Moorhead Const. Co., Inc. v. City of Grand Forks

• Citation: 508 F.2d 1008
• Decision Date: 03 January 1975
• Docket Number: Nos. 74-1216,74-1234,s. 74-1216
• Parties: MOORHEAD CONSTRUCTION CO., INC., a corporation, Appellee-Cross-Appellant, v. CITY OF GRAND FORKS, a Municipal Corporation, Appellant-Cross-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1008

508 F.2d 1008

MOORHEAD CONSTRUCTION CO., INC., a corporation, Appellee-Cross-Appellant, v. CITY OF GRAND FORKS, a Municipal Corporation,

Appellant-Cross-Appellee.

Nos. 74-1216, 74-1234.

United States Court of Appeals, Eighth Circuit.

Submitted Nov. 11, 1974,

Decided Jan. 3, 1975.

John D. Kelly, Fargo, N.D., for appellant-cross-appellee.

Gordon Caldis, Grand Forks, N.D., for appellee-cross-appellant.

Before GIBSON, Chief Judge, CLARK, Associate Justice, Retired, ^* and WEBSTER, Circuit Judge.

GIBSON, Chief Judge.

In this court-tried diversity case, the plaintiff Moorhead Construction Co., Inc., recovered a judgment of $109,994.26 for breach of contract. A counterclaim of the defendant City of Grand Forks, North Dakota, was dismissed with prejudice. In its original complaint Moorhead, a Minnesota corporation, sought $125,000 in extra expenses and lost profits incurred in performing a contract with the City to build a sewage treatment facility.

The City had divided the construction project into two phases, each to be performed by separate contractors. Phase I was designed by the City's own engineering department and covered primarily the earth work and site preparation for four aerated-anaerobic treatment ponds, including installation of piping and appurtenances such as foundations for compressor and meter buildings. The four ponds or earthen cells were to be formed by building earthen dikes or embankments in a square pattern divided into four large, square, water-tight sections. The phase I contractor, Valley-Mayo, was scheduled to complete its work in September, 1969, before phase II was to commence. The phase I contractor, however, did not substantially complete its contract until November, 1970. The final acceptance by the City of the phase I work was not until October, 1971, when the contractor was paid in full and discharged.

Phase II of the project was designed by Richmond Engineering, Inc., of Grand Forks, the City's agent and supervisor for the project. It consisted of completing the buildings, constructing manhole installations and access bridges into and over the ponds, and installing all electrical and mechanical equipment. When completed, the aeration equipment would treat the City's sewage primarily in the aerated cells; secondary treatment would occur in lagoons. The separate phase II contract was awarded to the plaintiff Moorhead in July, 1969, with completion scheduled for October 30, 1969. Its accepted bid was $409,333.00. However, due to adverse weather, soil conditions, and delays, which are the subject of this litigation, phase II was not completed until November, 1971, and the facility commenced operations in January, 1972.

Moorhead posited two bases for recovery: (1) 'changed conditions' requiring an equitable adjustment of the contract price under a clause contained in the contract, and (2) the City's alleged breach of the contract by delay and failure to prepare the construction site as warranted. The City counterclaimed for liquidated damages due to delay and faulty work. The City's appeal contests the District Court's findings as to liability and its assessment of damages. Moorhead cross-appeals for lost profits which the court refused to award.

As an initial point on appeal, the City challenges the District Court's July 25, 1973, grant of summary judgment on the City's third party complaint against the phase I contractor, Valley-Mayo. Although Valley-Mayo has apparently not been fully joined as a party to this appeal, the issue of the propriety of the judgment is properly before this court. ¹ The grant of summary judgment pursuant to Valley-Mayo's Rule 56 motion was based on the court's holding that there existed no issues of material fact to be decided to determine Valley-Mayo's liability to the City, and that the City was entitled, as a matter of law, to no relief. Fed.R.Civ.P. 56(c).

