Della Ratta, Inc. v. American Better Community Developers, Inc.

Moyian, J., delivered the opinion of the Court. American Better Community Developers, Inc. (ABCD) and Della Ratta, Inc. (Della Ratta) executed a contract dated August 16, 1972, for the construction by Della Ratta of an eight-building, 50-unit garden apartment project in Reston, Virginia. On March 17, 1975, ABCD filed suit in the Circuit Court for Montgomery County against Della Ratta and Maryland Casualty Company, surety on the performance bond, alleging breach of contract by Della Ratta and seeking monetary damages. Della Ratta filed a general issue plea and a counterclaim against ABCD alleging breach of contract by ABCD and seeking damages for lost profits.

Upon joint motion, separate trials were ordered on the ¹²¹ issues of liability and damages. Following a two-day non-jury trial in June, 1976, on the liability aspect of the case, the court found in favor of the defendants Della Ratta and Maryland Casualty Company in the suit by ABCD and, likewise, in favor of Della Ratta in its counterclaim against ABCD. A court trial was then held on December 20,1976, on the issue of damages sustained by Della Ratta. At the conclusion of Della Ratta’s case in chief, ABCD moved to dismiss Della Ratta’s counterclaim under Md. Rule 535 on the grounds that Della Ratta had not proved its damages with reasonable certainty.

The court granted ABCD’s motion and entered judgment on behalf of Della Ratta for nominal damages of one dollar plus costs. This is an appeal by Della Ratta from the judgment awarding it only nominal damages and a cross-appeal by ABCD from the judgment concerning liability. We will consider first the question of liability. ABCD is a wholly owned subsidiary of American Medical Buildings, Inc. of Milwaukee, Wisconsin.

In 1971, it purchased a 2.48 acre tract of land in Reston, Virginia, to construct seven garden apartment buildings consisting of 50 units and a community center building. Upon completion of the project, ABCD planned to sell it to the Fairfax County Redevelopment and Housing Authority to be used by the county for low-income housing. In early 1972, ABCD began extended discussions with Della Ratta for the construction of the project. The terms of the contract were agreed upon between the parties on August 16, 1972, and on or about September 8, 1972, Della Ratta signed a building contract with ABCD.

The terms of the contract provided that Della Ratta would construct the project in accordance with applicable state and federal codes, regulations, ordinances, and laws and in accordance with the agreements, drawings and specifications incorporated into the contract. In consideration thereof, ABCD agreed to pay Della Ratta a lump sum of $740,000. Article XI of the contract provided ¹²² that this sum was to be increased by the cost of any extra work or changes agreed to by the parties and that in addition to the cost-of the extra work, Della Ratta would receive an additional 10 per cent as a profit margin. To protect Della Ratta against construction cost increases, the clause “given upon receipt of building permits and” was inserted into Article IV of the building contract before the contract was executed by Della Ratta.

Article IV provided in pertinent part: “Owner will give Builder ‘notice of commencement’. This notification will be given upon receipt of building permits and prior to October 1, 1972. If this notification is not given, Builder may apply for increased costs due to the delay.” On September 14, 1972, ABCD applied to the office of the Building Inspector of Fairfax County for three separate building permits — a permit to construct footings for the apartments and community center, at a projected cost of $20,000; a permit to construct the seven apartment buildings, at a projected cost of $1,000,000; and a permit to construct the community center, at a projected cost of $72,000. On September 15, ABCD was issued a permit to clear and grade the site and construct the footings.

James Martin, ABCD’s project manager, immediately called Joseph Michael Della Ratta, the president of Della Ratta, Inc., indicating he had gotten the “building permit.” Mr. Della Ratta told him that the footings permit was not the “building permits.” ABCD, nevertheless, immediately delivered the permit to Della Ratta and by letter of September 18 informed Della Ratta that ABCD would like actual construction to begin after groundbreaking ceremonies on September 26. Mr. Della Ratta testified that immediately upon receiving the letter from James Martin, he called Mr. Martin expressing surprise at the letter because it was not consistent with the discussions that had occurred on or about September 15. He told Mr. Martin, furthermore, that Della ¹²³ Ratta did not have the site plans from the engineers which were necessary for Della Ratta to begin clearing nor any notification that preliminary work was done on the site that would permit Della Ratta to start any grading. The scope of on-site improvements, in fact, had not as yet been contractually defined.

Subsequently, on September 26, 1972, an addendum was made to the contract. In consideration of $145,000, Della Ratta agreed to install all on-site improvements. Della Ratta was to be paid $95,000 for the actual work. The remaining $50,000 was the agreed allowance for reimbursement of Della Ratta by ABCD for certain fees imposed by Fairfax County.

