Salem Sand & Gravel Co. v. City of Salem

• Jurisdiction: Oregon
• Parties: SALEM SAND & GRAVEL COMPANY, a corporation, and C. J. Montag & Sons, Inc., a corporation, dba M & S Construction Co., Appellants, v. CITY OF SALEM, Oregon, a municipal corporation, Defendant, and Cornell, Howland, Hayes & Merryfield, Inc., a corporation, and James C. Howland, Thomas B. Hayes, Fred Merryfield, Holly A. Cornell, Archie H. Rice, Earl C. Reynolds, Jr., Ralph E. Roderick, Robert R. Adams, and Sidney E. Lasswell, Respondents.
• Citation: Salem Sand & Gravel Co. v. City of Salem, 492 P.2d 271, 260 Or. 630 (Or. 1971)
• Court: Oregon Supreme Court
• Decision Date: 30 December 1971

Page 271

492 P.2d 271

260 Or. 630

SALEM SAND & GRAVEL COMPANY, a corporation, and C. J. Montag & Sons, Inc., a corporation, dba M & S Construction Co., Appellants, v. CITY OF SALEM, Oregon, a municipal corporation, Defendant and Cornell, Howland, Hayes & Merryfield, Inc., a corporation and James C. Howland, Thomas B. Hayes, Fred Merryfield Holly A. Cornell, Archie H. Rice, Earl C. Reynolds, Jr. Ralph E. Roderick, Robert R. Adams, and Sidney E. Lasswell, Respondents.

Supreme Court of Oregon.

Argued and Submitted Oct. 12, 1971.

Decided Dec. 30, 1971.

Cleveland C. Cory, Portland, argued the cause for appellants. With him on the briefs were Richard A. Franzke and Davies, Biggs, Strayer, Stoel & Boley, Portland.

John Gordon Gearin, Portland, argued the cause for respondents. With him on the brief were Gearin, Hollister & Landis, Portland, and John B. Fenner, Corvallis.

Before O'CONNELL, C.J., and DENECKE, TONGUE, HOWELL and BRYSON, JJ.

HOWELL, Justice.

Plaintiffs, joint venturers, were successful bidders for the construction of a sewer line for the City of Salem. The defendants are engineers hired by the city to prepare the plans and specifications for the sewer project and to supervise and direct the construction of the project. Plaintiffs filed this action charging fraud and misrepresentation against the City of Salem and the engineers in withholding the results of certain subsurface tests made by the engineers prior to the preparation of the plans and specifications and the calling of bids.

After issue was joined on plaintiffs' third amended complaint, the trial court allowed the defendants' motion for a judgment on the pleadings on the ground that the complaint affirmatively showed that plaintiffs' cause of action was barred by the two-year statute of limitations, ORS 12.110(1). ¹ (The City of Salem was eliminated on the ground of immunity from tort liability.) Plaintiffs appeal only from the judgment dismissing the action against the defendant engineers.

Plaintiffs alleged in their third amended complaint that the City of Salem had engaged defendant engineers to draw the plans and specifications for the sewer project and to supervise the construction. The engineers dug several test trenches and test holes to determine the water and ground conditions that bidders would encounter, and prepared records and photographs of the subsurface conditions. The plaintiffs also alleged that the engineers failed to include all of this data to the bidders on the sewer project and had they done so, the data would have disclosed subsurface conditions 'substantially less favorable' for the project than those actually included in the plans and specifications. By including only the favorable data regarding the trenches and test holes, the defendant engineers represented that the subsurface conditions were more favorable than 'they were in fact.' The said representations were made with intent that plaintiffs rely on them, which the plaintiffs did in submitting their bid for this project. Plaintiffs' bid submitted by March 6, 1963, was accepted. After plaintiffs received the bid and 'during the performance' of the project, plaintiffs encountered job conditions substantially less favorable because of excessive water conditions, unstable earth base, and unstable trench walls, which they could not have anticipated based on the engineers' plans and specifications. As a result, plaintiffs were required to incur job expenses in excess of those which could have been reasonably expected. Plaintiffs completed the project in November, 1964.

In plaintiffs' original complaint, filed January 26, 1967, they alleged in paragraph XI that on August 18, 1965, the defendant engineers allowed plaintiffs to examine their files on the sewer job 'at which time (plaintiffs) first learned that (defendant engineers) (were) in possession of all the concealed and suppressed documents and data heretofore alleged.'

These allegations were stricken by the court. Plaintiffs filed an amended complaint without the stricken allegations. A demurrer on the grounds that the action was not commenced within the statute of limitations was sustained with leave to plaintiffs to amend. Plaintiffs filed a second amended complaint containing the following allegation in paragraph XI:

'(Plaintiffs) relied upon the representations of (defendant engineers) and Salem in the preparation of its bid and in the performance of its contract with Salem. That the full extent of the losses of (plaintiffs) under said contract were not ascertainable by, or known to (plaintiffs) until performance of the aforesaid contract was completed. In December 1964, (plaintiffs) made written inquiry of (defendant engineers) about certain items in the plans and specifications prepared by (defendant engineers).

'In January of 1965 (plaintiffs) presented a written claim to Salem. In March 1965, Salem, acting through its attorney rejected the claim of (plaintiffs). Thereafter (plaintiffs) acting through one of its attorneys undertook to arrange a conference between representatives of (plaintiffs), (defendant engineers) and Salem to discuss the aforesaid plans and specifications. Said conference was held on August 18, 1965. At that time (defendant engineers) allowed a representative of (plaintiffs) to examine its files with respect to said sewer line job, at which time (plaintiffs) first learned (defendant engineers) had failed to include the test trench and test hole photographs, test trench and test hole logs and well data, in its plans and specifications. That (plaintiffs) had no knowledge that (defendant engineers) had failed to include said data and information in the plans and specifications until August 18, 1965, for the reason that said information was in the exclusive possession and control of Salem and its agent (defendant engineers) until said time.'

The trial court again allowed a motion to strike the above paragraph with leave to plaintiffs to amend. Plaintiffs then filed the third amended complaint containing a new paragraph XI which states:

'Although (plaintiffs) exercised reasonable diligence, (plaintiffs) did not discover and had no knowledge that (defendant engineers) had failed to include all of the said test hole photographs, detailed test trench and test hole logs (with engineer's comments) and well data as herein alleged, until August 18, 1965, for the reason that said data and information was in the exclusive possession and control of Salem and its agent, (defendant engineers), until said time.'

Defendants again moved to strike the above paragraph, but the court denied the motion and in a memorandum opinion stated:

'The material pleaded in paragraph XI is now pleaded to cure the defect in the Complaint which made it demurrable on its face. It now for the first time is pleaded to show data of discovery and exercise of reasonable diligence.' (Emphasis supplied.)

Defendants then filed a demurrer to the third amended complaint alleging, as one of the grounds of the demurrer, that the action was barred by the statute of limitations. The court overruled the demurrer. The defendants filed an answer denying paragraph XI above and further denying 'any concealment, suppression, false * * * representations on their part in any particular as alleged or at all * * *.' The answer also alleged the statute of limitations as an affirmative defense. Plaintiffs' reply denied the affirmative allegations of defendants' answer.

Thereafter, on motion of the defendants, the court allowed a judgment on the pleadings against plaintiffs on the ground that the plaintiffs' pleading did not...