Warner Constr. Corp. v. City of Los Angeles

• Decision Date: 31 March 1970
• Citation: 2 Cal.3d 285,85 Cal.Rptr. 444
• Court: California Supreme Court
• Parties: , 466 P.2d 996 WARNER CONSTRUCTION CORPORATION, Plaintiff and Respondent, v. CITY OF LOS ANGELES, Defendant and Appellant. L.A. 29653.

Page 444

85 Cal.Rptr. 444

2 Cal.3d 285, 466 P.2d 996

WARNER CONSTRUCTION CORPORATION, Plaintiff and Respondent, v. CITY OF LOS ANGELES, Defendant and Appellant.

L.A. 29653.

Supreme Court of California In Bank.

March 31, 1970.

Roger Arnebergh, City Atty., Bourke Jones and Charles W. Sullivan, Asst. City Attys., and Robert A. Clinco, Deputy City Atty., for defendant and appellant.

Caryl Warner, Los Angeles, for plaintiff and respondent.

TOBRINER, Acting Chief Justice.

Plaintiff Warner Construction Corporation brings suit against the City of Los Angeles for breach of warranty and fraudulent concealment in connection with a contract for construction of a retaining wall on Vista Del Mar, a street in the City of Los Angeles. A jury returned a verdict for plaintiff for $150,000. We hold that, since the interpretation of the crucial provisions turned on the credibility of expert testimony, the court did not err in submitting the construction of the contract to the jury. We have also concluded that the evidence supports the jury's finding of liability. Although certain letters of the city's Board of Public Works, which contained statements tendered in negotiations for a compromise, should not have been admitted, their introduction did not cause prejudicial error. Plaintiff's proven damages, however, reach at most $81,743.55; its failure to present evidence of lost profits renders damages over that sum speculative. The cause, therefore, must be reversed for a new trial on the issue of damages.

Vista Del Mar, a street in the City of Los Angeles, runs parallel to the waterfront along the crest of a hill. The hill is composed of sand and sandstone of varying but low cohesiveness. In 1964 the city requested bids for construction of a retaining wall, referred to as a sidehill bridge, to retard erosion which was undermining Vista Del Mar. In support of the retaining wall, there would be 29 soldier beams, reinforced concrete pillars of 24 to 30 inches in diameter and 18 to 34 feet in length. Twenty-nine anchor caissons (reinforced concrete pilings) were to be sunk on the other side of Vista Del Mar, and joined to the soldier beams by 2-inch steel rods running under the roadway.

As the low bidder at $81,000, plaintiff obtained the award of the contract. The contract provided for amendment by 'change orders' issued by the city at the contractor's request. Five change orders were issued, increasing the contract price to $83,416.53.

During construction, caving occurred in unsupported holes. Plaintiff attempted to drive steel casings into the sand to support the walls of the holes, but due to the instability of the sand the jarring threatened the collapse of the entire work area. Plaintiff then requested a change order to permit drilling with rotary mud, ¹ and a concomitant increase in price. The city refused, maintaining that the plans required only that holes be drilled, leaving the drilling method to the contractor's discretion, and thus that no change order was needed. After extended but unsuccessful negotiations, plaintiff resumed construction using rotary mud without a change order, and completed the project.

Plaintiff's suit asserts four causes of action. The first is for the balance of $4,725 plus interest due on the contract; defendant admits this debt. The second cause of action claims damages of $2,716.39 for a five-day delay in construction pending a change order increasing the depth of the wall by four feet. This cause of action does not relate in any way to the issues of warranty and concealment, and defendant's briefs on appeal do not discuss it.

This appeal deals solely with plaintiff's third and fourth causes of action, which allege respectively breach of contract and fraudulent concealment of material facts; plaintiff claims damages for the increased cost of construction resulting from the use of rotary mud, for loss of profits, for loss of business, and for loss of an advantageous competitive position in the industry.

Plaintiff bases its third cause of action on Standard Specification No. 158, paragraph 2--8, which proves that if the contractor encounters subsurface conditions materially different from those shown on the plans, which it could not reasonably be expected to ascertain in advance, a change order will issue to provide for any increase in cost resulting from the unexpected conditions. Plaintiff contends that the plans impliedly excluded use of rotary mud, leading it to believe soil conditions permitted casting without rotary mud; it claims a contractual right to a change order compensating for the increased cost of using rotary mud.

