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Lindsey Masonry Co. v. Murray & Sons Construction Co.

Court of Appeals of Kansas

February 3, 2017

Lindsey Masonry Co., Appellee,
v.
Murray & Sons Construction Co. and The Ohio Casualty Insurance Co., Appellants.

         SYLLABUS BY THE COURT

         1. To form a binding contract, there must be a meeting of the minds on all essential elements. Contract formation requires an unconditional and positive acceptance. A conditional acceptance is really a counteroffer and no contract is formed.

         2. An acceptance of a contract must mirror the terms of the offer. A conditional acceptance is a counteroffer that rejects the original offer.

         3. When one party has knowledge of a term required by another party and continues to do business with that party without objection, the facts may establish that the party impliedly agreed to the term.

         4. Under the Kansas Fairness in Public Construction Contract Act, found at K.S.A. 16-1901 et seq., the term "contract" means a contract or agreement concerning construction made and entered into by and between an owner and a contractor, a contractor and a subcontractor, or a subcontractor and another subcontractor.

         5. An implied-in-fact contract has the same legal effect as an express contract. Parties may be bound as firmly by implied contracts as by those expressed in words, oral or written. The law implies, from circumstances and the silent language of the parties' conduct and actions, contracts and promises as forcible and binding as those made by express words or through the medium of written memorials.

         6. Prejudgment interest can be awarded to both express and implied contracts.

         7. The Kansas Fairness in Public Construction Contract Act requires a contractor pay its subcontractors on any properly completed and undisputed request for payment within 7 business days of receipt of payment by the owner. K.S.A. 16-1903(f). If the contractor fails to pay its subcontractors within such timeframe, the contractor shall pay 18 percent interest on the undisputed amount. K.S.A. 16-1903(g).

         8. When a court resolves a case based on quantum meruit, it finds that no contract existed. In such a case, the law creates a contract to prevent unjust enrichment. In contrast, an implied-in-fact contract has the same legal effect as an express contract.

         9. It is fundamental that equitable remedies are generally not available if there is an adequate remedy at law.

         Appeal from Johnson District Court; Gerald T. Elliott, judge. Affirmed.

          Michael L. Entz, of Entz & Entz, P.A., of Topeka, for appellants.

          Jeffrey M. Hensley and Theodore C. Beckett III, of Beckett & Hensley, L.C., of Kansas City, Missouri, for appellee.

          Before Malone, C.J., Hill and Atcheson, JJ.

          Hill, J.

         This is an appeal by Murray & Sons Construction Company of the trial court's holding that it had breached an implied-in-fact contract with Lindsey Masonry Company by not paying for all of the services performed. Along with the contract payments, the trial court awarded interest, costs, and attorney fees as authorized by the Kansas Fairness in Public Construction Contracts Act. Our review of the extensive record leads us to conclude that we must affirm the judgments of the trial court.

         With no signed contracts, a general contractor and a masonry company work together on several public school projects.

         The Blue Valley School District decided to build four buildings: the Blue Valley Elementary School #22, the New Highlands Elementary School, Blue Valley Southwest High School Sports Field Buildout, and Blue Valley Middle School #10. Over a span of several months, the school district sought and received separate bids on each project. Murray & Sons bid on the projects as the general contractor and asked Lindsey Masonry to submit bids on the projects for the masonry work (labor only).

         Blue Valley picked Murray as the general contractor on each of these projects and Lindsey became Murray's masonry subcontractor for all four buildings. A pattern of business then developed between the two companies as the work progressed. For each building project, Lindsey submitted to Murray a written proposal that included the names of the parties, the identification of the project, the price, the scope of work, exclusions from the scope of work, and the identification of the plans, specifications, and drawings that applied to each.

         Each of Lindsey's proposals indicated that the parties would later sign an AIA Document A-401 Standard Form Agreement between Contractor and Sub-Contractor. (This form is supplied by The American Institute of Architects.) The proposals also contained language regarding the timing of payments and listed the percentage of retainage to be withheld.

         After that, Murray would include the price from each of Lindsey's proposals in its bids to Blue Valley.

         After Murray was awarded the contract on each project, it asked Lindsey to be the masonry subcontractor. Lindsey then sent Murray a schedule of values for each project. The schedule of values, essentially, is a price list that sets out each masonry task to be performed. Lindsey used the schedule of values when it prepared its pay applications to Murray and, in turn, Murray used the same schedule of values when it prepared its pay applications to Blue Valley.

         After each successful bid on each project, Lindsey signed and sent an AIA form subcontract to Murray to sign. In return, Murray sent a signed AGC subcontract form to Lindsey for its signature. (This is a contract form supplied by the Associated General Contractors of Kansas, Inc.) Neither party signed the form contracts sent by the other company. As far as we can tell from this record, no written agreements were ever signed by both parties, except for some specific change orders signed in the midst of construction.

