Richard Knutson, Inc., Respondent, vs. Lumber One, Avon, Inc., Appellant.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2002).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A04-76

 

Richard Knutson, Inc.,
Respondent,
 
vs.
 
Lumber One, Avon, Inc.,
Appellant.

 

Filed September 21, 2004 Affirmed in part, reversed in part, and remanded Minge, Judge Concurring in part, dissenting in part, Randall, Judge

 

 

Anoka County District Court

File No. C1-01-11339

 

 

William R. Joyce, Michael B. Lapicola, Faegre & Benson LLP, 2200 Wells Fargo Center, 90 South Seventh Street, Minneapolis, MN 55402 (for respondent)

 

Gordon H. Hansmeier, Laurel J. Pugh, Rajkowski Hansmeier Ltd., 11 Seventh Avenue North, P.O. Box 1433, St. Cloud, MN 56302 (for appellant)

 

            Considered and decided by Randall, Presiding Judge; Willis, Judge; and Minge, Judge.

U N P U B L I S H E D  O P I N I O N

 

MINGE, Judge

            Appellant challenges the district court's interpretation of its contract, arguing that the district court erred as a matter of law by considering parol evidence to vary the terms of the contract.  Respondent challenges the court's prejudgment-interest award, arguing that interest should be calculated from the date the respondent's damages were readily ascertainable.  We affirm in part, reverse in part, and remand for a recalculation of prejudgment interest.

FACTS

            Appellant Lumber One, Avon, Inc. (Lumber One) was the general contractor for the construction of a 54-unit apartment building, parking area, and garage.  Lumber One requested a bid from respondent Richard Knutson, Inc. (RKI) for the excavation and grading for the project.  RKI prepared a bid of $103,300, relying on the project plans and specifications, a geotechnical report prepared by Lumber One's geotechnical consultant, and a visual inspection of the site.  

            Lumber One contacted RKI requesting a reduction in the contract bid because the project was over budget.  RKI indicated that it could reduce its bid price by $14,000 if the sand required for the project could be mined from the site.  Although RKI dug two or three test holes to determine whether there was sufficient sand on the project site, it was unable to dig a test hole in one significant area because trees and a drainage ditch made that portion of the site inaccessible.  Based on the test holes it was able to drill, RKI anticipated that sufficient sand could be found on the site.

            On June 29, 1999, Lumber One and RKI entered into a fixed-price contract, under which RKI agreed to perform the excavation and grading work for its original bid, less a deduction of $14,000, for a total amount of $89,300.  The contract reads:

Original Bid:              $103, 300.00

Mine Fill On Site:     - $14,000.00

                                      $89,300.00

 

Lumber One prepared an Excavation Checklist, which was attached to the contract.  RKI wrote on this document that the "Bid [was] Base[d] on Soil Report and Grading Plan with mining Fill on-site."  Ultimately, RKI was unable to mine sand on the project site, resulting in RKI paying another company to haul in sand for the job.  Upon determining that the sand could not be mined on-site, RKI sent Lumber One an invoice in September 1999 based on its original bid of $103,300.

            During the course of excavating the garage area, RKI unexpectedly discovered tree stumps and other debris buried in the soil, which were not otherwise evident from the geotechnical report provided by Lumber One and could not be detected by visual inspection.  Upon discovering the debris, RKI consulted Eldred Schreifels, Lumber One's project representative, seeking direction on how to proceed because it was impossible to determine in advance the amount of work necessary to remove the debris or the amount of replacement fill needed.  After consulting with Lumber One's manager and its geotechnical consultant, Schreifels directed RKI to perform the additional work on a time-and-material basis.  RKI prepared a total of five Extra Time and Material Worksheets for the removal work performed in the garage area, which Schreifels signed on behalf of Lumber One.

