A-C Const., Inc. v. Bakke Corp.

• Decision Date: 18 March 1998
• Docket Number: A-C
• Citation: 956 P.2d 219,153 Or.App. 41
• Parties: CONSTRUCTION, INC., a California corporation, Respondent-Cross-Appellant, v. BAKKE CORPORATION, an Oregon corporation; and United Pacific Insurance Company, a Pennsylvania corporation, Appellants-Cross-Respondents. 9401493CV; CA A93474.
• Court: Oregon Court of Appeals

Page 219

956 P.2d 219

153 Or.App. 41

A-C CONSTRUCTION, INC., a California corporation, Respondent-Cross-Appellant, v. BAKKE CORPORATION, an Oregon corporation; and United

Pacific Insurance Company, a Pennsylvania

corporation, Appellants-Cross-Respondents.

9401493CV; CA A93474.

Court of Appeals of Oregon.

Argued and Submitted Oct. 30, 1997.

Decided March 18, 1998.

Richard E. Alexander argued the cause for appellants-cross-respondents. With him on the briefs were Charles F. Adams and Stoel Rives LLP, Portland.

Michael Ratliff, Portland, and R. Dennis Orrock, California, argued the cause for respondent-cross-appellant. On the brief were Michael Ratliff and Parks & Ratliff.

Before RIGGS, P.J., and DEITS, C.J., ^* and LANDAU, J.

RIGGS, Presiding Judge.

Defendants appeal from a judgment for plaintiff in a lien foreclosure action. Plaintiff cross-appeals, assigning error to the court's denial of his claims for quantum meruit and for prejudgment interest under ORS 701.420(2). We affirm on appeal and cross-appeal.

Defendant Bakke Corporation (Bakke) was the primary contractor on the Dairy substation project for Pacific Power & Light Company (PP & L). In September 1993, Bakke invited plaintiff to bid on the subcontract for excavation. When plaintiff agreed to bid, Bakke faxed it a bid form and site plan. Plaintiff bid on the subcontract on September 29. Upon receiving the bid, Bakke telephoned plaintiff and objected to certain pricing provisions. Plaintiff faxed an amended bid to Bakke on September 30. That bid set the price of certain contract items on a per-unit, rather than lump sum, basis, and contained exclusions and conditions that materially affected the price of the subcontract. Bakke again telephoned plaintiff, this time to discuss the exclusions and conditions and the per-unit pricing. Bakke's president testified that plaintiff's project manager agreed to amend those portions of the bid. Plaintiff's project manager denied that the parties reached any such agreement. In any event, Bakke accepted the September 30 bid, and plaintiff began work on the excavation project.

On October 7, 1993, approximately the same date that plaintiff began to work on the project, Bakke faxed plaintiff a purchase order. That document contradicted some of the exclusions and conditions in plaintiff's September 30 bid. It also stated, "All work to be done according plans and specifications by Pacific Power & Light Co." Bakke claims that it sent plaintiff a copy of its contract with PP & L along with the purchase order, but plaintiff denies receiving that contract.

On October 21, 1993, plaintiff billed Bakke for the work it had completed, and Bakke paid plaintiff $57,280. Certain charges in that billing conformed to the terms of the purchase order, rather than to plaintiff's bid. Plaintiff claims that it followed the purchase order only because Bakke refused to pay the first installment otherwise and that it believed that the contract between the parties was the September 30 bid. That belief is evident, plaintiff claims, from a letter it sent Bakke on October 26, 1993, stating that the bid was the contract. Bakke claims it never received that letter and argued at trial and in this appeal that the letter is a fabrication.

Plaintiff finished its work on the project on December 21, 1993. Two days later it filed a construction lien on PP & L's Dairy substation in the amount of $92,000, pursuant to ORS 87.010(1). ¹ On January 5, 1994, plaintiff mailed Bakke its final bill for $87,823. The lien and the final bill both were based on the price structure from plaintiff's September 30 bid, rather than on Bakke's October 7 purchase order. Bakke refused to pay plaintiff's final bill. Bakke also asserts that around that time it began receiving complaints from plaintiff's suppliers and subcontractors, who claimed they had not yet been paid.

On April 20, 1994, plaintiff sued Bakke and PP & L to foreclose its lien, demanding payment of $79,000. ² Under the terms of its contract with PP & L, Bakke was required to indemnify PP & L for any lien claims arising out of the project. Pursuant to that agreement, Bakke filed a construction release bond under ORS 87.076 in June 1994. The effect of that filing was to transfer plaintiff's lien from PP & L's substation to Bakke's bond, as provided in ORS 87.083(1). ³ The court then dismissed the foreclosure action as to PP & L. Plaintiff filed an amended complaint against Bakke and defendant United Pacific Insurance Company, the surety on Bakke's bond.

