though the court incorrectly held that the contract was
Conclusion
[¶45.] The trial court erred in holding that a divisible implied-in-fact contract controlled the parties’ express agreement, and we reverse and vacate the court’s conclusions which hold otherwise. On remand, the court must undertake a determination of breach and remedies available to the parties under the express terms of the September document and any agreed-upon change orders. We also reverse the trial court’s decision to invalidate both mechanic’s liens filed by J. Clancy. After determining the questions of breach and damages on remand, the court should then determine whether J. Clancy is entitled to foreclose on either lien for any amounts covered thereunder to which the court determines it is entitled. Because J. Clancy failed to make arguments regarding its conversion claim to the circuit court, we decline to address the issue on appeal. Finally, because a valid, express contract controls the parties’ obligations, the parties may not proceed for equitable relief.
[¶46.] JENSEN, Chief Justice, and SALTER and DEVANEY, Justices, and GILBERTSON, Retired Chief Justice, concur.
[¶47.] MYREN, Justice, not having been a member of the Court at the time this action was submitted to the Court, did not participate.
KERN, Justice
Notes
Q: . . . Did you, when you read every line of Plaintiff’s Exhibit 1 [September document], talk to Mr. Clancy and say, “Hey, Mr. Clancy, there’s a lot of items that aren’t included in our contract that are in the PIP“? You never ever said a word, did you?
A: [Khan]: Whatever was in the contract [September document] we agree[d] on.
Q: In the contract?
A: Yes.
Q: Which is Plaintiff’s Exhibit 1?
A: Yeah.
. . .
Q: Okay. The agreement between you and Mr. Clancy is controlled by Plaintiff’s Exhibit 1?
A: Yes.
| Change order | Job Description | Contract Price | Invoiced Amount | Invoice No. |
|---|---|---|---|---|
| 1 | Fire tape, caulk, and framing | $6,470.00 | $6,602.05 | 1213 |
| 2 | Dumpster | $864.28 | $881.92 | 1173 |
| 3 | Demolition of drywall ceiling | $1,815.00 | $1,852.04 | 1214 |
| 6 | Additional wall vinyl | $1,325.00 | $1,352.04 | 1193 |
| 7 | Table bases for breakfast area | $688.75 | $688.75 | 1179 |
| 9 | Additional window treatments and revised bed-skirt | $519.00 | $201.00 | 1192 |
| 11 | Breakfast doors and thresholds | $3,620.88 | $3,971.26 | 1224 |