            After removing the debris and hauling it off-site, RKI refilled the debris site with sand and compacted it.  RKI purchased the additional sand.  The result of the debris removal was that twice as much sand as was originally estimated was needed to complete the project.  On December 13, 1999, RKI sent Lumber One an invoice representing a balance of the charges for debris removal and the extra sand incident to that debris problem, and for $14,000 for extra sand incident to the bid adjustment.  This billing was approximately one week before the closing of the project.  Lumber One did not attempt to recover the cost of the removal work from the owner and only paid RKI for a portion of the debris work. 

The contract contains a changes clause that applies to any work performed outside the scope of the original contract.  Under this clause, the contractor must approve any change in writing prior to the work being performed, and the change order must provide the quantities of materials and a fair adjustment of the original contract price.  No prior written change order was made. 

In December 2001, RKI brought suit against Lumber One for $52,013.50, representing the remaining balance due, claiming breach of contract and unjust enrichment.  After a trial, the district court entered judgment in favor of RKI for the full $52,013.50.  The judgment was dated September 12, 2003.  The district court interpreted the contract reduction of $14,000 as contingent on RKI's ability to mine sand at the project site.  The court also found that Lumber One's agent had authorized the work, that it had waived its right to compliance with the changes clause of the contract, and that Lumber One was liable for the costs of debris removal and extra sand.

            In November 2003, the court amended the order to include prejudgment interest for RKI in the amount of $5,060.63.  Lumber One appeals the district court's amended judgment.  RKI files a notice of review, cross-appeals, arguing that it is entitled to $11,703.04 in prejudgment interest.

D E C I S I O N

I.

Construction of a contract is a matter of law, which this court reviews de novo.  Collins v. Minn. Sch. of Bus., Inc., 636 N.W.2d 816, 818 (Minn. App. 2001).  A contract must be construed as a whole and not by consideration of isolated provisions.  Telex Corp. v. Data Prods. Corp., 135 N.W.2d 681, 685 (Minn. 1965).  A contract's terms should be given their plain and ordinary meaning.  Brookfield Trade Ctr., Inc. v. County of Ramsey, 584 N.W.2d 390, 394 (Minn. 1998).  The application of the parol-evidence rule, premised on an examination of the contract, presents a question of law.  See Seifert v. Mut. Benefit Life Ins. Co., 203 Minn. 415, 422, 281 N.W. 770, 773-74 (1938).

The parol-evidence rule "prohibits the admission of extrinsic evidence of priorSearch Term Begin  Search Term End or contemporaneous oral agreementsSearch Term Begin Search Term End , or priorSearch Term Begin  Search Term End written agreementsSearch Term Begin Search Term End , to explain the meaning of a contract when the parties have reduced their Search Term Begin agreement Search Term End to an Search Term Begin unambiguous Search Term End integrated writing."  Alpha Real Estate Co. of Rochester v. Delta Dental Plan of Minn., 664 N.W.2d 303, 312 (Minn. 2003) (quotation omitted).  Consequently, "when parties reduce their agreement to writing, parol evidence is ordinarily inadmissible to vary, contradict, or alter the written agreement."  Hruska v. Chandler Assocs., Inc., 372 N.W.2d 709, 713 (Minn. 1985).  But when a contract is ambiguous, the court may admit parol evidence to determine the intent of the parties and clarify the ambiguity.  Nord v. Herreid, 305 N.W.2d 337, 340 (Minn. 1981); ICC Leasing Corp. v. Midwestern Mach. Co., 257 N.W.2d 551, 554 (Minn. 1977).  A contract provision is ambiguous if, by its language alone, it is reasonably susceptible to more than one interpretation.  Rick v. B.D.M.S., Inc., 347 N.W.2d 65, 66 (Minn. App. 1984). 

            Lumber One argues that the district court erred by finding the contract ambiguous and considering parol evidence to contradict the terms of a fully integrated document.  In this regard, we note that the district court concluded that the specific provision providing for the $14,000 reduction in bid price was ambiguous.  But by looking at the contract as a whole, the district court concluded that other unambiguous provisions contained in the agreement supported the conclusion that such a reduction was contingent on RKI's ability to mine sand from the site.

