THE CHURCH v. Ferrellgas, Inc., No. 23334-7-II

CourtCourt of Appeals of Washington
Writing for the CourtARMSTRONG, C.J.
Citation7 P.3d 861
Decision Date08 September 2000
Docket Number No. 23334-7-II, No. 23338-0-II.
PartiesWESTERN WASHINGTON CORPORATION OF SEVENTH-DAY ADVENTISTS, Respondents, v. FERRELLGAS, INC., and Art & Sons, Incorporated, Appellants. Art & Sons, Incorporated, Third Party Plaintiff, v. Tex Ladish, Third Party Defendant.

7 P.3d 861

FERRELLGAS, INC., and Art & Sons, Incorporated, Appellants.
Art & Sons, Incorporated, Third Party Plaintiff,
Tex Ladish, Third Party Defendant

Nos. 23334-7-II, 23338-0-II.

Court of Appeals of Washington, Division 2.

September 8, 2000.

Reconsideration Denied October 10, 2000.

7 P.3d 863
Eileen Marie Stauss, Federal Way, Jeffrey Guy Frank, Seattle, for Respondents

William Patterson Fite, Betts Patterson & Mines, P.s., Seattle, for Defendant.

Louis Huber, Schlee, Huber, McMullen & Krause, Kansas City, MO., R. Daniel Lindahl, Bullivant Houser Bailey, Portland, OR., Mark Colman Scheibmeir, Hillier & Scheibmeir P.s., Chehalis, for Appellants.

7 P.3d 862

The Western Washington Corporation of Seventh-Day Adventists (the Church) sued its heating contractor and its propane supplier for fire damage to its partially constructed building. The suit was brought on behalf of the Church's property insurer, who claimed subrogation rights against the allegedly negligent heating contractor, Art & Sons, Inc., and the propane supplier, Ferrellgas, Inc. Art & Sons and Ferrellgas each moved for summary judgment, arguing that the insurer had no subrogation rights (1) because Art & Sons and Ferrellgas are co-insureds under the insurance policy and (2) because the Church waived subrogation rights by contract. The Church also moved for partial summary judgment, seeking dismissal of these defenses. The trial court granted summary judgment for Art & Sons, concluding that its trade contract with the Church incorporated by reference a subrogation waiver. The Church appeals.

The trial court also granted the Church's motion for summary judgment against Ferrellgas. The court concluded that Ferrellgas was not a third party beneficiary of the Church's agreement with its architect, which Ferrellgas contends incorporates by reference a waiver of subrogation in favor of contractors. The trial court also concluded that Ferrellgas was not a co-insured under the Church's policy. Ferrellgas appeals. We affirm.


The Church sued both Art & Sons and Ferrellgas for negligence and breach of contract. The suit was brought on behalf of Adventist Risk Management, which claims a subrogation interest in any recovery. Adventist Risk Management paid $1,847,567.27 to the Church for damages caused by the fire.

In 1992, the Church contracted with architect Russ Hasse to design the church. The contract is AIA Document B141, entitled "Standard Form of Agreement Between Owner and Architect" (the Owner/Architect Agreement). Under the Owner/Architect

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Agreement, Hasse was required to prepare construction documents—drawings and specifications setting forth the requirements for construction of the project. And, he was required to administer the contract as set forth in "AIA Document A201, General Conditions of the Contract for Construction."

The Owner/Architect Agreement also provides that "[t]erms in this Agreement shall have the same meaning as those in AIA Document A201, General Conditions of the Contract for Construction." AIA Document A201 includes "Waivers of Subrogation," under which the owner, all contractors, and subcontractors agree to waive their rights of subrogation against each other.

As required by the Owner/Architect Agreement, Hasse prepared a project manual and specifications (the Project Manual). The Project Manual included a section entitled "Division 1—General Requirements." Paragraph 1.2 of this section provides: "General Conditions of the Contract for the Construction of Buildings (AIA Form 201) is a part of this specification."

In June 1994, the Church entered into a "Project Management/Superintendent Agreement" with Tex Ladish, a registered general building contractor. Under the agreement, Ladish was required to maintain and organize the job site, coordinate the subcontractors, order materials, manage the construction schedule, and inspect subcontractors' work. In addition, he was required to select subcontractors with the building committee and prepare and administer contracts between the Church and the subcontractors. Ladish said he may have received a copy of the Project Manual but claims that he did not use it. The Church concedes that Ladish had a copy of the Project Manual.

