October 25 2011
DA 10-0629
IN THE SUPREME COURT OF THE STATE OF MONTANA
2011 MT 262
AAA CONSTRUCTION OF MISSOULA, LLC,
Plaintiff, Appellee and Cross-Appellant,
v.
CHOICE LAND CORP., CLR PROPERTIES, INC.,
WAYNCO, INC., a/k/a WAYNCO CONSTRUCTION,
INC., and JOHN DOE TENANTS 1-6,
Defendants, Appellants and Cross-Appellees.
APPEAL FROM: District Court of the Fourth Judicial District,
In and For the County of Missoula, Cause No. DV 08-265
Honorable John W. Larson, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
Quentin M. Rhoades and Nathan G. Wagner, Sullivan, Tabaracci & Rhoades,
P.C., Missoula, Montana
For Appellees:
Torrance L. Coburn, Tipp & Buley, P.C., Missoula, Montana
Submitted on Briefs: August 31, 2011
Decided: October 25, 2011
Filed:
__________________________________________
Clerk
Justice Brian Morris delivered the Opinion of the Court.
¶1 Waynco Construction, Inc. (Waynco) appeals from the order and the findings of fact
and conclusions of law entered by the Fourth Judicial District Court, Missoula County. The
District Court concluded that Waynco materially had breached a contract with AAA
Construction of Missoula, LLC (AAA). CLR Properties, Inc., and Choice Land Corp.
(collectively CLR) appeal the denial of their claim for attorney fees. We affirm.
¶2 Waynco raises the following issues:
¶3 Did the District Court properly conclude that AAA’s bid constituted a binding
contract between the parties?
¶4 Did the District Court properly deny CLR’s claim for attorney fees?
¶5 This case arises from a commercial real estate improvement project in Missoula,
Montana. CLR hired Waynco as the general contractor. Waynco selected all subcontractors.
Waynco supervised all work performed at the project. Waynco also controlled access to the
site.
¶6 Waynco solicited a bid from AAA to perform concrete work. Brady Nelson, AAA’s
member/manager, and Robert Rozier, Waynco’s president, walked through the site before
AAA submitted its bid. Rozier explained the scope of work to Nelson. Rozier specifically
advised Nelson not to bid on demolition and reconstruction for the front of the building.
¶7 Nelson submitted AAA’s bid on March 30, 2007. The bid explicitly set forth the
scope of work upon which AAA was bidding, including costs and measurements of work to
2
be performed. AAA’s bid estimated the total cost at $94,918.25. Nelson submitted the bid
to Chris Wright, the project’s supervisor for Waynco.
¶8 Wright signed AAA’s bid under the section entitled “Acceptance of Proposal.”
Wright made interlineations to the proposal, however, by crossing out the words
“Acceptance of Proposal” and handwriting on the form “Pending contract with owner. Final
scope/subcontract to follow. Thanks!” Waynco used AAA’s bid to formulate Waynco’s
general contract bid to CLR. CLR accepted Waynco’s bid.
¶9 AAA began work at the project site on May 1, 2007. Waynco requested that AAA
perform additional demolition and paving work on the building’s west side. The parties
agreed that Waynco would pay AAA an additional $13,500 for this extra work on top of the
$94,918.25 bid, for a total contract price of $108,419.25.
¶10 Waynco sent AAA a document entitled “Subcontract Agreement” on May 17, 2007—
two weeks after AAA had begun work. The Subcontract Agreement contained work beyond
what AAA had agreed to perform, including demolition and construction work for the front
of the building. The Subcontract Agreement contemplated no increase in compensation for
AAA.
¶11 AAA responded with a new bid of $206,858.25 for all the work contained in the
Subcontract Agreement. AAA assumed that the Subcontract Agreement had expanded the
scope of work in light of Waynco’s directive in the site walk through to omit work for the
front of the building. Waynco rejected AAA’s $206,858.25 offer for the scope of work set
forth in the Subcontract Agreement. AAA refused, in turn, to perform the additional work
3
without increased compensation. The parties failed in several attempts to negotiate a
resolution on price for the additional work.
