Batzer Const., Inc. v. Boyer

• Citation: 204 Or. App. 309,129 P.3d 773
• Decision Date: 15 February 2006
• Docket Number: 00-2145-L-1; A119350.
• Parties: BATZER CONSTRUCTION, INC. and John Batzer, Respondents, v. John BOYER, Appellant.
• Court: Court of Appeals of Oregon

129 P.3d 773

204 Or. App. 309

BATZER CONSTRUCTION, INC. and John Batzer, Respondents, v. John BOYER, Appellant.

00-2145-L-1; A119350.

Court of Appeals of Oregon.

Argued and Submitted June 3, 2004.

Decided February 15, 2006.

Clayton C. Patrick, Portland, argued the cause and filed the briefs for appellant.

Joseph E. Kellerman, Medford, argued the cause for respondents. With him on the brief were Charles E. Bolen and Hornecker, Cowling, Hassen & Heysell, L.L.P.

Before LANDAU, Presiding Judge, and BREWER, Chief Judge, and ARMSTRONG, Judge.

ARMSTRONG, J.

Defendant appeals a judgment for plaintiffs in a contract action. He assigns error to the trial court's grant of a directed verdict for plaintiffs on their claim and on his counterclaims. Plaintiffs cross-assign error to the trial court's ruling that defendant's counterclaims were not time barred by ORS 12.110(1), the general tort statute of limitation. We affirm.

Defendant and plaintiffs built buildings for lease to the United States Postal Service (USPS). Each party performed specific tasks to further that endeavor. Defendant found suitable land, purchased the land, and handled most of the negotiations with the USPS. The plaintiffs prepared bids and, if the USPS accepted the bids, constructed the buildings. The bids consisted of a per annum rent amount that plaintiffs and defendant calculated based on estimates of how much it would cost to build the buildings. After the USPS accepted a bid, it could alter the building plans that formed the basis for the bid. If the change would increase the cost of the project, defendant and plaintiffs, as co-owners, could submit a change order to the USPS for the additional cost. If the USPS accepted the proposed change order, it would pay the additional cost resulting from the change rather than recalculate the lease to reflect the increased cost of the building. If the USPS rejected the change order, then the change that it had requested would not be made.

In 1997, defendant and plaintiffs agreed to end their business ventures and divide their jointly held assets between them. As part of that agreement, plaintiffs received the sole rights to some of the land and a number of buildings that the parties had co-owned. Defendant received the sole rights to the balance of the land and a number of buildings that the USPS had agreed to lease. However, when the agreement became effective, the buildings that defendant received had not been completed. The parties' contract addressed that by providing that plaintiffs would "build post offices in Turner, Corvallis, and Toledo, Oregon for [defendant] at a price equal to [plaintiffs'] cost including attributed liability insurance costs." (Emphasis added.) A handwritten note in the margin of the contract indicates that liability insurance costs were to be the sole item of overhead and profit paid to plaintiffs for work on the buildings. Both parties initialed the note.

After the parties divided their jointly owned assets, plaintiffs completed the three buildings. However, plaintiffs spent more to build the buildings than the total of the estimates on which the bid amounts were based, insurance expenses, and the amount paid by the USPS for approved change orders. Defendant refused to pay plaintiffs for costs that exceeded that total. In response, plaintiffs brought this breach of contract action, alleging that it had cost $95,366.08 more to construct the buildings than defendant had paid for them and seeking a judgment for that amount plus prejudgment interest. Defendant, in turn, alleged various counterclaims against plaintiffs. In answer to those counterclaims, plaintiffs alleged, among other things, that defendant's claims were time barred because they actually were tort claims that were subject to a two-year statute of limitation rather than the six-year statute that applies to contract claims.

At trial, defendant took the position that the term "[plaintiff's] cost" was ambiguous and that the circumstances underlying the formation of the contract revealed that the term meant the cost estimates on which the bids were based plus approved change orders. After defendant had presented all of his evidence on the meaning of the term "[plaintiffs'] cost" and on most of his counterclaims, plaintiffs moved for a directed verdict on their claim against defendant, arguing that the term "[plaintiffs'] cost" in the parties' contract could be interpreted only to mean the expenses that plaintiffs had incurred to construct the buildings.¹ Plaintiffs also moved for a directed verdict on defendant's counterclaims, arguing that defendant had not proved his damages and that his claims were time barred. The court granted plaintiffs' motion for a directed verdict on plaintiffs' contract claim and most of defendant's counterclaims. In making that ruling, the court concluded that the term "[plaintiffs'] cost" was unambiguous and that the evidence presented by defendant did not render the term ambiguous. The trial court concluded that "[plaintiffs'] cost" meant all of the expenses that plaintiffs had incurred in constructing the buildings. The court also concluded that, even if the term "[plaintiffs'] cost" were ambiguous, defendant was nevertheless responsible for submitting change orders to the USPS and had failed to do so. After receiving additional evidence on defendant's remaining counterclaim, the court determined that plaintiffs were liable to defendant for $8,000 on that counterclaim and that defendant was liable to plaintiffs for $95,366.08 plus prejudgment interest. The court entered judgment accordingly.