         Nevertheless, Murray authorized Lindsey to begin work on each project and Lindsey did so. Lindsey periodically submitted pay applications to Murray and received periodic payments from Murray. As the buildings progressed, Murray submitted pay applications to the owner and received payments from Blue Valley. After payment, Lindsey would return partial lien waivers that reflected the amount of the payment.

         Unfortunately, the working relationship between Murray and Lindsey deteriorated, and Lindsey walked off the Blue Valley #10 job before completing the masonry work. Later, Lindsey filed a lawsuit seeking money from Murray. In its lawsuit, Lindsey claimed damages for money due on each of the projects, asserting alternative theories of recovery based on breach of contract, promissory estoppel, and quantum meruit. Murray denied liability and asserted counterclaims against Lindsey on each project.

         The parties submitted the case to the judge.

         At trial, both Lindsey and Murray agreed about the identity of the parties, the scope of work, and the original price, as modified by the fully executed change orders for each project. They did not agree on anything else.

         In the end, the trial court found that the evidence failed to establish an express contract between the two companies. Instead, the court concluded that there was an implied-in-fact contract on each project for Lindsey to perform the masonry work described in the scope of work in exchange for the compensation set out in Lindsey's proposal and schedule of values. The implied-in-fact contract contained no specific time for payment. The court made specific findings about each project. We list a brief summary of each.

         Blue Valley #22

         On the Blue Valley #22 project, the district court found that the parties agreed to a revised total compensation of $1, 036, 848 for the masonry work. Lindsey completed all of its work on the project, but received only $1, 020, 568 from Murray. The court found Murray in breach of contract for its failure to pay Lindsey the remaining balance of $15, 916 and granted judgment in that amount.

         The court denied Murray's counterclaim for $5, 511 for the cost to repair a damaged portion of a roof. The court found that the parties' conduct established an agreement that any changes in the work would be made by written change orders signed by both parties. Since Murray had submitted a change order for the roof repair and Lindsey had not signed it, Lindsey was not liable under the counterclaim. The district court awarded Lindsey interest, costs, and attorney fees under the Kansas Fairness in Public Construction Contract Act found at K.S.A. 16-1901 et seq. (not to be confused with the Kansas Fairness in Private Construction Contract Act found at K.S.A. 16-1801 et seq.)

         New Highlands

         On the New Highlands project, the district court found that the parties agreed to a revised total compensation of $1, 014, 358. Lindsey completed its work, but $83, 794 remained unpaid. The district court found Murray in breach of contract for failure to pay that amount.

         The district court found Lindsey in breach of contract for not installing some steel rebar in the storm shelter walls on that project. Murray was entitled to recover $55, 250 from Lindsey to remediate the rebar omission. In addition, Murray was entitled to recover $5, 957 in damages to remediate some subsequent damage to the water proofing and a protection board.

         The court set off Murray's damages against Lindsey's damages, resulting in a net judgment of $22, 587 awarded to Lindsey. In addition, the court awarded Lindsey interest, costs, and attorney fees under the Act.

         Sports Field Buildout

         On the Sports Field Buildout project, the district court found that the parties agreed to a price of $123, 590. The court found that $12, 565 remained due to Lindsey and awarded judgment in that amount plus interest, costs, and attorney fees under the Act. The court denied Murray's counterclaim for $4, 166 in damages for weather-related time extensions.

         Blue Valley #10

         While this project was in progress, the parties' relationship ruptured. On the Blue Valley #10 project, the district court found that the parties agreed to a revised price of $1, 727, 922. On October 27, 2010, Lindsey stopped work on the project and walked off the job when the masonry work was 65 percent complete.

         The court found that Lindsey stopped work because Murray repeatedly stated to Lindsey that it was not going to pay Lindsey. The court also found that Murray's act of shutting off the water and removing the water meter meant that Lindsey could no longer mix mortar to do the masonry work.

         On this project, Murray did not pay Lindsey on its pay applications for work done in August, September, and October 2010. Those applications total $490, 188.72. The court found that Lindsey was not responsible for damages that Murray incurred when Lindsey walked off the job because the expenses were actually due to Murray's breach. Murray was, however, entitled to $55, 998 for indemnification of expenses incurred when the project was shut down temporarily due to an accident involving a Lindsey employee. The district court set off the $55, 998 against the $490, 118.72 for a net judgment of $424, 190.72 awarded to Lindsey. The district court also awarded Lindsey interest, costs, and attorney fees under the Act.

         Murray raises five issues in this appeal. The general contractor contends:

         First, by beginning work, Lindsey accepted Murray's AGC form contract. It refers to this as acceptance by performance.

         Second, the court erred by refusing evidence that the two companies agreed to many things on the Blue Valley #10 project.

         Third, the Kansas Fairness in Public Construction Contracts Act is inapplicable to implied-in-fact contracts.

         Fourth, the court erred by not considering alternative equitable theories of recovery.

         Fifth, the court's findings are not supported by substantial competent evidence and should be set aside.

         We will address the issues in that order.

         Is Lindsey bound by the AGC contract instead of an implied-in-fact contract as the court found?

