HLC & Associates Construction Co. v. United States

• Decision Date: 10 June 1966
• Docket Number: No. 317-64.,317-64.
• Citation: 367 F.2d 586
• Parties: H.L.C. & ASSOCIATES CONSTRUCTION COMPANY, Inc. v. The UNITED STATES.
• Court: U.S. Claims Court

367 F.2d 586 (1966)

H.L.C. & ASSOCIATES CONSTRUCTION COMPANY, Inc. v. The UNITED STATES.

No. 317-64.

United States Court of Claims.

June 10, 1966.

John L. Kilcullen, Washington, D. C., attorney of record, for plaintiff.

Isaac D. Benkin, Washington, D. C., with whom was Asst. Atty. Gen. John W. Douglas, for defendant.

Before COWEN, Chief Judge, and LARAMORE, DURFEE and DAVIS, Judges.

PER CURIAM.^*

On January 17, 1961, plaintiff, a North Carolina corporation, entered into a contract with the Department of the Navy to construct a Capehart Act housing project of 450 units at Quantico, Virginia. Pursuant to instructions from the Navy via the Federal Housing Administration (FHA), plaintiff caused the site to be divided into three mortgage areas, each of which was given a separate FHA project number and which became known as mortgage areas A, B, and C. Each of the projects was to be financed by a separate loan, and the contract contained a specific clause for the "severability of contract as to each project."¹

Tenants were expected to furnish their own air-conditioning appliances. Some of these appliances operate on 110 volts; others operate on 220 volts. The contract specifications, anticipating the need for flexibility, called for 3-wire conductors to the air-conditioning outlets.

Throughout mortgage area C, the first segment to be completed, the electrical subcontractor installed 2-wire conductors and was proceeding with the same wiring in areas A and B when, on May 18, 1962, a tenant in area C connected a 110-volt appliance to a 220-volt receptacle and blew a fuse. The contracting officer thereupon required plaintiff to replace all 2-wire conductors in mortgage areas A and B with 3-wire conductors. The subcontractor complied with the order at some extra expense for tearing out and replacing finished surfaces and wire.

Plaintiff presented a claim to the contracting officer for an equitable adjustment for a change under the changes article of the contract and, when this was denied, pursued its administrative remedy before the Armed Services Board of Contract Appeals (ASBCA) under the disputes clause.

Meanwhile, plaintiff had executed a release and received final payment for mortgage area C, and while his administrative appeal was pending, likewise executed separate releases as to mortgage areas B and A, in that order.

When the appeal came before the ASBCA, the contracting agency pleaded the releases in bar of plaintiff's claim; the ASBCA upheld the plea as to both mortgage areas; and noted its further conclusion that the claim was without merit.

Plaintiff thereupon filed the present action as a claim "on behalf of and for the benefit of its subcontractors" for an alleged breach of contract resulting from the refusal of the contracting officer to grant an equitable adjustment under the changes article as for a change inherent in the replacement of 2-wire conductors with 3-wire conductors, pleading that —

* * * in * * * refusing to recognize petitioner\'s interpretation of the contract as reasonable, and in holding that the claim was barred by releases, the Board\'s decision was not supported by substantial evidence and was arbitrary, capricious, and so grossly erroneous as to necessarily imply bad faith.

In its answer to plaintiff's petition, defendant denied substantially all of the material allegations and asserted four complete affirmative defenses and a fifth, partial affirmative defense, as follows:

(1) That the decision of the ASBCA is final, conclusive, and binding.

(2) That the claims asserted in the petition are barred by releases.

(3) That there was no privity of contract between the subcontractor and defendant, wherefore the court lacks jurisdiction to adjudicate the claim.

(4) That plaintiff is not the real party in interest.

(5) That if plaintiff be deemed entitled to recover, the amount may not exceed $17,600, because of the statutory ceiling imposed by the Capehart Act.

Three months after filing its answer, defendant moved for summary judgment, asserting that "there is no genuine issue of material fact." Plaintiff duly responded with its opposition to defendant's motion and its cross motion for summary judgment, likewise asserting that "there is no genuine issue of material fact." Defendant has replied to plaintiff's opposition and cross motion.

