City of Columbia v. C.F.W. Const. Co.

• Decision Date: 25 November 1977
• Parties: CITY OF COLUMBIA, Tennessee, Petitioner, v. C.F.W. CONSTRUCTION CO. and Sherman Concrete Pipe Co., Respondents.
• Court: Tennessee Supreme Court

Page 734

557 S.W.2d 734

CITY OF COLUMBIA, Tennessee, Petitioner, v. C.F.W. CONSTRUCTION CO. and Sherman Concrete Pipe Co., Respondents.

Supreme Court of Tennessee.

Nov. 25, 1977.

Cain & Moore, Columbia, for petitioner.

MacFarland, Colley, Blank & Jack, Columbia, Howser, Thomas, Summers, Binkley & Archer, Nashville, for respondents.

OPINION

BROCK, Justice.

Plaintiff, City of Columbia, sues the defendants, C.F.W. Construction Company, a general contractor, and Sherman Concrete Pipe Company, a pipe manufacturer, for specific performance or, in the alternative, for damages alleging deficiencies in performance of a sewer construction contract. Right to relief was based both upon the original construction contract and a later executed guaranty agreement. At the close of plaintiff's proof the Chancellor granted defendants' motion for dismissal of the action. Holding that the subsequently executed guaranty agreement superseded the original construction contract and that the City had failed to offer evidence of a right to relief under the guaranty in that it had not identified specific defects of construction of the sewer line, the Court of Appeals affirmed the trial court. We granted certiorari.

I

In October, 1960, the City of Columbia (City) and C.F.W. Construction Company (CFW) entered into a contract whereby CFW agreed to construct certain sanitary sewer improvements for the City in accordance with plans and specifications prepared by consulting engineers, Zimmerman, Evans and Leopold (Engineer). The contract, together with an addendum, specified the use of reinforced concrete pipe for a portion of the sewer line, to be joined with flexible rubber-joint gaskets in order to obtain water-tight conditions and to allow for settling of the pipes. The specifications called for leakage and infiltration tests:

"The maximum allowable infiltration into the sewer lines shall be limited to 10,000 gallons per 24 hours per mile of sewer. This clause does not relieve the contractor of the necessity of making the sewers as tight as possible. Sewers which exceed this limit will not be accepted and the contractor shall take such steps as are necessary to bring the infiltration within the above allowance. * * * The test shall be made following a period of heavy rain and when the ground is saturated." (Contract, T4-09(D).)

Before completion of the project, excessive leakage at the pipe joints prompted CFW to undertake repairs by sealing the leaking joints with a cement mortar, although this procedure was not in accordance with contract specifications. Infiltration tests conducted subsequent to the repairs on this segment of the construction indicated 153% and 143% of the maximum allowable infiltration rate. Because of the deviation from contract requirements and the Engineer's consequent apprehension that defects might eventually appear in the sewer line with the settling of the pipes and consequent cracking of the rigid joints created by the mortar repair, the City ultimately refused to accept the segment of the project between manholes J-32 and J-1.

In order to induce the City to accept and pay for the work, CFW and the pipe manufacturer and supplier, Sherman Concrete Pipe Company (Sherman Pipe) entered into a guaranty agreement with the City in March, 1962.

Pertinent provisions of the guaranty agreement are as follows:

"The said C.F.W. Construction Company has laid or installed a sewer line improvement for the City of Columbia, Tennessee, under and pursuant to a contract . . . which contract is hereby incorporated into this agreement by reference.

"In order to induce the owner to accept said portion of sewer line work and to pay for same in accordance with the contract hereinabove referred to . . . the undersigned supplier and contractor . . . obligate . . . themselves . . . to repair and correct any and all defects arising from defective workmanship and materials that may be found in said portion of said sewer line in question within a period of ten (10) years, including the replacement of portions of said line when necessary; said ten year period to begin at the expiration date of the one year guaranty provided under Paragraph GC-12 of said contract hereinabove referred to.

"Without limiting the generality of the foregoing guaranty provision, the undersigned agree that during this ten year period:

"1. That Paragraph GC-12 of said contract is hereby extended for an additional ten year period insofar as it relates to that portion of the sewer line described above.