            Having undertaken an independent review of the contract, we disagree with the district court's conclusion as to the contract's ambiguity.  The district court looked to the Excavation Checklist prepared by Lumber One and attached as part of the contract, which states: "Bid [was] Base[d] on Soil Report and Grading Plan with mining Fill on-site."  The district court concluded that this language supported a reasonable interpretation that there was no reduction in the bid price if it was impossible to mine the sand on-site.  While reading a contingency into the language of the contract is certainly one reasonable interpretation, that language does not provide enough clarity to cure the ambiguities in the price-reduction provision.  Accordingly, we conclude that the contract as a whole is ambiguous as to the alleged contingency and subject to more than one reasonable interpretation.

            Because we conclude that the language of the contract is ambiguous, we look to parol evidence to determine the intent of the parties and clarify the ambiguity.  See ICC Leasing Corp.,257 N.W.2d at 554.  Here, we agree with the district court's alternative conclusion that "Lumber One's course of conduct regarding the sand work . . . serves as a basis for recovery in this case."  We note that Patrick Doty, RKI's project manager and estimator, testified at trial that he had always understood the $14,000 deduction to be contingent on RKI's ability to mine sand from the site and that he clearly communicated to Lyle Beumer, Lumber One's project manager, that the deduction was contingent.  The evidence also includes testimony from Lumber One's project representative, Eldred Schreifels, stating that he understood the $14,000 reduced bid by RKI to be contingent on finding sand and that this understanding originated from his conversations with Lyle Beumer.  The record also shows that RKI invoiced Lumber One in a manner that was consistent with its original bid of $103,000.  Accordingly, we conclude that parol evidence supports the conclusion that the parties intended the bid-price reduction to be contingent on RKI's ability to mine sand from the site.

            Lumber One also argues that the district court improperly considered evidence of the parties' course of dealing to interpret the contract by concluding that Lumber One waived its rights.  We conclude that the district court's decision to award RKI the $14,000 was not based on evidence of waiver. 

The contract-price dispute also involves the debris removal and extra fill needed incident to that removal.  Lumber One claims that it was not obligated to pay RKI these costs because it never authorized the extra work by a written change order as required by the contract.  The district court found that Eldred Schreifels, Lumber One's project representative on the site, directed RKI to perform the debris removal and submit its charges for time and materials.  We note that when an agent has specific orders to perform a task, actual authority exists.  See Winkel v. Eden Rehab. Treatment Facility, Inc., 433 N.W.2d 135, 138 (Minn. App. 1988).  Alternatively, apparent authority exists when the principal holds the agent out as having authority, or when the principal permits the agent to act on its behalf.  Id. at 139.  We agree with the district court that Lumber One, by its conduct, created a situation in which Schreifels, as project representative, had apparent authority to approve additional work and that the facts in this case show that he so authorized RKI to remove debris and to obtain extra sand as needed.

As an alternative basis for allowing RKI to recover for the debris removal and extra sand, the district court concluded that Lumber One waived its requirements for written change orders under the contract.  Because the apparent-authority basis for recovery is adequate to sustain the district court's determination, we do not reach the question whether this waiver determination is proper.

II.

Next, we consider whether the district court erred in its calculation of prejudgment interest.  An award of prejudgment interest is a question of law reviewed de novo.  S.B. Foot Tanning Co. v. Piotrowski, 554 N.W.2d 413, 420 (Minn. App. 1996), review denied (Minn. Dec. 17, 1996).  "Prejudgment interest is not interest in the traditional sense of the word; it is an element of damages awarded to provide full compensation."  Balder v. Haley, 441 N.W.2d 539, 544 (Minn. App. 1989), review denied (Minn. July 27, 1989) (quotation omitted).

RKI argues that the district court erred in its calculation of prejudgment interest.   The district court set forth its award of prejudgment interest as follows:

·         six percent (6%) (Minn. Stat. § 334.01) on $14,000 from December 13, 1999 [date of RKI's original billing] to September 13, 2003;

·         six percent (6%) (Minn. Stat. § 549.09) on $38,013.50 from December 18, 2001 [date the complaint was served] to December 31, 2001;

·         two percent (2%) (Minn. Stat. § 549.09) on $38,013.50 from January 1, 2002 to December 31, 2002;

·         four percent (4%) (Minn. Stat. § 549.09) on $38,013.50 from January 1, 2003 to September 13, 2003.

