Banister Continental Corp. v. Northwest Pipeline Corp.

• Decision Date: 10 January 1986
• Parties: BANISTER CONTINENTAL CORPORATION, Respondent-Cross-Appellant, v. NORTHWEST PIPELINE CORPORATION, Appellant-Cross-Respondent. 81-6-745; CA A28212.
• Court: Oregon Court of Appeals

Page 1103

709 P.2d 1103

76 Or.App. 282

BANISTER CONTINENTAL CORPORATION, Respondent-Cross-Appellant, v. NORTHWEST PIPELINE CORPORATION, Appellant-Cross-Respondent.

81-6-745; CA A28212.

Court of Appeals of Oregon,

In Banc.

Argued and Submitted May 4, 1984.

Resubmitted In Banc Feb. 6, 1985.

Decided Nov. 14, 1985.

Reconsideration Denied Jan. 10, 1986.

Elizabeth T. Dunning, Salt Lake City, Utah, and James H. Clarke, Portland, argued the cause for appellant--cross-respondent. With them on the briefs were Watkiss & Campbell, Salt Lake City, Utah, and Corey, Byler & Rew, Pendleton, and Spears, Lubersky, Campbell, Bledsoe, Anderson & Young, Portland.

Arden E. Shenker, Portland, and Robert T. Mautz, Pendleton, argued the cause for respondent--cross-appellant. With them on the briefs were Lamar Tooze, Elizabeth A. Trainor and Tooze Kerr Marshall & Shenker, Portland, and Mautz, Hallman & Teicher, Pendleton.

GILLETTE, Judge.

This is an action for damages for breach of two construction contracts. Defendant appeals from a judgment entered after a jury verdict in plaintiff's favor; plaintiff cross-appeals, seeking additional prejudgment interest. We affirm.

A detailed discussion of the facts is not required. In 1980, plaintiff and defendant entered into two contracts under which plaintiff would build 112 miles of natural gas pipeline for defendant in eastern Oregon. Work began in September 1980, and was completed in October 1981. Virtually every fact concerning that period is in dispute. It is sufficient to say that the parties had a falling out, resulting in this lawsuit.

Plaintiff's complaint alleged 25 contract breaches, which defendant denied; defendant also offered several affirmative defenses. The trial lasted three months. The jury returned a verdict, including special written findings of fact, finding for plaintiff on 19 allegations of contract breach; defendant's affirmative defenses were rejected. The jury also awarded plaintiff over $11,000,000 in damages and over $4,000,000 in prejudgment interest. After being instructed to recalculate the prejudgment interest, the jury reduced that award to approximately $800,000. The trial court then accepted the verdict and entered judgment. This appeal followed.

Although defendant raises 54 assignments of error, only a few require discussion. The parties disputed the meaning of several portions of the two contracts. Defendant's first assignment is that the trial court should have interpreted the two contracts in issue as a matter of law and should have decided which, if any, of the contract provisions were ambiguous; the second assignment is that the trial court should not have instructed the jury to construe any ambiguities in the contracts against defendant. We disagree.

The trial court instructed the jury:

"A contract results when an offer made by one party is accepted by the other. Until there has been an acceptance, there is no contract. And until there has been acceptance, the party making the offer has the right to withdraw its offer. In this case Banister made an offer to perform the specified work for a specified price. Banister had a right to withdraw its offer at any time prior to its acceptance and signing by Northwest. However, once Banister's offer was accepted and signed by Northwest, then there was a valid and binding contract between the parties.

"It is the policy of the law to protect the dignity of contracts and recognize that parties have the freedom to make their own terms in a contract. The parties to an agreement have a right to rely upon and to expect the performance of the terms of that agreement by the other party. That is, each party has a duty or obligation to the other party to perform the promises made and each party also acquires a right to the performance that is promised by the other party.

"The contracts between Northwest and Banister created obligations to perform the promises set forth in the contracts. Both Northwest and Banister promised, agreed and undertook to perform their respective obligations as set forth in the contracts and both Northwest and Banister had the right to expect the reasonable performance of the promises and agreements made by the other.

"Accordingly, you must look to the contracts and any agreed upon modifications or amendments thereto to determine if Northwest materially breached any of the terms.

"The contract between the plaintiff and the defendant should be interpreted in accordance with the terms of those contract documents and in accordance with the intention of the parties who executed the contract, pursuant to the evidence in this case. You should take the contract documents as a whole. If you find inconsistent provisions in the contracts, you may consider the evidence, the circumstances surrounding the execution of the contract, and the transactions between the parties to determine the meaning of the agreements between the parties here. Because [the] contract documents between the plaintiff and the defendant were primarily drafted and prepared by the defendant, the contract documents must be construed against the defendant wherever there are any ambiguities in the contract provisions."

