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COURT OF APPEALS DECISION DATED AND RELEASED August 20, 1996 |
NOTICE |
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A party may file with the
Supreme Court a petition to review an adverse decision by the Court of
Appeals. See § 808.10 and
Rule 809.62, Stats. |
This opinion is subject to
further editing. If published, the
official version will appear in the bound volume of the Official Reports. |
No. 95-1799
STATE
OF WISCONSIN IN COURT OF
APPEALS
DISTRICT I
SINGH CONSTRUCTORS,
INC.,
Plaintiff-Appellant,
v.
TRAYLOR BROS.,
INC./FRONTIER-
KEMPER CONSTRUCTORS,
INC.,
JOINT VENTURE, TRAYLOR
BROS., INC.,
FRONTIER-KEMPER
CONSTRUCTORS, INC.,
Defendants-Third Party Plaintiffs-
Respondents-Cross Appellants,
MILWAUKEE METROPOLITAN
SEWERAGE
DISTRICT,
Third Party Defendant-Cross Respondent.
APPEAL and CROSS-APPEAL
from a judgment and an order of the circuit court for Milwaukee County: MICHAEL P. SULLIVAN, Judge. Affirmed; cross-appeal dismissed.
Before Wedemeyer, P.J.,
Fine and Schudson, JJ.
PER CURIAM. Singh Constructors, Inc., appeals from a
judgment, following a bench trial, dismissing its breach of contract action
against the defendants. Singh argues
that the trial court erred in concluding that the defendants did not breach the
subcontract. Singh also argues that the
trial court erred in denying prejudgment interest for retainage held by the
general contractor in excess of the amount specified in the subcontract. We reject Singh's arguments and affirm the
judgment.[1]
I. Background
Singh, a grouting
subcontractor, brought this breach of contract action against Traylor Bros.,
Inc./Frontier-Kemper Constructors, Inc., Joint Venture, Traylor Bros., Inc.,
and Frontier-Kemper Constructors, Inc., (collectively, “the Joint Venture”),
the general contractor on a portion of the Milwaukee Metropolitan Sewerage
District's Deep Tunnel Project. In June
1986, the Joint Venture entered into what the parties refer to as the “General
Contract” with MMSD. In July 1986, the
Joint Venture entered into a subcontract with Singh for the performance of
certain grouting work under the General Contract. Sections II and III of the subcontract specifies the work as
follows:
Singh hereby agrees to furnish all labor and
materials and perform all work as more fully described herein for a part of the
General Contract by and between Traylor/Frontier-Kemper and the OWNER [MMSD]
... in accordance with this agreement, the agreement between the OWNER and
Traylor/Frontier-Kemper, and in accordance with the General Provisions of the
Contract, the Drawings and Specifications and addenda prepared by the OWNER,
its agents, representatives, and employees, all of which documents form a part
of the Contract between the OWNER and Traylor/Frontier-Kemper ... and which are
hereby incorporated by reference as previously set out; these said documents
herewith become part of this agreement ....
Section
III of the subcontract, in part, provides:
Singh
and Traylor/Frontier-Kemper agree that the materials, labor and equipment to be
furnished and work to be done by Singh are as specified as follows:
BID ITEM DESCRIPTION
22 Stage grout hole drilling from surface
23 Stage grout drill from within subsurface
structure
24 Preparation of grout holes for consolidation
grouting and water testing
25 Portland cement for grout
26Bentonite for grout
27 Flyash for grout
28Chemicals for chemical grouting
29 Grout
placement
The
subcontract also recites that the General Contract is specifically incorporated
into the subcontract. Section I of the
subcontract, contains a “flow down” or “pass through” clause, which states:
The work to be done pursuant to this Agreement
is a portion of the work required of the contractor under the GENERAL
CONTRACT. Insofar as they may be
applicable, Singh shall be bound by all of the terms, conditions and provisions
of the GENERAL CONTRACT and the plans, drawings, specifications, change orders
or amendments connected therewith or issued in connection therewith, and Singh
hereby covenants that it shall strictly comply therewith. All rights and remedies reserved by the
OWNER under the GENERAL CONTRACT shall also apply to and be possessed by
Traylor/Frontier-Kemper, as well as the OWNER, in all dealings with Singh.