A review of the record indicates that the court's factual findings are supported by the record and are not clearly erroneous. They are entitled to affirmance. Fed.R.Civ.P. 52(a). The only issue of law essential to the dismissal was whether, in the event Moorhead successfully recovered from Grand Forks, the City could in turn recover against Valley-Mayo under the phase I contract's one-year 'hold harmless' indemnity bond. The fundamental principle of third party practice is that in order to maintain a third party complaint, a direct line of liability must be alleged to exist between the third party plaintiff and third party defendant independent of that between the first party plaintiff and defendant. 6 C. Wright and A. Miller, Federal Practice and Procedure 1442 at 206 (1971); Fed.R.Civ.P. 14(a); cf. United States Fidelity & Guaranty Co. v. American State Bank, 372 F.2d 449, 450 (10th Cir. 1967). Thus, the City's arguments that Moorhead's claim actually rests on delays and changed conditions caused ultimately by the phase I contractor, Valley-Mayo, and not by the City, are of no avail. The causal relationship is of no avail to the City if the legal basis for indemnity between it and Valley-Mayo has been terminated. The City previously had accepted Valley-Mayo's work and discharged it from further obligations under its contract, without reserving any claims. Absent fraud or latent defects, the City thus waived any rights against Valley-Mayo which may have arisen because of delay or on the performance bond. 5 Williston on Contracts 724 (3d ed. 1961). Valley-Mayo's obligations to the City were discharged by the contractor's acknowledged full and exact performance. 5A Corbin on Contracts 1230 at 510 (1964). The District Court's order dismissing the third party complaint against Valley-Mayo with costs is affirmed.

The City's various assertions of error challenging its liability for Moorhead's extra costs are essentially challenges to the District Court's findings of fact intertwined with contract interpretation. On appeal this court is not authorized to conduct a de novo review of cases tried without a jury. The District Court's findings must be sustained if not clearly erroneous. Fed.R.Civ.P. 52(a); Brown v. Scott, 454 F.2d 693, 694 (8th Cir.), cert. denied, 409 U.S. 846, 93 S.Ct. 50, 34 L.Ed.2d 86 (1972). The District Court based its finding of contract liability upon the 'changed conditions' clause, and the City's breach of an implied warranty that the site would be prepared and the soil compacted in accordance with phase I specifications.

At the time Moorhead bid on the phase II contract, the phase I earth work had just commenced. Because an inspection of the site by Moorhead would not then have disclosed the difficult site conditions which it would later face due to excess moisture and lack of compaction, Moorhead in estimating its bid necessarily relied upon the City to provide a construction site prepared in accord with the specifications of phase I. Those specifications, according to the District Court, called inter alia for 90% Compaction of the soil embankments and cell bottoms. The court construed the phase I compaction specifications as implied warranties in the phase II contract. Construction of the contract is a matter for the court under North Dakota law. Eickhof Construction Co. v. City of Grafton, 123 N.W.2d 580, 584 (N.D.1963); Anderson v. First National Bank, 6 N.D. 497, 72 N.W. 916, 920 (1897), aff'd, 172 U.S. 573, 19 S.Ct. 284, 43 L.Ed. 558 (1899). The City's assertion that phase II did not embody the phase I soil compaction specifications is without merit and the court's interpretation of the contract is correct.

The court's findings as to the delays and the deficiencies in soil conditions which the City permitted are fully supported by the record. Moorhead was not given access to the site to begin its phase II work until January, 1970, two months after its work was originally scheduled to be completed. ² Moorhead suffered additional delays from the unanticipated necessity of performing in the winter months, not contemplated by the contract, and from the soft soil conditions which required slower construction methods and increased footings.

Before January, 1970, when Moorhead was notified to proceed, its president inspected the site and refused to take responsibility for it. ³ The bottom surface of the lagoon cells was extremely soft. As a result of the unstable soil conditions actually encountered in the cell bottoms and on the embankments Moorhead was forced to work by different, more expensive methods without heavy equipment. Most of the foundation footings for the mechanical installations and access bridges had to be redesigned and spread apart for greater support. Moorhead does not claim that it had to redo any of the phase I work, nor is it demanding damages resulting solely from phase I delays. Its claim is that its phase II job was entirely changed and greatly increased in cost; it therefore demanded an equitable adjustment of the contract price pursuant to the contract's terms. ⁴

The City contends that Moorhead is precluded from employing the changed conditions clause because it failed to take the steps required to bring the clause into operation. The District Court found, however, that Richmond Engineering, as agent for the City, had determined that changed conditions did exist and that failure to carry the administrative process to a final written contract modification was chargeable to the City's neglect, not to Moorhead's. The record supports the conclusion that the City waived its rights and is now estopped from denying Moorhead an equitable adjustment under clause F-20. Van Nice v. Christian Reformed Church, 59 N.D. 564, 231 N.W. 604, 607 (1930).

Specifically, the District Court found that the City's failure during phase I to exercise its authority either to alleviate the soft soil conditions by employing a lime drying additive or to supervise the phase I work more closely had the effect of saving the City money but inequitably shifted...