 

RKI contends that because the judgment amount was not contested and was readily ascertainable upon demand, the district court should have applied a six-percent interest rate pursuant to Minn. Stat. § 334.01, subd. 1 (2002), from the date of billing, which was its demand, for all portions of the judgment.

            Minn. Stat. § 334.01 applies to interest on "legal indebtedness," such as loans, wages, and tax refunds.  See General Mills, Inc. v. State, 303 Minn. 66, 71, 226 N.W.2d 296, 300 (1975) (calculating interest under Minn. Stat. § 334.01, subd. 1, for a tax refund from date of filing of petition until actual refund receipt); Henry v. Metro. Waste Control Comm'n, 401 N.W.2d 401, 407 (Minn. App. 1987) (holding employee was entitled to interest under Minn. Stat. § 334.01, subd. 1, on withheld back pay from the date paycheck was due).

            By contrast, prejudgment interest is governed by Minn. Stat. § 549.09 (2002).  It provides, in relevant part:

Except as otherwise provided by contract or allowed by law, preverdict, preaward, or prereport interest on pecuniary damages shall be computed [according to an administratively determined interest rate] from the time of the commencement of the action or a demand for arbitration, or the time of a written notice of claim, whichever occurs first, except as provided herein.

 

Minn. Stat. § 549.09 subd. 1(b). 

            While caselaw in the area of prejudgment interest is somewhat unsettled, two rules have emerged.  First, a plain reading of Minn. Stat. § 549.09 "indicates that prejudgment interest shall be computed regardless of the ascertainability of the judgment."  Duxbury v. Spex Feeds, Inc., 681 N.W.2d 380, 391 (Minn. App. 2004) (quotation omitted).  Second, Minnesota caselaw supports the sole utilization of Minn. Stat.  § 549.09 for all prejudgment interest other than loans and other obligations governed by specific interest-rate laws.  The amended version of Minn. Stat. § 549.09 became effective July 1, 1984.  1984 Minn. Laws ch. 339, §1, ch. 478, § 2.  This court has explicitly stated that with respect to time periods after July 1, 1984, parties are entitled to prejudgment interest pursuant to Minn. Stat. § 549.09.  L.P. Med. Specialists, Ltd. v. St. Louis County, 379 N.W.2d 104, 109-10 (Minn. App. 1985), review denied (Minn. July 31, 1986). 

In this case, the amount that Lumber One owes RKI has been in dispute for nearly five years.  Although it originated as a billing by RKI to Lumber One and in this sense has a character of an open-account indebtedness, both the district court and this court have concluded that the contract was ambiguous and that parole evidence is necessary to determine the amount due.  In this type of case, the simple act of billing does not adequately establish the amount due or resemble an open-account relationship on which interest typically accrues under Minn. Stat. § 334.01.  We also note that the billing statements and accompanying letters from RKI do not even mention that interest would accrue on the unpaid balance.  Similarly, there is no provision in the contract documents in the record that provides for interest.  Even though the amount of the bills has not been in dispute, we note that the quantity of sand needed for the project and the cost of debris removal had to be determined by circumstances and that this is different from billing for goods and services delivered on a preset price list or fee schedule.

We further note that the entire bill in this litigation has been involved in what appears to be a good-faith dispute and that the initial billing put Lumber One on notice of the amount claimed.  The receipt of that notice is a critical event for determining prejudgment interest.  Except for contract claims that are a defense to any liability, Lumber One has not questioned the amount due for sand and for debris removal.  Lumber One should not be rewarded for the fact that this dispute has dragged on for several years or that RKI was reluctant to resort to litigation.  On the facts of this case, we conclude that under Minn. Stat. § 549.09, interest begins on all amounts due from the time RKI rendered its final billing on December 13, 1999.  Accordingly, we determine that the district court erred as a matter of law in calculating prejudgment interest for the $14,000 award pursuant to Minn. Stat. § 334.01 and by not accruing interest on the $38,013.50 until litigation commenced.  Accordingly, we remand for a recalculation of the prejudgment interest on the entire balance of the judgment from December 13, 1999, under Minn. Stat. § 549.09.

