Simpson Timber Company v. Palmberg Construction Co.

• Decision Date: 18 May 1967
• Docket Number: No. 20219.,20219.
• Citation: 377 F.2d 380
• Parties: SIMPSON TIMBER COMPANY, a corporation, Appellant, v. PALMBERG CONSTRUCTION CO., a corporation, Appellee. PALMBERG CONSTRUCTION CO., a corporation, Appellant, v. SIMPSON TIMBER COMPANY, a corporation, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

377 F.2d 380 (1967)

SIMPSON TIMBER COMPANY, a corporation, Appellant, v. PALMBERG CONSTRUCTION CO., a corporation, Appellee.

PALMBERG CONSTRUCTION CO., a corporation, Appellant, v. SIMPSON TIMBER COMPANY, a corporation, Appellee.

No. 20219.

United States Court of Appeals Ninth Circuit.

April 5, 1967.

Rehearing Denied May 18, 1967.

COPYRIGHT MATERIAL OMITTED

Ryan, Askren, Carlson, Bush & Swanson, D. E. Kremer, Seattle, Wash., for appellant.

James O'Hern, Blair, Thomas, O'Hern & Daheim, Tacoma, Wash., for appellee.

Before CHAMBERS, MERRILL and KOELSCH, Circuit Judges.

KOELSCH, Circuit Judge.

This diversity action was brought by Palmberg Construction Co., a dredging contractor, to recover additional compensation for work done by Palmberg at the Shelton, Washington plant of the Simpson Timber Company. The work consisted of filling a portion of Simpson's waterfront property with materials to be dredged by Palmberg from the adjacent harbor area. The dispute arose because Palmberg asserted that the conditions encountered in performance of the job differed materially from those originally contemplated. Accordingly, not satisfied with the contractually agreed upon payment formula, it brought this action seeking compensation over and above that provided for in the contract.¹

Palmberg alleged that it was entitled to approximately $274,000.00 for performing the work but Simpson had paid it only $190,000.00; Simpson had offered to pay an additional $16,187.00 in full settlement but Palmberg had rejected the offer; accordingly, Simpson was still indebted in the sum of approximately $84,000.00.

Simpson admitted a present indebtedness to Palmberg of $16,187.00, but denied any further liability. By counterclaim it sought damages for Palmberg's alleged delay in completion of the work.

The jury returned a verdict for Palmberg for $34,508.57, a sum which included the $16,187.00 previously tendered. The jury found against Simpson on the counterclaim.

Both parties have appealed. Simpson's assignments of error generally concern rulings on the admission of evidence, the giving of instructions, and the denials of motions for directed verdict. Palmberg principally complains of the denial of its motion for supplemental judgment for interest on said sum of $16,187.00.

At the trial Palmberg presented several theories for recovery. In substance they were:

(1) that it was induced to enter into the contract by Simpson\'s representations regarding the location and availability of the materials to be dredged; these representations appeared on the face of a diagram prepared and submitted to bidders by Simpson; one of the representations proved to be incorrect; Palmberg justifiably relied on this representation; Palmberg was entitled to additional compensation for the extra work and expense made necessary by conditions being other than as represented Cf. Maryland Casualty Co. v. City of Seattle, 9 Wash.2d 666, 116 P.2d 280 (1941);

(2) that during the preliminary negotiations Simpson had knowledge that there existed in the areas to be dredged excessive amounts of debris; Simpson failed to disclose this information to Palmberg; such failure to disclose was tantamount to a representation that there would be no problem in regard to debris during the dredging; in the course of performance Palmberg in fact encountered substantial quantities of debris; as a result Palmberg suffered unanticipated costs which it is entitled to recover Cf. Walla Walla Port District v. Palmberg, 280 F.2d 237 (9th Cir. 1960);

(3) that the contract itself did not require Palmberg to dredge debris, such as bark, limbs, wire, sunken logs, buried pilings, etc., the presence of which adversely affected its operations; Palmberg as a necessary concomitant to its contractual obligation did in fact dredge debris; Palmberg should be paid extra for performing work not included within the express terms of the contract;

(4) that both parties entered the contract under a mutual mistake regarding a material fact (namely that the areas to be dredged did not contain excessive amounts of debris); this mistake gave Palmberg the right to rescind the contract see, e. g., Ross v. Harding, 64 Wash.2d 231, 391 P.2d 526 (1964); Palmberg\'s forbearance of its right to rescind and its continuance of the work at hand gave rise to an implied promise by Simpson to renegotiate the contract price.

