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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Handle Construction Co., Inc. v. Norcon, Inc. (10/28/2011) sp-6616
Notice: This opinion is subject to correction before publication in the PACIFIC REPORTER.
Readers are requested to bring errors to the attention of the Clerk of the Appellate Courts,
303 K Street, Anchorage, Alaska 99501, phone (907) 264-0608, fax (907) 264-0878, email
corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
HANDLE CONSTRUCTION ) Supreme Court No. S-13885
COMPANY, INCORPORATED, )
) Superior Court No. 3AN-09-04966 CI
Appellant, )
) O P I N I O N
v. )
) No. 6616 - October 28, 2011
NORCON, INCORPORATED, )
)
Appellee. )
)
Appeal from the Superior Court of the State of Alaska, Third
Judicial District, Anchorage, Eric A. Aarseth, Judge.
Appearances: Brian J. Stibitz, Reeves Amodio LLC,
Anchorage, for Appellant. Michael C. Geraghty and
Stephanie S. Aicher, DeLisio Moran Geraghty & Zobel, P.C.,
Anchorage, for Appellee.
Before: Carpeneti, Chief Justice, Fabe, Winfree, Christen,
and Stowers, Justices.
CARPENETI, Chief Justice.
I. INTRODUCTION
A construction company solicited a bid from a subcontractor to perform
concrete work. The construction company provided a plan and bid schedule. The
subcontractor responded with a proposal, which the construction company accepted. The
subcontractor carried out the subcontract as it understood the terms. After the work was
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completed, the subcontractor discovered it had inadvertently underbid on the project.
In the ensuing lawsuit, the superior court granted partial summary judgment to the
construction company with respect to all damages claimed in relation to the bidding
error. The subcontractor appeals the partial summary judgment order, claiming breach
of an implied warranty that the plans and specifications would be sufficient, and arguing
that the superior court erred by applying the theory of unilateral mistake to the case.
Because the construction company did not breach the implied warranty and the
subcontractor committed a unilateral mistake for which it bore the risk, we affirm.
II. FACTS AND PROCEEDINGS
A. Facts
Norcon Incorporated, a general contractor, was the prime contractor to
Doyon Utilities for construction of a small electrical substation at Fort Greely. On
August 13, 2008, Norcon solicited a bid from Handle Construction Company,
Incorporated, to perform concrete work for the Fort Greely project. Norcon emailed
Handle the bid solicitation from Doyon, as well as drawings (also called a "plan")
depicting the foundation work. On August 19, Norcon emailed the bid schedule to
Handle's General Manager, Ron Stoops. The bid schedule was attached to the email as
a pdf. Stoops assigned the task of estimating the cost of the project to another employee,
Jassen Michael, who had not been sent the email or the attachments.
The drawings showed that fifteen L2, one L4, and three L5 foundations
should be built, each comprised of two piers that would be paired together to form a
single foundation. The body of Norcon's email advised Handle, "[n]ote that they have
grouped the L2-1, L2-2, L2-3, L2-4 so that a double p[ie]r foundation is counted as one
on the tab. Call with any questions."
Stoops printed the bid schedule, but not the email, and put it on Michael's
desk for him to use in preparing Handle's bid. In a later affidavit, Stoops said he "did not
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have knowledge of the project details and, therefore, didn't understand the significance
of the [email] to which the bid schedule was attached."
The bid schedule was set up as a chart, showing the requested items along
with a description and quantity for each type of item. Adjacent to each line item were
blank fields, in which Handle could write its estimated costs. The bid schedule requested
a bid on fifteen L2, one L4, and three L5 foundations. The same day that Norcon sent
Handle the bid schedule template and drawings, Handle responded to Norcon with a
proposal and completed bid schedule. Norcon awarded the subcontract to Handle.
Work commenced on September 15, 2008. Handle carried out the
subcontract in accordance with the drawings. Norcon accepted all of Handle's work.