"2. That said Engineer, its successors or assigns, shall determine when there has been a defect in said portion of the sewer line. Upon notification by said Engineer or the City of Columbia, the undersigned shall within a reasonable time undertake the necessary repair and corrective measures, including the replacement of any portion of said sewer line that in the judgment of the Engineer requires replacement.

"3. . . . In general, Paragraph GC-31 of said contract shall govern the corrective or replacement work if the need arises.

"4. The undersigned agree to pay for all damages caused by any defects determined to result from the unfitness and unsoundness of the portion of said line hereinabove referred to, including damages to other work resulting therefrom.

"6. The undersigned agree to pay all expenses, including engineer's fees and costs of plans and specifications incurred because of work required under this contract and guaranty.

"8. The Supplier and Contractor shall pay for all damages resulting from their failure to make the necessary repairs promptly after notice from the city or from said engineer that a defect has occurred.

"9. The said contract herein made a part of this agreement shall, where applicable, apply to any replacement work called for by reason of this agreement.

"11. The City of Columbia by accepting this guaranty does not waive its rights under Paragraph GC-12 of said contract.

"The City of Columbia shall be deemed to have accepted this guaranty when payment is made of the balance due under said contract." (Underscoring added.)

A guaranty bond required by the guaranty was executed by a corporate surety and remained in effect for the first five years of the guaranty. Simultaneous with the guaranty agreement, CFW and Sherman Pipe entered into an agreement between themselves to share equally any obligations under the Guaranty with the City.

Thereafter, on August 20, 1962, the City accepted the construction and paid the balance owed under the contract.

Paragraph GC-12 of the original contract, extended for an additional ten years by the guaranty, provides as follows:

"GC-12. GUARANTEE: CORRECTION OF THE WORK:

For a period of at least one year after the completion of the Contract, the Contractor warrants the fitness and soundness of all work done and materials and equipment put in place under the Contract. Neither the final certificate of payment nor any provision in the contract documents or entire occupancy of the premises by the Owner shall constitute an acceptance of work not done in accordance with contract documents or relieve the Contractor of liability for faulty materials or workmanship. The Contractor shall remedy any defects in the work and pay for any damage to other work resulting therefrom, which shall appear within a period of one year from the date of final acceptance unless a longer period is specified. The Owner shall give notice of observed defects with reasonable promptness."

Subsequent to the City's acceptance of the entire sewer construction project the Engineer conducted three (3) infiltration tests of the sewer line:

(1)

A test conducted May 12, 1966, determined that the adjusted infiltration rate was 189,000 gallons per day as compared with the permissible maximum specified in the contract of 20,350 gallons per day.

Shortly thereafter, the City advised CFW and Sherman Pipe of the Engineer's finding of excessive infiltration and gave "official notice to the parties concerned to discharge the obligation required by the Guaranty and Guaranty Bond."

CFW inspected the pipes and "found the line to be in excellent general appearance and . . . only located approximately six leaks," and that the leaks did "not appear to be at each joint, but . . . in isolated locations . . .." CFW proposed "encasing the leaks from the outside with concrete one by one" and, in the event such repairs failed, proposed to conduct a television inspection and further repairs with Penetryn.

The Engineer objected to the absence of flood conditions when the CFW inspection was conducted but approved the method of repair proposed if CFW understood "that if the infiltration rate, after the corrective work has been performed, still exceeds the contract allowable rate, (CFW) will employ other means of locating and correcting the excess leakage," and, provided the infiltration tests were performed during wet weather conditions. These conditions and requirements were formally approved and accepted by CFW and Sherman Pipe.

CFW undertook repair of the pipes but closer inspection revealed that none of the six previously discovered "leaks" was the result of its defective work but resulted either from improper or faulty sewer connections which had been tapped onto the top of the sewer line by third parties after it had been constructed or were not actually leaks at all.

The City, however, believed that the proportion of infiltration attributable to the faulty service connections was insignificant in proportion to the excessive infiltration rate, nine times the permissible maximum, and, a year later, requested CFW to proceed with alternate repair methods.

CFW insisted, however, that it "still (did) not have enough factors upon which to make a final determination," and the City proceeded to have the Engineer appraise the existing pipe line. (2)

A test conducted June 23, 1970, determined that the infiltration rate was 712,576 gallons per day. This...