Pacific Coast Eng. Co. v. Merritt-Chapman & Scott Corp.

Citation411 F.2d 889
Decision Date12 May 1969
Docket NumberNo. 22230,22230
PartiesPACIFIC COAST ENGINEERING COMPANY, a corporation, Appellant, v. MERRITT-CHAPMAN & SCOTT CORPORATION, a corporation, Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

David M. Heilbron (argued) and Norman B. Richards, of McCutchen, Doyle, Brown & Enersen, San Francisco, Cal., Oliphant, Hopper & Stribling, Oakland, Cal., for appellant.

David W. Lennihan and Alvin J. Rockwell, of Brobeck, Phleger & Harrison, San Francisco, Cal., for appellee.

Before POPE* and CARTER, Circuit Judges, and McNICHOLS,** District Judge.

JAMES M. CARTER, Circuit Judge:

On October 19, 1959, Pacific Coast Engineering Company (hereafter Paceco) sued Merritt-Chapman & Scott Corporation (hereafter Merritt-Chapman) in the California Superior Court in two actions, one for breach of contract and one for money withheld and interest.1 The actions were removed to the United States District Court in San Francisco. The district judge held that Paceco had committed an anticipatory breach and that Merritt-Chapman was justified in cancelling the contract. The court awarded damages to Merritt-Chapman on its counterclaim in the sum of $46,823.00. Paceco appeals the judgment.

QUESTIONS PRESENTED

There are two questions involved in this appeal. One is whether the district court's interpretation of the obligations of the parties under the terms of the contract is clearly erroneous; the other is whether Paceco was in breach of contract thus justifying Merritt-Chapman's cancellation.

FACTS

The appellee, Merritt-Chapman, was the prime contractor in the Priest Rapids Project, which involved the construction of a dam on the Columbia River in the State of Washington. In the summer of 1957, Merritt-Chapman entered into a contract with Pacific Car & Foundry Co., (hereafter Pacific, and not a party hereto), in which Pacific agreed to manufacture and deliver dam gates for the project.

On August 7, 1957, Paceco submitted a bid for hoists to raise the gates to be made by Pacific. The prices in the bid were based upon pre-bid calculations made by Paceco for its own use only. On September 19, 1957, Merritt-Chapman accepted Paceco's August 7 bid for the hoists and issued a purchase order for them.

The capacity of the hoists to be built by Paceco necessarily depended upon the weight of the gates to be lifted. The particular gates were designed so that the force of gravity operated to close them, with the hoists used only to lift the gates into an open position. Therefore, in designing the hoists, Paceco was required to compute the weight of the gates. The following clause appeared in the specifications of the gates.

"Gate Motion Factor of Safety. All gates shall have a minimum factor of safety in motion of 1.50 under normal loading conditions. This motion factor of safety shall be defined as equal to the ratio of the dead weight of the gate plus any ballast required divided by the sum of the resisting forces, (wheel friction, rolling friction, and seal friction)."
Contract Specifications 138-100, § 2-02,D,3

Between the time Paceco submitted its bid and Merritt-Chapman accepted it, on August 23, Pacific sent Paceco a statement of its hoist pull capacities. Paceco compared them to the calculations on which the August 7 bid was based and noted wide discrepancies. On August 29, Paceco requested Pacific's underlying calculations. On September 9 Pacific returned the calculations which were prepared for it by a naval architect. Paceco decided that the capacities arrived at by the architect were irresponsible and disregarded them. On October 1 and on October 18, 1967, Paceco requested that Merritt-Chapman help to resolve the differences between its calculations on hoist capacities and those of Pacific. On October 29, 1967, Merritt-Chapman's Project Engineer, Gothro, wrote a letter to Paceco advising that there was a "considerable discrepancy" between Pacific's hoist capacities and those of Paceco. Gothro suggested that Paceco "review these Pacific's calculations and your own so that we may arrive at final requirements for the hoists."

Paceco replied to Gothro's request on November 19, 1957. The letter stated in substance that Paceco's hoist capacities were correctly computed on the basis of an understanding with a representative of Harza Engineering Company, the engineer for the project; this understanding apparently supported Paceco's interpretation of the "gate motion factor safety." The letter concluded, "on Items 8 and 9 we are proceeding on the design on the basis of the confirmation from Mr. Paul Maier of the operating conditions which establish the hoist capacity at the lower value."

