CARSTENSEN CONT. v. MID-DAKOTA RURAL WATER

• Citation: 653 N.W.2d 875,2002 SD 136
• Decision Date: 13 November 2002
• Docket Number: No. 22345.,22345.
• Parties: CARSTENSEN CONTRACTING, INC., Plaintiff and Appellee, v. MID-DAKOTA RURAL WATER SYSTEM, INC., Defendant and Appellant.
• Court: South Dakota Supreme Court

653 N.W.2d 875

2002 SD 136

CARSTENSEN CONTRACTING, INC., Plaintiff and Appellee, v. MID-DAKOTA RURAL WATER SYSTEM, INC., Defendant and Appellant.

No. 22345.

Supreme Court of South Dakota.

Considered on Briefs on August 26, 2002.

Decided November 13, 2002.

Mark V. Meierhenry of Danforth, Meierhenry & Meierhenry Sioux Falls, South Dakota, Attorneys for plaintiff and appellee.

Timothy M. Engel of May, Adam, Gerdes & Thompson Pierre, South Dakota, Attorneys for defendant and appellant. KONENKAMP, Justice.

[¶ 1.] In this construction contract dispute, we must decide whether a requirement in the contract that the general contractor pay "all claims growing out of the lawful demand of" subcontractors, laborers, mechanics, materialmen, furnishers and suppliers means claims only on which a mechanic's lien has been filed. In granting summary judgment, the circuit court held that the general contractor had no duty to pay the unpaid bills from a bankrupt subcontractor's suppliers, since the suppliers filed no mechanic's liens to secure their claims. Because the filing of a mechanic's lien is not what makes a claim "lawful," we conclude that, under the terms of the contract, the owner had the right to withhold the sums necessary to pay claims against the project, even if no mechanic's lien had been filed to secure those claims. We reverse.

Background

[¶ 2.] This is a contract dispute between Carstensen Contracting, Inc. and Mid-Dakota Rural Water System, Inc. Carstensen, a general construction contractor experienced in the building of rural and municipal water systems, is a Minnesota corporation, authorized to do business in South Dakota. Mid Dakota, a South Dakota nonprofit corporation headquartered in Miller, owns and operates a rural water system that provides potable water to rural and municipal residents of east central South Dakota.

[¶ 3.] The parties stipulated to an extensive set of facts, some of which will be recited here. The documents relevant to this dispute are the Agreement, General Conditions, and Supplemental General Conditions (collectively, the contract documents).¹ Mid-Dakota prepared these documents; Carstensen executed them in the form supplied by Mid-Dakota. The contract called for the construction of a rural distribution pipeline and related appurtenances in Hand and Hyde Counties.

[¶ 4.] Carstensen engaged J & M Gravel, Inc., to act as a subcontractor on the project. In the course of its work, J & M incurred certain debts for various items used on, and related to, the project. Such items included rental charges and fuel for equipment, general supplies, food, and housing for J & M's employees. Carstensen alleges that the last date upon which J & M supplied or used services, labor, equipment, or materials was November 2, 2000. Mid-Dakota avers that J & M supplied labor and materials as late as January 29, 2001.

[¶ 5.] No supplier or subcontractor for J & M Gravel filed a mechanic's or materialmen's lien against the project. See generally SDCL Ch. 44-9. However, beginning on January 26, 2001, Mid-Dakota began receiving notices from various suppliers of J & M that it had not paid for items it had used. These claims amounted to nearly $160,000.

[¶ 6.] At least two of J & M's suppliers have alleged that a representative of Carstensen encouraged them not to file mechanic's or materialmen's liens against the project, telling them that Carstensen would "take care of" any unpaid bills owed by J & M. Mid-Dakota's engineers are prepared to testify that, in January of 2001, a representative of Carstensen told them that Carstensen would pay J & M's suppliers out of retainage held by Carstensen on J & M's contract with Carstensen. Carstensen denies that any such promises were made. On February 20, 2001, J & M filed for Chapter 7 bankruptcy.

[¶ 7.] Under these circumstances, Mid-Dakota began to withhold from Carstensen's unpaid compensation an amount Mid-Dakota deemed sufficient to pay claims presented by J & M's suppliers. Carstensen brought suit to recover these withheld funds. Both sides moved for summary judgment on the question whether Carstensen is obliged to pay the unpaid claims of J & M's suppliers for items used on or in connection with the project. The circuit court granted Carstensen's motion for summary judgment and ordered Mid-Dakota to resume payment to Carstensen in accordance with the terms of the contract. Mid-Dakota appeals, raising the following issue: "Whether the trial court erred when it ruled that Carstensen is not liable for debts left unpaid by its subcontractor that subsequently filed for bankruptcy protection?"