Simpson denied that Palmberg could recover on any of the above theories. For ease of presentation we shall discuss separately the validity of each theory and the assignments of errors related thereto.

(1) As an aid in determining both the volume of fill material required and the areas in the bay from which the material could be obtained, Simpson prepared and furnished to prospective bidders a diagram. This diagram indicated that there were 350,000 cubic yards of material available to be dredged within an enscribed area (the primary dredge area). In fact, there were only 222,370 cubic yards of material in that area. Palmberg sought damages on the theory that this admitted error constituted a breach of an implied warranty as to the accuracy of the figures on the diagram and that as a result of this breach, Palmberg found it necessary to dredge at increased costs the missing 120,000 cubic yards from an area to the east of the primary area.

Simpson argues that this diagram was never expressly incorporated into the contract; the contract itself was complete and unambiguous; accordingly, the admission into evidence of the diagram violated the parol evidence rule.

In the State of Washington parol evidence is admissible only if a contract is ambiguous as a matter of law. It should not be introduced for the purpose of creating an ambiguity; rather it should be admitted only when the court has itself determined that parol is necessary in order to explain or remove an ambiguity apparent on the face of the instrument. See Washington Fish & Oyster Co. v. G. P. Halferty & Co., 44 Wash.2d 646, 659, 269 P.2d 806, 814 (1954).

Since the court did permit this diagram to be admitted into evidence, the issue thus becomes whether or not the contract was ambiguous in regard to the identification of the areas to be dredged.

In its letter of proposal (which constituted a part of the contract), Palmberg offered "to perform dredging in areas designated by you." Palmberg contends that the contract never specifically designated these areas and therefore, in order to fill in the missing terms, resort was properly made to the diagram upon which Palmberg relied in making its bid.

Simpson points to a clause in the contract under which Simpson was obligated to furnish Palmberg with plats or cross sections of surveys "for checking before dredging commences." Simpson contends that the contract is complete in itself because, by virtue of this clause, it possessed the unequivocal right to subsequently designate the particular areas from which materials should be taken.

Palmberg counters that this clause must be read in its proper context. The contract elsewhere provided that payment would be based on the amounts deposited in the fill, rather than the amounts dredged out of the cut. It further provided that the accuracy of Simpson's measurement of the fill would be substantiated by surveys made before and after dredging. If, as Palmberg contends, the sole purpose of these cross sections was to determine the proper pay quantities, these cross sections cannot be relied upon for a different purpose, namely designating the areas to be dredged. Cf. Guerini Stone Co. v. P. J. Carlin Construction Co., 240 U.S. 264, 277, 36 S.Ct. 300, 60 L.Ed. 636 (1916).

Accordingly, we cannot agree with Simpson that this clause unequivocally provides a method of designating the areas to be dredged.² Consequently, the contract is ambiguous and the admission of the diagram (parol evidence) was not error. Since the jury could have determined that the diagram was thus a part of the contract between the parties, the theory of implied warranty was properly in the case.

(2) Palmberg's theory that Simpson knowingly withheld information relating to the excessive amounts of debris calls into operation rules regarding the duty of one contracting party to provide the other with information concerning the subject matter of the contract.

It is well settled that in the absence of a duty to speak, silence as to a material fact does not of itself constitute fraud. Farmers' State Bank of Newport v. Lamon, 132 Wash. 369, 231 P. 952, 42 A.L.R. 1072 (1925). On the other hand, once a duty to disclose has arisen, suppression of a material fact is tantamount to an affirmative misrepresentation. Oates v. Taylor, 31 Wash.2d 898, 199 P.2d 924 (1948). However, businessmen dealing at arm's length are rarely under a duty to speak.

The trial court instructed the jury to the effect that Simpson was under an unqualified duty to disclose all relevant information in its possession. This was an incorrect statement of the law. In the case at bar Simpson would have had a duty to divulge all information in its possession with reference to debris only if such information was peculiarly within the scope of its own knowledge and not readily obtainable by Palmberg Oates v. Taylor, supra, or if Palmberg made a broad inquiry regarding dredging conditions to which Simpson did not completely and truthfully answer. Lincoln v. Keene, 51 Wash. 2d 171, 316 P.2d 899 (1957). Since this instruction omitted these essential triggering elements, the court committed error in giving it.

Even if the court had correctly instructed the jury on this issue, we would still hold the instruction to be erroneous. We have carefully examined the entire record and have found no evidence from which a jury could justifiably infer that Simpson knew any facts which it wilfully withheld.³ Obviously if Simpson knew no more than Palmberg knew there would be nothing to disclose. And even if we were to assume that...