Title: Husman, Inc. v. Triton Coal Co.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Husman, Inc. v. Triton Coal Co.1991 WY 58809 P.2d 796Case Number: 90-199Decided: 04/22/1991Supreme Court of Wyoming
HUSMAN, INC., a 
Wyoming 
corporation, Appellant (Plaintiff),

v.

TRITON COAL COMPANY, a 
Delaware 
corporation, Appellee (Defendant).

Appeal from the 
DistrictCourtofSheridanCounty, James N. Wolfe, 
J.

Reversed and 
remanded. 

Lawrence A. 
Yonkee and John A. Coppede of Redle, Yonkee & Toner, Sheridan, for 
appellant.

Patrick R. Day, 
Donald I. Schultz, and Mary J. Chinnock of Holland & Hart, Cheyenne, for 
appellee.

Before 
URBIGKIT, C.J., and THOMAS, CARDINE, MACY and GOLDEN, 
JJ.

MACY, 
Justice.

[¶1.]     Appellant Husman, Inc. 
contracted with Appellee Triton Coal Company to remove overburden and topsoil 
from Triton Coal's mine site. After Husman began working on the project, it 
discovered that the material was saturated with water. When the contract was 
terminated, Triton Coal refused to pay the amount which Husman claimed was 
attributable to the soggy conditions. Husman filed suit against Triton Coal 
claiming breach of contract, misrepresentation, fraud, negligent 
misrepresentation, and breach of the covenant of good faith and fair dealing. 
Triton Coal filed a motion for summary judgment, which the district court 
granted.

[¶2.]     We reverse and 
remand.

[¶3.]     Husman postulates the 
following issues:

I.

     Whether there were 
genuine issues of material fact concerning whether [Triton Coal] concealed or 
withheld material facts and made positive misrepresentations on matters to which 
the undisclosed facts related.

     A. Whether a 
contract's exculpatory clause bars a recovery where the evidence shows that an 
owner has breached its duty to disclose material facts to the 
contractor[.]

II.

     Whether genuine issues 
of material fact exist as to whether Triton [Coal] committed fraud by concealing 
or withholding material facts and making misrepresentations upon which Husman 
relied to its detriment.

     A. Whether genuine 
issues of material fact exist[] as to whether [Husman] made a reasonable, 
diligent inquiry of the facts underlying its fraud claim. 

     B. Whether [Husman's] 
affirmance of the contract is a waiver of the fraud barring its right to recover 
damages.

III.

     Whether genuine issues 
of material fact exist[] as to whether [Triton Coal] induced [Husman] to enter 
into a contract by negligent misrepresentation.

IV.

     Whether genuine issues 
of material fact exist as to whether [Triton Coal] breached the contract and its 
covenant of good faith and fair dealing.

[¶4.]     In March of 1988, 
Triton Coal invited Husman to submit a bid for the job of removing topsoil and 
overburden at a mine site in CampbellCounty. Triton Coal's business manager 
told Husman's vice president that the overburden was "an unconsolidated material 
and * * * it was probably a sandy clay type material." After two of its 
employees inspected the mine site and the material to be removed, Husman 
submitted a bid to Triton Coal. Triton Coal accepted the bid, and the parties 
entered into a contract on April 7, 1988, for the extraction of a minimum amount 
of overburden and topsoil. The contract contained a provision by which the 
parties could extend the terms of the contract for the removal of additional 
amounts of overburden and topsoil. The contract also included the following 
provision:

     EXAMINATION OF 
PREMISES - Contractor expressly acknowledges that he has made a careful 
investigation of: The nature and location of the work to be performed hereunder; 
the character, quality, and quantity of materials and obstructions to be 
encountered; the character of equipment and facilities needed preliminary to and 
during the execution of the work; the general and local conditions and all 
matters which can in any way affect the work hereunder; and that he is fully 
informed with regard thereto.

[¶5.]     After Husman began 
working, it discovered that the overburden was saturated with moisture and was 
more difficult to remove than it had anticipated. Husman continued to work on 
the project, however, and even agreed to extend the terms of the contract. The 
contract between Husman and Triton Coal was finally terminated on October 1, 
1988, and Husman submitted invoices to Triton Coal for services rendered. Triton 
Coal disagreed with Husman's assessment, and Husman filed this 
suit.