On October 11, 2008, Handle notified Norcon for the first time that after a
trip to the construction site by Handle's General Manager, Handle had "discovered a
discrepancy between the . . . bid schedule and the project drawings." It described the
discrepancy in a letter as follows:
The drawings call for 30 type L2 foundations; the bid
schedule only calls for 15.
The drawings call for 2 type L4 foundations; the bid schedule
only calls for 1.
The drawings call for 6 type L5 foundations; the bid schedule
only calls for 3.
Handle maintained that it had not realized until October 4, 2008, that the word
"foundation" in Norcon's bid schedule form was intended by Norcon to mean a two-pier
foundation rather than a one-pier foundation. As a result, Handle had miscalculated the
value of the project. Handle requested that $123,000 "be added to our proposal in the
form of a change order" for the additional foundations, along with costs for "tent and
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heat" and "room and board," for a total additional cost of $139,648.1 Norcon did not pay
the additional requested amount.
B. Proceedings
On February 6, 2009, Handle filed a complaint alleging that "Handle's
compensable costs for performing the work were increased due to discrepancies between
the bid schedule and the project drawings which resulted in an error in the calculations
on Handle's bid schedule and proposal." Handle sought damages for the bid error and
for additional costs allegedly caused by delays that it blamed on Norcon.
On February 23, 2010, Norcon filed a motion for partial summary judgment
with respect to all damages claimed by Handle in connection with the discrepancy
between the bid schedule and the project drawings. Superior Court Judge Eric A. Aarseth
granted partial summary judgment for Norcon, holding that Handle had committed a
unilateral mistake, that it bore the risk of the mistake, and that Norcon did not breach the
implied covenant of good faith and fair dealing. In April 2010, Handle filed a motion
for reconsideration. In a supplemental statement, Handle noted that any other claims
were "incidental" to the discrepancy issue, and so "if the Order on Summary Judgment
stands, there are no damages left in the case to be tried." The superior court denied
Handle's motion. In keeping with Handle's supplemental statement, the court entered
final judgment for Norcon on May 6, 2010, ruling that "there were no claims remaining
for trial."
Handle appeals.
1 This figure also included a $552 deduction from a September 10, 2008
modification to the proposal.
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III. STANDARD OF REVIEW
We review grants of summary judgment de novo, determining whether
issues of material fact exist and whether the moving party is entitled to judgment as a
matter of law.2 "In particular, a grant of summary judgment based upon contract
interpretation is subject to de novo review because interpretation of contract language
is a question of law."3 In reviewing the superior court's decision, we view the facts in
the light most favorable to the non-moving party.4
IV. DISCUSSION
A. Handle's Implied Warranty Of Adequate Specifications Claim Is
Waived.
The implied warranty of adequate specifications is a construction law
principle, by which "contractors impliedly warrant the adequacy of the plans and
specifications which they supply and require subcontractors to follow."5 Under this
principle, the contractor warrants that the contract is capable of performance. In
addition, a project owner impliedly warrants that adhering to the contract terms will
2 Prentzel v. State, Dep't of Pub. Safety, 169 P.3d 573, 581 (Alaska 2007)
(quotingIn re Estate of Maldonado, 117 P.3d 720, 722 (Alaska 2005) (internal quotation
marks omitted)).
3 K&K Recycling, Inc. v. Alaska Gold Co., 80 P.3d 702, 711-12 (Alaska
2003) (citing Am. Computer Inst. v. State, 995 P.2d 647, 651 (Alaska 2000)).
4 Prentzel, 169 P.3d at 581 (citing Olson v. Teck Cominco Alaska, Inc., 144
P.3d 459, 463 (Alaska 2006)).
5 L.K. Comstock & Co. v. United Eng'rs & Constructors Inc., 880 F.2d 219,
226 (9th Cir. 1989). In federal law, this principle is also known as the Spearin doctrine
after United States v. Spearin, 248 U.S. 132 (1918). Id.