Analysis and Decision

[¶ 8.] In interpreting a contract, we seek to ascertain and give effect to the intention of the parties; at the same time, to find the intention of the parties, we rely on the contract language they actually used.² Malcolm v. Malcolm, 365 N.W.2d 863, 865 (S.D.1985). In a case where, as here, several documents comprise the contract, all are to be read together to learn the parties' intent. Dail v. Vodicka, 89 S.D. 600, 237 N.W.2d 7 (1975). It is a fundamental rule of contract interpretation that the entire contract and all its provisions must be given meaning if that can be accomplished consistently and reasonably. Id. at 603, 237 N.W.2d at 9. However, when provisions conflict and full weight cannot be given to each, "the more specific clauses are deemed to reflect the parties' intentions—a specific provision controls a general one." State v. Greger, 1997 SD 14, ¶ 21, 559 N.W.2d 854, 864. Ordinarily, the plain meaning of the contract language will be followed unless there is some ambiguity or different intent manifested. American State Bank v. Adkins, 458 N.W.2d 807, 809 (S.D.1990).

[¶ 9.] We examine the following provisions in the General Conditions deemed relevant by the circuit court:

§ 6.1: It is understood that, except as otherwise specifically stated in the contract documents, the contractor shall provide and pay for all materials, labor, tools, equipment, water, light, power, transportation, supervision, temporary construction of any nature, and all other services and facilities of any nature whatsoever to execute, complete, and deliver the work within the specified time....

§ 19.6: The CONTRACTOR [Carstensen] will indemnify and save the OWNER [Mid-Dakota] or the OWNER'S agents harmless from all claims growing out of the lawful demand of SUBCONTRACTORS, laborers, workmen, mechanics, materialmen, and furnisher of machinery and parts thereof, equipment, tools, and all supplies, incurred in the furtherance of the performance of the WORK.³ The CONTRACTOR shall, at the OWNER'S request, furnish satisfactory evidence that all obligations of the nature designated above have been paid, discharged, or waived. If the CONTRACTOR fails to do so, the OWNER may, after having notified the CONTRACTOR, either pay unpaid bills or withhold from the CONTRACTOR'S unpaid compensation a sum of money deemed reasonably sufficient to pay any and all such lawful claims until satisfactory evidence is furnished that all liabilities have fully discharged whereupon payment to the CONTRACTOR shall be resumed in accordance with the terms of the CONTRACT DOCUMENTS, but in no event shall the provisions of this sentence be construed to impose any obligation upon the OWNER to either the CONTRACTOR, the CONTRACTOR'S surety, or any third party. In paying any unpaid bills of the CONTRACTOR, any payments so made by the OWNER shall be considered as a payment made under the CONTRACT DOCUMENTS by the OWNER to the CONTRACTOR and the OWNER shall not be liable to the CONTRACTOR for any such payment made in good faith.

§ 26.3: The CONTRACTOR shall be fully responsible to the OWNER for the acts and omissions of its SUBCONTRACTORS, and of persons either directly or indirectly employed by them, as the CONTRACTOR is for the acts and omissions of persons directly employed by the CONTRACTOR.

[¶ 10.] Mid-Dakota points out that, in accord with § 6.1, the general contractor remains primarily responsible to the owner, even if certain work is subcontracted to third parties. See Brooks v. Hayes, 133 Wis.2d 228, 395 N.W.2d 167, 168 (1986)

. Carstensen argues (and the trial court agreed) that Mid-Dakota ignores the initial caveat in § 6.1: "except as otherwise specifically stated in the contract documents." In particular, Carstensen highlights the word "lawful" in the initial sentence of § 19.6 ("The contractor will indemnify and save the owner or the owner's agents harmless from all claims growing out of the lawful demand of subcontractors... materialmen, and furnisher[s] of machinery ..., equipment, tools, and all supplies ....") and then argues that no lawful demands have been made, nor could be made, because the time for making claims against the surety or for filing mechanics' liens has expired. As Carstensen sees the matter, Mid-Dakota is attempting to convert a moral obligation to pay J & M's suppliers into a legal obligation.⁴ Carstensen contends that Mid-Dakota has no legal obligation to pay J & M's suppliers, since...