This amount was to be adjusted upward or downward, based on the actual costs of permits and local utility connection fees. The addendum also provided that if any changes were made in the plans at the request of the owner or in order to secure the approval of local building officials, the contract would be modified according to the procedures outlined for additional work in the contract of August 16, 1972. On the same day that the addendum was made, Della Ratta furnished ABCD with a performance bond from the Maryland Casualty Company. At the groundbreaking ceremonies on September 26, Mr. Della Ratta walked the site but saw no engineering marks necessary for Della Ratta to start its on-site improvements.

The property was staked out, however, on September 29 so that Della Ratta could begin its clearing operations. Della Ratta, nevertheless, did not commence work on the project. It justified its failure to begin the work on the basis that the permit of September 15 was not the “building permits” contemplated by the parties in Article IV of the contract and that the obtaining of the necessary building permits was a condition precedent to its performance. In early October, 1972, Della Ratta hired Harry Allen Uram to supervise the construction of the Reston project.

Mr. Uram determined that the cost of the project in late October would be $798,000 versus the contractual price of $740,000. Extended discussions took place during October up ¹²⁴ until mid-November with ABCD and representatives of Fairfax County regarding modification of the plans and specifications in order to reduce costs. The suggestions, however, failed to reduce the costs to the original contract price. On November 8, 1972, Mr. Della Ratta wrote to James Martin of ABCD advising him that the drawings and specifications as finally approved by HUD and the Fairfax County Housing Authority were not consistent with the preliminary working drawings upon which Della Ratta based its prices.

As a result, price increases were being incurred which would affect the contract price. He also wrote: “As of this date you do not have final building permits and until they are in hand along with a marked set of prints which will identify any other modifications there might be still other cost implications to consider.” Mr. Della Ratta stated that the masonry, electrical, plumbing, carpentry and lumber costs as reflected in the current design and subcontractor bids were “way out of line” with the contract price. On the basis of the present design, he asked for a minimum addition of $100,000 to the contract price. His letter concluded: “We are ready to proceed on the basis of present plans and specifications subject to final building permits and further revisions with an increase in the contract price to $840,000.00 and if you wish to do so that can be done by a simple addendum to the contract.

We urge you to act quickly because price increases appear to be a certainty after the first of the year for many materials.” John Lundeen, Vice-President of Construction at ABCD, replied by letter of November 14 to Mr. Della Ratta that the contract price in full for the buildings was $740,000 and that any request for additional cost as a result of subsequent requirements or modifications would have to be handled ¹²⁵ under Article XI “Additional work” of the August 16 building contract. He stated that it was ABCD’s position that Della Ratta was given proper and timely notice of commencement of work by the letter of September 18 and the delivery of the building permit (footings permit), that this building permit was adequate for commencement of construction, and that any changes in the plans/specifications which had been necessitated would have to be specifically identified with their actual costs so that work orders could be processed pursuant to Article XI. He stated that the letter was to serve notice to Della Ratta that any further delays would be considered breach of contract and that, if work was not begun within 48 hours after receipt of the letter, Della Ratta’s employment would be terminated and ABCD would look to the surety for reimbursement of any resulting costs. On November 21, Mr. Della Ratta responded to Mr. Lundeen that Della Ratta had consistently maintained that the September 18 letter did not constitute a notification of commencement of work because the necessary building permits had not been obtained.

He explained that the permit issued by Fairfax County in September was not a building permit but a site plan waiver for footing permits prior to approval of that site plan. He stated that as of the date of the letter — November 21 — Della Ratta had not received the approved site plans or approved building plans. He went on to state that since the final building permits had not been issued, Della Ratta could apply for increased costs and that it had done so in its letter of November 8 when Della Ratta had forwarded to ABCD a breakdown category by category of the costs of the project as they now stood and asked that the contract be modified to reflect the revised price, subject to any further cost increases to be determined after receipt of the building permits and approved plans. After extensive efforts on the part of ABCD, the building permits for the construction of the seven apartment buildings and the community center were finally approved by the Fairfax County Building Inspector on November 22, 1972, and formally issued on December 4, 1972.

On ¹²⁶ December 5, ABCD notified Della Ratta and the Maryland Casualty Company that it considered Della Ratta in default and that it would look to the Maryland Casualty Company to cover all loss damages and expenses. The clearing and grading of the property was immediately subcontracted in December to a clearing firm and was completed sometime in January. By letter of February 28, 1973, ABCD notified Della Ratta and the Maryland Casualty Company that it had received bids from four other contractors for the construction of the project and that unless Della Ratta commenced work on or before the close of the work day of March 8, 1973, pursuant to the August 16 building contract and the September 26 addendum, ABCD would enter into a contract with Tri-State Associates, Inc. for the construction of the project and would look to Della Ratta and the Maryland Casualty Company to cover all damages, .expenses, and other claims. Subsequently on May 21,1973, a contract was entered into between Tri-State Associates, Inc. and ABCD.

