City of Granville v. Kovash, Inc.

• Decision Date: 17 September 1962
• Docket Number: No. 7911,7911
• Citation: 118 N.W.2d 354
• Parties: CITY OF GRANVILLE, a Municipal Corporation, Plaintiff and Respondent, v. KOVASH, INCORPORATED; and Hartford Accident and Indemnity Company, a Corporation, Defendants and Appellants.
• Court: North Dakota Supreme Court

Page 354

118 N.W.2d 354

CITY OF GRANVILLE, a Municipal Corporation, Plaintiff and Respondent, v. KOVASH, INCORPORATED; and Hartford Accident and Indemnity Company, a Corporation, Defendants and Appellants.

No. 7911.

Supreme Court of North Dakota.

Sept. 17, 1962.

On Rehearing Dec. 11, 1962.

Syllabus by the Court

1. Generally, in case of doubt or ambiguity, a contract should be construed most strongly against the one who caused such uncertainty to exist. This rule does not apply, however, in interpreting provisions of a contract between a public officer or body, as such, and a private party. In the case of a public contract, it is presumed any uncertainty in its terms was caused by the private party. Sec. 9-07-19, N.D.C.C.

2. The rule that a contract made with the public must, in case of uncertainty, be construed most favorably to the public cannot be invoked to change the clear, unmistakable meaning of a contract whose provisions are plain.

3. A provision in a construction contract requiring that water mains be 'laid at a depth of seven and one-half (7 1/2) feet' means that such water mains must be laid so that the entire pipe is seven and one-half feet below the surface of the ground.

4. In order that a building or construction contract shall be considered to be 'substantially performed,' it must appear not only that the contractor endeavored to perform the contract in good faith, but also that he has in fact done so, except as to unimportant omissions or deviations which are the result of mistake or inadvertence and which were not intentional.

5. Where, in the performance of a contract for municipal improvements, under the terms of which the project engineer is given authority to decide any question arising in the performance thereof, the engineer issues his certificate approving the work and the manner of performance of the contract by the contractor and the governing body of the City, by resolution, approves such action of the engineer, the action on the part of the governing body in accepting the project on the engineer's certificate of approval is final and conclusive, in the absence of fraud, collusion, or such gross mistake as would imply bad faith on the part of the engineer. Sec. 40-22-36, N.D.C.C.

6. When fraud is relied upon as a cause of action, such fraud must be specifically alleged. Fraud never will be presumed.

7. There can be no fraud without an intent to deceive. It is the action of the mind which gives fraud its existence.

8. The obligation of a contractor, under the terms of a contract, to keep a water and sewerage system 'in repair' for one year makes it his duty to maintain and keep the system functioning for one year.

Mackoff, Kellogg, Muggli & Kirby, Dickinson, for defendants and appellants.

Duffy & Haugland, Devils Lake, and Victor V. Stiehm, Towner, for plaintiff and respondent.

STRUTZ, Judge (on reassignment).

This is an action brought by the City of Granville against Kovash, Incorporated, and Hartford Accident and Indemnity Company to recover damages claimed to have been suffered by the City through the failure of Kovash, Incorporated, for whom the Hartford Accident and Indemnity Company was surety, to construct and install a water and sewerage system in accordance with a contract entered into with the City of Granville.

The contract provided for the installation of forty-nine gate valves and boxes and twenty-two hydrants as part of such system. The gate valves were distributed at intervals throughout the system to permit shutoff and control of the water. Among other things, the contract provided that the water mains should be laid at a depth of seven and one-half feet below the surface of the ground and that each hydrant branch should have a minimum cover of seven and one-half feet.

Other provisions of the contract pertinent to this lawsuit are that the project engineer should have general control of the work and that he should decide any and all questions which might arise in the performance of the contract as to quality or acceptability of materials furnished and of work performed, or the manner of performance; that no work was to be done nor any materials used without suitable supervision or inspection by the engineer or his representative, giving to the inspector assigned by the engineer the authority to reject materials or to suspend work until any dispute as to materials or workmanship had been referred to the engineer for his decision. The contract further provided that the engineer's decision on all such questions should be final and conclusive. It also provided for final inspection of the project by the engineer and for final payment to the contractor after the engineer had certified to the City that the work had been 'completed in a satisfactory manner and in accordance with the terms of the contract.'