¶12 Rozier called Nelson on June 6, 2007, to advise Nelson to “[g]et your . . . ass into the
building and sign the contract, or you’ll never receive a nickel, and I’ll refer this to my
lawyer.” AAA left the project that same day as AAA feared that it would not be paid for any
of its work. AAA had completed a majority of the work outlined in AAA’s bid by the time
that it left the project. Waynco never paid AAA for any labor or materials.
¶13 AAA filed a construction lien on the property in the amount of $88,720.63. CLR
petitioned the District Court to substitute a surety bond for the construction lien. The District
Court discharged the lien and replaced it with the surety bond.
¶14 AAA filed a complaint against CLR and Waynco. AAA alleged that Waynco had
breached the contract. AAA further alleged that CLR had been unjustly enriched from
AAA’s work. Waynco filed a counterclaim in which it alleged that AAA had breached the
contract.
¶15 All parties filed cross motions for summary judgment. The District Court granted
CLR’s motion for summary judgment for the unjust enrichment claims, but both AAA’s and
Waynco’s breach of contract claims proceeded to a non-jury trial. The District Court
determined that AAA’s bid constituted a binding contract between the parties. Waynco
materially had breached the contract by failing to pay AAA for any goods or services that it
had provided. The District Court awarded AAA the full amount of its $88,720.63 lien. The
District Court also awarded AAA costs of $2,300.22 and attorney’s fees of $23,318.13.
4
¶16 CLR sought its attorney fees for the lien foreclosure action pursuant to § 71-3-124,
MCA. CLR argued that the lien was not valid because the District Court discharged the lien
in September 2007. The District Court rejected CLR’s claim that AAA’s lien had been
invalid. The court noted that it found the lien valid in its November 2009 order, and had
discharged the lien only when CLR substituted the surety bond. Waynco and CLR appeal.
AAA cross-appeals the District Court’s grant of summary judgment to CLR on its unjust
enrichment claim. We need not address this issue in light of our result of the direct appeal
issues.
STANDARD OF REVIEW
¶17 We review the factual findings of a District Court sitting without a jury to determine
whether they are clearly erroneous. Eldredge v. Asarco Inc., 2011 MT 80, ¶ 30, 360 Mont.
112, 252 P.3d 182. A District Court’s findings are clearly erroneous if they are not
supported by substantial evidence, if the District Court has misapprehended the effect of the
evidence, or if a review of the record leaves this Court with the definite and firm conviction
that a mistake has been committed. Eldredge, ¶ 30. We review the evidence in the light
most favorable to the prevailing party when determining whether substantial credible
evidence supports the District Court’s findings. Eldredge, ¶ 30. We review for correctness a
District Court’s conclusions of law. Eldredge, ¶ 30. We note that whether a contract
exists—a central issue in this case—presents a combined issue of fact and law. Johnston v.
Palmer, 2007 MT 99, ¶ 38, 337 Mont. 101, 158 P.3d 998.
DISCUSSION
5
¶18 Issue 1: Did the District Court properly conclude that AAA’s bid constituted a
binding contract between the parties?
¶19 Identifiable parties capable of contracting, consent, a lawful object, and sufficient
consideration comprise the essential elements of any contract. Zier v. Lewis, 2009 MT 266,
¶ 19, 352 Mont. 76, 218 P.3d 465. Consent must be mutual, and the parties must agree upon
the same thing, in the same sense. Zier, ¶ 19. Acceptance of an offer on terms that vary
from those offered represents a rejection of the offer. Zier, ¶ 19. This rejection puts an end
to the negotiation unless the parties assent to the new terms. Zier, ¶ 19.
¶20 The District Court determined that AAA’s bid constituted an offer that Waynco had
accepted. Waynco asserts that it never accepted AAA’s terms, so no contract existed
between the parties. Waynco relies heavily on Wright’s interlineations on AAA’s bid to
contend that Waynco intended to make a counter-offer rather than accept AAA’s bid.