            Affirmed in part, reversed in part, and remanded.

 

RANDALL, Judge (concurring in part and dissenting in part).

            I concur with the majority's conclusion as to the remand for a recalculation of prejudgment interest.  I concur with the majority in affirming the district court's award to respondent of that part of the contract-price dispute relative to debris removal.  The record supports the district court's finding that Lumber One's project representative on the site authorized RKI to perform the additional needed debris removal and submit its work order charges for time and materials.

            I dissent from that part of the majority opinion where the district court's award to respondent of the $14,000 for bringing extra sand to the job site is affirmed.

            Briefly, RKI as excavator, and Lumber One as general contractor, got together a bid of $103,300 for excavating.  Lumber One requested a reduction.  RKI said it could reduce its bid price by $14,000 if the sand required for the project could be mined on the site of the excavation rather than having to be trucked in.  Lumber One allowed RKI to dig test holes to determine whether there was sufficient sand on the project site.  RKI could not drill a test hole in one significant area, but RKI did not pursue that point and did not indicate that without that test hole, it could not make a firm $14,000 reduction in the bid price.  Rather, as the majority concedes, based on the test holes that it dug, RKI agreed to reduce the bid price by $14,000.  RKI made its own personal assumption that based on its test holes they would find sand on the site and would not have to truck it in.

            The record easily supports the district court's Finding of Fact number 5, which states:

To determine whether there was sufficient sand on the Project site, RKI visited the site and dug two or three test holes.  RKI was unable to dig a test hole where the garage was to be built, however, because small trees and a drainage ditch prevented its equipment from gaining access.  Based on these test holes, RKI determined that it could find sufficient sand on the Project site.

 

            The record supports Finding of Fact number 6, which states that RKI entered into a contract to perform the excavation work for $14,000 less than its original bid, meaning $89,300.  There was no contingency expressed in Finding number 6 relating to finding sand before RKI would honor the reduced price.

            Then, as the work progressed, RKI ran into severe difficulty from buried debris and could not find enough sand on the site and had to truck in sand.  Thus, RKI wanted to add back the $14,000 for sand and add in another approximate $38,000 for additional excavation.  I have concurred with the additional $38,000 for the extra excavation, but cannot concur with the additional $14,000 to RKI for more sand.

            This is not a case where, due to an unanticipated innocent mutual mistake by the two parties to a contract, something was agreed upon that could not ultimately be performed either because it was impossible or because to enforce the literal terms of the contract, would unjustly enrich one party at the expense of the other.  See Timmer v. Gray, 395 N.W.2d 477, 478 (Minn. App. 1986) (stating that the theory of unjust enrichment is founded on the principle that a party should not be unjustly enriched at the expense of another).

            Here, both RKI and Lumber One knew about a potential problem of buried debris.  RKI had the opportunity to sink any test holes it wanted and did not have to agree to a
$14,000 reduction for "hoped for sand to be found on the site."  RKI had a right to "sit on" its initial bid of $103,300, and had a perfect right to say that because of an obstruction, all the test holes we want cannot be drilled and therefore, any hoped for $14,000 reduction is contingent on our being satisfied with the available sand on site.  RKI could have done that and thus could have protected itself from the "Murphy's Law" that happened - meaning every test hole they drilled just happened to miss the buried trees!  Instead, as the district court found, based on its own test holes, RKI contracted to do the excavation for $89,300 rather than $103,300, without a reservation of rights.

            I conclude that, although RKI's mistake was inadvertent, the mistake lies with RKI and they should be held to their bid of $89,300.  Thus, I would adjust the judgment for RKI downward by $14,000.