There is a final provision in the contract making the contractor responsible for workmanship and materials for one year and providing that the contractor shall 'keep the system in repair for a period of one year.'

The record discloses that the engineer was unable to be on the job all of the time, and that one of the members of the city council, Mr. Moffatt, was employed by the engineer, with the knowledge and consent of the city council, to act as inspector for the engineer. The engineer paid the inspector for such service and was then reimbursed by the City for payments which he had made to the inspector.

The defense to the claim of the City, that the defendant Kovash, Incorporated, failed to construct the water and sewerage system in accordance with the contract and failed to lay the pipes at the depths required by the contract, was that the system had been constructed and completed under the supervision of the project engineer, or his inspector, and that the terms of the contract made his approval of the work and its acceptance final and conclusive, in the absence of fraud, collusion, or of a mistake so gross as to imply bad faith. The defense further alleges that there was a substantial compliance with the terms of the contract by the defendant.

After completion of the work by the contractor, the engineer certified that the work was acceptable, and upon such certification final payment was made to the contractor by the City. After certification by the engineer and such final payment by the City, service connections to the system were started by the City. It was when the service connections were being made that it was discovered that some of the water mains had been laid at depths less than the contract required. During the winter which followed, some of the lines froze and broke in several parts of the City. The City thereupon demanded that the defendant Kovash, Incorporated, remedy the situation, and, upon its refusal to do so, this action was commenced. The case was tried to the court without a juruy. From a judgment for the City, the defendants take this appeal, demanding a review of the entire case and a trial de novo.

Several issues are thus presented on this appeal:

First, was there a substantial performance of the contract by the defendant, as claimed by the defendant?

Second, if there was no substantial performance which would require the court to hold that the defendant had substantially performed the terms of the contract, is the plaintiff bound by the action of the project engineer in certifying that the contract had been acceptably performed by the defendant, and does the acceptance and approval of such recommendation of the engineer by the city council and the making of final payment on such recommendation bar the plaintiff City from maintaining this action against the defendant for failure to perform the contract as required by its terms?

Third, if the plaintiff is bound by the certification of the project engineer that the contract had been acceptably performed by the defendant, is the defendant nevertheless liable for payment of any part of the additional costs of repairing the breaks and of lowering the water mains under its guarantee to 'keep the system in repair for one year'?

Generally speaking, construction of the terms of any contract should be reasonable. In this State, we do have certain statutory enactments which serve as aids in the construction of contracts. Section 9-07-19 of the North Dakota Century Code provides that, in case of doubt or ambiguity, a contract should be construed most strongly against the one who caused such uncertainty to exist. In this case, the interpretation of any doubtful portions of the contract would, under that rule, be most strongly construed against the City, which prepared the contract. But the same section goes on to provide:

'* * * except in a contract between a public officer or body, as such, and a private party, and in such case it is presumed that all uncertainty was caused by the private party.'

Therefore, in this State, in cases such as we have before us here, statutory construction requires that ambiguity or uncertainty in the contract must be presumed to have been caused by the private party, even though the private party had no part in causing the uncertainty.

But the rule that a contract made with the public must, in case of ambiguity, be construed most favorably to the public cannot be invoked to change the clear, unmistakable meaning of a contract whose provisions are unambiguous and plain. 10 McQuillin, Municipal Corporations, 3d Ed., Sec. 29.117.

We will first consider the defendant's contention of substantial performance. Did the defendant substantially perform its contract with the City of Granville? The plaintiff's complaint alleges that the defendant 'did not fulfill the terms and conditions of the said contract in that it laid the water mains so that they had a cover of from 5.7 feet to 7 feet and that as a result thereof, said water mains are not adequately protected from freezing and that during the winter of 1957-1958 did freeze * * *'

Under the...