The respective functions of the court and jury regarding the construction of contracts are clear. As a general rule, the construction of a contract is a question of law to be decided by the court. If the contract provisions are unambiguous, it is the court's duty to construe the contract and declare its legal effect to the jury. Timberline Equip. v. St. Paul Fire and Mar. Ins., 281 Or. 639, 643, 576 P.2d 1244 (1978); Sunset Coatings Co., Inc. v. Dept. of Trans., 62 Or.App. 53, 56, 660 P.2d 164, rev. den. 294 Or. 792, 662 P.2d 728 (1983). Only if provisions of a contract are ambiguous does its meaning become a question of fact for the jury to decide. Meskimen v. Larry Angell Salvage Co., 286 Or. 87, 92-93, 592 P.2d 1014 (1979); Bartlam v. Tikka, 50 Or.App. 217, 220, 622 P.2d 1133, rev. den. 290 Or. 853, 642 P.2d 307 (1981). However, before submitting the question to the jury, the court must first determine, as a matter of law, that a contract provision is ambiguous. Evenson Masonry, Inc. v. Eldred, 273 Or. 770, 772, 543 P.2d 663 (1975); Sunset Coatings Co., Inv. v. Dept. of Trans., supra, 62 Or.App. at 56, 660 P.2d 164.

Here, about the only thing the parties seemed to agree on was that the contract was ambiguous. The record in this three month trial is replete with efforts by both sides to establish that their version of the meaning of the parties' agreement was the correct one. Counsels' closing arguments reflect the same thing. Under these circumstances, and although the better course might still have been to sort laboriously through the extensive contract documents and separate for the jury's consideration the clear from the ambiguous, we cannot say that the course followed was wrong. The very size of the task defendant claims the trial court should have undertaken would, in all likelihood, have led to instructions so long, meticulous and exhausting in detail that no jury could have emerged from them clear-headed. There was no error.

Defendant also contends that the trial court erred in instructing the jury that any ambiguous contract provisions must be construed against it, because it drafted the contracts. Defendant relies on Weber v. Kamyr, Inc., 269 Or. 617, 525 P.2d 1307 (1974). In Weber, the plaintiff assigned as error the failure of the trial court to give a jury instruction that required the jury " 'to construe the contract most strongly against the party who prepared the documents.' " 269 Or. at 631, 525 P.2d 1307. In affirming the trial court's refusal to give the requested instruction, the court held:

"It is our conclusion that the trial court was correct in refusing to give the instruction because it was not appropriate to the determination which the jury had to make. Plaintiff correctly contends that it is the rule in Oregon that ambiguities in a contract are normally to be resolved against the scrivener. However, plaintiff fails to differentiate between rules of interpretation for the court and those instructions which serve as guides for the jury. Theoretically juries do not construe contracts. They decide facts. Courts construe contracts by giving legal effect to such findings of fact. It is proper for courts to instruct juries as to alternate constructions which would apply, depending on the possible outcome of their factual deliberations. Appropriate to the occasion is the following statement from 53 Am Jur 229, Trial § 270:

" ' * * * The rule laid down in cases which consciously regard the lines that separate the function of the court from that of the jury is substantially that the construction of the contract is always a matter of law for the court no matter how ambiguous or uncertain or difficult its terms, and the jury can only assist in determining disputed questions of fact; that if the circumstances to be considered in the interpretation of the contract are in dispute and the meaning of the contract depends thereon, the determining of the disputed facts must be left to the jury, but the proper construction of the contract cannot be left to them.' (Footnote omitted.)

"The requested instruction is one which courts use in the interpretation of contracts and one which courts take into consideration when instructing the jury as to what results to reach depending on how the jury decides the facts; however, the rule is not a proper subject of an instruction to a jury." 269 Or. at 631, 525 P.2d 1307. (Emphasis supplied.)

Plaintiff, for its part, relies on a number of cases, decided after Weber, which hold that ambiguous contracts are to be construed against the drafter. See, e.g., Meskimen v. Larry Angell Salvage Company, supra, 286 Or. at 93, 592 P.2d 1014; Russell v. Sealed Power Corp., 278 Or. 243, 247, 563 P.2d 712 (1977); Busto v. Manufacturers Life Ins. Co., 276 Or....