No. 85-220
I N THE SUPREME COURT OF THE STATE OF MONTANA
1985
CLARK BROS. CONTRACTORS,
P l a i n t i f f and A p p e l l a n t ,
-vs-
STATE OF MONTANA,
Defendant and Respondent,
APPEAL FROM: District Court o f t h e S i x t h J u d i c i a l District,
I n and f o r t h e County o f Sweet G r a s s ,
The H o n o r a b l e Byron Robb, J u d g e p r e s i d i n g .
COUNSEL OF RECORD:
For Appellant:
Gough, S h a n a h a n , J o h n s o n & Waterman; R o n a l d F .
Waterman, H e l e n a , Montana
W i n s t o n & C a s h a t t ; P a t r i c k A. S u l l i v a n , S p o k a n e ,
Washington
For Respondent:
W. D. Hutchinson, Dept. of Highways, H e l e n a , Montana
S u b m i t t e d on b r i e f s : Sept. 6 , 1985
Decided: December 4, 1985
Filed: D
P
c -- ~41985
M r . J u s t i c e Frank R . Morrison, Jr. d e l i v e r e d t h e Opinion o f
t h e Court.
Plaintiff Clark Bros. C o n t r a c t o r s appeal s t h e February
25, 1985, d e c i s i o n o f t h e S i x t h J u d i c i a l D i s t r i c t i n f a v o r o f
t h e d e f e n d a n t S t a t e o f Montana. W e v a c a t e t h e District Court
iudgment and remand f o r t r i a l .
Clark Bros. Contractors (Clark Bros.) is a Montana
corporation which has been engaged in the highway
construction business for 20 years, i n c l u d i n g many highway
p r o j e c t s f o r t h e S t a t e o f Montana (State) . I n l a t e February
o r e a r l y March, 1979, t h e S t a t e s e n t o u t b i d i n v i t a t i o n s f o r
t h e c o n s t r u c t i o n o f a segment o f i n t e r s t a t e n e a r B i g T i m b e r ,
Montana. The invitation included a description of the
project, and n o t i c e t h a t s u b s u r f a c e d a t a was a v a i l a b l e from
t h e M a t e r i a l s Bureau i n H e l e n a . B i d s w e r e t o b e s u b m i t t e d by
March 2 8 , 1.979.
In preparing its bid, Clark Bros. obtained
c r o s s - s e c t i o n s o f t h e p r o j e c t a r e a from t h e M a t e r i a l s B u r e a u ,
b u t n o t t h e s u b s u r f a c e d a t a which was a v a i l a b l e . Officers of
Clark Bros. d i d a n on s i t e i n s p e c t i o n , and t a l k e d w i t h l o c a l
ranchers about s o i l conditions i n t h e a r e a . T h i s was an a r e a
o f c o n c e r n b e c a u s e t h e segment o f i n t e r s t a t e t o b e b u i l t r a n
t h r o u g h a low l y i n g i r r i g a t e d f a r m v a l l e y , and would r e q u i r e
s u b s t a n t i a l amounts o f b o r r o w ( d i r t s e c u r e d from a d j a c e n t o r
nearby sources) t o c o n s t r u c t t h e f o u n d a t i o n , o r embankment,
f o r t h e road.
T y p i c a l l y , t h e S t a t e p r o v i d e s e s t i m a t e s o f t h e amount o f
borrow t o be used in a project in i t s bid proposal. The
borrow figure is arrived a t by a three s t e p process: 1)
calculating the subsidence of the soil i n p l a c e upon w h i c h
the road i s t o be b u i l t ; 2) calculating the shrinkage, or
compaction, of the borrow that is to be used in the
embankment; and 3) using the subsidence and shrinkage
estimate t o determine how much b o r r o w w i l l raise the road
embankment t o d e s i g n s p e c i f i c a t i o n s . A typical shrink factor
for borrow is about 10%. In the B i g Timber project, an
u n u s u a l l y h i g h s h r i n k f a c t o r o f 4 0 % , and 55% i n some a r e a s ,
was e s t i m a t e d by t h e S t a t e i n i t s b i d p r o p o s a l . A provision
in the proposal clearly stated the borrow figure was an
e s t i m a t e only.