The project was eventually constructed at a cost considerably greater than that agreed to between Della Ratta and ABCD in their contract of August 16 and the addendum thereto. The critical issue at trial was the interpretation of the words “building permits” in Article IV of the contract. That article provided that ABCD was to give Della Ratta notification of commencement of construction “upon receipt of building permits and prior to October 1, 1972,” or Della Ratta could thereafter “apply for increased costs due to the delay.” Therefore, whether or not the condition precedent to Della Ratta’s performance was met by providing Della Ratta with the footings permit and whether or not Della Ratta breached its contract by failing to commence construction within a reasonable time after receiving the permit hinged on the interpretation of “building permits.” The court determined initially that an ambiguity existed as to the interpretation of the words “building permits.” Viewing the testimony and the evidence then in its entirety and considering the intention of the parties, the lower court interpreted “building permits” as “a permit to construct a ¹²⁷ building.” The court did not feel that the footings permit was the permit intended to trigger the full performance by Della Ratta. It is ABCD’s position that the footings permit delivered to Della Ratta before October 1, 1972, authorizing the clearing and grading of the site and the construction of footings to the first-floor elevation for the apartment buildings and the community center, constituted “sufficient building permits” to meet the condition precedent to Della Ratta’s performance.

It maintains that Della Ratta breached the contract by failing to commence construction within a reasonable time after receiving the permit. ABCD relies on Pemberton v. Montgomery County, 275 Md. 363 , 340 A. 2d 240 , which held that a “building permit” can be a permit for the construction of a portion of a project such as the foundation or retaining wall and is not limited to a permit for the erection of a building. ABCD urges that since the term “building permit” was defined in Pemberton to include a footings permit, the trial court erred, as a matter of law, in failing to apply that definition. What ABCD is, in effect, urging is that there existed no ambiguity as to the interpretation of the words “building permits” and in the construction of the contract and that, applying the definition in Pemberton , ABCD performed its condition precedent to Della Ratta’s performance. “To become a question of law, the record must clearly show that there is no room for evidentiary interpretation by a fact-finder in light of existing law on the subject at hand.” DWS Holdings, Inc. v. Hyde Park Associates, 33 Md. App. 667, 673 , 365 A. 2d 554 .

Stated differently, where the language of a contract, considered in the light of its subject matter, and its object or purpose, is clear and unambiguous, the construction of the contract is a matter of law for the court. H & R Block, Inc. v. Garland, 278 Md. 91 , 359 A. 2d 130 ; Masano v. Albritton, 245 Md. 423 , 226 A. 2d 299 ; Jeffrey Sneider-Maryland, Inc. v. LaVay, 28 Md. App. 229 , 345 A. 2d 79 . The court, as a matter of law, will then interpret that language according to what a reasonable person in the position of the parties would have thought it meant. ¹²⁸ Billmyre v. Sacred Heart Hospital of the Sisters of Charity, 273 Md. 638 , 331 A. 2d 313 ; Orkin v. Jacobson, 274 Md. 124 , 332 A. 2d 901 . We do not believe that the words “building permits” and the provisions of the contract relating to the condition precedent to Della Ratta’s performance were so clear and unambiguous as to be decided as a matter of law.

The holding in Pemberton v. Montgomery County, supra, which ABCD urges upon us, does not control the situation here. In Pemberton , the Court of Appeals was called upon to interpret a provision of the Montgomery County Code which provides, in pertinent part: “A decision of the [Montgomery County] board or the director permitting the erection or alteration of a building shall be valid for a period of twelve months, during which time a building permit for such erection or alteration must be obtained and the erection or alteration started... ” (Emphasis supplied) 275 Md. at 366 . In construing that provision, the Court held, at 275 Md. 368 -369: “ ‘a building permit’ does not necessarily translate into a permit only for a building as such. Indeed, if a ‘building permit’ for a swimming pool project, for instance, were required, the needed permit could be for the pool itself and not necessarily for a bathhouse building being erected nearby.

And so, in this case, a ‘building permit’ allowing commencement of a service station project can be a permit for the construction of a portion of that project such as the foundation or retaining wall and it is therefore not limited, as the appellant insists, to a permit for the erection of a building; a gasoline station is, after all, probably more vitally comprised of the pumps and. the underground storage tanks. Furthermore, in the Board’s view, ‘the retaining wall was an indispensable part of the support of the ¹²⁹ gasoline station building made necessary because the site slopes sharply to the rear of the lot,’ and, therefore, the retaining wall permit was part and parcel of the permit for building the station, it being inextricably connected to that erection.” Simply because “a building permit,” however, was or can be interpreted as a footings permit, it does not necessarily follow that it must be so interpreted or that parties to a contract so intend when they use those words. A building permit may very well mean a permit to construct a building or an entire structure. The words “building permits,” in the plural here, furthermore, were reasonably susceptible to different interpretations.