         The district court found that the evidence simply failed to establish an express contract consisting of either the terms of Lindsey's AIA form or Murray's AGC form on any of the four projects because there was no evidence that the parties expressed their mutual assent orally or in writing to the terms by which Lindsey would work. The district court found that the sequence on one or more of the projects of Murray sending its proposed AGC contract to Lindsey, Murray telling Lindsey to begin work, and then Lindsey beginning work, did not establish mutual assent to the terms of the AGC contract. Murray argues the court's interpretation of the facts is wrong.

         Murray contends that the district court failed to properly apply Kansas contract law and asks us to remand the case. In Murray's view, an express contract was formed because Lindsey accepted the terms of Murray's AGC contract by commencing performance and submitting required preconstruction documents such as a schedule of values and proof of insurance in compliance with the terms of the AGC contract.

         A review of some fundamental points of contract law is helpful at this stage. Whether a contract has been formed depends on the intent of the parties and is a question of fact. U.S.D. No. 446 v. Sandoval, 295 Kan. 278, 282, 286 P.3d 542 (2012). To form a binding contract, there must be a meeting of the minds on all essential elements. Contract formation requires an unconditional and positive acceptance. A conditional acceptance is really a counteroffer and no contract is formed. Sandoval, 295 Kan. at 282.

         We acknowledge that parties may be bound by the terms of a contract, "even though they do not sign it, where their assent is otherwise indicated, such as by accepting and acting upon the contract, or by ratifying the contract, or by the acceptance by one of the performance by the other." 17A Am. Jur. 2d, Contracts § 172, p. 184.

         Murray relies primarily on the holding in Gunnison v. Evans, 136 Kan. 791, 794, 18 P.2d 191 (1933), to support its position. The Gunnison court held that an offer of a unilateral contract, in which the offeror makes a promise, may be accepted by compliance with the request in the offer. The ruling relies upon Restatement (First) of Contracts § 56, comment a. We note that the Restatement also provides: "An offer can be accepted by the rendering of a performance only if the offer invites such an acceptance." Restatement (Second) of Contracts § 53 (1981; online 2016).

         The facts in Gunnison reveal a much simpler set of expectations of the parties than what is present in this case. Lee Gunnison promised, in a writing dated October 9, 1928, that Fred Evans and family could occupy Gunnison's home as long as they wished. Gunnison reserved a room for his own use and he would have board and meals for no charge. Evans was to pay the gas, light, and water. In September 1929, Gunnison notified Evans to leave within 30 days. The district court found that the Evans family had, from the time they moved in,

"'furnished [Gunnison] with free board and meals, free lodging, free gas, light and water at all times that the same were desired, requested or accepted by the plaintiff, and the defendants stand ready, able and willing at the present time to accord the plaintiff all of the privileges reserved by him in said writing . . .'" 136 Kan. at 793.

         The Supreme Court held that the writing contained an offer in the form of a promise by Gunnison that the Evans family could use and occupy his home as long as they desired, on stated terms. The writing did not ask for a return promise by Evans such as "[w]e promise to allow you to use your own room, promise to furnish you meals without charge, and promise to pay gas, light and water bills." 136 Kan. at 794. Rather, the writing/offer called for forbearance with respect to the room and performance of specified tasks. The court held that the Evans family accepted the offer by "actual performance of the conditions embodied in" the offer. 136 Kan. at 794.

         Though Gunnison sets out the basic rule that acceptance may be accomplished by performance, it is distinguishable from this case for two reasons. First, the AGC subcontract was not offered as a unilateral contract. Murray's transmittal letter specifically requested a return promise-that Lindsey sign and return a copy of the contract. Lindsey did not comply with the request of the offer. Second, Lindsey did not perform the terms of the AGC subcontract and was not ready and willing to.

         There is a difference between the few discrete acts that Gunnison asked Evans to perform-allow Gunnison to use his room, furnish meals, pay the gas, light, and water bills-and the lengthy AGC subcontract. There is simply not sufficient evidence in the record to establish an acceptance by performance as stated in Gunnison.

         Continuing along this line, Murray contends that Lindsey's submittal of the required preconstruction documents, such as a schedule of values and proof of insurance, is sufficient evidence of acceptance by performance. But there was no evidence that Lindsey was assenting to the AGC subcontract when it submitted those documents.

         Jon Lindsey testified that he submitted his insurance certificate and W-9 after the owner awarded Murray the general contract. Jon Lindsey also testified that he prepared a schedule of values upon a request by Gene Murray. Gene would call and tell him how to break it down. The several schedules of values that Lindsey submitted were all on AIA forms.

         We cannot ignore the fact that the evidence shows that Lindsey sent a signed AIA subcontract to Murray after or on the same date that Murray sent the AGC subcontract. This action indicates that Lindsey rejected the AGC subcontract and submitted a counteroffer. The testimony was unclear about when the subcontracts were exchanged. The evidence on each project shows:

         Blue ...


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