Coleman Engineering Co. v. North Am. Aviation, Inc.

• Decision Date: 12 December 1966
• Parties: , 420 P.2d 713 COLEMAN ENGINEERING COMPANY, Inc., Plaintiff and Respondent, v. NORTH AMERICAN AVIATION, INC., Defendant and Appellant. L.A. 28824. In Bank
• Court: California Supreme Court

Page 1

55 Cal.Rptr. 1

65 Cal.2d 396, 420 P.2d 713

COLEMAN ENGINEERING COMPANY, Inc., Plaintiff and Respondent, v. NORTH AMERICAN AVIATION, INC., Defendant and Appellant.

L.A. 28824.

Supreme Court of California,

In Bank.

Dec. 12, 1966.

Rehearing Denied Jan. 25, 1967.

Flint & MacKay, Arch R. Tuthill and Philip M. Battaglia, Los Angeles, for defendant and appellant.

Milo V. Olson, Los Angeles, for plaintiff and respondent.

PETERS, Justice.

Defendant, North American Aviation, Inc., appeals from a judgment awarding plaintiff, Coleman Engineering Company, Inc., damages in the amount of $289,615.89 plus interest at the rate of 7 percent per annum from December 10, 1959. Defendant also appeals from the order denying its motion to vacate the judgment and to enter a new and different judgment.

In January 1959, defendant invited bids for the engineering and manufacturing of 32 positioning or lift trailers and 7 transportation trailers to accommodate its Hound Dog Missile. With the invitation to bid, defendant submitted its basic equipment specifications. Section 3.2.2.9 of the specifications contained a description of the 'configuration of the payload,' namely, 'a 36.5 inch dia. cylindrical payload configuration, the longitudinal centerline of which shall coincide with the trailer centerline in the plane of the rail top surfaces.' References to configuration of the payload are also found in other specifications, namely, a provision dealing with load rails refers to 'payloads of various configurations,' the intended use provision refers to 'missiles or special payloads for aircraft and missiles' and a provision designated loaded stability states that part of the payload is 'at a point 46 inches above the rail top surfaces.'

The configuration of the payload is important in the light of the following fundamental engineering principle: The center of gravity 'of an object generally stated is its balance point. It may be considered in three planes--vertical, lateral, and fore and aft. Its location depends generally upon the weight, material and configuration of the object. Its location will vary among objects of the same weight and material if these configurations are different. All these principles are elementary among design engineers.'

All of the engineers testified that, if there were no other specification relating to configuration, an engineer could reasonably interpret specification section 3.2.2.9 as locating the vertical payload center of gravity at rail height. However the expert witnesses of the parties differed as to the effect to be given to the other provisions mentioned relating to configuration of payload. Plaintiff's experts testified in effect that section 3.2.2.9 established the center of gravity at rail height and the further provisions did not establish any other center of gravity. Defendant's experts claimed that the inclusion of the further provisions compelled the conclusion that section 3.2.2.9 does not state the center of gravity, and that instead the specifications must be understood as not stating any vertical location for the center of gravity of the payload.

In February plaintiff submitted its bid to defendant. With the bid, plaintiff transmitted a preliminary stress analysis report which interpreted defendant's specifications as locating the vertical center of gravity of the payload in the plane of the rail top surfaces. This was filed by defendant's engineers but they did not read it.

On June 23, 1959, defendant sent plaintiff five 'go ahead' telegrams, informing it that it was the successful bidder. ¹ Plaintiff then started the design and engineering of the trailers. On July 6 defendant delivered to plaintiff a series of purchase orders, which, according to the pleadings of both parties, constitute the contract between them. The purchase orders state a total price of $527,632 and provide for delivery of trailers to commence on September 15, and contain the same equipment specifications with regard to configuration of the payload as found in the equipment specifications in the invitation to bid. The purchase orders provided for 'a binding contract on the terms set forth herein when it is accepted either by acknowledgment or delivery.'

