Brown Bros., Inc. v. Metropolitan Government of Nashville and Davidson County

• Decision Date: 30 December 1993
• Citation: 877 S.W.2d 745
• Parties: BROWN BROTHERS, INC., Plaintiff/Appellant, v. The METROPOLITAN GOVERNMENT OF NASHVILLE AND DAVIDSON COUNTY, Tennessee, Defendant/Appellee.
• Court: Tennessee Court of Appeals

Page 745

877 S.W.2d 745

BROWN BROTHERS, INC., Plaintiff/Appellant, v. The METROPOLITAN GOVERNMENT OF NASHVILLE AND DAVIDSON

COUNTY, Tennessee, Defendant/Appellee.

Court of Appeals of Tennessee,

Middle Section at Nashville.

Dec. 30, 1993.

Permission to Appeal Denied by

Supreme Court May 16, 1994.

Gregory L. Cashion and Lawrence B. Hammet, II, Manier, Herod, Hollabaugh & Smith, Nashville, for plaintiff/appellant.

James L. Murphy, III, Director of Law, The Dept. of Law of the Metropolitan Government of Nashville and Davidson County, Erika Geetter and Stephen O. Nunn, Metropolitan Attys., Nashville, for defendant/appellee.

OPINION

CANTRELL, Judge.

This is a dispute over losses due to the amount of subsurface rock encountered in a roadbuilding contract, and to construction delays caused by relocating the utilities. The contractor, Brown Brothers, Inc., alleges that the Metropolitan Government of Nashville and Davidson County (Metro) warranted its estimates of the amount of rock to be removed, and that it is also responsible for the delays in relocating the utilities. The Chancery Court of Davidson County granted summary judgment to Metro. For the reasons set out below we affirm the chancellor's decision.

I

Metro advertised for bids on a contract to extend Bell Road about 3.3 miles, from Smith Springs Road to a point 700 feet beyond Elm Hill Pike. The work required under the contract included clearing and grubbing, excavation, aggregate base construction, asphalt course paving, installation of a storm sewer system, installation of guardrails, and seeding and sodding. The appellant's winning bid on the contract was $2,653,255.16.

The figures the appellant relied upon in preparing that portion of its bid that relates to excavation are contained in a table on Plan Sheet 2-H. The table is labeled "Estimated Earthwork Quantities," and includes a breakdown of various types of excavation required for each section of the proposed road. The totals at the bottom of the table show 139,845 cubic yards of rock excavation and 185,184 cubic yards of what is labelled "unclassified excavation." Metro apparently concedes that as used in this table "unclassified excavation" can fairly be interpreted to mean dirt excavation.

Brown Brothers alleges that it actually had to remove over 250,000 cubic yards of rock, far more than was predicted by the estimates. At the same time, the amount of dirt that had to be removed, 67,000 yards, was far less than Brown Brothers expected. In preparing its bid, Brown Brothers calculated its total excavation costs by multiplying the rates of $3.70 per cubic yard of rock and $1.10 per cubic yard of unclassified material by the respective quantities of each on the estimate sheet. The disparity between the quantity of rock listed on the estimate sheet and the quantity actually encountered allegedly resulted in a cost overrun for Brown Brothers of $281,541.

The suit by Brown Brothers alleged that Metro Government had breached an implied warranty of accuracy by underestimating the amount of rock to be removed, with the result that the contractor was undercompensated for work it performed. Metro argued that the figures on Plan Sheet 2-H were only provided for the convenience of the contractor, to be used solely at its discretion. The contract apparently disclaims any warranty for accuracy of its estimates by warning bidders that they "shall rely exclusively upon their own estimates, investigation and other data which are necessary for full and complete information upon which the proposal may be based." In granting summary judgment to Metro, the chancellor found that Plan Sheet 2-H did not constitute a warranty as to subsurface conditions.

II

Rule 56 of the Tennessee Rules of Civil Procedure deals with summary judgment. Rule 56.03 provides that:

"the judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law."

The chancellor found, and the appellant does not here dispute, that there is no genuine issue as to any material fact in this case. The appellant rather contends that Tennessee should adopt the so-called "Spearin Doctrine," which under certain circumstances shifts the risk of unforeseen difficulties from the contractor to the owner. It is the appellant's contention that adoption of that doctrine would render Metro liable to Brown Brothers for losses resulting from Metro's underestimate of the amount of rock to be removed under the roadbuilding contract.

