This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (1996).

STATE OF MINNESOTA

IN COURT OF APPEALS

C7-96-1113

S.K. Candor & Associates, Inc.,

Respondent,

vs.

Royal Diede,

Appellant.

Filed December 17, 1996

Affirmed as modified and Remanded

Schumacher, Judge

Clay County District Court

File No. C2951250

Timothy P. Hill, Bredahl Hill, P.C., 15 Broadway, Suite 206, Post Office Box 1029, Fargo, ND 58107-1029 (for Respondent)

David Garaas, Garaas Law Firm, DeMores Office Park, 1314 23rd Street South, Fargo, ND 58103 (for Appellant)

Craig A. Peterson, 808 Third Avenue South, Suite 205, Fargo, ND 58103 (for Appellant)

Considered and decided by Schumacher, Presiding Judge, Klaphake, Judge, and Amundson, Judge.

U N P U B L I S H E D O P I N I O N

SCHUMACHER, Judge

Royal Diede appeals from a judgment in favor of respondent S.K. Candor & Associates, Inc., arguing Candor failed to file the proper notice for its mechanics' liens and that the trial court erred in finding that (1) Candor substantially performed under the contract and (2) Diede was not entitled to an offset of damages. We affirm as modified and remand.

FACTS

Diede is a real estate investor who hired Candor as a construction management company to construct a seven-unit metal building and finish units one and two. The estimated contract price was $18,900 for labor plus $8,300 in management fees. The contract also budgeted for various other costs associated with the project.

During excavation, it was determined that the property was located over a former landfill. Neither party knew this at the time the contract was signed. Because of the uneven fill, Candor hired Midwest Testing to test the soil and make recommendations on how to set the foundation. Midwest recommended digging deeper to solid soil and then leveling to the proper elevation with engineered fill. Candor attempted to follow this recommendation and incurred greater costs than anticipated.

Candor proceeded to pour the foundation. The foundation was found to be 43 inches deep instead of the required 48 inches. Steve Candor testified they were forced to shorten the foundation because of the soil conditions. Candor also placed rebar in the foundation at 24 inches as opposed to the 18 inches required by the contract.

Candor completed the building and roof in early 1995, but Diede requested Candor to complete a number of extra projects not included in the original contract. Candor completed all of the requested extras. Diede refused to pay.

On June 1, 1995, Candor was replaced as construction manager. At that time, Candor sent Diede a request for final payment in the amount of $44,644.55. Diede did not pay, and on July 10, 1995, Candor filed two mechanics' liens against Diede totalling $47,379.55.

Candor brought an action to enforce the liens and for unjust enrichment. Diede agreed there were $32,996.65 in extra costs but argued there were deductions and offsets, lowering the amount to $4,842.79. Diede also counterclaimed for negligence in construction of the building.

The trial court found that Candor was entitled to the extra costs and awarded Candor $46,370.83. Diede appeals.

D E C I S I O N

On appeal from a judgment, this court's review is limited to whether the evidence is sufficient to support the trial court's findings and whether the findings support its conclusions of law. Dairy Farm Leasing v. Haas Livestock Selling Agency, 458 N.W.2d 417, 418 (Minn. App. 1990). In all actions tried without a jury,

[f]indings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses.

Minn. R. Civ. P. 52.01. This court must view the evidence and its reasonable inferences in a light most favorable to the prevailing party. State, Dep't of Pub. Welfare v. Thibert, 279 N.W.2d 53, 56 (Minn. 1979). Statutory construction is a question of law subject to de novo review by this court. Hibbing Educ. Ass'n v. Public Employment Relations Bd., 369 N.W.2d 527, 529 (Minn. 1985).

1. Diede argues the mechanics' liens must fail because Candor did not give prelien notice. Prelien notice is not required

in connection with an improvement to real property * * * if the work or improvement:

(a) is to provide or add more than 5,000 total usable square feet of floor space; * * *

Minn. Stat. § 514.011, subd. 4c (1994). Total usable square feet of floor space is "the area within the inner surface of the exterior walls." C. Kowalski, Inc. v. Davis, 472 N.W.2d 872, 876 (Minn. App. 1991), review denied (Minn. Sept. 13, 1991). The area of the whole building is 8,400 square feet (210 feet long by 40 feet wide). Candor was not required to give prelien notice.

2. Diede argues Candor did not substantially perform under the contract by improperly constructing the foundation and roof.

Whether a party substantially performed is a question of fact. Paving Plus v. Professional Invs., 382 N.W.2d 912, 915 (Minn. App. 1986). In Ylijarvi v. Brockphaler, 213 Minn. 385, 7 N.W.2d 314 (1942), the supreme court discussed construction contracts and substantial performance:

The duty under a contract is full and complete performance. In the case of building and construction contracts, the rule has been generally adopted that such duty is satisfied by substantial performance. * * * [T]he owner should not have without payment the benefits of, and the contractor should not forfeit, labor and materials expended in constructing essentially that for which the parties bargained.