The purchase orders also state in paragraph 9, captioned 'CHANGES,' that 'Buyer reserves the right at any time to make changes in drawings and specifications, in methods of shipment and packaging, in schedules, and the place of delivery as to any material and/or work covered by this order. In such event there will be made an equitable adjustment in price and time of performance mutually satisfactory to Buyer and Seller, but any claim by Seller for an adjustment must be made within thirty (30) days of the receipt of such changes.'

Each purchase order also states that it is the entire contract, that no changes are binding on buyer unless evidenced by a duly executed purchase order, and that buyer may terminate at any time in accordance with section 8--706 of the Armed Services Procurement Regulation. The regulation provides, as applicable here, for payment of expenses and a certain profit to the subcontractor upon such termination.

The president of plaintiff did not sign and return the copies of the purchase orders to defendant until July 15, 1959. Meanwhile, at a meeting of engineers of plaintiff and defendant on July 7, the engineers of defendant stated that it desired the trailers to be designed to accommodate a payload center of gravity 35 inches above the rail top surfaces. When the engineers of plaintiff stated that it had bid on the contract on the basis that the specification placed the center of gravity at rail height and had so indicated in its stress report attached to its bid, defendant's engineers admitted that they had not read that report. Plaintiff's engineers also stated at that time that their work had been based on the assumption of a vertical center of gravity at rail height, that the changing of the center of gravity would entail an increase in costs and a delay in schedule, and that plaintiff desired a change in specifications defining the location of the center of gravity if defendant wanted it at a place other than the top of the load rails. The engineer in charge for defendant requested that work continue on the trailers and stated that changes in the specifications would be forthcoming.

Several meetings were thereafter held between engineers of the parties, and several proposed changes in specifications were prepared. On October 5, 1959, defendant supplied plaintiff with a telegraphic change in specifications wherein the center of gravity was located at 35 inches above rail height.

The change in specifications caused a significant change in the engineering, design and cost of construction; the increase in costs was at least $257,000. Upon receipt of the telegraphic change of October 5, plaintiff requested an adjustment in price and time for performance before continuing performance. Plaintiff sought recovery of costs expended to the date of the receipt of the telegraphic change and the reasonable expenses of constructing the trailers in accordance with the changed specifications. Plaintiff first sought to raise the contract price to over a million dollars, and also offered as an alternative to change the contractual arrangement from 'fixed-price to fixed-price with redetermination or to a cost-plus-a-fixed-fee at a point to be agreed upon.' Plaintiff urged that repricing of the contract was essential because of the long delays while waiting for the change order and the numerous starts and stops caused thereby, interim price increases by vendors, changes in the anticipated number of units to be ordered, and the many conferences as to the changes. During these negotiations the position of defendant was that plaintiff had made a mistake by underbidding and was looking to defendant to 'bail' it out. Defendant refused to pay more than a 10 percent increase in the contract price, an increase of approximately $52,000 which would have raised the contract price to approximately $580,000.

Plaintiff in a letter to defendant took the position that continuation of the contract without obtaining its price for the changes could mean financial disaster to it and that unless a settlement could be reached on the bases it had suggested it would have to stop work on November 5, 1959, and it then would seek recovery under the provision of the contract providing for 'Termination for Convenience.'

Defendant replied that under the purchase orders plaintiff was entitled only to the costs of the changes and that if plaintiff terminated work, the termination would not constitute a termination for convenience but a breach. As a result of subsequent conferences, plaintiff did not stop work on November 5, but instead submitted a new cost breakdown of the contract as changed. In a letter accompanying this breakdown dated November 10, 1959, plaintiff took the position that it would not agree to arriving at a price on the theory of a comparison between the cost breakdown of every item before the change as compared to a cost breakdown of every item after the change.

The letter explained this position as follows: As to engineering costs, it had from the beginning recognized that a change was necessary and approached the problem of design from that viewpoint, but the exact details of the change were unknown. Because of the necessary stoppages and reanalyzation, costs increased, and after the change was made the engineers were required to reanalyze every part going into the trailer to determine whether it had to be changed. As to manufacturing, plaintiff took the position that in making its bid it had obtained price estimates from its vendors, that the bid was based upon these quotations, that because of the impending change order and to save money it was unable to place its orders with its vendors until the change was decided upon, and that...