Bourgois v. Montana-Dakota Utilities Co.

• Decision Date: 05 March 1991
• Docket Number: No. 900279,MONTANA-DAKOTA,900279
• Citation: 466 N.W.2d 813
• Parties: Gil BOURGOIS, d.b.a. Bourgois Construction Company, Plaintiff and Appellant, v.UTILITIES CO., Defendant and Appellee. Civ.
• Court: North Dakota Supreme Court

Page 813

466 N.W.2d 813

Gil BOURGOIS, d.b.a. Bourgois Construction Company Plaintiff and Appellant, v. MONTANA-DAKOTA UTILITIES CO., Defendant and Appellee.

Civ. No. 900279.

Supreme Court of North Dakota.

March 5, 1991.

Vance K. Hill, Bismarck, for plaintiff and appellant.

Cynthia J. Norland of MDU Resources Group, Inc., Bismarck, for defendant and appellee.

LEVINE, Justice.

Gil Bourgois appeals from a summary judgment dismissing his complaint against Montana-Dakota Utilities Co. (MDU). We affirm in part, reverse in part, and remand for further proceedings.

In an appeal from an order granting summary judgment, we view the evidence in the light most favorable to the party who opposed the motion and give that party the benefit of all favorable inferences which reasonably can be drawn from the evidence. Federal Land Bank of St. Paul v. Asbridge, 414 N.W.2d 596, 598 (N.D.1987). Our recitation of facts reflects that principle.

Bourgois was hired by MDU in July 1987 to tear down a closed steam plant. MDU invited several companies to bid for the demolition project and distributed demolition specifications. It also conducted an on-site tour attended by Bourgois. Bourgois attempted, without success, to arrange a second visit to the site. He prepared a bid based on MDU's specifications and his observations made during the on-site tour. Bourgois submitted the lowest bid and he signed a contract with MDU which incorporated MDU's specifications and his bid. Bourgois was to begin work as soon as possible and complete the demolition by September 30, 1987. The contract included a penalty clause for failure to complete the project on time.

During demolition, Bourgois uncovered large blocks of buried concrete. Because he claimed this concrete could not have been reasonably anticipated, he threatened to quit the job unless he was paid extra for removing the concrete. MDU's project supervisor assured Bourgois that he would be fairly compensated and Bourgois continued with the demolition.

The Occupational Safety and Health Administration ordered the demolition stopped three times because Bourgois uncovered hazardous materials which required special handling and disposal before the work could continue. The demolition work continued past the due date and MDU waived the noncompletion penalty for October. Bourgois completed the project November 27, 1987. MDU did not pay extra for the removal of the concrete and deducted an eighteen-day noncompletion penalty from the contract price.

In April 1989, Bourgois brought an action against MDU for damages based on "contract, equitable adjustment to contract, unjust enrichment, quantum meruit, mistake, and intentional or negligent failure to disclose material facts." MDU answered and subsequently moved for summary judgment arguing that under the contract, Bourgois was entitled only to the contract price regardless of unforeseen expenses. The written contract provided, "Contractor acknowledges that Contractor will perform demolition and cleanup work as delineated in this contract and that the sum stated [$95,120] is the maximum compensation to be paid Contractor, notwithstanding any unforeseen difficulties." Bourgois was paid the stated amount, less penalties for late completion.

Bourgois resisted summary judgment on the grounds there were issues of material fact concerning his right to rescind the written contract for mistake or fraud, and concerning his claim for extra compensation for asbestos and PCB removal and the slowdown of the job caused by the presence of these materials.

The district court granted summary judgment in favor of MDU on all issues and dismissed Bourgois' complaint with prejudice. Bourgois appealed.

Under Rule 56, NDRCivP, a movant for summary judgment must show that there is no dispute as to either the material facts or the inferences to be drawn from undisputed facts and that he is entitled to judgment as a matter of law. Federal Land Bank of St. Paul v. Asbridge, 414 N.W.2d at 598.

On appeal, Bourgois argues, as he did below, that he was entitled to rescind the written contract based on MDU's fraud. ¹ A person who has been induced to enter into a contract by fraud may rescind the contract. NDCC Sec. 9-09-02(1). Or, that person may affirm the contract, retain its benefits and obtain damages for injuries from the fraud. West v. Carlson, 454 N.W.2d 307, 309 (N.D.1990). Bourgois' conduct shows that he chose to pursue a damages remedy rather than rescission. To rescind the written contract, Bourgois had to satisfy the statutory requirements for rescission. NDCC Secs. 9-09-01 through 9-09-04. "Under NDCC 9-09-04, rescission is proper only if the party seeking rescission uses reasonable diligence to rescind promptly and to return everything of value which was received under the contract." West, 454 N.W.2d at 309. Compliance with these requirements is a precondition to maintaining a rescission action. Altons, Inc. v. Long, 352 N.W.2d 198, 199 (N.D.1984). What Bourgois did upon discovering the concrete, however, was to complete the demolition of the steam plant, accept payment under the contract and bring an action for damages. This is consistent with affirming the contract and bringing a damages action. See D. Dobbs, Handbook of the Law of Remedies Sec. 9.4 at 620 (1972).