[¶6.]     In its complaint and 
amended complaint, Husman alleged, inter alia, that Triton Coal breached the 
parties' contract by failing to notify Husman that the overburden and topsoil 
were saturated with water and were unstable and by retaining part of Husman's 
payment; that Triton Coal willfully and intentionally misrepresented the subsoil 
conditions; that Triton Coal negligently misrepresented the subsoil conditions; 
and that Triton Coal, by concealing and misrepresenting the subsoil conditions, 
breached the covenant of good faith and fair dealing. Triton Coal answered 
Husman's complaint and filed a motion for summary judgment. The district court 
conducted two motion hearings, held that Husman was entitled to a payment 
subject to a final survey of the material it had removed, and granted Triton 
Coal's motion for summary judgment on the remainder of Husman's 
claims.

[¶7.]     Summary judgment is 
proper when no genuine issues of material fact exist and the prevailing party is 
entitled to judgment as a matter of law. Baros v. Wells, 780 P.2d 341 (Wyo. 1989); Farr v. Link, 746 P.2d 431 (Wyo. 
1987).

We review a summary 
judgment in the same light as the district court, using the same materials and 
following the same standards. We examine the record from the vantage point most 
favorable to the party opposing the motion, and we give that party the benefit 
of all favorable inferences which may fairly be drawn from the record. A 
material fact is one which, if proved, would have the effect of establishing or 
refuting an essential element of the cause of action or defense asserted by the 
parties. Wagner v. First Wyoming Bank, N.A. Laramie, 784 P.2d 224, 226 (Wyo. 1989) (citations 
omitted).

Fraud

[¶8.]     Husman argues that the 
district court improperly granted Triton Coal's motion for summary judgment 
because genuine issues of material fact exist as to whether Triton Coal 
committed fraud by misrepresenting or concealing the conditions of the 
overburden and topsoil.

     The elements in a 
cause of action of fraud are false representation made by the defendant which 
the plaintiff relies upon to his detriment. The false representation must be one 
which induces action and is reasonably believed by the plaintiff to be 
true.

Garner v. Hickman, 709 P.2d 407, 410 (Wyo. 1985) (citations omitted). See also 
Britton v. Bill Anselmi Pontiac-Buick-GMC, Inc., 786 P.2d 855 (Wyo. 1990); Rocky Mountain Helicopters, Inc. v. Air 
Freight, Inc., 773 P.2d 911 
(Wyo. 1989); and Duffy v. Brown, 708 P.2d 433 (Wyo. 1985). To prevail, a 
plaintiff must establish fraud by clear and convincing evidence. Duffy, 708 P.2d 433. Conduct or words 
which tend to produce an erroneous impression may satisfy the plaintiff's 
burden. Britton, 786 P.2d 855. 
In addition, even if someone is not under a duty to speak, if he does speak, he 
is under a duty to speak truthfully and to make a full and fair disclosure. 
Id.; Meeker v. Lanham, 604 P.2d 556 (Wyo. 
1979).

[¶9.]     Husman asserts that 
genuine issues of material fact exist given the depositions of Husman's vice 
president and one of its job superintendents. The vice president testified that 
the following exchange occurred when he visited the mine prior to Husman 
submitting its bid for the project:

     Q. Did you ask the 
Triton representatives about whether the material was wet or dry or about its 
moisture content?

     A. No, I 
didn't.

     Q. Did you consider it 
obvious that the material was dry?

     A. I said it looked 
dry. I said it looked normal. And there wasn't a response.

     Q. After approaching 
the material on the high wall and getting back in the van, you said that it 
looked normal compared to the type of material you'd encountered in the area 
previously?

     A. 
Yes.

     Q. Did you say that it 
looked dry to you?

     A. I don't believe I 
said that it looked dry. I said - I can't remember exactly what I did say, but 
as I - as I recall, I made some remark that it looks like pretty standard 
material for the PowderRiver 
Basin. Those certainly weren't the exact words, but 
that's the gist of what I recall.

     Q. At any time prior 
to signing the purchase order with Triton, did you have any specific 
conversation with Triton representatives about the moisture content or the wet 
or dry nature of the material?

     A. No, I didn't. 
Looking at the material from the surface and in the exposed cut face, it looked 
like a number of jobs we'd looked at previously and bid on previously, and there 
was never any indication otherwise.

     Q. Did you observe any 
freestanding water at any time during your site visit? And I should limit it to 
the proximity of the area where you were planning to work or bidding to 
work.

     A. Not that I recall. 
There was certainly some water down in the bottom of the pit, but not up in the 
area where we'd be working.

The job superintendent 
made the following statements during his deposition:

     Q. Now you mentioned 
that while you were on this initial visit to deliver the bid and look at the 
site there may have been some discussion about water, but you said it was a 
little vague. What's your best recollection about what was 
discussed?

     A. I don't think we 
discussed too much at all except, you know, the fact that, "Is there water?" 
"No, there's not much water," and that was about the extent of it. We had the 
impression from Triton that there wasn't much water in that area of the 
pit.