Additionally,
section IX.A.1 of the subcontract further states that Singh shall “[b]e bound
to [the Joint Venture] by the terms of the Contract Documents and this
agreement, and assume toward [the Joint Venture] all obligations and
responsibilities that [the Joint Venture] ... assumes toward the OWNER.”
The General Contract
contains the following provisions regarding MMSD's broad authority with respect
to the performance of work under the General Contract.
(1) GENERAL
CONDITIONS
Article
13. AUTHORITY OF THE ENGINEER[2]
....
The
Engineer shall have the authority to interpret project schedule requirements
and to establish the necessary priorities for resolving conflicts between
Contractors, and to enforce such measures as may be necessary to maintain
overall project schedules. It is the
intent of this Article that there shall be no delays in the progress of the
critical elements of the project work, and the decision of the Engineer as
rendered shall be promptly observed.
....
(Added
by Supplementary Conditions) Notwithstanding the limitations on the Engineer's
authority contained herein, Section 02970 [sic, should read 02971] DRILLING AND
GROUTING ... assign additional authority and responsibility to the
Engineer. The authority of the Engineer
shall be interpreted to include the additional authority specified therein.
....
Article
37. RESPONSIBILITY TO ACT IN EMERGENCY
In
case of an emergency that threatens loss of or damage to property or injury to
person, the Contractor shall act, without previous instructions from the Owner
or Engineer, as the situation may warrant.
The Contractor shall immediately inform the Engineer of the emergency
action taken. Any claim shall be
submitted to the Engineer. The amount
of compensation, if any, shall be determined by agreement prior to the issuance
of a Modification order. However, if
the emergency is created or aggravated by the Contractor, he shall be liable
for the resulting damages. If the Contractor
fails to take the necessary action as required by such an emergency, the Owner
may assign another Contractor or use his own forces to perform the emergency
work.
....
Article
65. CHANGES
A. The Owner may, at any time, without notice
to the Sureties, by written order designated or indicated to be a Change Order,
make any change in the work within the general scope of the Contract, including
but not limited to changes (i) in the Specifications (including Plans and
designs); (ii) in the time, method or manner of performance of the work; (iii)
in the Owner-furnished facilities, equipment, materials, services, or site; or
(iv) directing acceleration in the performance of the work.
The
following language regarding “Section 02971 DRILLING AND GROUTING” is also
applicable:
Drilling and grouting shall be performed
at such locations, as shown in the Plans, in such quantities as stated in the
Bids or at such times, as approved by the Engineer.
....
QUALIFICATION REQUIREMENTS
....
If,
in the opinion of the Engineer, an experienced grouting specialist or grouting
foreman is not assigned from the Contractor's staff, the Engineer will require
that the Contractor acquire such experienced personnel or subcontract the work
to a qualified firm specializing in grouting.
Should such action be required, no adjustment in unit prices will be
allowed.
....
D.
PAYMENT
The Contractor shall be entitled to
compensation for the actual quantity of the work as approved by the
Engineer. The Engineer retains the
right to eliminate, increase, or decrease the work under any item.
According to the trial
testimony, when the subcontract was executed, the portion of the grouting work
under the General Contract that Singh was to do consisted of grouting two
access shafts and the tunnel interior.
After grouting the access tunnels, Singh started to do the grouting work
on the tunnel interior in 1988, but interior grouting was brought to a halt
sometime around February 1988 because of unexpected conditions, including what
CH2MHill, Inc. Engineer John Ramage described as “very large uncontrolled water
inflows into the tunnel.” Engineer Alan
Foreman testified that the “large inflows of water” that resulted during the
tunneling and grouting “was totally unforeseen at the time the project was bid”
and that it had not been paid under Bid Items 22-29. Ramage also testified that rock broke up making it impossible to
support the opening of the tunnel, and that MMSD considered the conditions to
be “absolutely incredible differing site conditions,” and had even “very
seriously considered” terminating the General Contract. Ramage and CH2MHill, Inc., Engineer Donald
Olson testified that the situation constituted a differing site condition that
required renegotiation of the price of the General Contract.
