Edward Kraemer & Sons, Inc. v. City of Overland Park, 69706

• Citation: 19 Kan.App.2d 1087,880 P.2d 789
• Decision Date: 09 September 1994
• Docket Number: No. 69706,69706
• Court: Court of Appeals of Kansas
• Parties: EDWARD KRAEMER & SONS, INC., Appellee, v. CITY OF OVERLAND PARK; City of Merriam; and Kansas Department of Transportation, Appellants.

Page 789

880 P.2d 789

19 Kan.App.2d 1087

EDWARD KRAEMER & SONS, INC., Appellee, v. CITY OF OVERLAND PARK; City of Merriam; and Kansas

Department of Transportation, Appellants.

No. 69706.

Court of Appeals of Kansas.

Sept. 9, 1994.

Syllabus by the Court

1. As a general rule, a cause of action accrues when the plaintiff could have first filed and prosecuted his action to a successful conclusion.

2. Under the circumstances of this case, a cause of action for incentive payments under a construction contract accrued when the work was completed and demand for payment was refused.

3. K.S.A. 16-201 authorizes an award of prejudgment interest against a municipality.

Theresa A. Pasek, Staff Atty. and Michael B. Rees, Chief Counsel of Kansas Dept. of Transp., for appellants.

R.W. Miller, Stephen R. Miller, Weston A. Sechtem, and Frederick J. Ernst of Miller Law Firm, P.C., Kansas City, MO, for appellee.

Before BRAZIL, P.J., and ELLIOTT and ROYSE, JJ.

ROYSE, Judge:

This case arises out of a highway construction contract. In June 1985, the Cities of

Overland Park and Merriam (Cities) awarded Edward Kraemer & Sons, Inc., (Kraemer) a contract for road reconstruction along I-35. After the work was completed, a dispute arose over the amount which the Cities owed Kraemer. Kraemer sued the Cities and obtained judgment. The Cities have appealed, raising two principal issues: (1) whether Kraemer's action was barred by the statute of limitations; and (2) whether the trial court erred in assessing prejudgment interest against the municipalities.

FACTS

In early 1985, bids were solicited for a road reconstruction project along I-35 and 75th Street in the cities of Overland Park and Merriam. Kraemer submitted the low bid and was awarded the contract on May 3, 1985.

Problems arose in the execution of the project documents. Kraemer executed the contract on May 13, 1985, but the Cities did not sign the contract until June 17, 1985. The contract provided that a notice to proceed had to be issued before Kraemer could begin the work and required the Cities to issue the notice to proceed within five days after executing the contract. The notice to proceed, however, was not issued by the Cities until July 16, 1985. Kraemer began work on the project immediately after the Cities issued the notice to proceed.

The contract terms set a "target date" of July 15, 1987, for completion of the project. The "target date" was designed to limit the time that the 75th Street interchange would be closed to traffic. The target date effectively left the contractor 456 days to perform the final phases of the project. Damages of $12,000 per day were to be assessed for each day that the work extended past the target date. Incentive payments of $12,000 per day were to be awarded for each day that work was completed before the target date, up to a maximum of 40 days.

As construction proceeded, Kraemer repeatedly asked for a change in the target date to reflect the Cities' delay in issuing the notice to proceed. Because no change in the target deadline was forthcoming, Kraemer had to adopt an accelerated work schedule to meet the target deadline. Kraemer substantially completed the project by July 15, 1987, using 387 days to complete the final phases of the project. After minor follow-up work, the Kansas Department of Transportation (KDOT) certified completion of the project on May 31, 1988.

The contract provided that when the contractor completed the project, the project engineer would certify the compensation due the contractor. The final pay estimate indicated that $100,682.38 was owed to Kraemer. The estimate did not allow any payment to Kraemer pursuant to the incentive clause in the contract. In response, Kraemer asserted a claim for damages from the delayed notice to proceed, made a claim for incentive bonuses, requested immediate payment of the $100,682.38, and refused to approve the final pay estimate which included a release of all claims. The Cities refused to release any amount because Kraemer had not signed the final pay estimate.

On May 13, 1991, Kraemer filed suit against the Cities to recover the amount the Cities had determined was due under the contract, the costs associated with the accelerated work schedule, and the incentive payments lost due to the Cities' delay in issuing the notice to proceed. The Cities filed a motion for dismissal or partial summary judgment, claiming that Kraemer's cause of action was barred by the statute of limitations. The district court denied the motion, and the case proceeded to a jury trial. The jury awarded Kraemer $456,000 in incentive payments, but it awarded no damages for costs associated with the accelerated work schedule. Kraemer's claim for the amount due under the contract was dismissed because the Cities had paid that amount before trial. At a post-trial hearing the district court awarded Kraemer prejudgment interest totaling $270,760 on the incentive payments and the contract amount that the Cities had retained.