     Q. On what basis did 
you get that impression?

     A. Just on the 
conversations that we had.

     Q. So the 
conversations about, "Is there water?" "No, not much water," those involved the 
Triton people?

     A. I believe so. You 
know, we were out in the pit and I think Steve showed us around and asked about 
the water that was standing at the toe of the high wall there. And, of course, 
the snow was dozed up in there and there was a little bit of mud. And, you know, 
"Is that water coming out of the dirt?" "No, that's pretty much just from the 
snow that they dozed off the top of the coal to clean the 
coal."

     And then, you know, in 
talks about what the material was like, it was - it was - we were led to believe 
it was sandy on consolidated, loose material.

     Q. Did that turn out 
to be the case?

     A. 
No.

     Q. Okay. What was 
different?

     A. A lot of inherent 
water, more like mud than sandy on consolidated material.

* * * * * 
*

     Q. When did you first 
get into the overburden with this wet consistency?

     A. Second week we were 
on the job.

     Q. Was it during the 
first times you started to excavate overburden?

     A. When we were 
stripping topsoil in the south pit the first week we were on the job, I had a 
dozer in the north pit pioneering a ramp for scraper traffic. When we got into 
the overburden area, that dozer got stuck near the toe of the ramp that he was 
pioneering and we had nothing to pull him out.

     Triton, after I 
requested some assistance, they sent a 992 up and with - a 992 and they had a 
small loader. I can't remember the size of that small loader that they brought 
up there. It was smaller than a 980. But anyway, they brought the 992 up and the 
small loader and they finally got our dozer out.

     And there was five or 
six of their craft hands up there. And after we got it out, everybody was 
brushing the dirt off and having a little BS session. And it came to light that 
they had one of their shovels stuck in that same spot the previous year and it 
was a big joke to those gentlemen that Triton had brought in an independent 
contractor because they didn't think they could move the mud with the equipment 
that they had.

Viewing that testimony in 
a light most favorable to Husman and giving Husman all reasonable inferences, we 
hold that genuine issues of material fact exist as to whether Triton Coal 
misrepresented the soil conditions and as to whether that misrepresentation 
amounted to fraud.

[¶10.]  Triton Coal argues that Husman is not 
entitled to a reversal of the summary judgment because Husman failed to review 
hydrology and soil data which had been compiled before it submitted its bid. 
That data included the mine permit application which Triton Coal filed pursuant 
to the Wyoming Environmental Quality Act. Whether Husman conducted a reasonable 
investigation of the conditions of the overburden and the topsoil is a question 
of fact. As stated, one of the elements of fraud is whether the representation 
"is reasonably believed by the plaintiff to be true." Garner, 709 P.2d  at 
410.

[¶11.]  Triton Coal also argues that Husman is 
barred from raising its claims because of the "Examination of Premises" clause 
contained in the contract. We hold that the "Examination of Premises" clause 
does not prevent Husman from raising its fraud and misrepresentation claims 
because a "contract clause which requires a contractor to rely upon its own 
inspection does not control when there is a finding of misrepresentation as to 
existing conditions." Cook v. Oklahoma Board of 
Public Affairs, 736 P.2d 140, 147 
(Okla. 1987). 
It is not unreasonable for a contractor to rely upon the owner's representations 
and, therefore, limit its investigation.

[¶12.]  Triton Coal asserts that Husman should 
not be allowed to raise the claims which resulted from its removal of overburden 
and topsoil under three contract extensions. The parties entered into the 
original contract in April 1988. In May, July, and August 1988, they agreed to 
alter that agreement to cover the removal of additional amounts of topsoil and 
overburden. Triton Coal contends that Husman is barred from seeking damages 
under the extended terms of the contract because at the time Husman agreed to 
the extensions it had worked with the material and had full knowledge of the 
soil conditions.

[¶13.]  The question posed by Triton Coal should 
be answered by the trier of fact. Under our standard for fraud, a plaintiff's 
reliance upon a misrepresentation must be reasonable. If Husman was not damaged 
due to a reasonable reliance upon a false representation made by Triton Coal, 
then it is not entitled to a recovery. That principle applies to Husman's claim 
under the original contract and to its claims attributable to work performed 
under the contract extensions.

Negligent 
Misrepresentation

[¶14.]  Husman contends that the district court 
improperly granted Triton Coal's motion for summary judgment on Husman's claim 
for negligent misrepresentation. The elements of negligent misrepresentation are 
as follows: "False information supplied in the course of one's business for the 
guidance of others in their business, failure to exercise reasonable care in 
obtaining or relating the information, and pecuniary loss resulting from 
justifiable reliance thereon." Duffy, 708 P.2d  at 437.

