                 IN THE COURT OF APPEALS OF TENNESSEE
                            AT KNOXVILLE
                                  October 16, 2003 Session

       KATHY GARDENHIRE, ET AL. v. REAL ESTATE INSPECTION
                     SERVICE, INC., ET AL.

                   Appeal from the Chancery Court for Hamilton County
                     No. 95-1240 Frank V. Williams, III, Chancellor

                                  FILED JANUARY 29, 2004

                                No. E2002-02214-COA-R3-CV


Todd Gardenhire and his wife, Kathy Gardenhire (“the plaintiffs”), own a residence and lot on Signal
Mountain. In 1995, they contracted with Real Estate Inspection Service, Inc. and Stephen Eady,
doing business as Stephen Eady Company (collectively “the defendants”), for the construction of a
sunroom addition, a swimming pool, and other work at their residence. Later that same year, the
plaintiffs sued the defendants alleging that the defendants had failed to complete the work and that
“much of the work” was not accomplished according to the parties’ agreement. The defendants
answered and filed a counterclaim seeking money allegedly due them for work performed in
connection with the contract. Following a bench trial, the court awarded the plaintiffs $35,000 and
dismissed the defendants’ counterclaim. The defendants appeal. We affirm the judgment in part and
reverse in part and remand for further proceedings.

          Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
                   Affirmed in Part, Reversed in Part; Case Remanded

CHARLES D. SUSANO, JR., J., delivered the opinion of the court, in which HERSCHEL P. FRANKS , J.,
and WILLIAM H. INMAN , SR. J., joined.

George M. Derryberry, Chattanooga, Tennessee, for the appellants, Real Estate Inspection Service,
Inc. and Stephen Eady dba Stephen Eady Company.

Ronald J. Berke, Chattanooga, Tennessee, for the appellees, Kathy Gardenhire and Todd Gardenhire.

                                            OPINION


                                                 I.

       On appeal, the defendants present the following issues for our review and resolution:
               1. Does the evidence preponderate against the trial court’s factual
               findings supporting its conclusions regarding the terms of the parties’
               contract?

               2. Does the evidence preponderate against the trial court’s factual
               findings pertaining to the defendants’ alleged breaches of the parties’
               contract?

               3. Does the evidence preponderate against the trial court’s decision
               that the defendants are not entitled to relief on their counterclaim?

               4. Does the evidence preponderate against the trial court’s factual
               findings supporting its award of $35,000 to the plaintiffs?

                                                  II.

        As can be seen, these issues raise factual matters. Our review in such cases is de novo upon
the record from the proceedings below. Tenn. R. App. P. 13(d). This case comes to us accompanied
by a presumption that the trial court’s factual findings are correct. Id. This is a presumption we
must honor unless the evidence preponderates against the trial court’s factual findings. Id.

                                                  III.

        Our initial focus is upon the first two issues raised by the defendant. As to those issues, the
trial court made the following findings and reached the following conclusions:

               First, I am of the opinion that the parties agreed that the area outside
               the sun room was to be level after taking a step or two down from the
               door.

                                              *    *     *

               [Mr. Eady] also knew that the Gardenhires wanted a pool at ground
               level with no steps up. And these things are not – these details about
               the ground level and the lack of steps up to the pool and that sort of
               thing are not inconsistent with the written contract . . . .

                                              *    *     *

               The Court is convinced that the Gardenhires wanted and expressed to
               Mr. Eady that they wanted the pool at ground level, and Mr. Eady
               expressed his belief that this could be done, even given the
               knowledge of both sides about the possible problems with rock.


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                               *   *     *

. . . the exact elevation and final location of the pool was something
that was going to have to be determined during the course of
construction, and it was. And I think the parties reached an
agreement on that.

                               *   *     *

The drainage was understood by Mr. Eady to be away from the house.
And I know this because it’s shown on his drawing dated 9-26-95
which is Exhibit Number 11. And this was done in September when
the pool was under construction to show that his understanding was
that the dirt, the fill should slope away from the house so that the
water did not drain towards the house. And this had to be understood
in conjunction with the Gardenhires’ expectation that this pool was
not going to have steps up to it, that it was going to be constructed at
ground level. And so the whole issue about the drainage situation is
tied to the construction, the find [sic] location and elevation of the
pool

                               *   *     *

And so when Mr. Eady told Mrs. Gardenhire that she could stop
excavation of rock and have only a three-inch rise in the pool from
the ground level, this fixed the location and height above ground of
the pool, and the subsequent failure to construct the pool to those
specifications was the fault of Mr. Eady and not [of] the Gardenhires.

                               *   *     *

. . . the location of the pool and the depth of the pool and the height
of the pool was fixed as a part of the contract because the parties
agreed on it then. And the failure at that point of Mr. Eady to know
that he could build it to that point and it be only three inches high was
his fault. He should have known what he was saying. The
Gardenhires were faced with the prospect of having to spend a lot [of]
money because they knew they had to pay for the excavation of that
rock.