The appellant has marshalled a formidable body of law in support of its argument, including opinions of the United States Supreme Court and other federal courts, and of state courts in Massachusetts, New York, California, Michigan and New Mexico. We are unpersuaded, however, that the Spearin Doctrine is as broad as the appellant represents it to be, or that it is applicable to the facts of this case.

In the case of United States v. Spearin, 248 U.S. 132, 39 S.Ct. 59, 63 L.Ed. 166 (1918), the Supreme Court stated the general contract rule for allocation of risk: "Where one agrees to do, for a fixed sum, a thing possible to be performed, he will not be excused or become entitled to additional compensation because unforeseen difficulties are encountered." Spearin at 136, 39 S.Ct. at 61. While this general rule may appear to be one-sided, the courts of many states, including Tennessee, have recognized that it is not:

"... contracting is a risk business. On some jobs contractors are able to make large profits. On others their losses are of the same magnitude. In those latter instances they are bound by contracts which inure to the benefit of owners just as we believe the state as owner was bound to the express terms of a contract which in this case inured to the benefit of the contractor" Purcell Enterprises v. State 631 S.W.2d 401 (Tenn.App.1981).

III

To understand the exception that the United States Supreme Court has grafted onto the general rule, it is necessary to examine the facts of the Spearin case. The case arose out of the construction of a drydock at the Brooklyn Navy Yard. Mr. Spearin's contract with the Department of the Navy included a provision for relocation of a six foot sewer that ran through the planned drydock area. The Navy supplied plans and specifications for the new brick sewer, which Spearin built in accordance with those plans. The sewer was inspected by the government and accepted as satisfactory.

One year after construction of the sewer, a heavy downpour occurred, and the sewer burst, flooding the drydock area. Spearin refused to continue work until the United States Government agreed to be responsible for the damage that had occurred to the drydock, and for any subsequent damage that might occur as a result of the condition of the sewers. After fifteen months of inconclusive negotiations, the Navy annulled the contract and took over possession of the drydock site. Spearin brought suit in the Court of Claims for his losses under the contract.

Investigation revealed that unknown to the government or to Spearin, there was a dam in a seven foot sewer connecting to the relocated sewer. The dam diverted all the water from the larger sewer to the six foot sewer, causing it to burst from internal pressure. The government asserted the general proposition that risks arising from unforeseen difficulties should properly fall upon the shoulders of the contractor, but the court found that under the circumstances of this case, it was appropriate to hold the government liable for the damage to the drydock.

The Supreme Court affirmed the decision of the Court of Claims. The appellant argues that Spearin stands for the proposition that in supplying information for the use of a contractor, whether that information is in the form of estimates, specifications or plans, the owner creates a general warranty of the accuracy of that information. But the Court does not mention estimates, and its holding in Spearin is much narrower than the appellant represents: "... if the contractor is bound to build according to plans and specifications prepared by the owner, the contractor will not be responsible for the consequences of defects in the plans and specifications." United States v. Spearin, 248 U.S. 132, 136, 39 S.Ct. 59, 61, 63 L.Ed. 166. The court found only that the government warranted that if the specifications it supplied were complied with, the sewer would be adequate for the purposes for which it was constructed.

Subsequent cases in state and federal courts, some citing Spearin and some not, have identified other situations where liability for unforeseen circumstances has been removed from the shoulders of a contractor because of faulty information which the contractor relied upon to its detriment. See Chris Berg v. United States, 186 Ct.Cl. 389, 404 F.2d 364 (1968). McGovney & McKee v. City of Berea, 448 F.Supp. 1049 (E.D.KY 1978). Broyles v. Brown Engineering Company, 275 Ala. 35, 151 So.2d 767 (1963). However, we do not feel that any of the cited cases stands for the proposition that an owner is liable for any and all losses resulting from the use of its estimates by a contractor.

Such a broad reversal of the general rule would have particularly unsettling effects in contracts involving excavation, because by their nature, subsurface conditions can never be determined with absolute certainty. The usual technique for predicting subsurface conditions involves sampling of the area to be excavated, using test borings and soil analyses. Such...