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result in a satisfactory product.6 The implied warranty applies specifically to design
specifications such as "detailed measurements, tolerances, materials, i.e., elaborate
instructions on how to perform the contract."7 It does not apply to performance
specifications.8 In Alaska, as in other jurisdictions, "[i]f defective specifications cause
the contractor to incur extra costs in performing the contract, then the contractor may
recover those costs that result from breach of the implied warranty."9 For instance, in
Northern Corp. v. Chugach Electric Ass'n,10 Chugach Electric Association insisted on
contractual performance by Northern using a method which proved to be impossible -
6 AAB Joint Venture v. United States., 75 Fed. Cl. 414, 428-29 (Fed. Cl.
2007). For instance, a contract for installation of a sprinkler system resulting in a high
leakage rate in cement joints would be grounds for finding defective specifications. See
id. at 430 (citing Appeals of Columbia Eng'g Corp ., ASBCA No. 32139, 89-2 BCA ¶
21689, 1989 WL 27594). Another example might be a contract that results in a
structurally unsound building.
7 Mega Const. Co. v. United States, 29 Fed. Cl. 396, 418 (Fed. Cl. 1993)
(quoting Stuyvesant Dredging Co. v. United States, 11 Cl. Ct. 853, 860, aff'd, 834 F.2d
1576 (Fed. Cir. 1987)).
8 See Stuyvesant Dredging Co, 834 F.2d at 1582. Stuyvesant explains the
distinction as follows: "Design specifications explicitly state how the contract is to be
performed and permit no deviations. Performance specifications, on the other hand,
specify the results to be obtained, and leave it to the contractor to determine how to
achieve those results."
9 State, Dep't of Natural Res. v. Transamerica Premier Ins. Co., 856 P.2d
766, 772 (Alaska 1993) (citing Fairbanks N. Star Borough v. Kandik Constr., Inc. &
Assocs., 795 P.2d 793, 797 (Alaska 1990), vacated in part on other grounds, 823 P.2d
632 (Alaska 1991)).
10 523 P.2d 1243 (Alaska 1974).
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hauling rock across a frozen lake.11 We deemed Chugach to have breached the implied
warranty that the contract could be performed.12
Citing to Chugach, Handle claims that Norcon's bid schedule was defective
and breached an implied warranty that the plans and specifications would be
"sufficien[t]." But Handle failed to place the plans in the record, precluding any
appellate review of them. For this reason, this argument is waived. We also reject
Handle's argument for a second reason: The legal theory of implied warranty is
inapposite to this case. There is no dispute that (1) the drawings called for double pier
foundations and (2) Handle produced the product they were meant to produce. Handle
has never alleged that performance was impossible or that it has incurred unexpected
costs due specifically to structural defects inherent in Norcon's requested design. The
fact that Handle built the foundations in accordance with the drawings leaves no question
that the requested design was feasible and that consequently, the plans and specifications
were not defective.
B. The Superior Court Did Not Err By Applying The Theory Of
Unilateral Mistake.
Under Section 153 of the Restatement of Contracts, one party's mistake
"as to a basic assumption on which he made the contract" may make the contract
voidable, but only if that party did not bear the risk of mistake, and "(a) the effect of the
mistake is such that enforcement of the contract would be unconscionable, or (b) the
other party had reason to know of the mistake or his fault caused the mistake."13
11 Id. at 1244.
12 Id. at 1247.
13 RESTATEMENT (SECOND) OF CONTRACTS § 153 (1981); see also Askinuk
Corp. v. Lower Yukon Sch. Dist., 214 P.3d 259, 270 (Alaska 2009).
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As to the first part of this test, Section 154 of the Restatement dictates that
a party bears the risk of mistake in three circumstances:
. . . when (a) the risk is allocated to [the mistaken party] by
agreement of the parties, or (b) he is aware, at the time the
contract is made, that he has only limited knowledge with
respect to the facts to which the mistake relates but treats his
limited knowledge as sufficient, or (c) the risk is allocated to
him by the court on the ground that it is reasonable in the
circumstances to do so.[14]
We have adopted the Restatement and often denied relief to parties bearing the risk of
mistake.15
In his order granting summary judgment, Judge Aarseth held that Handle
committed a unilateral mistake, and he allocated the risk to Handle. He explained that
Handle bore the risk for this mistake "by not diligently reviewing the materials provided
to it by Norcon and by not seeking clarifying instructions." By Handle's own admission,
its bid preparer Jassen Michael never read the contents of the clarifying email, as Ron
Stoops did not give it to him. The superior court held that Stoops's "choice not to read
the email or not to give Mr. Michael the complete document is an internal issue within
Handle." As a result, Handle bore the risk of mistake and the contract was not voidable.