In calculating its costs for the borrow work, Clark
Bros. used the quantity estimates provided by the State.
Clark Bros. submitted the lowest bid and was awarded the
contract, which was executed on A p r i l 4, 1979. Pertinent
c o n t r a c t p r o v i s i o n s i n c l u d e d a l l o w i n g d e v i a t i o n s o f up t o 25%
i n e s t i m a t e d q u a n t i t i e s , t h a t payment would o n l y b e f o r u n i t s
o f work p e r f o r m e d , and t h a t t h e borrow was t o b e p r o v i d e d by
the contractor.
Clark Bros. began work i n May, 7 979, and c o m p l e t e d t h e
excavation, borrow, and embankment work by t h e end o f the
year. Measurement of the borrow pits showed that
substantially l e s s borrow had b e e n u s e d t h a n e s t i m a t e d , so
the State issued a change order on February 13, 1980,
reflecting that fact. Clark Bros. signed t h e o r d e r under
protest on June 5, 1980. The borrow underrun was
approximately 1 8 % , which significantly reduced the amount
paid t o C l a r k Bros. under t h e c o n t r a c t . C l a r k Bros. filed a
c l a i m on December 14, 1980, alleging a l o s s on t h e b o r r o w
work d u e t o f i x e d c o s t s and o v e r h e a d . The S t a t e r e f u s e d t o
s e t t l e , c l a i m i n g it was o n l y o b l i g a t e d t o pay f o r u n i t s o f
work p e r f o r m e d , and t h e c o n t r a c t f u r t h e r a l l o w e d f o r q u a n t i t y
d e v i a t i o n s up t o 2 5 % . Clark Bros. filed suit.
The issues at trial were: 1) w h e t h e r the S t a t e was
negligent i n preparing t h e shrinkage f a c t o r included i n t h e
bid proposal; 2) w h e t h e r C l a r k B r o s . was e n t i t l e d t o b e p a i d
f o r e x t r a work i n c u r r e d n o t c o n t e m p l a t e d by t h e c o n t r a c t ; and
3) whether exculpatory language i n t h e c o n t r a c t barred the
c l a i m s a s s e r t e d by C l a r k B r o s . The D i s t r i c t C o u r t found i n
f a v o r o f t h e S t a t e on e a c h i s s u e .
Clark Bros. asserts the following issues on appeal:
1. Was the District Court opinion supported by
s u b s t a n t i a l e v i d e n c e o r was it c 1 e a r l . y e r r o n e o u s ?
2. Did t h e D i s t r i c t C o u r t p r o p e r l y r e f u s e t o c o n s i d e r
t h e d e p o s i t i o n t e s t i m o n y o f managing employees o f t h e S t a t e ?
3. Can the State of Montana avoid liability for
m a t e r i a l m i s t a k e s i n i n f o r m a t i o n s u p p l i e d t o and r e l i e d upon
by highway construction bidders by means of exculpatory
c o n t r a c t language?
C l a r k B r o s . a s s e r t numerous e r r o r s i n t h e D i s t r i c t C o u r t
opinion. The court found that Clark Bros.' method of
computation, and selection of a borrow site without
independently testing the soils, placed the risk of loss
c a u s e d by an u n d e r r u n on C l a r k B r o s . While a r e a d i n g o f t h e
c o n t r a c t may s u p p o r t t h e s e f i n d i n g s , o t h e r e v i d e n c e was n o t
t a k e n i n t o a c c o u n t b e c a u s e i t was i m p r o p e r l y e x c l u d e d .
During t r i a l , counsel f o r Clark Bros. t w i c e attempted t o
introduce i n t o evidence t h e deposition testimony of c e r t a i n
managing a g e n t s o f the State. In refusing admission, the
D i s t r i c t Court r e l i e d upon (1) a l a c k o f n o t i c e t o t h e S t a t e
that the depositions were to be offered, (2) that no
cross-examination could be conducted, and (3) that Clark
Bros. made no showing t h a t t h e w i t n e s s e s w e r e u n a v a i l a b l e .
The D i s t r i c t C o u r t was i n e r r o r .