With its initial motion for summary judgment, defendant filed the documentary record of the appeal before the ASBCA, which the plaintiff "adopts" in its opposition and cross motion.²

The issues in the case are (1) whether the releases executed by plaintiff operate as a bar to its claim with respect to mortgage area B or mortgage area A or both; and (2) if the claim is not so barred as to either or both, whether the wiring claim is meritorious as to the area or areas not released.

I

The contract contained the following provision:³

Upon completion and acceptance of all work required hereunder, the amounts due the eligible builder under this Housing Contract from mortgage proceeds will be paid by the respective mortgagor-builders. Final amounts shall be payable after the eligible builder shall have furnished such mortgagor-builders and the Department with a release, if required, of all claims against the Department and/or such mortgagor-builders arising under and by virtue of this Housing Contract, other than such claims, if any, as may be specifically excepted by the eligible builder from the operation of the release in amounts stated therein. * * *

On March 1, 1962, plaintiff executed the following release concerning area C:

The work * * * having been satisfactorily completed and accepted * * * the undersigned hereby remise, release and forever discharge the United States * * * of and from any and all claims and demands whatsoever arising out of or by virtue of said contract except as follows: See Exhibit "A".

Exhibit "A" summarized the terms of an escrow agreement for delayed completion of specified items not here material. Since defendant did not require the contractor to make corrections of the wiring in area C, that area is not in controversy in this action.

On July 9, 1962, the contracting officer denied plaintiff's claim for an equitable adjustment on account of the wiring replacements in mortgage areas A and B.

On July 30, 1962, plaintiff executed a release as to mortgage area B which was in all respects identical to its release of mortgage area C, except for minor variations in the reservation of escrow claims for delayed completion.

On August 1, 1962, plaintiff appealed the contracting officer's decision of July 9 to the ASBCA.

On August 30, 1962, plaintiff executed a release concerning mortgage area A which was identical to the other releases except as to the reservations in Exhibit "A".

Exhibit "A" attached to the foregoing release contained the following reservation:⁴

The Eligible Builder reserves the right to assert claims against the United States * * * in the amount of $500,000.00 for damages suffered by the Eligible Builder * * * due to, but not limited to, damages caused by the Department of the Navy by the daily, constant, continuous, arbitrary and unreasonable interference with and disruption of the work of the Eligible Builder under said contract, the arbitrary rejection of work and materials of the Eligible Builder although said work and materials complied with the standards of workmanship and quality of materials required under the plans and specifications and said Housing Contract, all of which caused undue and unnecessary increased costs to the Eligible Builder and other damages in the performance of the contract by the Eligible Builder.

As heretofore noted, when plaintiff's appeal to the ASBCA came on to be heard, the contracting agency pleaded the releases in bar of the claim as to both mortgage areas, B and A, and the ASBCA upheld the plea.

With respect to the release of area B, the ASBCA noted that the contractor's appeal had been filed on August 1, 1962, 2 days after the execution of the release of July 30, and concluded as follows:

There is no evidence contemporaneous with the execution of the release of 30 July 1962 as to any intention to limit the generality of the release of 30 July 1962 beyond what is stated therein. At the hearing the parties stipulated that appellant\'s vice president, who executed the release dated 30 July 1962, if called as a witness, would have testified that he had not intended to release the instant claim, and that the failure to set it out as an exception had been due to an inadvertence on his part and the rush of closing time. The parties also stipulated that appellant\'s vice president and other representatives of appellant participating in this closing, including counsel specially employed for Capehart closing transactions, had had prior experience with the closing of mortgages on Capehart projects.

On the evidence we are of the opinion that the subjective and unmanifested intention of appellant\'s vice president did not avoid the otherwise general effect of the release executed 30 July 1962, that it was not obvious that the failure to include the instant claim as an exception was attributable to mistake or oversight, and that the instant claim was released as to mortgage area B. See J. G. Watts Construction Company v. United States⁵ * * *.

With respect to plaintiff's release of mortgage area A, executed August 30, 1962, the ASBCA found and concluded as follows:

* * * appellant reserved the right to assert claims against the Government in the amount of $500,000 for damages suffered by appellant in the performance of the subject contract "due to, but not limited to, damages caused by the * * * Navy by the daily, constant, continuous, arbitrary and unreasonable interference with and disruption of the work * * *, the arbitrary rejection of work and materials * * * although said work and materials complied with the standards of workmanship and quality of materials

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