Handle argues that the superior court's analysis under unilateral mistake
theory was wrong as a matter of law. Here, Handle appears to have two separate but
related legal arguments: first, that unilateral mistake is completely inapplicable to this
case, and second, that it did not bear the risk of mistake. As an initial matter, we do not
14 RESTATEMENT (SECOND) OF CONTRACTS § 154 (1981).
15 See Kingik v. State, Dep't of Admin., Div. of Retirement & Benefits, 239
P.3d 1243, 1250 (Alaska 2010);Dickerson v. Williams, 956 P.2d 458, 466 (Alaska 1998)
("We have adopted [the Restatement] standards and denied relief to many parties who
bore the risk of mistake.").
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find that the superior court erred in applying the theory of unilateral mistake - the facts
of the case easily fit the Restatement definition of unilateral mistake, by which one party
(in this case, Handle) makes a mistake "as to a basic assumption on which he made the
contract."16 Handle has presented no convincing arguments otherwise.
As to the allocation of risk, Handle claims that under Chugach, the
contractor impliedly warrants to the subcontractor that the bid documents are free from
defects.17 From this Handle appears to infer that the subcontractor neither bears the risk
of mistake, nor is obliged to seek clarification of bidding specifications. Norcon
responds that (1) Chugach is inapplicable to this case, as it does not address unilateral
mistake theory, and (2) Handle has provided no relevant legal authority for the
proposition that the subcontractor does not bear the risk of mistake.
We agree with Norcon. Handle's sole legal authority - Chugach - does
not support Handle's claim that the subcontractor does not bear the risk of mistake.
Chugach stands for the proposition that when performance is impossible, the
subcontractor should not have to pay for unexpected costs. This is entirely different
from saying that a subcontractor should not be allocated the risk of its unilateral
mistake.18
16 RESTATEMENT (SECOND) OF CONTRACTS § 153 (1981).
17 While not specifically citing to Chugach in this section of its appellate brief,
Handle refers back to its argument in the preceding section of its brief, that a contractor
impliedly warrants the sufficiency of its bid documents. This earlier section cited to
Chugach.
18 See Tillmon v. Tillmon, 189 P.3d 1022, 1029 n.20 (Alaska 2008).
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A court has "broad discretion in determining when to deny relief to a
mistaken contracting party under the theory that a party bore the risk of the mistake."19
Here, we find no abuse of discretion. We agree with the superior court that Norcon
could "reasonabl[y] rely on the fact that Handle received the information and would
process that information as it deemed best"; Norcon bears no responsibility for the
flagrant communication missteps between Michael and Stoops that led to the bid error.
Our case law also dictates that "the risk of mistake should be borne by the party who has
the greater interest in the consequences of a contract term."20 Here, that party was
Handle. For these reasons, it was reasonable for the superior court to allocate the risk
to Handle, as per Section 154(c) of the Restatement.
In addition to concluding that the superior court rightfully allocated the risk
of mistake under Section 154(c) of the Restatement, we conclude that Handle bore the
risk of mistake under Section 154(b). Section 154(b) provides that a party who is
"aware, at the time the contract is made, that he has only limited knowledge with respect
to the facts to which the mistake relates but treats his limited knowledge as sufficient,"
rightfully bears the risk of mistake. Here, Handle was aware that it completed the bid
schedule using incomplete information; by Stoops's own admission he "did not have
knowledge of the project details" and "didn't understand the significance of the [email]
to which the bid schedule was attached." It is undisputed that Handle's General
Manager, Ron Stoops, did not give to Handle's bid preparer, Jassen Michael, a printout
of the email; that Michael filled out the bid schedule without the printout; and that
19 Wasser & Winters Co. v. Ritchie Bros. Auctioneers (America), Inc., 185
P.3d 73, 79 (Alaska 2008) (quoting 77 AM . JUR . 3D Proof of Facts § 18, at 217 (2004)).