STATUTE OF LIMITATIONS

K.S.A. 60-511(1) provides a five-year statute of limitations for a cause of action based on a written contract. The period for filing suit begins to run when the cause of action accrues. K.S.A. 60-510. The question According to the Cities, the alleged contract breach occurred in May 1985, when the notice to proceed was delayed. The Cities contend Kraemer had five years from that date to bring suit. Because Kraemer did not file its suit until May 1991, the Cities conclude that Kraemer's claims were time barred.

in this case is: When did Kraemer's cause of action accrue?

Kraemer responds that the breach in May 1985 was merely a technical breach. It contends that no material breach of the contract occurred until 1989, when the Cities refused to honor Kraemer's demand for payment. Kraemer concludes that its filing of the lawsuit in 1991 was well within the five-year statute of limitations.

The district court adopted the view urged by Kraemer, holding that Kraemer's cause of action did not accrue until the contract was substantially completed and Kraemer's demand for payment was refused. The district court's interpretation of the statute of limitations for contract actions is a conclusion of law. This court's review of conclusions of law is unlimited. Hutchinson Nat'l Bank & Tr. Co. v. Brown, 12 Kan.App.2d 673, 674, 753 P.2d 1299, rev. denied 243 Kan. 778 (1988).

The question when a cause of action accrues for breach of a construction contract has never been directly addressed in Kansas. In other contexts, however, the general rule is that:

"a cause of action accrues, so as to start the running of the statute of limitations, as soon as the right to maintain a legal action arises, the true test being at what point in time the plaintiff could first have filed and prosecuted his action to a successful conclusion." Yeager v. National Cooperative Refinery Ass'n, 205 Kan. 504, Syl. p 7, 470 P.2d 797 (1970).

See Pizel v. Zuspann, 247 Kan. 54, 76, 795 P.2d 42 (1990); Pancake House, Inc. v. Redmond, 239 Kan. 83, 87, 716 P.2d 575 (1986); Holder v. Kansas Steel Built, Inc., 224 Kan. 406, 410, 582 P.2d 244 (1978); Johnston v. Farmers Alliance Mutual Ins. Co., 218 Kan. 543, 548, 545 P.2d 312 (1976).

Kraemer argues that in the context of a complex construction contract, the ability to pursue a cause of action to a successful conclusion does not occur until the contract is substantially completed. A number of jurisdictions have specifically adopted such a rule.

In Santucci Construction Co. v. Danville, 128 Ill.App.3d 954, 84 Ill.Dec. 234, 471 N.E.2d 1000 (1984), the Illinois Court of Appeals held that where a construction contract is involved, the statute of limitations does not ordinarily begin to run against a contractor's claim for payment before completion of the contract. Similarly, in State v. Lundin, 60 N.Y.2d 987, 471 N.Y.S.2d 261, 459 N.E.2d 486 (1983), the New York Court of Appeals stated the cause of action in a construction contract generally accrues upon completion of the actual physical work. See Millgard Corp. v. McKee/Mays, 831 F.2d 88, 90-91 (5th Cir.1987); Pioneer Roofing Co. v. Mardian Constr. Co., 152 Ariz. 455, 463, 733 P.2d 652 (Ct.App.1986); Godde v. Wood, 509 S.W.2d 435 (Tex.Civ.App.1974); 13 Am.Jur.2d, Building and Construction Contracts § 114.

The courts have listed a number of reasons for adopting this rule. First, the undertaking of a contractor on a construction project is a single endeavor and, thus, a statute of limitations should not begin to run until completion of that endeavor. See Santucci, 128 Ill.App.3d at 957, 84 Ill.Dec. 234, 471 N.E.2d 1000; Godde, 509 S.W.2d at 441; Note, Developments in the Law, Statutes of Limitations, 63 Harv.L.Rev. 1177, 1209 (1950). Second, in light of the size, complexity, and length of a construction project, the determination when a cause of action accrues should not depend upon the existence of an inconsequential claim based upon a technical breach of duty, but upon the existence of a practical remedy. Haslund v. Seattle, 86 Wash.2d 607, 620, 547 P.2d 1221 (1976). Third, when a contract calls for a final accounting and contemplates resolution of claims, a breach does not occur until a final accounting or demand for payment is made. See Zook Brothers Constr. Co. v. State, 171 Mont. 64, 70, 556 P.2d 911 (1976).

The rule that a contractor's claim for payment begins to run upon completion of the In regard to an action for the recovery of money, the cause of action does not accrue before payment is due. There must be a right, a duty, and a default. Bruner v. Martin, 76 Kan. 862, 865, 869, 93 P. 165 (1907); 1 Am.Jur.2d Actions § 62 (1994); see Cole v. Emerson, 133 Kan. 442, 1 P.2d 249 (1931); Heery v. Reed, 80 Kan. 380, 102 P. 846 (1909); Harvester, Inc. v. Goodyear Tire & Rubber Co., 4 Kan.App.2d 363, 366-67, 606 P.2d 498 (1980); 1 Corman, Limitation of Actions § 7.2.1 (1991); 4 Corbin on...