¶21 A party’s intent regarding contract formation presents a question of fact. See
Thompson v. Lithia Chrysler Jeep Dodge of Great Falls, 2008 MT 175, ¶ 32, 343 Mont. 392,
185 P.3d 332. The District Court cited substantial evidence to conclude that Wright had
intended to accept AAA’s bid. Wright, on behalf of Waynco, signed AAA’s bid. Wright
admitted that he accepted AAA’s bid upon CLR’s awarding of the general contract to
Waynco. CLR awarded the contract to Waynco.
¶22 Other factors point to Waynco’s acceptance of AAA’s bid. Waynco controlled access
to the project site. Waynco allowed AAA to commence work without any other agreement
in place. AAA worked for over two weeks before Waynco sent the Subcontract Agreement
6
to AAA. Waynco allowed AAA’s work to continue for over a month without any signed
agreement in place except AAA’s bid. These facts, viewed in a light most favorable to
AAA, provide substantial evidence that Waynco intended to accept AAA’s bid and that this
acceptance established a contract between the parties. Johnston, ¶ 38.
¶23 Even if we agreed that Wright’s interlineations represented a counter-offer, we still
would be compelled to determine that a contract existed with AAA’s bid constituting the
bulk of the contract’s terms. As previously noted, acceptance that varies the contractual
terms represents no acceptance. Zier, ¶ 19. Acceptance that varies the proposed terms
should be interpreted as a counter-offer that extinguishes the original offer. Zier, ¶ 19. The
terms of a counter-offer generally can be determined only by reviewing the previous
negotiations between the parties. Arthur L. Corbin, Corbin on Contracts vol. 1, § 3.35, 591
(Joseph M. Perillo ed., rev. ed., West 1993).
¶24 A counter-offer tends to incorporate all previously offered terms except those that the
counter-offer expressly seeks to modify or add. Corbin, Corbin on Contracts at 491. As
with any offer, a party may accept a counter-offer either through verbal acceptance or
through performance. See §§ 28-2-501, 503, MCA. The accepting party generally
demonstrates assent through performance with a counter-offer. Corbin, Corbin on Contracts
at 492. Thus, even assuming that Waynco intended its interlineations to constitute a counter-
offer, AAA accepted that counter-offer through its performance of its contractual obligations.
¶25 Waynco’s alleged interlineated counter-offer implicitly incorporated the terms of
AAA’s bid. It simply added the interlineations as the additional terms. AAA manifested its
7
acceptance of this counter-offer through its commencement of work at the project site. A
meeting of the minds occurred when AAA started performing its contractual obligations.
Waynco indicated its acceptance when it allowed AAA to start working when Waynco
controlled access to the site. This meeting of the minds created a contract between Waynco
and AAA. See Hetherington v. Ford Motor Co., 257 Mont. 395, 400-401, 849 P.2d 1039,
1043 (1993).
¶26 Waynco alternatively argues that the Subcontract Agreement modified any contract
previously established by AAA’s bid. Waynco cites the following facts to support this
modification claim. Waynco alleges that Nelson orally agreed to the Subcontract
Agreement. Second, Nelson submitted a payment application that complied with procedures
set forth in the Subcontract Agreement. Waynco claims that Nelson’s compliance with the
payment procedures indicates AAA’s consent to the Subcontract Agreement. Third, Nelson
admitted to having signed the Subcontract Agreement on behalf of AAA. We address each
of these claims in turn to determine whether the parties modified their original contract in the
form of the Subcontract Agreement.
¶27 Written contracts may be modified through two methods. Parties may modify a
written contract through a subsequent written contract. Section 28-2-1602, MCA. Parties
also may modify a written contract by an executed oral agreement. Section 28-2-1602,
MCA; Matzinger v. Remco, Inc., 171 Mont. 383, 387, 558 P.2d 650, 652 (1976). Waynco
alleges that Nelson orally agreed to the Subcontract Agreement. Waynco never performed
its obligation to pay AAA for goods and services rendered, however, and AAA had not
8
performed the obligations that the Subcontract Agreement added to the obligations listed in
AAA’s bid. The parties had not fully executed the alleged oral agreement, and therefore, the
alleged oral agreement could not operate as a modification to incorporate the terms of the
Subcontract Agreement. Matzinger, 171 Mont. at 387, 558 P.2d at 652.