Because Singh's grouting
could not control the inflow of water, MMSD came up with a plan that required
grouting in places, in amounts, and in a manner different than what had been
contemplated at the execution of the General Contract or Singh's
subcontract. According to the testimony
of Ramage, MMSD directed the Joint Venture to retain the Construction Drilling
Services Division of Layne Northwest Co. in order to use a different approach
to stop the water inflow. The new plan
involved doing surface grouting that would be done in advance of the tunnel
boring machine. This different grouting
plan required drilling holes at an angle to a depth of approximately 300-400
feet. MMSD also directed the Joint
Venture to retain Micon Services, Inc., to perform specialized grouting work,
which involved using a polyurethane grouting system. Olson testified that polyurethane grout was not covered by Singh's
subcontract. Additionally, MMSD also directed
the Joint Venture to retain The Prepakt Concrete Company to perform certain
grouting work.
In mid-1989, MMSD
decided to add two additional drop shafts (NS-4 and NS-5) to the General
Contract. According to the testimony of
Ramage and Olson, these shafts were originally to be constructed under a
different contract with the Joint Venture.
MMSD directed the Joint Venture to perform work relating to the new
shafts, so the Joint Venture sought bids on the grouting work for these
shafts. Singh submitted a bid; however,
Frazer & Co. Exploration Services, Inc., submitted a lower bid and was
ultimately selected.
In early 1991, MMSD
directed the Joint Venture to do some emergency grouting work, in addition to
the grouting work Singh was doing. This
direction was in response to the emergency situation that MMSD believed threatened
numerous buildings in downtown
Milwaukee. In “Transmittal No E-637,” a
letter from MMSD to John McDonald, an engineer for the Joint Venture, MMSD
specifically directed that this work “be manned and supervised strictly by [the
Joint Venture's] personnel.”
In April of 1992, the
Joint Venture wrote to Singh, reminding it of MMSD's tunnel grouting completion
date of May 15, 1992, and stating that its services would not be required after
that date. After May 15, 1992, the
Joint Venture performed some “contact” grouting, which was not included in the
subcontract.
Singh eventually
completed the grouting work called for under the subcontract. Singh performed and received payment for
approximately $11.3 million of grouting work under the subcontract, which
originally had an estimated amount of $5.2 million. In fact, Singh performed all of the work specified under the
subcontract and did some additional work.
II. The Right to
Perform All Grouting Work
In general, Singh claims
that it was entitled under its subcontract to perform several million dollars
in grouting work that was performed by the Joint Venture, Layne, Micon and
Prepakt. In a factually detailed and
well-reasoned written opinion, the trial court concluded that the Joint Venture
did not breach Singh's subcontract because under the terms of the General
Contract, MMSD was entitled to direct the Joint Venture to subcontract grouting
work to other subcontractors and to perform certain grouting work itself, and
that the Joint Venture was obligated to comply with MMSD's directive. The trial court also concluded that under
the terms of the General Contract, MMSD was entitled to direct the Joint
Venture to terminate Singh's contract and the Joint Venture was required to
comply with that directive. Singh
argues that the trial court erred in concluding that the Joint Venture did not
breach the subcontract and seeks the “lost mark-up” on approximately $8.54
million in grouting work done by the Joint Venture and the other
subcontractors.
A trial court's findings
of fact will be upheld on appeal unless they are clearly erroneous. See § 805.17(2), Stats.
Interpretation or construction of a contract is subject to our
independent review. See Hoeft
v. United States Fire Ins. Co., 153 Wis.2d 135, 140, 450 N.W.2d 459,
461 (Ct. App. 1989).
We reject Singh's
argument. The trial court's detailed
findings of fact support its conclusions of law that MMSD was entitled to
direct the Joint Venture to arrange for additional and emergency grouting work
once there was a change of conditions.
The change of conditions here involved a massive influx of water and
different soil conditions that, according to the trial court's findings,
required grouting work in a different manner than was being done by Singh. Singh's subcontract expressly provided that
its subcontract with the Joint Venture was subject to MMSD's contract with the
Joint Venture. The Joint Venture's
compliance with directions issued by MMSD to hire other grouting contractors to
deal with the differing site and emergency conditions was not a breach because,
as correctly noted by the trial court, “the subcontract granted to the Joint
Venture, and MMSD, in all dealings with Singh all the rights possessed by MMSD
under the general contract.”
We further reject
Singh's attempt to apply the well-accepted rules regarding “changed conditions”
and “differing site” clauses to the issue in this case: namely, whether the contracts between MMSD,
the Joint Venture, and Singh permitted MMSD to relieve Singh of its
obligation—if called upon—to perform work resulting from changed conditions
when in the view of MMSD or the Joint Venture the situation required another
subcontractor. The General Contract and
the subcontract contain contractual provisions reserving significant rights to
MMSD and the Joint Venture; the contracts do not contain covenants that entitle
Singh to an unlimited right to receive all grouting work that Singh felt it
should be able to perform. The express
contract language quoted in the trial court's decision together with the trial
court's findings of fact amply support the trial court's decision.