On appeal, defendant first assigns error to the trial court's grant of plaintiffs' motion for directed verdict on plaintiffs' breach of contract claim. Specifically, defendant argues that the court erred in concluding that the term "[plaintiff's] cost" is unambiguous. As at trial, defendant's theory on appeal is that the meaning of the term "[plaintiffs'] cost" as the parties used it in their agreement is ambiguous in light of the circumstances underlying the formation of the contract.

"A contract provision is ambiguous if it has no definite significance or if it is capable of more than one sensible and reasonable interpretation[.]" Deerfield Commodities v. Nerco, Inc., 72 Or.App. 305, 317, 696 P.2d 1096, rev. den., 299 Or. 314, 702 P.2d 1111 (1985). Although neither party addresses it, we first must examine the threshold issue whether a trial court can consider the circumstances underlying the formation of a contract to determine whether the terms of the contract are ambiguous.

ORS 41.740 codifies the parol evidence rule and, in relevant part, provides:

"When the terms of an agreement have been reduced to writing by the parties, it is to be considered as containing all those terms, and therefore there can be, between the parties and their representatives or successors in interest, no evidence of the terms of the agreement, other than the contents of the writing, except where a mistake or imperfection of the writing is put in issue by the pleadings or where the validity of agreement is the fact in dispute. However, this section does not exclude other evidence of the circumstances under which the agreement was made, or to which it relates, as defined in ORS 42.220, or to explain an ambiguity, intrinsic or extrinsic, or to establish illegality or fraud."

(Emphasis added.) Thus, there are three exceptions to the general rule prohibiting a court from considering extrinsic evidence to establish the terms of a written agreement. The rule does not exclude evidence of (1) "the circumstances under which the agreement was made, or to which it relates, as defined in ORS 42.220"; (2) "to explain an ambiguity, intrinsic or extrinsic"; or (3) "to establish illegality or fraud." ORS 41.740. For purposes of this case, it is the first exception that is at issue.

ORS 42.220 provides:

"In construing an instrument, the circumstances under which it was made, including the situation of the subject and the parties, may be shown so that the judge is placed in the position of those whose language the judge is interpreting."

In Abercrombie v. Hayden Corp., 320 Or. 279, 292, 883 P.2d 845 (1994), the Supreme Court interpreted ORS 42.220 to allow a trial court to "consider parol and other extrinsic evidence to determine whether the terms of an agreement are ambiguous." See also Criterion Interests, Inc. v. The Deschutes Club, 136 Or.App. 239, 243 n. 2, 902 P.2d 110, adh'd to as modified on recons., 137 Or.App. 312, 903 P.2d 421 (1995), rev. den., 322 Or. 489, 909 P.2d 161 (1996) (concluding that Abercrombie resolved the issue whether underlying circumstances may be considered in order to determine whether a term is ambiguous). We have explained that

"Abercrombie does not stand for the proposition that any extrinsic evidence may be considered in determining whether a term is ambiguous. Rather, Abercrombie's reliance on ORS 42.220 as support for its statement makes clear that the extrinsic evidence that may be considered is limited to the circumstances under which the agreement was made."

City of Eugene v. Monaco, 171 Or.App. 681, 687, 17 P.3d 544 (2000), rev. den., 332 Or. 240, 28 P.3d 1175 (2001).

Thus, it would seem clear that ORS 42.220, as interpreted by the Supreme Court in Abercrombie and consistently applied by this court, allows a trial court to consider evidence of the circumstances underlying the formation of a contract in its analysis of whether a contract term is ambiguous. However, the Supreme Court's decision in Yogman v. Parrott, 325 Or. 358, 937 P.2d 1019 (1997), muddies the water a bit. In Yogman, the Supreme Court described a three-step analysis for the construction of a contractual provision. Id. at 361, 937 P.2d 1019. At the first analytic step, the court considers the text and context of the contractual provision to determine whether the provision is ambiguous. Id. If the text and...