Kahle v. John McDonough Builders, Inc.

ALPERT, Judge. On October 9, 1987, John McDonough Builders, Inc. (“Mc-Donough Builders”) brought a mechanic’s lien action against Scott and Sherrie Kahle (“the Kahles”) in the Cir ¹⁴³ cuit Court for Howard County alleging that the Kahles owed McDonough Builders $159,659.00 plus interest. The Kahles filed an answer, as well as a counterclaim and prayer for jury trial, which alleged that McDonough Builders had breached a cost plus construction contract for the construction of a new home for the Kahles. The counterclaim asked for $250,000 in damages.

After finding that there was probable cause for a lien, the circuit court placed an interlocutory lien on the Kahles’ property on December 9, 1987. The actions were heard in a joint jury and bench trial that was held on May 22, 1989. The counterclaim was decided by the jury, which awarded the Kahles $12,000. The mechanic’s lien action was decided by the Honorable J. Thomas Nissel, who after determining that the sum was “a balance due the builder of $145,151.25,” awarded McDonough $133,-151.25 plus pre- and post-judgment interest on the mechanic’s lien claim.

Judge Nissel’s award included a deduction for the $12,000. On July 17, 1989, Judge Nissel signed a Final Order Establishing Mechanic’s Lien and Directing Sale of Property. The Kahles then filed a Motion to Alter or Amend Judgment, which the circuit court denied on September 14, 1989. On appeal, the Kahles ask us to consider whether: I. The circuit court erred by (a) failing to hold that McDonough Builders had breached its fiduciary responsibility to the Kahles under the cost-plus-fixed-fee construction agreement by failing to give them adequate information as to the total cost of construction during the course of the project, and (b) by permitting McDonough Builders to recover in the mechanic’s lien action for the cost of material and labor for work performed beyond any projection of cost of which McDonough Builders had reasonably informed the Kahles. ¹⁴⁴ II.

The circuit court erred by instructing the jury so as to limit any recovery that the Kahles might have for breach of contract to defective workmanship. THE FACTS After purchasing a lot upon which they wanted to have a house built, Scott and Sherrie Kahle hired an architect, Neil Lang, who prepared specifications for the house and preliminary drawings. The Kahles were going to send out these drawings and specifications for bidding by various contractors. In the spring of 1986, they asked John McDonough (“McDonough”), of McDonough Builders, to prepare a construction budget to assist them in evaluating construction bids.

McDonough agreed to “figure up a rough estimate.” McDonough’s preliminary budget estimated the cost at $569,000. When he presented the preliminary estimate to the Kahles, he emphasized that it was inexact because the site plan, drawings, specifications, and selections had not been finalized. McDonough then explained the types of contracts he used for his clients. He said that he could not use a fixed price contract, which would require him to build the house for the price set in the contract, unless the plans were further along than the preliminary drawings provided by the Kahles because he could not determine what the price would be.

The alternative was a cost-plus-fixed-fee contract, which gave the client the opportunity to make changes and be closely involved in the construction process. Scott Kahle expressed an interest in getting the house started before the winter began, rather than waiting for final drawings and specifications. A few days later, he had his architect, Neil Lang, contact McDonough about going ahead with the cost-plus-fixed-fee contract, because the Kahles had decided not to solicit bids from other contractors. The Kahles asked McDonough to reduce the original estimate figure of $569,000; after some effort, he was able to reduce it to $509,000.

This figure included a fixed-fee of $78,000 and $431,000 as a budget for hard costs based on ¹⁴⁵ the preliminary plans and specifications. Any costs over the baseline cost figure would be paid to the builder, as well as 15% for profit and overhead. The Kahles and McDonough signed a cost-plus-fixed-fee contract on June 4, 1986. In early July of 1986, McDonough sent the Kahles a sheet that laid out the items they were to select and the time frame for making these selections.

The Kahles made their initial selections regarding the construction. McDonough began receiving more detailed drawings from the Kahles’ architect, which enabled him to solicit prices from subcontractors for the various steps of construction. Construction then began. On March 31, 1987, McDonough tallied the known construction costs; they had totalled $744,000.

Construction continued until the end of June. In early July, the Kahles gave a party to thank McDonough, his employees, and his subcontractors for their fine work in constructing the house. In the middle of July, McDonough secured a use and occupancy permit for the Kahles. They moved into the house at the end of July over McDonough’s protests; he objected because he still had not been paid all of the money owed him.

The appellants refused to pay any further sums because they said the total cost of construction, which McDonough claimed was $881,000, was much too high. McDonough then filed a mechanic’s lien action on October 9, 1987, seeking $159,658.98, the balance he claimed was due him. The Kahles responded with a counterclaim for breach of the construction contract. The Circuit Court for Howard County, the Hon.