Rule 3 2 ( a ) ( 2 ) , M.R.Civ.P. reads i n part: "The d e p o s i t i o n
of a party or of anyone who at the time of taking the
d e p o s i t i o n was an o f f i c e r , d i r e c t o r , o r managing a g e n t ...
may b e u s e d by an a d v e r s e p a r t y f o r a n y p u r p o s e . " There i s
no p r o v i s i o n in Rule 32 ( a ) ( 2 ) , M.R.Civ.P. which r e q u i r e s a
f i n d i n g o f u n a v a i l a b i l i t y o f t h e w i t n e s s o r t h a t n o t i c e was
given of the intended use of a deposition a t t r i a l . Rule
3 2 ( a ) ( 2 ) , M.R.Civ.P. governs t h e use of depositions a t t r i a l ,
a n d t h e S t a t e ' s r e l i a n c e o n R u l e 804 M.R.Evid. is misplaced.
See Edington v. C r e e k O i l Co. ( 1 9 8 4 ) , 690 P.2d 970, 978, 41
St.Rep. 1 9 9 0 , 2000.
Whether o n e i s t o b e c o n s i d e r e d a managing a g e n t f o r t h e
S t a t e depends on s e v e r a l factors, including the individual's
right of general control, a u t h o r i t y , and judgment w i t h i n h i s
department; whether the interests of the individua 1 are
i d e n t i f i e d t o be t h o s e o f t h e S t a t e ; and whether any person
o f h i g h e r a u t h o r i t y p o s s e s s e s knowledge a b o u t t h e m a t t e r s a t
issue. See Terry v. Modern Woodmen of America (w.D.Mo.
1 9 7 2 ) , 57 F.R.D. 141; and C a r r o l l v . W i s c o n s i n Power & L i g h t
Co. (Wisc. 1 9 5 6 ) 273 is. 4 9 0 , 79 N.W. 2d 1.
In t h i s case, the depositions offered were those of the
chief of Materials Bureau, head of Location Road Design
Section, chief of t h e P r e c o n s t r u c t i o n Bureau, and a s s i s t a n t
supervisor of Geology Section. We find the deposition
t e s t i m o n y shows t h a t t h e s e j o b s , with t h e possible exception
of the latter one, entail sufficient supervisory
responsibility t o pl ace these individuals within t h e s t a t u s
of managing a g e n t s for the State. One m i g h t q u e s t i o n t h e
m a n a g e r i a l s t a t u s o f a s s i s t a n t s u p e r v i s o r o f Geology S e c t i o n ,
but we need only focus on t h e d e p o s i t i o n of the chief of
M a t e r i a l s Bureau.
We find the deposition testimony of the chief of
Materials Bureau to be useful evidence on the issue of
justifiable reliance. The w i t n e s s ' s s t a t e m e n t s acknowledge
t h a t t h e S t a t e i s a w a r e c o n t r a c t o r s r e l y on S t a t e e s t i m a t e s
in preparing t h e i r bids. W find
e it w a s e r r o r t o e x c l u d e
t h i s testimony.
The f i n a l i s s u e i s w h e t h e r t h e e x c u l p a t o r y l a n g u a g e o f
the contract relieves the S t a t e from l i a b i l i t y f o r damages
caused by t h e borrow underrun. The t e s t p r e v i o u s l y a p p l i e d
by this Court in similar cases has been whether the
contractor justifiably relied upon the plans and
specifications in preparing its bid and executing the
contract.
W i l l i a m C l a r k t e s t i f i e d t h a t h i s company r e l i e d on t h e
e s t i m a t e s provided by t h e S t a t e i n p r e p a r i n g i t s b i d , because
it had neither the t i m e n o r r e s o u r c e s t o be independently
investigating project data. Clark a l s o t e s t i f i e d t h a t he d i d
n o t o b t a i n a l l t h e s u b s u r f a c e d a t a w h i c h w a s made a v a i l a b l e
by the Highway Department, but he did conduct on site
investigation and talked to area ranchers about the local
s o i l conditions.