¶28 We next analyze whether Nelson’s compliance with the Subcontract Agreement’s
payment procedures demonstrates AAA’s assent. AAA’s compliance with the Subcontract
Agreement’s payment procedures set forth in the Subcontract Agreement fails to establish
the parties had modified the contract. AAA responded to the Subcontract Agreement with a
new bid of $206,858.25. AAA expressly refused to perform the additional work as
contemplated by the Subcontract Agreement, including the demolition and construction work
for the front of the building. We cannot agree that AAA’s alleged compliance with the
payment process set forth in the Subcontract Agreement rises to the level of its assent to a
written agreement or a fully executed oral contract. Section 28-2-1602, MCA.
¶29 Waynco further argues that Nelson admitted to having signed the Subcontract
Agreement. This argument fails to recognize the axiomatic law governing offer and
acceptance. An accepting party must communicate its assent to the offeror. Section 28-3-
301(3), MCA. A written contract must be delivered before it becomes effective. Section 28-
2-906, MCA. Waynco alleges that it discovered at trial that Nelson had signed the
Subcontract Agreement. Nelson conceded on cross-examination that it was “possible” that
he signed the Subcontract Agreement at some point. The District Court concluded—and
Waynco does not dispute—however, that AAA never returned a signed Subcontract
9
Agreement to Waynco. Accordingly, AAA never manifested written consent to modify the
original contract. Section 28-3-301(3), MCA.
¶30 Waynco argues as a final alternative that AAA’s material breach precludes recovery
even if AAA’s bid represents the parties’ contract. Waynco correctly notes that Montana law
prevents a party in material breach from maintaining a breach of contract action against the
other contracting party. See R.C. Hobbs Enterprise, LLC v. J.G.L Distributing, Inc., 2004
MT 396, ¶ 35, 325 Mont. 277, 104 P.3d 503. The District Court determined, however, that
Waynco, not AAA, was the party in material breach. AAA performed a majority of its
contractual obligations before AAA left the site. AAA left the site only after Waynco
threatened to withhold payment. Waynco failed to pay AAA for over a month’s worth of
goods and services rendered after AAA had left. These facts demonstrate that substantial
evidence supports the District Court’s conclusion that Waynco was the materially breaching
party.
¶31 Issue 2: Did the District Court properly deny CLR’s claim for attorney fees?
¶32 Section 71-3-124, MCA, provides in part that “the reasonable attorney fees must be
allowed to the defendant against whose property a lien is claimed if the lien is not
established.” CLR contends that AAA’s lien was not established because the District Court
had discharged the lien. The District Court discharged the lien, however, only when CLR
substituted a surety bond. This substitution did not mean that AAA had failed to establish
the lien. The District Court only allowed CLR to substitute one form of security for another.
Section 71-3-551, MCA.
10
¶33 The California Supreme Court’s decision in Hutnick v. United States Fidelity and
Guaranty Company, 763 P.2d 1326, 1330 (Cal. 1998), proves instructive as to how bonds
affect liens. Like Montana, California law allows a lien’s discharge upon the lienee filing a
surety bond. The court in Hutnick recognized that a bond “does not change the relation or
rights of the parties otherwise than in substituting its obligations for the [property] subject to
the lien….” Hutnick, 763 P.2d at 1330. The court further explained that “it was not within
the legislative purpose in permitting the substitution to deteriorate the lienor’s rights.”
Hutnick, 763 P.2d at 1330. Montana’s legislature similarly did not intend the lien substitute
statute to allow lienees to recover their attorney fees by simply securing a surety bond
despite their underlying liability. Section 71-3-551, MCA.
¶34 Affirmed.
/S/ BRIAN MORRIS
We Concur:
/S/ BETH BAKER
/S/ PATRICIA COTTER
/S/ MICHAEL E WHEAT
/S/ JIM RICE
11