J. Thomas Nissel presiding, found in favor of McDonough on the mechanic’s lien; thus, we are presented with this appeal. Having summarized the facts, we note that other facts will be included in the discussion as they become relevant. DISCUSSION I. Under the provisions of the contract between the Kahles and McDonough, McDonough accepted a “relationship of ¹⁴⁶ trust and confidence established between him and the [Kahles]”. The appellants contend that McDonough breached the trust that appellants placed in him by exceeding the initially projected costs and by not informing them of the escalating costs.

They argue that the circuit court erred (1) by not holding that the appellee breached its fiduciary duty to the appellants, and (2) by permitting appellee to recover in a mechanic’s lien action for the cost of material and labor beyond the projected cost. Appellants rely on our decision in Jones v. J.H. Hiser Constr. Co., 60 Md.App. 671 , 484 A.2d 302 (1984). Jones involved a cost-plus-fixed-fee construction contract in which the builder claimed a mechanic’s lien against the purchasers.

Id. at 673 , 484 A.2d 302 . They defended by arguing that the builder had not kept them apprised of the ongoing and escalating construction costs. Id. at 675 , 484 A.2d 302 . We agreed with the purchasers, and found that the builder breached his contractual fiduciary duty to keep effective track of the ongoing or escalating costs of construction and to advise his client of these costs.

Id. at 678 , 484 A.2d 302 . We then held that the breach of duty barred a mechanic’s lien for any sum beyond the agreed-upon cost. Id. at 679 , 484 A.2d 302 . Appellees point out several valid differences between Jones and the instant case.

McDonough had mere concept drawings at the time of the original estimate; there is no indication that the builder had incomplete drawings in Jones . The record in the instant case demonstrates constant contact between the Kahles and McDonough, whereas in Jones , the communication between the builder and the purchasers appeared limited to periodic invoices. Finally, there was no testimony here that attacked the reasonableness of McDonough’s charges for the changes, selections, and extras; in Jones , the trial testimony indicated that the reasonable cost of the changes was substantially below that charged. ¹⁴⁷ Although it is true that we do not have the record from Jones before us, judging from the relevant facts cited in that case, the amount of interaction between the Joneses and Hiser was limited. Here, McDonough and Kahle met and discussed every stage of the project. 1 When McDonough received prices from subcontractors, he would confer with Scott Kahle, so Mr. Kahle could decide which subcontractor to choose.

All of the various changes, selections, and extras requested by the Kahles were discussed by the parties on a routine basis. Although the contract had required that all changes be made by written agreement, Scott Kahle advised McDonough that this would not be necessary. As construction progressed, McDonough received numerous sets of drawings from the Kahles. He periodically presented them with revised budget sheets which reflected that their requested changes were being made.

Appellee admits that he never furnished the appellants with the final estimate that was required under the contract. The trial court apparently was persuaded by his explanation that this was because he did not receive the final plans and specifications necessary for preparing the estimate. The Kahles could not give him these plans because they were constantly making changes. The trial court could and apparently did find that, unlike the Joneses, the Kahles were not oblivious to the costs that arose after McDonough projected the cost at $744,000 on March 31, 1987.

They were presented with various invoices and estimates, McDonough’s books were available to them, they asked him for invoices, they had his books checked by their accountant. They also were person ¹⁴⁸ ally involved in the selections, extras, and changes that arose after March. Because the instant case is factually distinguishable from Jones, Jones is not controlling, although its principles certainly apply. The evidence was sufficient for the trial court to find that there was no breach of fiduciary duty by the appellee.

McDonough adequately met his obligation to keep them informed of the costs. The appellants chose the cost-plus-fixed-fee contract for its inherent flexibility. It is designed for clients who plan to make numerous changes, and be involved on a daily basis throughout construction with input, comments, and changes. The Kahles took advantage of this flexibility, and made constant changes and selections.

Furthermore, their architect, interior designer, and accountants were involved in the construction process. Their constant, close involvement belies any claim that they had no clue as to the accumulating costs, as was the case in Jones . The Kahles did not blindly rely on McDonough; he did not breach their trust and confidence. In light of the foregoing discussion, we reject the appellants’ argument that under Jones , the Kahles’ liability for the mechanic’s lien may not exceed the projected cost of $744,000.

Because it found that the overrun was not caused by a fiduciary breach, the circuit court was justified in awarding the builder the full amount of the lien, less the requested $9,940 in delay costs that the court rejected. Our review of the record convinces us that there was enough evidence upon which the trial court could rely in determining that McDonough did not breach his fiduciary duty. In actions tried without a jury, an appellate court “will not set aside the judgment of the trial court on the evidence unless clearly erroneous, and will give due regard to the opportunity of the trial court to judge the credibility of the witnesses.” Md.R. 8-131(c). The trial court