20 Kingik, 239 P.3d at 1250.
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Handle submitted the bid schedule without that information. Handle treated its limited
knowledge as sufficient, and consequently bore the risk of mistake.
C. Claims Regarding Norcon's August 19, 2008 Email
Handle presents two arguments regarding the August 19, 2008 email that
Norcon sent Handle and to which the drawings and bid schedule template were attached.
The first is that the superior court implicitly and wrongly held that the subcontract
included the contents of the August 19, 2008 email. Handle claims this was reversible
error, though it offers no legal authority for this proposition. However, the superior
court's order does not indicate that the court incorporated the email into the subcontract.
Rather, the superior court queried "whether the text of the email put Handle on notice
that its assumption that one foundation equaled one pier [was incorrect]." Rather than
incorporate the email into the subcontract, the superior court used the email to interpret
the terms of the contract, and specifically the meaning of the word "foundation" as used
in the drawings and the bid schedule. Alaska law provides that a court may look to
extrinsic evidence without a preliminary finding of ambiguity.21 In light of this rule, the
superior court did not commit an error of law by considering the contents of the body of
the email.
Handle then argues that the email "did not resolve the ambiguities created
by Norcon's defective specifications," and that the superior court erred by finding that
the text of Norcon's email put Handle on notice that one foundation equaled two piers.
While the email addressed L2 type foundations, Handle argues that it gave "no
instruction for how a bidder should treat L4 and L5 type foundations for the purpose of
filling out the Bid Schedule." But as discussed above, because Handle failed to
21 Alyeska Pipeline Serv. Co. v. O'Kelley, 645 P.2d 767, 771 n.1 (Alaska
1982).
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introduce the plans and specifications into the record and does not dispute that the
drawings called for double pier foundations, it has not established that there were any
"ambiguities" created by alleged defects in the specifications, and we thus need not
determine whether they were resolved by the August 19 email.
D. No Material Fact Disputes Precluded Summary Judgment.
Handle claims that Norcon sent its August 19 email to Handle in an
untimely fashion, emailing Ron Stoops the bid schedule on 7:52 a.m. of the very day that
Handle's proposal was due, thus giving Handle an inadequate opportunity to "digest"
and "incorporate" the email into the bid. In addition, Handle notes that Norcon did not
communicate directly with Handle's bid preparer, Jassen Michael. Handle argues that
the email's timing and the identity of its receiver raise factual questions as to whether the
text of the email actually put Handle on notice of Norcon's understanding of the bidding
instructions. The superior court imputed knowledge of the email to Michael, opining that
the lapse in communication between Stoops and Michael was internal to Handle, and that
"[t]here was no duty on the part of Norcon to make sure that Mr. Stoops or Mr. Michael
were doing their job." Handle claims this imputation was "not reasonable" given the
email's untimeliness and the fact that it was not sent directly to Michael.
We disagree that the email was sent so soon before Handle returned its bid
that "Handle did not have adequate opportunity to digest the [email] and incorporate it
into the bid"; nothing precluded Stoops from printing the email and giving it to Michael
or otherwise informing him of its contents. Nor do we conclude that the superior court
erred by imputing knowledge of the August 19 email to Handle's bid preparer. Under
the Restatement of Agency, "[f]or purposes of determining a principal's legal relations
with a third party, notice of a fact that an agent knows or has reason to know is imputed
to the principal if knowledge of the fact is material to the agent's duties to the
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principal."22 Michael can reasonably have been expected to know the facts material to
estimating Handle's bid, the contents of the email included.
E. Norcon Was Not Obligated To Inquire Into Handle's Bid, Which Was
35% Below The Next-Lowest Bidder.