The District Court found no justifiable reliance by
Clark Bros., in part due to the exculpatory language
contained i n t h e contract. The c o n t r a c t e x p l i c i t l y p r o v i d e d :
1) t h a t q u a n t i t i e s i n t h e b i d p r o p o s a l w e r e e s t i m a t e s o n l y ;
2 ) t h a t p a y m e n t w o u l d o n l y b e f o r u n i t s o f work p e r f o r m e d ; 3)
that quantity deviations of less than 25% o f the estimate
were not cause for equitable adjustment; and 4) that the
borrow s o u r c e was t o b e s e c u r e d by t h e c o n t r a c t o r .
This is t h e f i r s t case before t h i s Court concerning t h e
e f f e c t o f an e x c u l p a t o r y c l a u s e o n t h e c o n t r a c t o r ' s right t o
r e c o v e r damages caused by a q u a n t i t i e s underrun. Previous
cases d e a l t with overruns but a r e analagous.
I n S t e n e r s o n v. City of Kalispell ( 1 9 8 1 ) , 629 P.2d 773,
38 S t . R e p . 9 3 8 , t h e c o n t r a c t o r p r e v a i l e d w h e r e it h a d r e l i e d
on t h e c i t y ' s e s t i m a t e o f t h e amount o f g r a d i n g work t o b e
done, y e t e n d e d u p d o i n g much more d u e t o f a u l t y e s t i m a t e s .
One issue on appeal was whether exculpatory language
exonerated t h e c i t y . In holding such language t o h e a f a c t o r
i n determining j u s t i f i a b l e reliance b u t not t o he c o n t r o l l i n g
t h i s Court said:
S e v e r a l o t h e r c a s e s have p r e s e n t e d t h e i s s u e o f t h e
e f f e c t o f e x c u l p a t o r y c l a u s e s on a c o n t r a c t o r ' s
6
r i g h t t o r e c o v e r i n s i t u a t i o n s i n which r e l i a n c e i s
a l l e g e d by t h e c o n t r a c t o r . I n H a g g a r t C o n s t . Co.
v . S t a t e Highway Comm'n ( 1 9 6 7 ) , 149 Mont. 422, 427
P.2d 686, H a g g a r t b i d on a highway c o n s t r u c t i o n j o b
and was told that he could use gravel in
State-optioned p i t s a s described i n t h e "Available
Surfacing Materials Reports". The g r a v e l was l a t e r
found t o b e u n s u i t a b l e and t h e p l a i n t i f f i n c u r r e d
a d d i t i o n a l expense i n o b t a i n i n g g r a v e l elsewhere.
The d e f e n d a n t d i d n o t deny t h a t t h e m a t e r i a l s
r e p o r t s w e r e misleading, b u t r a t h e r r e l i e d on
exculpatory provisions i n t h e contract a s a defense
t o the suit. Those p r o v i s i o n s i n d i c a t e d t h a t t h e
Commission made no g u a r a n t y a s t o t h e q u a l i t y and
q u a n t i t y o f t h e m a t e r i a l s a v a i l a b l e , and f u r t h e r
t h a t i f t h e c o n t r a c t o r c h o s e t o f u r n i s h h i s own
materials, h e would b e r e s p o n s i b l e t o p r o d u c e
satisfactory material.
The d i s t r i c t judge found t h a t t h e e x c u l p a t o r y
provisions w e r e not enforceable. H e noted t h a t
Haggart received t h e m a t e r i a l s r e p o r t s only 1 4 days
b e f o r e b i d l e t t i n g , g i v i n g him l i t t l e t i m e t o
i n v e s t i g a t e independently. H e f u r t h e r found t h a t
few c o n t r a c t o r s b i d d i n g on s u c h p r o j e c t s h a v e
s u f f i c i e n t t i m e o r t e s t f a c i l i t i e s t o make a n
i n t e l l i g e n t appraisal of materials. Despite t h e
e x c u l p a t o r y c l a u s e s , t h e d i s t r i c t judge c o n c l u d e d :
"[Tlhere is nothing to show that appellant
expect[ed] less t h a n c o m p l e t e r e l i a n c e on i t s
materials reports.