The dispositive issue is, therefore, whether Bourgois raised a dispute of material fact or reasonable inference supporting a claim for damages.

Bourgois contends MDU committed actual fraud because it knew of the buried concrete and did not tell him.

"Actual fraud within the meaning of this title consists in any of the following acts committed by a party to the contract, or with his connivance, with intent to deceive another party thereto or to induce him to enter into the contract:

"1. The suggestion as a fact of that which is not true by one who does not believe it to be true;

"2. The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true though he believes it to be true;

"3. The suppression of that which is true by one having knowledge or belief of the fact;

"4. A promise made without any intention of performing it; or

"5. Any other act fitted to deceive."

NDCC Sec. 9-03-08.

Actual fraud includes an affirmative statement of a fact known to be false or the suppression of a fact known to be true. NDCC Sec. 9-03-08(1) and (3). Thus, an essential element in Bourgois' claim of actual fraud is MDU's knowledge of or belief in the existence of the buried concrete.

In opposing summary judgment, Bourgois said that he asked MDU for plans to the steam plant. None of the plans or specifications given by MDU to Bourgois showed the buried concrete. But, Bourgois said, he found a Bismarck architect who had a copy of plans showing the buried concrete. These plans had been delivered by MDU to the architect in the late 1970's. Bourgois also claimed that MDU's chief engineer at the time the plant was closed in the 1960's was familiar with many of the changes in the plant, but Bourgois did not indicate that the engineer was still an MDU employee at the time of the demolition project.

In short, all Bourgois showed or implied was that, in the 1970's, MDU knew of the buried concrete. That evidence, however, does not raise a reasonable inference that in 1987, at the time the contract was negotiated, MDU knew of the buried concrete. ² Corporations know facts because those facts are in the minds of corporate officers or agents. Gregg v. Baldwin, 9 N.D. 515, 84 N.W. 373 (1900). See also 3 Fletcher Cyclopedia of the Law of Corporations Sec. 790 (1986 Rev.Ed.). To find that knowledge, one must look at the mind of the agent at the time of the transaction in regard to which notice or knowledge is sought to be imputed to the corporation. Fletcher, supra at Secs. 793-800. Bourgois argues that the district court should have inferred that the corporation knew of the buried concrete when it contracted with him in 1987, because in the 1970's an unnamed MDU employee gave up possession of plans showing the buried concrete. We have said that "[a]n inference is a process of reasoning by which a permissible fact is logically and reasonably drawn by the factfinder from facts already proved ... whereas speculation is mere theorizing ... upon insufficient evidence." Erickson v. Schwan, 453 N.W.2d 765, 769 (N.D.1990). The evidence of MDU's knowledge in the 1970's is insufficient to support a reasonable inference that MDU knew of the concrete in 1987. Summary judgment was, therefore, proper on the issue of MDU's actual fraud based on MDU's knowing misrepresentations.

Bourgois also argues that MDU committed "negligent fraud," a theory we have not yet recognized. Under section 9-03-08, NDCC, actual fraud requires either an intent to deceive or an intent to induce a party to contract. There must be an intent to deceive in those cases described in subsections one, three and four where the statute proscribes misrepresentations known or believed to be false. NDCC Sec. 9-03-08(1), (3), (4); see e.g., Miller Enter., Inc. v. Dog N' Cat Cent., Inc., 447 N.W.2d 639, 644 (N.D.1989); Zuraff v. Empire Fire & Marine Ins. Co., 252 N.W.2d 302 (N.D.1977). But, section 9-03-08 also includes as actual fraud, "[t]he positive assertion, in a manner not warranted by the information of the person making it, of that which is not true though he believes it to be true," in order to induce a party to enter a contract. NDCC Sec. 9-03-08(2). Unlike subsections one, three and four, subsection two requires no knowledge of or belief in falsity. Instead, it requires only a statement based on insufficient information. "[A] statement made for the guidance of others which is not warranted by the information of the person making it is classified as negligent misrepresentation...." Grenell v. Hermosa Beach, 103 Cal.App.3d 864, 871, 163 Cal.Rptr. 315, 319 (1980).

California recognizes a negligent...