And for Mr. Eady to then complete the pool through the work of his
subcontractor and tell the Gardenhires that it was going to be one foot
– at least one foot too high was a breach of contract on the part of Mr.


                                   -3-
                Eady. This put the Gardenhires in what I think is an impossibl[e]
                position. And they faced a choice between two undesirable options:
                Either to build the steps up to the pool, which they thought was risky,
                or to slope the ground in such a way that the water ran back towards
                the house.

                                               *   *     *

                Mrs. Gardenhire even gets back up on the witness stand and denies
                that Mr. Eady ever discussed with her that by [raising] the ground
                level and constructing it as it actually turned out, that the water would
                flow back up to against house.

                                               *   *     *

                Mr. and Mrs. Gardenhire wrote back to [Mr. Eady] in which they
                repeated their contention that they had agreed to a rise of the pool in
                the amount of three inches in order not to incur more expense for the
                removal of rock. And Mrs. Gardenhire says I agreed to do this, but
                it was later that they came back to her and told her that it was going
                to be a foot high, and that she either had a choice of taking steps – a
                step wall across the length of the pool coming out of the sun room or
                she could raise the ground level so that the pool and deck would be
                fairly level with the entry of the sun room. And the contents of these
                letters are consistent with the testimony as I have . . . heard it today
                and would find essentially that that is exactly what happened.

We do not find it necessary or appropriate to recite the evidence – pro and con – on these two issues.
Suffice it to say that there is an abundance of evidence to support the trial court’s findings of fact as
to (1) the parties’ agreement and (2) the defendants’ breaches. In any event, the issue for us is
whether the evidence – when viewed in its totality – preponderates against the facts found by the
trial court on these two matters. It clearly does not. Accordingly, we affirm the trial court’s factual
findings as to the parties’ agreement, the defendants’ breaches of that agreement, and the trial court’s
conclusion that the defendants are liable to the plaintiffs for the damages caused by those breaches.

                                                   IV.

        The defendants argue that the trial court erred in dismissing their counterclaim. They argue
that after deducting payments made to them by the plaintiffs and after crediting the contract price
for those allowances pertaining to work not performed by them, there remains a balance due of
$20,197.22. They ask us to modify the trial court’s judgment so as to award them a set-off against
the judgment awarded to the plaintiffs. We decline to do so.



                                                   -4-
         “It is well settled that equitable set-off will not be allowed where it would work injustice.”
Fed. Sur. Co. v. Union Indem. Co., 161 Tenn. 621, 624, 33 S.W.2d 421, 421 (1930). In the instant
case, it is clear that the plaintiffs will never have precisely what they contracted for. At best, they
will only have a condition “equivalent” to that for which they contracted. Furthermore, even to reach
that stage of equivalency, the plaintiffs are once again going to have to go through the disruption that
residential modification construction always brings. Equity militates against the allowance of a set-
off.

       The evidence does not preponderate against the trial court’s decision to dismiss the
counterclaim.

                                                   V.

         As to the final issue – whether the evidence preponderates against the award of damages of
$35,000 – our review of the record persuades us that, because of a paucity of evidence touching upon
the cost of the repairs that the trial court found to be necessary, the evidence is incomplete on this
critical subject. Accordingly, we conclude that the evidence presently before us does not justify an
award of $35,000.

        The evidence does not preponderate against the trial court’s factual findings as to the repairs
that will be necessary to correct the defendants’ breaches of contract:

                And again, going to the Plaintiffs’ claim for damages based on a
                diminution in value, I’m not impressed with the argument that that
                necessarily diminishes the value of their house or property. It seems
                to me that I have . . . got to come up with some figure here that will
                allow them to go out there and do some work of some sort that was
                going to alleviate what seemed to me to be some serious problems
                with regard to water under this house, water that is flowing down the
                hill, that is flowing across the ground, that is flowing into the crawl
                space below the sun room and is actually getting into a part of the
                house where it never was.

                                               *   *     *

                There is a problem with the installation of the sun roof because it’s
                leaking, and there was a problem there.

                                               *   *     *

                I think the Plaintiffs are entitled to a judgment. I think they have
                some serious problems, and I think its going to require a good deal of
                work out there to fix it. The – it seems to me that at some point, and


                                                   -5-
                of course they’re going to decide this, but at some point they are
                going to give up this hope of being able to maintain the pool in the
                condition it’s in without steps going up to it. It seems to me from the
                questions that [counsel for the defendants] asked of one of the
                witnesses, perhaps the Plaintiffs’ expert, and the drawings that were
                made on the blackboard up here, that it is perfectly possible to
                construct a level patio, a level walk area out to the pool and put in
                some steps up to the pool, which again, is not going to be what the
                Gardenhires contracted for, but again, there is no way that I can see
                that it is reasonably possible save tearing out of the pool and
                removing more rock to give them what they contract for. And again,
                I think that’s Mr. Eady’s fault. I’m not necessarily blaming them.
                It’s just that I don’t think that it’s reasonable at this point to award
                them what they claim to be the diminution in the value of they [sic]
                party when it seems to me the real task here is to come up with an
                amount that the Court finds reasonable to go out and make some
                corrections to the construction, especially with regard to the removal
                of dirt at the possible entry into the sun room, the removal of dirt or
                other measures taken in sun room to prevent water from collecting
                there, and other things that are going to take up a good built [sic] of
                time.