On September 8, 1994, Art & Sons entered into a "Trade Contract" with Ladish to install a furnace and the associated fans, vents, and ductwork. Under the Trade Contract, Art & Sons was "to perform the Work ... in accordance with the Project Contract Documents." Article 2, entitled SCOPE OF WORK, further provides: "Trade Contractor agrees ... to perform and complete such Work in accordance with Contract Documents...." Art & Sons was also required to procure $1,000,000 Comprehensive General Liability insurance, naming the construction superintendent, owner, and architect as additional insureds.

On the same day that Art & Sons' contract was executed, Ladish sent them "Plan Set 14, Spec [sic] Set 14, and Revised Mechanical Plans." The Church admits that Ladish gave Art & Sons the project drawings and mechanical specifications. The following paragraph is included at the beginning of nine separate subsections in the mechanical specifications:


1.01 RELATED DOCUMENTS: The Drawings, Conditions of Contract, and Division I of Specification Sections apply to this Section. (Emphasis added.)

Division I of the specifications expressly incorporates AIA Form A201, which includes the agreement by the owner, contractor, and subcontractors to waive their subrogation rights against each other. But Division I of the specifications was not attached to the Trade Contract or the specifications.

Ferrellgas was both a supplier of gas and a contractor. The mechanical specifications for the exterior gas system provide: "Serving utility shall be responsible for providing and installing the storage tank. This contractor shall be responsible for piping from the tank connection to the building." But Ferrellgas did not have a trade contract with the Church. Instead, its agreement is found in two "Equipment Rent and Gas Sale Agreement[s]" and two invoices, all of which were drafted by Ferrellgas.

The first agreement is for a 500-gallon tank, a construction heater, and miscellaneous equipment. Ladish signed the agreement. Although the agreement states that there are additional terms on the back of the document, the back of the document is not included in the exhibit. An invoice indicates that the 500-gallon tank and equipment were temporary.

The second agreement, on a form identical to the first, is for three 1,000-gallon tanks. Neither the Church nor Ladish signed this document. The additional terms are attached to this agreement and state in part, "Consumer will ... pay for all loss or damage

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to, LP gas or equipment owned by [Ferrellgas], except for damage to the leased equipment resulting from ordinary wear and use."

The trial court granted Art & Sons' motion for summary judgment, concluding that the trade contract incorporated the Project Manual, and the Project Manual incorporated AIA Form A201. The Church's summary judgment motion against Art & Sons was dismissed. The court denied Ferrellgas' motion for summary judgment and granted the Church's motion for summary judgment against Ferrellgas, thereby striking Ferrellgas' affirmative defenses.


A. Standard of Review

When reviewing an order of summary judgment, we engage in the same inquiry as the trial court. Wilson v. Steinbach, 98 Wash.2d 434, 437, 656 P.2d 1030 (1982). Summary judgment is appropriate only if the pleadings, affidavits, depositions, and admissions on file demonstrate the absence of any genuine issues of material fact, and that the moving party is entitled to judgment as a matter of law. CR 56(c). The court should grant the motion only if, from all the evidence, reasonable persons could reach but one conclusion. Wilson, 98 Wash.2d at 437, 656 P.2d 1030.

B. Does Art & Sons' Trade Contract incorporate by reference the waiver of subrogation in AIA Form A201?

The Church challenges the trial court's conclusion that their Trade Contract with Art & Sons incorporates by reference AIA Form A201, which includes the waiver of subrogation. Whether the parties intended to incorporate AIA Form 201 into the Trade Contract turns on the meaning of the terms "Project Contract Documents" and "Contract Project Documents" in the Trade Contract. Art & Sons argues that these terms include the mechanical specifications, which expressly incorporate Division I of the Project Manual, which expressly incorporates AIA Form A201. We agree.

Incorporation by reference allows the parties to "incorporate contractual terms by reference to a separate ... agreement to which they are not parties, and including a separate document which is unsigned." 11 WILLISTON ON CONTRACTS § 30:25, at 233-34 (4th ed.1999) (footnotes omitted). "But incorporation by reference is ineffective to accomplish its intended purpose where the provisions to which reference is made do not have a reasonably clear and ascertainable meaning." WILLISTON, supra, at 234. Incorporation by reference must be clear and unequivocal. Santos v. Sinclair, 76 Wash.App. 320, 325, 884 P.2d 941 (1994). "[I]t must be clear that the parties to the agreement had knowledge of and assented to the incorporated terms[.]" WILLISTON, supra, at 234.

Here, the Trade Contract provides that the work will be performed in accordance with the "Project Contract Documents" or the "Contract Documents." Thus, the Trade Contract clearly and unequivocally incorporates the "Contract Project Documents" and the "Contract Documents." But the question is what do these terms mean.

A court's purpose in interpreting a contract is to ascertain the parties' intent. U.S. Life Ins. Co. v. Williams, 129 Wash.2d 565, 569, 919 P.2d 594 (1996). Washington courts...

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