* * * *

[S]ubstantial performance means performance of all the essentials necessary to the full accomplishment of the purposes for which the thing contracted for has been constructed, except for some slight and unintentional defects which can be readily remedied or for which an allowance covering the cost of remedying the same can be made from the contract price. Deviations or lack of performance which are either intentional or so material that the owner does not get substantially that for which he bargained are not permissible.

Id. at 389-90, 7 N.W.2d at 318.

Here, the record shows the foundation was five inches shorter than required by the building code and the rebar was six inches out of place as required by the contract. Steve Candor testified he had no choice but to shorten the foundation because of the inferior soil conditions. Both Diede's and Candor's experts testified the foundation was not moving. Candor's expert testified the foundation would not move in the future. Diede offered no testimony to rebut this evidence. There was no testimony that the rebar's position materially affected the structural integrity of the foundation.

There is conflicting testimony regarding the leaks in the roof. Diede's witness suggested the leaks were the result of Candor's negligence in constructing the roof. Steve Candor testified the roof was defectively designed because it did not hang over the wall. The record shows that the water damage in unit five caused by condensation was remedied by turning on the heat.

Viewing the facts in the light most favorable to Candor, and allowing the trial court to weigh witnesses' credibility, the trial court's finding that Candor substantially performed under the contract is not clearly erroneous.

3. Diede argues that even if there was substantial performance he is entitled to recoupment or an offset because he did not get what he bargained for. In computing damages in cases of substantial, but not full, performance, a trial court generally has discretion, within the mathematical range established by the evidence, to determine the amount of any offset for the cost of completion or diminution of value, and need not adopt the testimony of any single witness. Asp v. O'Brien, 277 N.W.2d 382, 384-85 (Minn. 1979); Klingelhutz v. Grover, 306 Minn. 271, 273, 236 N.W.2d 610, 611-12 (1975).

Diede testified he is entitled to an $11,000 offset for the foundation and $15,000 for a new roof because he would have to disclose the problems if he ever wanted to sell the property. Diede's estimates were not based on any independent appraisals. No evidence was introduced at trial indicating reduced property value. Diede also claims an offset for work done by the new construction manager. The new construction manager testified that he did work that should have been done by Candor. The trial court, however, determined the weight to be given to this testimony. In the final analysis, we conclude the trial court did not abuse its discretion in not awarding Diede an offset.

4. Diede argues that the trial court erroneously included numerous damages in calculating the award. The record supports the trial court's findings for all amounts except for the labor charge and the costs for painting unit one.

The trial court awarded the estimated labor cost of $18,900 listed in the contract. The record shows that Candor only billed $18,100. Candor agreed at oral argument that $18,100 is the correct amount. The trial court awarded $740 and $924.65 for painting. The record shows that Candor billed $745 for painting in unit one and then $179.65 for more painting in unit one, totalling $924.65. Nowhere in the record is there another painting bill for $740. The trial court's award of $46,370.83 for contract costs is therefore reduced by $1,540 to reflect the above modifications.

5. Diede argues the trial court failed to credit him for construction delay, the propane heater rental, electricity, sanitation costs, and management fees that Candor agreed not to charge him for during a May 15, 1995 meeting. The trial court found that Candor's offer was part of negotiations and not admissible.

Evidence of (1) furnishing or offering or promising to furnish, or (2) accepting or offering or promising to accept, a valuable consideration in compromising or attempting to compromise a claim which was disputed as to either validity or amount, is not admissible to prove liability for or invalidity of the claim or its amount. Evidence of conduct or statements made in compromise negotiations is likewise not admissible.

Minn. R. Evid. 408. The record indicates that Diede refused to pay Candor and that Candor made the offer to credit the items in order to settle with Diede. The trial court's ruling to exclude testimony of the agreement was not erroneous.

6. Finally, Diede argues Candor should not recover $11,017.80 in management fees for the "extras" because management fees were only allowed for work done under the original contract and Candor did not disclose that it would be charging the fees. We disagree. The contract provided that the owner "will pay the construction manager 6.5% for all material and labor furnished to complete the project * * *." The contract also required that Candor schedule and coordinate all subcontractors and bill Diede once every month for the percentage of projects completed.

At the time the "extras" were ordered, Candor was still the construction manager. Candor received bids from and executed the projects through subcontractors, just as it had for the items listed in the original contract. The record shows that Candor complied with the required monthly billing for the extra projects. As long as Candor was the construction manager and completed the work on the project, it was entitled to the management fee.

We note that the amount of management fees was determined with finality by the trial court in its findings of fact. The management fee amount, however, was not incorporated into the final judgment. Based on our modification of the underlying Mechanic's Lien amount, we remand to the trial court for recalculation of the management fee and incorporation of that amount into the judgment.

Affirmed as modified and remanded.