[¶15.]  We hold that the same evidence which 
gives rise to the existence of genuine issues of material fact on the issue of 
fraud also reveals that genuine issues of material fact exist in regard to the 
issue of negligent misrepresentation. That evidence, viewed in the light most 
favorable to Husman, indicates that Triton Coal may have supplied Husman with 
false information in the absence of reasonable care and that Husman may have 
suffered a pecuniary loss from a justifiable reliance upon that information. The 
question should be submitted to a trier of fact.

The Covenant of Good 
Faith and Fair Dealing

[¶16.]  Husman asserts that the district court 
erred when it granted Triton Coal's motion for summary judgment on Husman's 
claim for breach of the covenant of good faith and fair dealing. Husman argues 
that every contract contains a covenant of good faith and fair dealing and that 
Triton Coal breached that covenant by misrepresenting the soil conditions, by 
failing to assist Husman with the removal of the water, and by failing to 
conduct surveys to determine the amount of overburden which Husman had 
removed.

[¶17.]  Contrary to Husman's contention, this 
Court has not expressly stated that every contract contains an implied covenant 
of good faith and fair dealing. Husman's assertion that Triton Coal's alleged 
misrepresentation of the soil conditions breached the covenant of good faith and 
fair dealing is not well taken when applied to the facts of this case. 
Restatement (Second) of Contracts § 205 (1981) states, "Every contract imposes 
upon each party a duty of good faith and fair dealing in its performance and its 
enforcement." The duty is a contract term which courts supply to insure a notion 
of fairness. 2 E. Farnsworth, Farnsworth on Contracts § 7.17 (1990). "The duty 
of good faith is therefore not imposed on parties until they have reached 
agreement and does not bind them during their earlier negotiations." Id. at 313. See also 
Restatement (Second) of Contracts, supra at comment c. Parties subjected to bad 
faith before a contract is entered into are not without recourse, however, 
because "[p]articular forms of bad faith in bargaining are the subjects of rules 
as to capacity to contract, mutual assent and consideration and of rules as to 
invalidating causes such as fraud and duress." Id. at 100 (emphasis 
added). Hence, even if we were to add the good faith and fair dealing term to 
Husman's contract, Husman's recourse for Triton Coal's alleged misrepresentation 
is an action for fraud or negligent misrepresentation and not an action for 
breach of the implied covenant of good faith and fair 
dealing.

[¶18.]  Husman also asserts that Triton Coal 
breached the duty of good faith and fair dealing by refusing to help with the 
water problem after Husman began working on the project. Triton Coal was under 
no duty to help with Husman's removal of the overburden and topsoil. If Triton 
Coal misrepresented the soil conditions before Husman agreed to the contract, 
then Husman will be entitled to recover damages pursuant to its fraud or 
negligent misrepresentation claim. If the trier of fact determines that Triton 
Coal did not misrepresent the soil conditions, then Husman simply got what it 
bargained for, and the water problem was its problem.

[¶19.]  Finally, Husman claims that Triton Coal 
breached the covenant of good faith and fair dealing by failing to conduct 
surveys to determine the amount of overburden which Husman had removed. This 
argument can be addressed by examining the terms of the contract. The initial 
agreement called for Husman to remove a minimum of 800M BCY of topsoil and 
overburden. The contract stated that Husman would "guarantee a minimum 
production of 400M BCY cumulative per month. Penalty for not obtaining this 
production minimum will be a reduction in price of $20,000 per month." It also 
provided, "Volume calculation for determining material moved will be by cross 
section or aerial photography." While the contract did not say whether Triton 
Coal was required to calculate the amount of the material removed at the end of 
the two months or during the course of Husman's performance, Husman argues that 
Triton Coal should have made the calculations while Husman was removing the 
material so that Husman would know if it was behind schedule. Husman asserts 
that, as a result of Triton Coal's breach, Husman was penalized under the terms 
of the contract because it did not remove the material quickly 
enough.

[¶20.]  We hold that the contract term requiring 
a volume calculation is ambiguous. See True Oil Company v. Sinclair Oil 
Corporation, 771 P.2d 781 
(Wyo. 1989) 
(whether a contract is ambiguous is a question of law). Consequently, summary 
judgment is inappropriate, and the matter is remanded to the district court for 
determination of whether Triton Coal was only obligated to calculate the volume 
of material removed after the contract was terminated or was also obligated to 
conduct surveys during the course of Husman's performance. See Carlson v. 
Carlson, 775 P.2d 478 
(Wyo. 
1989).

[¶21.]  Reversed and remanded for further 
proceedings in accordance with this opinion.