Plaintiff's fourth cause of action, for fraudulent concealment, asserts that the city did not disclose that cave-ins occurred in both test holes drilled by the city, forcing the city to change its drilling methods and to abandon the holes before reaching the planned depth of 50 feet. Plaintiff also claims that the city concealed information that two ancient landslides occurred at the construction site.

1. The issue of liability

We consider the issue of liability in three parts: (a) the logs of the test holes; (b) General Notes 7 and 8; and (c) the nondisclosures.

(a) The logs of the test holes

The plans and specifications included the logs of two test holes. The logs show that the city drilled two test holes on the site, which passed through various layers of sand. Undisputed evidence, however, demonstrated that the log of test hole No. 1 erroneously reported the soil to a depth of 14 feet as 'coarse sand with clay binder' although the material actually discovered was 'coarse sand with minute binder.' Likewise, the log of test hole No. 2 listed 26 to 35 feet as 'sand with clay binder' although the material actually encountered at that depth was 'sand with minute binder.' Mr. Maurseth, a soil mechanics engineer, testified that 'clay binder' meant, in the trade, a sufficient amount of clay to cause the sand particles to adhere cohesively; 'minute binder' meant the binding material is present in such minute quantities that it is inadequate to stabilize the sand. Being less cohesive, 'sand with minute binder' is much more likely to cave in.

We do not accept defendant's contention that the trial court erred in submitting the interpretation of the logs to the jury. Although defendant urges that under Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865, 44 Cal.Rptr. 767, 770, 402 P.2d 839, 842, 'it is * * * a judicial function to interpret a written instrument unless the interpretation turns upon the credibility of extrinsic evidence,' the interpretation of the contract here depends on the credibility of Mr. Maurseth's testimony that 'sand with clay binder' implies not a 'minute' amount of clay, but an amount sufficient to give significant stability to the formation. The trial court properly relegated that question of credibility for decision by the jury. (See Pierpont Inn, Inc. v. State of California (1969) 70 Cal.2d 282, 294, 74 Cal.Rptr. 521, 449 P.2d 737.)

Attached to the test-hole logs was a caveat: 'The test-hole information on these plans shows conditions found only at the date and location indicated. Bidders are cautioned that the city in no way warrants that such information is representative of conditions at any other location, or at any other time. Groundwater levels, particularly, are subject to change.'

Although defendant contends that this note effectively disclaims any warranty, we find, on closer examination, that the warranty and the disclaimer pass each other without collision. The warranty describes the subsurface conditions at the test holes, but says nothing about conditions elsewhere on the site. The disclaimer states that 'the test-hole information * * * shows conditions found only at the date and location indicated,' and cautions bidders that the city does not warrant that the data is representative of other locations, but it in no way disclaims the accuracy of the test-hole logs. ² Reading the two together, we conclude that the bidder takes the risk in making deductions from accurate test data, but the city retains responsibility for any inaccuracy in the data. (See Wunderlich v. State of California (1967) 65 Cal.2d 777, 784--785, 56 Cal.Rptr. 473; Chris Nelsen & Son, Inc. v. City of Monroe (1953) 337 Mich. 438, 446, 60 N.W.2d 182, 423 P.2d 545.)

Whether the misrepresentation of 'clay binder' for 'minute binder' was a material misrepresentation, whether plaintiff relief on it, and whether that reliance was reasonable, all present disputed questions of fact properly submitted to the jury. The jury's verdict impliedly resolved these issues in plaintiff's favor.

(b) General Notes 7 and 8

The plans and specifications contained 16 'General Notes.' Note 7 provides that 'holes for the soldier beams and anchor caissons shall be made by boring and/or drilling.' Note 8 states: 'soldier beams and anchor caissons shall be cast in place within unsupported holes, except that where, in the opinion of the engineer, the holes are subject to caving or sloughing, or are in any way unstable, the walls shall be temporarily supported by steel casings or shells. Before placing the steel casing or shells as much of the loose soil as is practical shall be removed from the holes.'

Defendant contends that the language of Notes 7 and 8 does not prohibit the use of rotary mud, but leaves the drilling technique entirely to the contractor's discretion. The rotary mud technique, however, is an unusual and expensive method of drilling, and results in castings of less strength than casting against virgin soil. ³ Plaintiff adduced substantial expert testimony, including not only plaintiff's experts but also Mr. Reader, the city's engineer in charge of designing the sidehill bridge, to the effect that the specifications of General Note 8 impliedly excluded the use of rotary mud and that a change order would be required to permit rotary mud...