District of Columbia v. Langenfelder & Son, No. 87-834.

• Docket Nº: No. 87-834.
• Citation: 558 A.2d 1155
• Case Date: May 17, 1989
• Court: Court of Appeals of Columbia District

558 A.2d 1155 DISTRICT OF COLUMBIA, Appellant,
v.
C.J. LANGENFELDER & SON, INC., Appellee, and
C.J. LANGENFELDER & SON, INC., Cross-Appellant,
v.
DISTRICT OF COLUMBIA, Cross-Appellee. No. 87-834. No. 87-833. District of Columbia Court of Appeals. Argued December 14, 1988. Decided May 17, 1989.

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Lutz Alexander Prager, Asst. Deputy Corp. Counsel, with whom Frederick D. Cooke, Jr., Corp. Counsel, and Charles L. Reischel, Deputy Corp. Counsel, Washington, D.C., were on the brief for appellant/cross-appellee.

J. Roy Thompson, Jr., Washington, D.C., for appellee/cross-appellant.

Before NEWMAN, TERRY and SCHWELB, Associate Judges.

NEWMAN, Associate Judge:

This case arises from a dispute involving a 1968 contract between the contractor, C.J. Langenfelder & Son, Inc. (Langenfelder) and the District of Columbia. The basic issue concerns whether in 1968, the contract term "equitable adjustment" included payment of interest on sums owed by the District to Langenfelder for costs incurred by Langenfelder in 1969-70, but not paid to Langenfelder until June 19, 1980. Because contract terms must be construed according to their customary and common usage at the time when the parties executed the contract, we disagree with the trial court's holding that the term "equitable adjustment" in this 1968 contract was meant to include interest foregone on capital expended to perform changes under the contract. Accordingly, we reverse.

I

The District of Columbia contracted with Langenfelder in 1968 to construct a portion of U.S. Highway 1-95 near the Rayburn House Office Building at a cost of approximately 24.5 million dollars. The contract directed that Langenfelder dispose of waste material resulting from the highway construction project at Dyke Marsh, an area in Virginia that was being filled to a grade that would cause flooding and allow restoration of the former swampland. In February of 1969, less than a month after the work had begun, the District imposed restrictions on Langenfelder's use of Dyke Marsh which forced the contractor to incur additional costs at Dyke Marsh and to utilize private dump areas in Virginia and Maryland.

The contract contained the standard "changes clause" present in United States contracts at that time, and provided for "equitable adjustments" to be made in the contract price whenever the contracting officer ordered changes in the contract specifications which increased or decreased the cost of performance.¹ Specifically, the contract stated:

Article 3. Changes. — The contracting officer may at any time, by a written

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order, and without notice to the sureties, make changes in the drawings and/or specifications of this contract and within the general scope thereof. If such changes cause an increase or decrease in the cost of performing the work under this contract, or in the time required for its performance, an equitable adjustment shall be made and the contract shall be modified in writing accordingly.

Contract at 3 (emphasis added).

The parties do not dispute the actual cost of the changes computed as part of the equitable adjustment; after extensive litigation in the 1970s,² the Contract Appeals Board (Board) determined that the District owed Langenfelder $320,877.27 for the cost of performing the changes unilaterally imposed by the District under the contract. This amount, however, was not paid by the District to Langenfelder until June 19, 1980. The contractor asserts that it is owed interest³ on this amount, that the interest is actually a cost that should be computed as part of the equitable adjustment, and that this additional cost should have been paid to it on June 19, 1980 as well.⁴

The contractor first brought its interest claim before the Board in 1975. The Board determined that the District owed Langenfelder interest or the "cost of operating capital" incurred by Langenfelder between February 19, 1969 and May 19, 1970.⁵ The Board concluded, however, that Langenfelder

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was "not entitled to payment on its claim for general interest" as part of the cost of the equitable adjustment for interest accrued beyond the time of Langenfelder's actual performance under the contract.