Because a court or legislature has defined a word, term or phrase should not mislead us into thinking that that meaning is the only meaning or that that meaning is unalterable in other situations. 3 Corbin on Contracts, § 535, n. 18 (1971 Pocket Parts, pages 7-8), makes this pertinent observation: “A ‘settled legal meaning.’ Does either a legislature or a court have the power (constitutional or divine or physical or dictatorial) to limit or to determine the meaning with which a word must be used by its individual constituents? Without doubt, there have been naive attempts to exercise such a power. It has not yet been held that, in guaranteeing ‘freedom of speech and the press’, the Bill of Rights denies it. Complex statutory enactments often contain a ‘glossary’, with definitions of specific words and phrases; but these purport to declare the meanings intended by the legislature with respect to the particular statute, and not to force these meanings into the mouths and pens of individuals or of other legislators.” The trial court was decidedly correct here in considering the circumstances surrounding the making of the contract and other extrinsic evidence in interpreting the language of the contract. ¹³⁰ Where the language of a contract is ambiguous or susceptible to different interpretations, the court, as the fact finder, in interpreting that language, will try to ascertain the intention of the parties.

In so doing, the court may consider evidence of such extrinsic factors as the negotiations of the parties, the circumstances surrounding execution of the contract, the parties’ own construction of the contract and the conduct of the parties. Canaras v. Lift Truck Services, Inc., 272 Md. 337 , 322 A. 2d 866 ; Foodmaker, Inc. v. Denny, 32 Md. App. 350 , 360 A. 2d 446 . The court may also consider the special meaning which trade custom or usage attaches to certain words or terms. 17 Am.Jur.2d, Contracts, § 251, states: “According to the prevailing view,... where trade custom or usage attaches a special meaning to certain words or terms used in any particular trade or business, it is competent for the parties to a contract in which such words and terms are used to show the peculiar meaning of them in the business or trade to which the contract relates, not for the purpose of altering, adding to, or contradicting the contract, but for the purpose of elucidating the language used as a means of enabling the court to interpret the contract language according to the intention of the parties. This rule applies unless there is something to indicate that the parties did not use the language as it is used in the particular trade or business.” See also Burch v. Prudential Insurance Co. of America, 184 Md. 664 , 42 A. 2d 671 .

In interpreting the words “building permits,” the trial court relied upon evidence of the ordinary and customary use of those words in the construction industry. In this regard, the court considered 1) the testimony of an independent general contractor, William Bateman, who indicated that by a building permit is ordinarily meant a permit for the construction of the entire structure; 2) a memorandum from Charles Downham, the architect on the ¹³¹ job, dated November 21, 1972, which stated: “General progress: None! The developer advised that he was still unable to obtain his building permit”; 3) a letter from James Martin of ABCD, dated December 19, 1972, to the Fairfax County Housing Authority which stated that the building permit had not been issued until December 4; and 4) a letter from Joseph Bertoni, Chief Building Inspector for Fairfax County, which stated that the footings permit of September 15 “gives permission to pour footings only. Construction above the footings can begin only after a building permit has been issued.” From this evidence, the court concluded that “building permits” were intended to mean permits to construct the buildings.

ABCD complains that Mr. Bateman’s testimony, in particular, that the words “building permits” in the construction trade did not mean permits to clear, grade and lay footings, erroneously invaded the fact finder’s province. Expert testimony will not be admitted to prove to a court or jury the proper or legal construction of any instrument of writing. Where parol or extrinsic evidence is otherwise admissible, however, in construing a contract, expert testimony is admissible to aid the fact finder in interpreting words or phrases in the instrument which have a peculiar meaning in a trade, business or profession. 31 Am.Jur.2d, Expert and Opinion Evidence, § 171, p. 736, provides: “The principles admitting opinion evidence do not permit a party to a contract to testify as to the effect of the language of the contract as he or she understood it; nor do they permit any other witness to testify as to what is meant by statements in a document prepared by another, unless the words, phrases, or statements used have some unusual or technical meaning peculiar to a certain trade, business, or profession. Thus, expert testimony cannot be received to prove to the court or jury what the proper or legal construction of any instrument of writing is.

If, however, words have an unusual meaning or application in a peculiar ¹³² trade, persons familiar with such trade may testify to such meaning and thereby assist the jury or court in interpreting the written or verbal passage in which the words occur. Thus, opinion testimony may be allowed to prove whether certain words indicate that work is to be done, such as ‘repairs’ or ‘reconstruction,’ that the word ‘tenement,’ as formerly used, does not include an elegant modern apartment house, or even that the word ‘room’ as used in an insurance policy on a factory has a special meaning.” Mr. Bateman’s testimony was reasonably calculated to assist the court in interpreting the language of the contract. We see no error in its admission. In interpreting the words “building permits,” the trial court also considered the preliminary negotiations