During the month of December 1957, Merritt-Chapman made certain comments on Paceco's calculations; Paceco sent modified calculations which still were premised on its original understanding of the operating factors to which the gates were to be subjected. On January 16, 1958, Merritt-Chapman wrote to Paceco and stated that Pacific's calculations now agreed with Paceco's. Copies of Paceco's and Pacific's calculations were then forwarded to Harza Engineering Co., the Project Engineer. Harza subsequently telephoned Paceco and informed them that the capacities of the hoists as computed by Paceco were inadequate.

On February 21, 1958, Paceco wrote Merritt-Chapman that Paceco disagreed with Harza's determination that the hoist pulls were inadequate. The following statement was included:

"If, however, the capacities to which we designed our hoists are changed, our present shipping schedule will of necessity be changed in that new designs will have to be made. This in turn will result in an extra charge for the engineering. All shipments will be set back correspondingly pending completion of any new design." (emphasis added).

Merritt-Chapman wrote Paceco on February 24, 1958; included was a copy of the letter from Harza to Merritt-Chapman rejecting Paceco's hoist pull computations. Harza's letter pointed out Paceco's error. "In determining the pull the first item to be considered is the gate motion factor of safety. * * * The motion factor of safety must account for each leaf in movement and must be based on the starting friction factors." (emphasis added) In its letter Merritt-Chapman asked for revisions of Paceco's calculations as soon as possible.

On March 10, 1958, Paceco wrote Merritt-Chapman and restated its demand for extra compensations for engineering work. In addition, Paceco asserted that Pacific had the obligation to furnish the hoist pull capacities to Paceco. "As soon as we receive the revised capacities from Pacific Car and Foundry we will furnish the information requested in Harza Engineering Company's letter, and at the same time will submit our prices for additional engineering, as well as our revised shipping schedule." (emphasis added)

On March 25 and April 14, 1958, Merritt-Chapman sent revised computations for hoist breakaway loads to Paceco. On April 25, 1958, Paceco wrote to Merritt-Chapman. In the letter Paceco asserted that Merritt-Chapman had misinterpreted the meaning of the "gate motion factor of safety" clause. It then stated that someone else had the responsibility for determining the hoist capacities; so that until they were received, all work would cease. The demand for more compensation was reiterated; "Please be advised that revisions to the hoist capacities from those previously agreed upon in your letters of October 29, 1957 and January 16, 1958 will result in increased cost on the various units." (emphasis added)

On May 16, 1958, Merritt-Chapman replied to Paceco's demands.

"In order to expedite matters at this point when Harza rejected Paceco\'s computations, MC-S Merritt-Chapman undertook to provide hoist pull computations satisfactory to Harza as a basis for hoist design. This concession was given Paceco in the interest of time saved * * *
"In any case, Paceco should be aware of its responsibility for furnishing adequate hoists. So far, design information submitted by Paceco has failed to do this."

On June 4, 1958, Paceco wrote Merritt-Chapman reiterating its statement that increases in hoist capacities will result in increased costs. It further stated that design of the hoists would be completed when final hoist capacities were received from Merritt-Chapman.

On September 8, 1958, Paceco wrote Merritt-Chapman and announced that all further work had been suspended. "As you realize, we are unable to continue with the engineering work on this Contract, or purchase any materials for fabrication, until these hoist capacities are firmly established and the extra costs incurred by Pacific Coast Engineering Company Paceco are agreed upon." (emphasis added)

On September 12, 1958, Paceco representatives met with Mr. Harry Powell of Merritt-Chapman and told him of the increased prices they were demanding. Powell suggested that they submit a written proposal.

On September 24, 1958, Merritt-Chapman wrote Paceco. The letter stated that Paceco's proposed additional costs had been considered. "We have for some time felt that you are in default and breach in connection with this order. * * * Since you have made it clear that you do not propose to comply with our agreement, it is now no longer possible to work along these lines.

"Therefore we hereby cancel Amendment 4, to Purchase Order P.R. 335, by reason of your default * * *"

On September 26, 1958, Merritt-Chapman wrote to Harza announcing its cancellation of Paceco's contract and requesting approval of Berger Engineering Company as a replacement manufacturer.

Merritt-Chapman's letter of cancellation crossed a letter from Paceco in transit. On September 26, 1958, Paceco wrote to Merritt-Chapman and confirmed its proposal made on September 12 to Mr. Powell, i. e. an offer to produce hoists of increased capacity for a total additional price of $85,285.00. In the alternative it offered to produce hoists of the capacity specified in the...

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