" I f t h e S t a t e Highway Commission were a l l o w e d t o
r e l y on t h e e x c u l p a t o r y p r o v i s i o n s o f t h e c o n t r a c t ,
t h e p u r p o s e f o r which s u c h r e p o r t s a r e o f f e r e d
would be sadly frustrated, if not totally
destroyed. No p r u d e n t c o n t r a c t o r would p r o c e e d i n
r e l i a n c e on s u c h r e p o r t s a t h i s a b s o l u t e p e r i l ; t h e
n e c e s s i t y t o guard a g a i n s t unforeseen d e f i c i e n c i e s
would r e s u l t i n much h i g h e r b i d s t h a n c o n d i t i o n s
would n o r m a l l y w a r r a n t . " H a g g a r t , s u p r a , 149 Mont.
a t 425, 427 P.2d a t 687-688.
W e a f f i r m e d t h e d i s t r i c t judge i n t h a t d e c i s i o n b u t
noted:
"We a r e n o t h e r e holding t h a t such exculpatory
c l a u s e s may n o t b e e n f o r c e d i n o t h e r s i t u a t i o n s ,
t h a t d e t r i m e n t a l r e l i a n c e may b e assumed i n a l l
c a s e s , o r t h a t p a r t i e s t o s u c h c o n t r a c t s a r e bound
t o e x e r c i s e a n y t h i n g Iess t h a n r e a s o n a b l e and
p r u d e n t judqment. I n o t h e r words w e w i l l l o o k t o
j u s t i f i a b l e r e l i a n c e . ' " H a g g a r t , s u p r a , 149 Mont.
a t 428, 427 P.2d a t 689.
W e f i n d t h e Stenerson r a t i o n a l e persuasive. Exculpatory
language in the contract is a factor in determining
justifiable reliance but not controlling.
T h e r e i s c o n s i d e r a b l e e v i d e n c e h e r e upon which t o f i n d
justifiable reliance. W i l l i a m C l a r k t e s t i f i e d t h a t h e had
two t o t h r e e weeks i n which t o s u b m i t h i s b i d , which was n o t
a d e q u a t e t o p e r f o r m h i s own q u a n t i t i e s e s t i m a t e s , and t h a t he
r e l i e d on t h e S t a t e ' s e s t i m a t e s i n p r e p a r i n g h i s b i d . Clark
conducted on site investigation and made further inquiry
a b o u t t h e s o i l s i n t h e a r e a , b u t found no r e a s o n n o t t o u s e
the State's estimates. Deposition testimony, improperly
refused at trial, of the chief of the Materials Bureau
i n d i c a t e d t h e S t a t e i s aware c o n t r a c t o r s r e l y o n t h e S t a t e ' s
soil analysis. Nevertheless, we are reluctant t o make a
f i n d i n g o f j u s t i f i a b l e r e l i a n c e a s a m a t t e r o f law. The c a s e
should be retried considering t h e deposition testimony and
applying t h e l e g a l p r i n c i p l e s herein set f o r t h .
W e v a c a t e t h e judgment o f t h e D i s t r i c t C o u r t and remand
fde c o n c u r :
Mr. Justice L. C. Gulbrandson, dissenting.
I respectfully dissent.
I would a.ffirm the decision of the trial jud.ge to
exclude the offered depositions of State employees.
The State had propounded two sets of interrogatories to
plaintiff, asking for identification of witnesses. Plaintiff
never identified deponents as proposed witnesses although the
interrogatories were continuing in nature, failed to list
deponents in its proposed pre-trial order just prior to
trial, and made no effort to subpoena said deponents. This
Court, in Ropischke v. First Continental Corp. (1980), 187
Mont. 471, at 510-511, 610 P.2d 668, at 689, upheld the
exclusion of a deposition which would indicate that Rule
32(a) should not be construed nor implemented in a void. The
trial judge's finding of fact no. 40 clearly indicates that
he was exercising his discretionary power to prevent an abuse
of discovery. This Court, in Blassaro v. Dunham (1979), 184
Mont. 400, at 404-405, 603 F.2d 249, at 251-252, stated:
The District Court has the inherent
discretionary power to control discovery.
That power is based on the District
Court's authority to control trial
administration ... In controlling
discovery, the District Court must
regulate traffic to insure a fair trial
to all concerned, neither according one
party an unfair advantage nor placing the
other party a.t a disadvantage.
