Lincoln Const., Inc. v. Thomas J. Parker & Associates, Inc.

• Decision Date: 30 September 1980
• Docket Number: No. 77-2278-L-3,77-2278-L-3
• Citation: 617 P.2d 606,289 Or. 687
• Parties: LINCOLN CONSTRUCTION, INC., Petitioner, v. THOMAS J. PARKER & ASSOCIATES, INC., Respondent. ; CA 11335 and SC 26672.
• Court: Oregon Supreme Court

Page 606

617 P.2d 606

289 Or. 687

LINCOLN CONSTRUCTION, INC., Petitioner, v. THOMAS J. PARKER & ASSOCIATES, INC., Respondent.

No. 77-2278-L-3; CA 11335 and SC 26672.

Supreme Court of Oregon.

Argued and Submitted May 5, 1980.

Decided Sept. 30, 1980.

Sidney Ainsworth, Ashland, argued the cause for respondent. On the briefs was Jack Davis, Ashland.

William H. Ferguson, Medford, argued the cause for petitioner. With him on the brief was Grant, Ferguson & Carter, Medford.

Before DENECKE, C. J., and TONGUE ^*, HOWELL, LENT *, LINDE, and PETERSON, JJ.

PETERSON, Justice.

This is an action for breach of contract. The trial court, sitting without a jury, made a general finding for the plaintiff on its complaint, and against the defendant on its counterclaim, and entered judgment for the plaintiff. The Court of Appeals reversed the trial court as to plaintiff's complaint and affirmed as to defendant's counterclaim. 43 Or.App. 207, 602 P.2d 676 (1979). We reverse the Court of Appeals and order the reinstatement of the trial court judgment.

Weyerhaeuser was the successful bidder on a timber sales contract with the United States Forest Service. The contract required Weyerhaeuser to build a logging road to Forest Service specifications. Weyerhaeuser subcontracted with the defendant to construct the logging road. The contract between Weyerhaeuser and defendant provided in part:

"1. CONTRACTOR agrees to * * * fully complete, in a workmanlike manner * * *, all roads and work * * * required under the Keno Timber Sale Contract."

" * * *.

"4. PAYMENT

"The agreed upon contract price shall be $694,114 as detailed in Exhibit G for project described herein and as detailed in Exhibits A, B, C, D, E, F, G, H, I, J attached hereto and made a part hereof. Payments to CONTRACTOR shall not exceed $629,500 during calendar year 1976.

"WEYERHAEUSER will pay CONTRACTOR during the the term hereof, at the later to occur of two-week intervals or within ten (10) days after receipt of an invoice from CONTRACTOR, an amount equal to 90% of the value, proportionate to the total amount of the contract, of labor expended and material purchased and incorporated into the work, less the aggregate amount of previous payments, but subject to satisfactory completion or partial completion of a road, roads or crushing of rock; either documented by the United States Forest Service (U.S.F.S.) 'Report of Purchaser's Credit for Specified Road Construction' or a statement of work completed furnished by WEYERHAEUSER representatives."

Weyerhaeuser advised Mr. Parker, defendant's president, that an estimated 81,450 cubic yards of gravel would be needed. The Weyerhaeuser-Parker contract was not specific as to the amount of gravel that would be needed, nor did the contract provide for payment on the basis of cubic yards of gravel used.

Plaintiff operated rock crushing equipment. Parker met with plaintiff's superintendent and asked for a "price" for processing 81,451 yards of gravel. The superintendent gave him a bid of $3.10 a yard for 81,451 yards. At that time, no contract was executed. Later, defendant's lawyer prepared a contract between plaintiff and defendant pursuant to which plaintiff agreed to perform the blasting, crushing and stockpiling of rock necessary to construct the road. Plaintiff had no responsibility for the construction of the road itself.

That contract contained these clauses "Contractor (Defendant) agrees to pay and subcontractor (Plaintiff) agrees to perform the work described herein for the sum of Three and 10/100 ($3.10) per yard as measured and determined in accordance with the attached agreements. ¹

"Payment is to be made as set forth in the attached agreements, including the ten percent (10%) deductions, and upon full compliance with the terms of this agreement and the attached agreements, said ten percent (10%) reserve shall be paid to Subcontractor." (Emphasis added.)

Plaintiff commenced its performance in September of 1976. In May, 1977, plaintiff determined that it had crushed and stockpiled rock in excess of the estimated requirements specified in the contract documents between defendant and Weyerhaeuser and thereupon removed its equipment from the site. Plaintiff sought payment from defendant for the difference between the amount it had already received in periodic payments and the contract price per cubic yard times the estimated requirements specified in the contract documents. When defendant refused to pay plaintiff according to plaintiff's demand, plaintiff filed a "construction lien" against the property. Shortly thereafter, Weyerhaeuser terminated its contract with defendant.

Subsequently, defendant and Weyerhaeuser negotiated a settlement of their dispute as to what was owing to defendant by Weyerhaeuser. In doing so, they jointly hired an independent surveyor from Klamath Falls to determine the quantity of rock plaintiff had crushed and stockpiled. The surveyor determined that 60,118 cubic yards was then stockpiled, and defendant and Weyerhaeuser added to that volume 6,300 cubic yards of rock which had been put in place on the road to determine what Weyerhaeuser owed defendant for this portion of the contract. Plaintiff was advised of the fact that the independent surveyor would be measuring the stockpile, but it refused to participate in the supervision of his measurement.

Instead, plaintiff employed its own expert, who determined that plaintiff had crushed and stockpiled more than the estimated contract requirement, 81,451 cubic yards. Plaintiff then commenced this action.

The Court of Appeals held, as a matter of law, that (1) the provisions of the contract between plaintiff and defendant barred any recovery for stockpiled rock beyond the amount "as measured and determined by Weyerhaeuser" (43 Or.App. at 211, 602 P.2d at 678); and (2) that matters relating to measurement, determination or payment for rock had been conditioned upon the certificate of a third person (Weyerhaeuser or the Forest Service), and that "the judgment of that person is conclusive."

The Court of Appeals erred in its holding because:

A. The court held that plaintiff was bound, as a matter of law, by the measurement of the independent surveyor hired by Weyerhaeuser and the defendant. The contract between the defendant and the plaintiff did not provide that such determination could be made by a person other than Weyerhaeuser or the Forest Service.

B. The payment provisions of the contracts are ambiguous, and there was a question of fact as to the meaning of the contract. The finding of fact of the trial court must therefore be upheld, as it was supported by substantial evidence.

A. Delegation of power of final determination

Parties to contracts often provide for resolution of disputes by a skilled, neutral third person. The rationale is that a quick resolution of their differences is commercially more practicable than a potentially expensive lawsuit. When a contract clearly expresses that a third person is to make final decisions respecting specified matters, such agreement is enforceable. Such third person's determination is final, absent a showing of fraud, bad faith, or a failure to exercise honest judgment. Friberg v. Elrod, 136 Or. 186, 195, 296 P. 1061 (1931).

The plaintiff claims that there is nothing in the language of the contracts which reflects a binding agreement that a third person have authority to make any binding determination. We need not decide that question.

Normally, when contracting parties agree to abide by determinations made by a third person, they...