On September 12, 1979, the contractor filed a complaint for breach of contract in Superior Court challenging the Board's denial for reimbursement for interest incurred on financing after May 19, 1970. Both parties filed motions for summary judgment. The contractor argued that it was entitled to interest on the $320,887.27 measured at the prime interest rate, 7.75%, from September 28, 1975, to June 19, 1980. The parties had stipulated that if the court found the contractor was entitled to recover financing costs, the applicable computation period would be from September 28, 1975, the date the contracting officer first became aware of the claim for interest, to June 19, 1980, the date when the District paid Langenfelder the $320,887.27. Further, the parties stipulated that the prime rate of interest applied to that sum would amount to $144,990.12. The District, conceding only that it owed Langenfelder the $320,887.27, argued that if Langenfelder was entitled to such interest costs, the applicable rate was 6% as required under D.C.Code § 28-3302(a) (1988 Supp.).⁶

The Superior Court held that the Contract Appeals Board erred in denying Langenfelder interest for the period up to June 19, 1980, and entered summary judgment for Langenfelder. The court implied that such a result was mandated by "equity" as well as "the terms of the instant contract" pursuant to the equitable adjustment clause, whether the cost of performance was financed by borrowings from the contractor's bank or whether the contractor utilized its own funds for that purpose. Specifically, the court stated, "[Langenfelder] is entitled to an equitable adjustment of its contract price in an amount that will compensate it for the cost of the interest it had to pay because of having had to borrow money to perform the additional work. . . . C.J. Langenfelder Son, Inc., supra, Civ. No. 11747-79 at 2-3. Thus, the court found that plaintiff's payment of interest "represents a cost to plaintiff." Id. at 3 (citing Maryland Port Administration v. C.J. Langenfelder & Son, Inc., 50 Md.App. 525, 438 A.2d 1374 (Ct.Spec.App. 1982)). The court also noted, however, that:

Even if plaintiff had utilized its own assets to perform additional work required of it by the defendant, the Court is of the opinion that plaintiff would have been entitled to an equitable adjustment of its contract price to compensate it for such use.

Id. at n. 3.

Finally, the court concluded as part of its holding on this issue that since the Board "utilized the prime rate charged by [Langenfelder's] lender during the time of the actual performance of the additional work" during 1969 and 1970 to compute the amount of interest owed, it too would apply the prime rate to Langenfelder's claim for interest up to June 19, 1980. Id. at 3.

II

Stated simply, the question before this court is whether an "equitable adjustment," as that contract term was used in 1968, was meant to include payment of interest as a cost incurred under the contract. Langenfelder argues that the term "equitable adjustment" implies an equitable, make-whole remedy that includes not only the cost of financing the actual changes in 1969-70 which amounted to $320,887.27, but also payment of interest on that sum which was not paid to Langenfelder by the District until 1980. Langenfelder relies heavily on two cases, the first of which was also relied upon in the Superior Court: Maryland Port Administration, supra, 438 A.2d 1374, and General Railway Signal Co. v. Washington Metropolitan Area Transit Authority, 875 F.2d 320, (D.C.Cir.1989). The District asserts that

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while these cases perhaps represent a correct statement of the law in the late 1970s sad 1980s, they are inapposite to an interpretation of the 1968 contract at issue in this case. We agree with the latter and hold that the terms of the contract never encompassed payment for the claimed interest here at issue as part of an equitable adjustment.

We further reject the proposition that equity guides our resolution of this case.

As a preliminary matter, we note that the dispute between Langenfelder and the District arises under the contract and is not in the nature of a breach of contract. "When the contract makes provision for equitable adjustment of particular claims, such claims may be regarded as converted from breach of contract claims to claims for relief under the contract." Utah Construction, supra, 384 U.S. at 404 n. 6, 86 S.Ct. at 1551 n. 6 (citations omitted); see also Crown Coat Front Co. v. United States, 386 U.S. 503, 511, 87 S.Ct. 1177, 1182, 18 L.Ed.2d 256 (1967); District of Columbia v. Savoy Construction Co., 515 A.2d 698, 701-02 (D.C.1986). In cases arising under the contract, the contract itself governs the method and scope of relief available. Crown Coat, supra, 386 U.S. at 511, 87 S.Ct. at 1182.

It is a fundamental principle that "[t]he first step in contract interpretation is determining what a reasonable person in the position of the parties would have thought the disputed language meant." Intercounty Construction Corp. v. District of Columbia, 443 A.2d 29, 32 (D.C. 1982) (citations omitted). A presumption exists that the parties are aware of the surrounding circumstances at the time the contract was made. See 1010 Potomac Avoca. v. Grocery Mfrs., 485 A.2d 199, 205 (D.C.1984); Intercounty. Construction Corp., supra, 443 A.2d at 32; RESTATEMENT (SECOND) OF CONTRACTS § 202 (1981). Further, the parties are "bound by all usages which either party knows or has reason to know." Intercounty Construction Corp., supra, 443 A.2d at 32.

To determine the surrounding circumstances and common usage of a particular contract provision, courts must look to administrative and judicial interpretations of the contract...