At trial, the court found that Bakke's October 7 purchase order was the contract between plaintiff and Bakke. The court found further that plaintiff's lien was perfected in the amount of $61,117. That figure represents the outstanding purchase order contract price of approximately $54,000, plus charges for equipment rental, surveying and extra materials that plaintiff claimed in its lien.

On appeal, defendants raise several assignments of error. We review lien foreclosure judgments de novo. Miller v. Ogden, 134 Or.App. 589, 595, 896 P.2d 596 (1995), aff'd 325 Or. 248, 935 P.2d 1205 (1997).

In their first assignment of error, defendants argue that the trial court erred in finding that they were presently obligated to pay plaintiff anything on the contract, because plaintiff materially breached the contract by failing to pay some of its subcontractors. Plaintiff conceded at trial that some of its suppliers and subcontractors have yet to be paid. However, it argues that its relationship with those parties does not affect Bakke's present duty to pay the remainder of the subcontract price.

As a general proposition, "[a] subcontractor is not required either to pay first for the labor and materials he furnishes or to deduct from the contract price his unpaid bills therefor before he may file a valid lien." Jersey & Son v. Bailey Const. Co., 262 Or. 491, 494, 499 P.2d 817 (1972). Defendants argue, however, that plaintiff is obligated under the October 7 purchase order to furnish proof of payment of its subcontractors as a precondition of final payment. That contractual obligation, they contend, is incorporated by reference into Bakke's subcontract with plaintiff from Bakke's contract with PP & L, which contains an explicit condition requiring Bakke to pay its subcontractors prior to being paid by PP & L.

Defendants argue that Bakke's October 7 purchase order incorporates by reference the entire contract between Bakke and PP & L. They base that contention on the sentence in the purchase order that reads: "All work to be done according plans and specifications by Pacific Power & Light Co." According to defendants, that sentence binds plaintiff to all general and specific terms and conditions of Bakke's contract with PP & L, including conditions relating to payment of subcontractors.

We disagree. The quoted language from the purchase order is insufficient to incorporate the entire prime contract into the contract between plaintiff and Bakke. The purchase order simply requires that plaintiff's "work" must comply with the "plans and specifications" in PP & L's contract. It does not mention or refer to conditions for payment or any other portion of the prime contract and, therefore, does not incorporate those provisions by reference.

Defendants cite McGrath v. Electrical Const. Co., 230 Or. 295, 300, 364 P.2d 604 (1961), for the proposition that a subcontract may incorporate by reference an entire prime contract. McGrath does not aid defendants, however. In that case, the subcontract explicitly incorporated the entire prime contract in the following terms:

"[A]ll your costs, expense and profit, direct and incidental, for your performance of the work in accordance with the foregoing understandings and the terms in the General Conditions, Specifications and Agreement of the Contract * * * and all supplements thereto." Id. at 298, 364 P.2d 604.

The broad language in the McGrath subcontract binding the subcontractor to "General Conditions, Specifications and Agreement of the Contract" has no parallel in the subcontract between plaintiff and Bakke. Mindful that we may not read into contracts provisions that the parties themselves have not included, Thompson v. Bolliger, Hampton & Tarlow, 118 Or.App. 700, 710, 849 P.2d 526, rev. den. 317 Or. 163, 856 P.2d 318 (1993), we decline to read into Bakke's purchase order a broader incorporation by reference than is apparent on the face of the document. Accord Edward E. Morgan Co. v. United States, 230 F.2d 896, 903 (5th Cir.1956) (holding that subcontract requirement that "work * * * be performed in accordance with specifications" in prime contract meant that prime contract governed "the manner of the performance of the work, not * * * the basis for computing the amount to be paid the subcontractor."); John W. Johnson, Inc. v. Basic Construction Co., 429 F.2d 764, 773 (D.C.Cir.1970) (subcontract which bound party to prime contract terms "applicable to the work" did not bind party to general terms and conditions of prime contract). In sum, the subcontract between plaintiff and Bakke does not incorporate by reference the requirement that plaintiff pay its subcontractors and suppliers prior to being paid by Bakke. Accordingly, the trial court did not err in finding that Bakke has a present duty to pay plaintiff under the subcontract.

Defendants' second assignment of error addresses the trial court's conclusion that plaintiff's construction lien is valid. Defendants make three separate arguments that the lien is invalid. First, they contend that the lien is invalid because it overstates the amount owed to plaintiff. As previously noted, the court found that Bakke owed plaintiff only $61,117 after plaintiff sought first $92,000 and then $79,000 in its foreclosure action.

Overstatements will not automatically invalidate a lien. "In order for the overstatement to invalidate the lien, it must be an intentional one or...