White Sands Constr., Inc. v. City of Las Cruces

534 P.3d 1015

WHITE SANDS CONSTRUCTION, INC., a New Mexico corporation, Plaintiff-Appellee,

v.CITY OF LAS CRUCES, a New Mexico home rule municipality, Defendant-Appellant.

No. A-1-CA-39429

Court of Appeals of New Mexico.

Filing Date: April 27, 2023

Certiorari Denied, August 11, 2023, No. S-1-SC-39936

Jackson Loman Stanford Downey & Stevens-Block, P.C., Leah M. Stevens-Block, Kara Shair-Rosenfield, Albuquerque, NM, for Appellee

Martin & Lutz, P.C., David P. Lutz, Las Cruces, NM, for Appellant

WRAY, Judge.

{1} This appeal involves contract interpretation in the context of the Prompt Payment Act (PPA), see NMSA 1978, §§ 57-28-1 to -11 (2001, as amended through 2007). Under the PPA, with few exceptions, "all construction contracts shall provide that payment for amounts due shall be paid within twenty-one days after" receipt of an undisputed application for payment. Section 57-28-5(A). If prompt payment is not made as required, an interest penalty begins to accrue "on the twenty-second day after payment was due," which is "computed at one and one-half percent of the undisputed amount per month or fraction of a month." Id. The statutory penalty in Section 57-28-5(A) continues "until the payment is issued."

{2} Defendant the City of Las Cruces (the City) appeals from the district court's decision following a bench trial, which concluded that the City owed Plaintiff White Sands Construction, Inc. (White Sands) $160,379.51 under the PPA, arising from the City's late payments to White Sands on a construction contract. The City argues to this Court that White Sands waived its right to interest under the PPA and in the alternative, that the district court miscalculated the amount of interest owed based on an incorrect reading of the PPA and the parties’ agreements. We affirm in part, reverse in part, and remand for further proceedings.

BACKGROUND

{3} In 2015, the City entered into a $10,000,000 contract (the Contract) with White Sands to perform site development and to construct a Public Safety Complex (the Project), a 35,000 square foot fire station and police substation. The Contract involved three participants: the City as the "Owner," White Sands as the "Contractor," and an individual identified as the "Architect." The Contract required White Sands to submit applications for payment to the Architect, who would review and issue certificates for payment, and the City would make payments "not later than twenty-one (21) days after the Architect receive[d] the [a]pplication for [p]ayment." In the event that the Project's "substantial completion" date was delayed, White Sands would owe "liquidated damages" calculated at a daily rate.

{4} The Project quickly ran into problems. The district court found that the Project was significantly late reaching substantial completion and that the City failed to make timely payments on twenty-three out of twenty-six of White Sands’ payment applications. At trial, White Sands introduced evidence that the City's chronic late payments caused significant delays in construction, because White Sands needed the funds from the City to pay the subcontractors who were "threatening to pull off the job." The district court found that the City additionally directed White Sands to perform extra-contractual work throughout the Project and failed to adjust the payments accordingly, even though White Sands contemporaneously submitted change order requests. The district court also found that "the City chose to wait until the end of the Project to settle the change orders in order to retain contract payments to cover" amounts owed by White Sands at the end of the Project to compensate the City for delayed completion (liquidated damages). By the time the Project neared completion, to resolve mutual dissatisfaction and to finalize the Project, the parties engaged in negotiations (the Negotiations).

{5} As part of the Negotiations, White Sands offered to forgo interest under the PPA in return for the City abandoning any claim for liquidated damages. The City responded to White Sands’ offer and informed White Sands, orally and in writing, that any PPA claim should be raised with the risk management division apart from the Negotiations. The parties entered into a settlement agreement and a final change order (Change Order No. 2). The parties’ settlement agreement did not mention a PPA claim and only released White Sands—not the City—from liability. Change Order No. 2 includes as compensation for the City, a "Credit for Additional Time extension beyond original substantial completion date," which represented the liquidated damages assessed against White Sands. The line item in which White Sands had proposed zeroing out the PPA claim, however, was crossed out by the City.

