Western Contracting Corp. v. Dow Chemical Co., 81-1339

Decision Date01 December 1981
Docket NumberNo. 81-1339,81-1339
Citation664 F.2d 1097
CourtU.S. Court of Appeals — Eighth Circuit

Norton & Christensen, Goshen, N. Y., for appellant; Henry N. Christensen, Jr., argued, Richard B. Golden, Goshen, N. Y., of counsel.

Oppenheimer, Wolff, Foster, Shepard & Donnelly, Michael Berens, argued, William P. Studer, Madge S. Thorsen, Minneapolis, Minn., for appellee.

Before LAY, Chief Judge, McMILLIAN, Circuit Judge, and HUNTER, * Senior District Judge.

LAY, Chief Judge.

This appeal arises from consolidated cases brought by Western Contracting Corporation (Western) on grounds of breach of contract and fraud and by Dow Chemical Company (Dow) for payments due and for foreclosure of a mechanic's lien. Pursuant to a trial to the court, the Honorable Earl R. Larson presiding, a judgment of $328,177.11 was entered for Dow, and Western appeals, claiming that: (1) the trial court erred in concluding that the contract unambiguously required Dow to exercise its "best efforts" regarding fragmentation; (2) the trial court erred in finding that Dow, in fact, had exercised its "best efforts" in contract performance; (3) the trial court erred in finding that Dow made no fraudulent representation regarding control of fragmentation size; and (4) the trial court erred in its factual findings regarding the extent of Dow's damages. Upon review of the record and briefs, we affirm the judgment of the district court. Facts.

On April 17, 1974, Western contracted with United States Steel (Steel) for site preparation and rough excavation for construction of four additions to Steel's Minntac facility at Mountain Iron, Minnesota. By mid-February 1975, Western had encountered significant scheduling and other difficulties in its performance of the contract. At that time Western contacted Dow's general manager of explosives for assistance, as he had demonstrated to Western earlier in 1973 Dow's blasting products and the capabilities of its "delta crater" method of blast design. A series of four test shots, which were engineered partly by Western and partly by Dow in late 1974 and early 1975, demonstrated that Dow could more efficiently effectuate the Minntac rock excavation with smaller fragmentation. Western then subcontracted the blasting operation to Dow on March 20, 1975, subject to the following pertinent provisions:

Article II-Rate of performance.

2.1 The work to be performed under this Agreement shall be commenced within one day after receipt of notice to proceed from Western but in no event later than 30 days from the date hereof.

2.2 The rock to be removed shall be fragmented to sizes at least as small as the rock fragments that resulted in two Dow test "shots" previously completed at U.S. Steel's Minntac Concentrator Area and shall be tumbled to unlock the "shot" rock.

2.3 Dow shall drill, load and shoot rock for removal at the rate of 16,000 cubic yards per each regular working day for a total of 400,000 cubic yards per month.

Article III-Best Efforts.

3.1 Dow's obligation under this Agreement shall be to use its best efforts only to perform the work at the Rate of Performance spelled out in Article II, above.

3.2 Dow shall utilize its best efforts to blast the rock such that bottoms of excavations will be within neat line tolerances as planned; however, Dow will not be subject to penalty for overblasting beyond neat lines.

As the Minntac job progressed, Western incurred increased difficulty and delay in rock removal due to the size of fragmentation from the blasting operations; generally, the larger the fragmentation, the greater the time and difficulty involved in Western's removal operations. Dow and Western attempted to alleviate these problems through blast design revisions and secondary blasting.

At the project's completion Western sued Dow in federal district court on grounds that Dow breached the subcontract agreement and that the agreement was induced by the fraudulent misrepresentation that Dow possessed a blasting system with which it could control the size of rock fragmentation. Dow counterclaimed on grounds of Western's nonpayment of sums owing for work performed. A separate state action by Dow to foreclose a mechanic's lien was removed to federal district court, and both actions were consolidated for trial in the district of Minnesota. The court found that Dow had exercised its "best efforts" as required by the contract, and that Western had relied upon the test shot results, not upon any representations by Dow regarding fragmentation size.

The "Best Efforts" Clause.

Western first claims that Dow failed to blast the rock to sufficiently small fragmentation to comply with the subcontract, and that such failure damaged Western by, inter alia, preventing receipt of a $625,000 bonus from Steel. 1 The district court held that the "best efforts" requirement of paragraph 3.1 of the subcontract clearly and unambiguously pertains to all of the contractual obligations encompassed in article II, entitled "Rate of performance." Specifically, the court held that Dow was required to exercise its "best efforts" in fragmenting rock to sizes equivalent to that in the test shots. The trial court, after weighing the conflicting testimony, found that Dow substantially complied with this requirement, and, therefore, did not breach the agreement.

Western contends that the best efforts obligation of paragraph 3.1 clearly and unambiguously applies only to the rate of performance stated in paragraph 2.3. Western argues that paragraphs 2.1 and 2.2 contain other conditions of performance, but no "rates", despite inclusion in article II. Therefore, it is Western's contention that the best efforts requirement does not apply to fragmentation size, and that Dow's performance was not equivalent to that in the test shots. Alternatively, Western urges that inclusion of paragraphs 2.1 and 2.2 in article II creates an ambiguity because they do not refer to rates of performance but appear in the article so entitled. Western further submits that parol evidence, specifically the original oral agreement and purchase...

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