. . . Discovery fulfills this purpose by
a-ssuring the mutual knowledge of all
relevant facts gathered. by both parties
which are essential to proper litigation.
(Citations omitted. )
I also do not concur in the majority's decision to
apply the Stenerson rationale to the underrun situation in
this case. In my view, there is substantial evidence in the
record to support the trial judge's findings of fact and
conclusions of law.
Several pertinent findings read as follows:
12. The state's invitation to bid and
standard specifications called for unit
price bids on listed work items. Two
contract work items listed were item
11 1-030-000 (Excavation-Unclassified
Borrow) in the amount of 1, 658,857 cubic
yards, and item 112-001-000 (Compaction
Roadbed) in the amount of 1,930,034 cubic
yards. The State ' s standard
specifications. .. concerning bid
schedule quantities state:
"02.04 INTERPRETATION OF QUANTITIES IN
BID SCHEDULE. The quantities appearing
in the bid schedule are approximate only
and are prepared for the comparison of
bids. The unit prices to be tendered by
the bidder are to be tendered expressly
for the scheduled quantities as they may
be increased or decreased within the
restricting percentage hereinafter
stipulated. Payment to the contractor
will be made only for the actual
quantities of work performed and accepted
or materials furnished in accordance with
the contract."
13. The material to be used as
unclassified borrow was to come from
contractor furnished sources, which was
not unusual to the industry. Since such
sources, were not identified until after
the contract was awarded, the state could
not test unclassified borrow material
that would actually be used prior to
estimating the quantities used in the bid
schedule.
16. Rather than basing its bid on unit
prices, Clark Bros. estimated the total
cost of constructing the highway
embankment in place, and then used the
state ' s estimated quantities of
unclassified borrow and roadbed.
compaction as divisors into its total
projected costs to obtain unit prices for
the borrow and compaction. By using such
method, instead of that specified by the
standard specs, plaintiff assured itself
of claiming a loss if there were an
underrun below the estimated quantities,
and claiming it should be paid more if
there were an overrun above the estimated
quantities for these items. William
Clark also acknowledged his awareness
that contractors were not to submit
unbalanced bids.
17. The method used by plaintiff to
compute unit prices also ignored these
factors if there were an underrun: (a)
Less equipment would be needed, or it
would be needed for a shorter period.
(b) Less hauling, fuel and manpower
expense would be incurred. (c) Less
landowner royalty would have to be paid
for borrow.
30. The plain meaning and clear intent
of standard specifications 02.04, 04.02
and 09.03 are that changes in quantity
may occur in the actual performance of
contract work between anticipated or
estimated quantities, and actual
quantities used, and in such event, the
contractor will be paid at contracted
unit prices for actual quantities used
and will bear the risk of loss for
changes of quantity of less than 25% for
major items. The changes of the
unclassified borrow and road compaction
in this case were both less than 25%, and
the testimony of Roger Blossom indicated
this was not uncommon.
31. Plaintiff cannot be said to have
justifiably relied on exact amounts of
borrow and compaction work to do when the
bid proposals and contract specifically
provided the amounts were estimates and
subject to increase or decrease, when
plaintiff's officers were well acquainted
with such terms and conditions, and when
William Cia-rk testified an overrun or
underrun didn't much affect the total
cost of a project and that plaj-ntiff's
bid would not have been much different
whether the state estimated a round
figure or specific amount of unclassified
borrow or road compaction.
The trial judge, in an explanatory comment to his
findings, stated:
It is difficult to see how the state
could make it any clearer to contractors
bidding on highway jobs that various
parts of the work to be done, such as
borrow excavation and compaction, are
just estimates and not specific amounts
of materials to be supplied. If the
contract terms and provisions are too
loose in allowing for a 25% variation on
such items, the contractor's association
or the individual bidder should request
amendment thereof before a contract is
signed, but after execution, the court is
"not to insert what has been omitted or
to omit what has been inserted" (sec.
1-4-101, MCA 1983). As an experienced
bidder and contractor, plaintiff must be
held to the plain terms of the contract,
as well as defendant.
I concur in that statement and would affirm the
decision of the trial judge.
t