Singh also argues that
the change order regarding NS-4 and NS-5 reflects that work was intended to be
construed as part of the work that falls under the General Contract. The trial court's findings that MMSD had
intended to construct the NS-4 and NS-5 shafts under a contract other than the
General Contract with the Joint Venture are not clearly erroneous. Additionally, the subcontract contains clauses
granting the Joint Venture the right to award other contracts or even to
eliminate or decrease grouting work. See
Hunkin Conkey Constr. Co. v. United States, 461 F.2d 1270 (Ct.
Cl. 1972) (rejecting plaintiffs's argument that it had the right to perform
“all” work under the contract that contained “changed conditions” and “other
contracts” clauses). We conclude that
the trial court's conclusion that the Joint Venture was free to accept bids on
that work is supported by the record.[3]
III. The
Retainage
Singh claims that it is
entitled to prejudgment interest for retainage held by the Joint Venture for
what Singh claims to be “in excess of the amount allowable under the subcontract.” Singh's subcontract provided for retainage
as follows:
Payment
shall be made for the work done and material furnished ... less any percentage
thereof retained by the OWNER under the provisions of the said contract with
[the Joint Venture] .... [The Joint
Venture] shall pay to Singh the retained percentage of the amount due Singh
after receipt of payment by [the Joint Venture] from the OWNER.
In approximately June
1990, Singh informed the Joint Venture that it was having financial problems
that made it unable to meet its payroll.
In response, the Joint Venture agreed to pay Singh's payroll and to pay
Singh's suppliers. In return, Singh
agreed to allow the Joint Venture to retain an amount equal to approximately
one month of Singh's gross billings. Foreman testified that the retention was necessary to provide the
Joint Venture with protection against the risk of Singh not paying its
suppliers.
The trial court found
that the Joint Venture's agreement with Singh to pay Singh's bills directly but
withhold one month's payments as retainage was supported by consideration and
was therefore effective. Singh claims,
however, that the trial court erred in allowing the Joint Venture to assert a
modification-of-contract defense regarding the retainage as the basis for
concluding that Singh had been timely paid under the subcontract.
Singh's claim that the
Joint Venture had to plead modification of the contract in order to rely on it
as a defense is moot because Singh did not object to the evidence. See § 901.03, Stats.; see also Servi v.
Draheim, 254 Wis. 356, 362-363, 36 N.W.2d 273, 276 (1949). Indeed, Singh testified about the agreement.
Singh also claims there is no credible
evidence in the record that Singh had executed an unauthorized assignment that
entitled the Joint Venture to find it in default. The trial court found that Singh had assigned the proceeds of its
subcontract to a financial institution without the Joint Venture's consent, and
that the Joint Venture could have declared Singh in default under the terms of
the subcontract. The actual existence
of an assignment is immaterial. The
modification is not dependent upon an assignment. Indeed, the record supports the trial court's finding that Singh
specifically agreed that the Joint Venture could retain one month's gross
billings in consideration for making advances to pay his payroll and suppliers.
In sum, the trial
court's findings of fact and legal conclusions, based on the express contract
language, are well-supported.
Therefore, we affirm.
By the Court.—Judgment
affirmed; cross-appeal dismissed.
This opinion will not be
published. See Rule 809.23(1)(b)5, Stats.
[1] The cross-appeal concerns the Joint Venture's attempt to hold MMSD liable if it is found liable to Singh. We dismiss the cross-appeal, however, because our disposition of the appeal eliminates the need to address the issues raised in the cross-appeal.
[3]
Singh cites Westinghouse Electric Supply Co. v. Fidelity &
Deposit Co., 560 F.2d 1109, 1114 (3d Cir. 1977), in support of its
position that the changed conditions clause gave it the right to perform the
NS-4 and NS-5 work. Westinghouse,
however, did not involve an attempt by a subcontractor to obtain work under a
changed conditions clause. Instead, Westinghouse
held that a subcontractor that had a duty to comply with the plans and
specifications contained in the primary contract, also had a duty to comply
with modifications made by change orders.
Id. at 1114-1116.