Milton Const. Co., Inc. v. State Highway Dept.
| Decision Date | 14 September 1990 |
| Citation | 568 So.2d 784 |
| Parties | MILTON CONSTRUCTION COMPANY, INC. v. STATE of Alabama HIGHWAY DEPARTMENT, et al. 89-514. |
| Court | Alabama Supreme Court |
Rodney A. Max and Denise J. Lord of Najjar, Denaburg, Meyerson, Zarzaur, Max, Wright & Schwartz, Birmingham, for appellant.
Jack F. Norton, Jerry L. Weidler and Janie Baker Clarke, Montgomery, for appellees.
Truman M. Hobbs, Jr. of Copeland, Franco, Screws & Gill, Montgomery, for amicus curiae Hardaway Co.
This is an appeal from a summary judgment in favor of the defendants, the State of Alabama, State of Alabama Highway Department, and Royce King, as director of the State of Alabama Highway Department (hereinafter collectively referred to as "Highway Department"). The plaintiff, Milton Construction Company ("Milton"), had sought a judgment declaring that the disincentive clause of an incentive/disincentive payments provision in each of two highway construction contracts that it had entered into with the Highway Department was void and unenforceable as a penalty and requested that the trial court order the Highway Department to pay Milton the amounts of disincentive payments that it withheld.
The issues before us are whether a clause of a construction contract that authorizes the withholding of disincentive payments is void and unenforceable as a penalty; whether Milton is estopped from asserting a claim that the disincentive clause is void where it has previously received incentive compensation pursuant to the incentive clause of the incentive/disincentive payments provision in a prior contract; and whether the trial court erred in failing to strike an affidavit allegedly based on hearsay.
Summary judgment is proper where there is no genuine issue of material fact and the moving party is entitled to a judgment as a matter of law. Rule 56, A.R.Civ.P. All inferences must be viewed in the light most favorable to the nonmoving party, and all reasonable doubts concerning the existence of a genuine issue of material fact must be resolved against the moving party. See Wilson v. Brown, 496 So.2d 756 (Ala.1986); see, also, McMillian v. Wallis, 567 So.2d 1199 (Ala.1990). This case was filed after June 11, 1987; therefore, the applicable standard of review is the "substantial evidence" rule. Ala.Code 1975, § 12-21-12; see, also, Watters v. Lawrence County, 551 So.2d 1011 (Ala.1989); see, also, Koch v. State Farm Fire & Casualty Co., 565 So.2d 226 (Ala.1990).
The facts of this case are substantially undisputed. The Highway Department and Milton entered into contracts for widening and repairing a portion of Interstate Highway 65 (hereinafter referred to as the "I-65 Project") 1 in Jefferson County and for concrete pavement rehabilitation of, and the addition of median lanes to, a portion of Interstate Highway 59 (hereinafter referred to as the "I-59 Project") 2 in Jefferson County.
The total cost of the I-65 Project was $7,745,320.29, and the total cost of the I-59 Project was $4,399,883.25. Subsequent to the filing of this lawsuit, the parties stipulated to all amounts due and payable to Milton (which have now been paid) except for the disputed amounts of $300,000 and $240,000 that the Highway Department deducted from Milton's contract price for the I-65 and I-59 Projects, respectively, pursuant to an incentive/disincentive payments provision. (The incentive clause of the incentive/disincentive payments provision is not at issue.)
The incentive/disincentive payments provision 3 of each contract reads, in pertinent part, as follows:
(Emphasis added.)
In addition, each contract contained a provision for recovery of actual damages, found in Article 108.12 ("Default of Contract"). It provides, in pertinent part, as follows:
(Emphasis added.)
Furthermore, each contract contained a clause for liquidated damages. 4 Article 108.11 ("Failure to Complete Work Within Contract Time") reads, in pertinent part, as follows:
(Emphasis added.)
According to Milton, each contract also contained provisions by which the Highway Department could control its performance and the rate of its performance--the Highway Department could allegedly disqualify Milton from further State work if Milton failed to maintain a satisfactory rate of progress (Article 108.04--"Prosecution of Work") and could suspend the work if Milton failed to carry out orders or perform provisions of the contract (Article 108.07--"Temporary Suspension of Work").
Milton exceeded the time stipulated in the contract for completion of the I-65 Project by 156 days, and the Highway Department assessed Milton liquidated damages in the amount of $93,600 ($600 per calendar day for 156 days) and imposed the maximum disincentive of $300,000. Milton exceeded the time stipulated in the contract for completion of the I-59 Project by 72 days, and the Highway Department assessed Milton liquidated damages in the amount of $32,400 ($450 per calendar day for 72 days) and imposed the maximum disincentive of $240,000. Milton does not dispute the enforceability of the liquidated damages provisions. Milton does, however, dispute the enforceability of the disincentive clause of each contract, contending that the clause is void as a penalty, and therefore is unenforceable, and requests that the trial court order the Highway Department to pay Milton the amounts of disincentive payments that it withheld.
Is the disincentive clause of the incentive/disincentive provision of the contracts a penalty?
5 Williston on Contracts § 778 at 686 (3d ed. 1961).
We note that the Alabama Constitution of 1901 has a strong preference for the protection of contractual obligations. The Constitution prohibits the impairment of contractual obligations by the legislative and judicial branches of state government. See Article I, § 22 () and Article IV, § 95 ().
We recognize the right of freedom of contract, which is well expressed in 17 Am.Jur.2d Contracts, § 178 (1964):
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