{6} White Sands filed a complaint and alleged a violation of the PPA to recover statutory interest that had accrued on the City's late payments. At trial, the City argued that White Sands had waived recovery under the PPA in the Negotiations. The parties also disputed the proper method for calculating any interest owed, including the event that triggered the interest to begin to accrue, whether interest accrued by the day or the month, and the date that interest stopped accruing. Following the bench trial, the district court emailed the parties with its decision and reasoning. The district court determined that White Sands had not waived PPA interest, which the City owed to White Sands. Moving on to the "[p]roper method of calculation of interest," the district court concluded that interest began to accrue twenty-two days after White Sands submitted a payment application to the Architect, the City owed a full month of interest on the first day of each month that a payment was overdue, and PPA interest stopped accruing three days before White Sands received payments from the City. The district court later entered a written order holding that under the PPA, the City owed White Sands $160,379.57 in interest and reasonable attorney fees and costs. Between the district court's email ruling and the final written order, the City filed a "Motion for Clarification" related to the calculation of interest and whether the three days the district court subtracted to arrive at a payment date were calendar or business days. The district court denied the motion but confirmed at a hearing that the three days were calendar days. The City appeals.

DISCUSSION

{7} The City raises three arguments. First, the City contends that the district court incorrectly concluded that White Sands did not waive its right to pursue PPA interest by entering Change Order No. 2 and the settlement agreement. Second, the City asserts that the district court improperly determined how to apply the PPA's direction that interest accrued "per month or fraction of a month until the payment is issued" and when the interest started to accrue. Third, the City maintains that the district court incorrectly decided the City's motion for clarification, which was related to the calculation of the date the interest terminated. We first consider whether Change Order No. 2 and the settlement agreement resulted in a waiver of interest under the PPA.

I. White Sands’ Offer to Waive Interest Under the PPA

{8} The City maintains that White Sands waived interest under the PPA during the Negotiations. Specifically, the City argues that this question presents "a general matter" of a contractual offer, acceptance, and consideration. White Sands responds that the City rejected White Sands’ offer to waive interest under the PPA both generally and as a term of Change Order No. 2. We review questions of contract interpretation de novo, see Pub. Serv. Co. of N.M. v. Diamond D Const. Co. , 2001-NMCA-082, ¶¶ 16, 48, 131 N.M. 100, 33 P.3d 651, and agree with White Sands.

{9} "The essential attributes of a contract include an offer, an acceptance, consideration, and mutual assent." Talbott v. Roswell Hosp. Corp. , 2005-NMCA-109, ¶ 14, 138 N.M. 189, 118 P.3d 194. A proposal "is not effective and is not an ‘offer’ until it is made known to the other party, who is then in the position to accept or reject the offer." Orcutt v. S & L Paint Contractors, Ltd. , 1990-NMCA-036, ¶ 12, 109 N.M. 796, 791 P.2d 71. Sufficient acceptance "must be clear, positive and unambiguous" and may be made by "performance or by promise." Id. ¶¶ 12 -13. The refusal to accept or a proposal to modify an offer constitutes a rejection of that offer. See Gallup Westside Dev., LLC v. City of Gallup , 2004-NMCA-010, ¶ 22, 135 N.M. 30, 84 P.3d 78 ; Rejection , Black's Law Dictionary (11th ed. 2019). Both sides to a contract must also provide bargained for consideration, which is a binding promise "to do something that a party is under no legal obligation to do or to forbear from doing something [they have] a legal right to do."

Talbott , 2005-NMCA-109, ¶¶ 16, 19, 138 N.M. 189, 118 P.3d 194 (internal quotation marks and citation omitted). Consideration is "bargained for ‘if it is sought by the promisor in exchange for [their] promise and is given by the promisee in exchange for that promise.’ " Romero v. Earl , 1991-NMSC-042, ¶ 6, 111 N.M. 789, 810 P.2d 808 (internal quotation marks and citation omitted). The City argues that White Sands continually offered to waive interest and that Change Order No. 2 amounted to an acceptance of that offer because Change Order No. 2 was intended to resolve all of the parties’ disputes. To the contrary, however, we agree with the district court's conclusion that the parties did not agree that White Sands would forgo PPA interest either generally or as a term of Change Order No. 2.

{10} White Sands repeatedly offered to waive interest under the PPA, and the City rejected those offers. The City explicitly declined to include the potential PPA claim as "part of the construction project closeout conversation at all" and instead informed White Sands that PPA interest was "a discussion for the City's risk department." White Sands...