Handle argues that even if the superior court was correct in finding that
Handle committed a unilateral mistake, Norcon should have inquired as to whether
Handle was under a mistaken assumption when it submitted its bid because its bid was
35% lower than that of the next-lowest bidder. Handle argues that an offeree may not
take an offer "too good to be true," and that the 35% difference was great enough that
it should have placed Norcon on notice that Handle believed the terms of the contract
were different from Norcon's requested specifications. While there are circumstances
when this theory is viable, we reject it here for two reasons.
First, Handle's argument is based on Section 153 of the Restatement of
Contracts, which states that a contract may be voidable by a party committing a unilateral
mistake if "the other party had reason to know of the mistake or his fault caused the
mistake."23 But the same Restatement section makes clear that this doctrine does not
apply if the party committing the mistake bore the risk of mistake. As discussed above,
Handle rightfully bore the risk of mistake under the facts of this case, given its failure to
open the email containing specifications and forward it to its bid preparer. Under these
circumstances, Handle is not entitled to claim that Norcon had any duty to inquire.
Second, Handle has made no showing that, even if the defense were
applicable, a 35% difference in bid amounts was enough to put Norcon on a duty to
inquire. Handle cites only two cases in support of its argument, but neither lends any
22 RESTATEMENT (THIRD) OF AGENCY § 5.03 (2006).
23 RESTATEMENT (SECOND) OF CONTRACTS § 153 (1981).
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appreciable support. Notably, both cases found no duty to inquire. In Wender Presses,
Inc. v. United States,24 the Court of Claims rejected the argument that the government
had a duty to inquire where a bid was 125% higher than the next highest bid. If a 125%
difference was insufficient to create a duty to inquire, the 35% difference in this case was
clearly not enough. Bauer v. American International Adjustment Co.,25 also cited by
Handle, is even less helpful to Handle's case. In Bauer, purporting to believe that an
offer had previously been made to a claimant, an insurance adjuster characterized it as
"extremely generous" and "an amount which I never would have considered offering on
this case" but stated that she would leave the offer open for 30 days.26 (The parties
agreed that the offer had not previously been made.)27 Then, after trying to convince the
insurance company to increase its offer slightly, the claimant accepted the offer.28 The
insurance company claimed that, by seeking to increase the settlement amount, the
claimant had rejected its offer and made a counteroffer.29 The lower court allowed
rescission of the agreement that was reached when the claimant subsequently accepted
the offer on the grounds that the claimant's attorney had a duty to inquire about the
agent's allegedly erroneous original offer.30 The appellate court reversed, holding that
there was no duty on the part of the claimant to inquire about the insurance agent's
24 343 F.2d 961 (Ct. Cl. 1965).
25 389 N.W.2d 765 (Minn. App. 1986).
26 Id. at 766.
27 Id. at 767.
28 Id.
29 Id. at 768.
30 Id. at 767.
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purported mistake.31 In short, Bauer has little to do with our case.32 Thus, neither of the
cases cited by Handle leads us to conclude that the 35% difference between Handle's bid
and the next highest bid created a duty on the part of Norcon to inquire before entering
into the subcontract.
V. CONCLUSION
Because Handle waived its argument that the plans were defective, and
because the superior court did not err in applying unilateral mistake and allocating the
risk of mistake to Handle, we AFFIRM the superior court's grant of partial summary
judgment for Norcon.
31 Id. at 768.
32 Bauer cited to Speckel v. Perkins, 364 N.W.2d 890 (Minn. App. 1985), a
case involving a letter containing a settlement offer that was patently erroneous (in that
the letter contained diametrically contradictory statements in successive paragraphs) and
contained an offer over three times as large as was intended. Because the letter
containing the mistaken offer was "internally inconsistent," the court held that "[t]he
letter containing the disputed settlement amount raised a presumption of error and a
consequent duty to inquire." 364 N.W.2d at 893-94. Thus, while Speckel is closer than
Bauer to the factual situation in our case, it lends no support to Handle's position
because there was no patent internal inconsistency in the bid and no other marker of
unreliability.
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