The trial court did not conclude, as did the plaintiffs, that the appropriate measure of damages, given
the facts of this case, is the difference between (1) the value that their property would have had if the
defendants had properly performed their contract and (2) the value of the property as “improved,”
albeit improperly, by the defendants. The trial court rejected this approach, concluding that the
proper measure of damages in this case is the cost of repairing the improperly-performed work. Our
review of the record convinces us that the facts of this case bring into play the measure of damages
adopted by the trial court, as more fully developed in the next section of this opinion.

                                                    VI.

         In Edenfield v. Woodlawn Manor, Inc., 62 Tenn. App. 280, 462 S.W.2d 237 (1970), the
plaintiff contracted with the defendant for the construction and purchase of a residential
condominium. 462 S.W.2d at 238. The plaintiff alleged, among other things, that the defendant
breached its contract in that it failed to install the heating and air conditioning ducts in the unit in full
compliance with the written specifications and engineering drawings. Id. at 239-40. Through the
testimony of two witnesses, the plaintiff established “that the reasonable cost of removing the
unacceptable ducts and installing ducts to meet the specification requirements would be $11,099.”
Id. at 240. The jury returned a verdict, approved by the trial court, for $12,464, including the
testified-to repairs of $11,099. Id. at 239.




                                                    -6-
        On appeal, the defendant in Edenfield argued that the proper measure of damages was “the
difference between the value of the apartment as it was constructed by defendant’s contractor and
its value as reconstructed in accordance with the specifications.” Id. at 240. The plaintiff countered
by arguing that “the cost of reconstructing the air conditioning system so as to meet the
specifications,” id., was the proper measure of damages.

        In affirming the trial court’s judgment, the Court of Appeals quoted, with approval, 13 Am.
Jur. 2d as “support[ing] plaintiff’s insistence,” id. at 241:

                The fundamental principle which underlies the decisions regarding
                the measure of damages for defects or omissions in the performance
                of a building or construction contract is that a party is entitled to have
                what he contracts for or its equivalent. What the equivalent is
                depends upon the circumstances of the case, among which is the
                consideration of whether the defect or omission is remediable without
                tearing down what has been done by the contractor and rebuilding.

                As a general rule, the measure of damages is the cost of correcting the
                defects or completing the omissions, rather than the difference in
                value between what ought to have been done in the performance of
                the contract and what has been done, where the correction or
                completion would not involve unreasonable destruction of the work
                done by the contractor and the cost thereof would not be grossly
                disproportionate to the results to be obtained.

Id. (quoting 13 Am. Jur. 2d Building and Construction Contracts § 79.

                                                  VII.

         In the instant case, the plaintiffs understandably focused on (1) monies they had paid to the
defendants and (2) monies paid to others following the defendants’ cessation of work on the project.
In addition, each of the plaintiffs testified as to values in support of their theory that the defendants’
breaches diminished the value of their property. The only evidence addressing the general subject
of future repairs that would be necessary because of deficient construction on the part of the
defendants was the testimony of an expert presented by the plaintiffs. He testified that a French
drain to address the plaintiffs’ water problem would cost approximately $6,000. Thus, we have very
little evidence to support the cost-of-repairs measure of damages correctly found by the trial court
to apply to the facts of this case.

        While we agree with the defendants’ argument that the evidence is not sufficient to support
a damage award of $35,000, we cannot agree that this failure should result in a dismissal of the
plaintiffs’ complaint or a reduction of damages to the $6,000 figure. In view of the trial court’s



                                                   -7-
finding of liability – a finding with which we wholeheartedly agree – we believe such a result would
be patently unfair and unjust.

         We hold that this case must be remanded to the trial court for a new trial, but only on the
issue of damages. See Tenn. Code Ann. § 27-3-128 (2000). The parties have already had a full and
fair hearing on the issue of liability and there is no reason to have a new trial on this issue. The
breaches have been established by the trial court, and we affirm the trial court’s holding as to these
breaches. On remand, each side will be permitted to put on proof regarding the cost of performing
the repairs that the trial court found would be necessary to place the property in an equivalent state
to the one that would have existed had the defendant not breached the contract. The trial court will
then be in a position to render judgment based on the evidence dealing with the necessary cost of
repairs.

                                                 VIII.

         The judgment of the trial court as to the liability of the defendants is affirmed. The portion
of that judgment as to damages is reversed, and this case is remanded for a new trial, but solely on
the issue of damages, pursuant to the instructions set forth in this opinion. Exercising our discretion,
we tax the costs on appeal to the appellants, Real Estate Inspection Service, Inc. and Stephen Eady
dba Stephen Eady Company.




                                                         _______________________________
                                                         CHARLES D. SUSANO, JR., JUDGE




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