No. 85-220 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1985 

CLARK BROS. CONTRACTORS, 

Plaintiff and Appellant, 

-vsSTATE OF MONTANA, 

Defendant and Respondent, 

APPEAL FROM: District Court of the Sixth Judicial District, 

In and for the County of Sweet Grass, 

The Honorable Byron Robb, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Gough, Shanahan, Johnson & Waterman; Ronald F. 

Waterman, Helena, Montana 

Winston & Cashatt; Patrick A. Sullivan, Spokane, 

Washington 

For Respondent: 

W. D. Hutchinson, Dept. of Highways, Helena, Montana 

Submitted on briefs: Sept. 6, 1985 

Decided: December 4, 1985 

Filed: D c -- ~4 1985 P 
Mr. Justice Frank R. Morrison, Jr. delivered the Opinion of 

the Court. 

Plaintiff Clark Bros. Contractors appeal s the February 

25, 1985, decision of the Sixth Judicial District in favor of 

the defendant State of Montana. We vacate the District Court 

iudgment and remand for trial. 

Clark Bros. Contractors (Clark Bros.) is a Montana 

corporation which has been engaged in the highway 

construction business for 20 years, including many highway 

projects for the State of Montana (State) . In late February 

or early March, 1979, the State sent out bid invitations for 

the construction of a segment of interstate near Big Timber, 

Montana. The invitation included a description of the 

project, and notice that subsurface data was available from 

the Materials Bureau in Helena. Bids were to be submitted by 

March 28, 1.979. 

In preparing its bid, Clark Bros. obtained 

cross-sections of the project area from the Materials Bureau, 

but not the subsurface data which was available. Officers of 

Clark Bros. did an on site inspection, and talked with local 

ranchers about soil conditions in the area. This was an area 

of concern because the segment of interstate to be built ran 

through a low lying irrigated farm valley, and would require 

substantial amounts of borrow (dirt secured from adjacent or 

nearby sources) to construct the foundation, or embankment, 

for the road. 

Typically, the State provides estimates of the amount of 

borrow to be used in a project in its bid proposal. The 

borrow figure is arrived at by a three step process: 1) 

calculating the subsidence of the soil in place upon which 

the road is to be built; 2) calculating the shrinkage, or 

compaction, of the borrow that is to be used in the 

embankment; and 3) using the subsidence and shrinkage 

estimate to determine how much borrow will raise the road 
embankment to design specifications. A typical shrink factor 

for borrow is about 10%. In the Big Timber project, an 

unusually high shrink factor of 40%, and 55% in some areas, 

was estimated by the State in its bid proposal. A provision 

in the proposal clearly stated the borrow figure was an 

estimate only. 

In calculating its costs for the borrow work, Clark 

Bros. used the quantity estimates provided by the State. 

Clark Bros. submitted the lowest bid and was awarded the 

contract, which was executed on April 4, 1979. Pertinent 

contract provisions included allowing deviations of up to 25% 

in estimated quantities, that payment would only be for units 

of work performed, and that the borrow was to be provided by 

the contractor. 

Clark Bros. began work in May, 7 979, and completed the 

excavation, borrow, and embankment work by the end of the 

year. Measurement of the borrow pits showed that 

substantially less borrow had been used than estimated, so 

the State issued a change order on February 13, 1980, 

reflecting that fact. Clark Bros. signed the order under 

protest on June 5, 1980. The borrow underrun was 

approximately 18%, which significantly reduced the amount 

paid to Clark Bros. under the contract. Clark Bros. filed a 

claim on December 14, 1980, alleging a loss on the borrow 

work due to fixed costs and overhead. The State refused to 

settle, claiming it was only obligated to pay for units of 

work performed, and the contract further allowed for quantity 

deviations up to 25%. Clark Bros. filed suit. 

The issues at trial were: 1) whether the State was 

negligent in preparing the shrinkage factor included in the 

bid proposal; 2) whether Clark Bros. was entitled to be paid 

for extra work incurred not contemplated by the contract; and 

3) whether exculpatory language in the contract barred the 
claims asserted by Clark Bros. The District Court found in 

favor of the State on each issue. 

Clark Bros. asserts the following issues on appeal: 

1. Was the District Court opinion supported by 

substantial evidence or was it c1earl.y erroneous? 

2. Did the District Court properly refuse to consider 

the deposition testimony of managing employees of the State? 

3. Can the State of Montana avoid liability for 

material mistakes in information supplied to and relied upon 

by highway construction bidders by means of exculpatory 

contract language? 

Clark Bros. assert numerous errors in the District Court 

opinion. The court found that Clark Bros.' method of 

computation, and selection of a borrow site without 

independently testing the soils, placed the risk of loss 

caused by an underrun on Clark Bros. While a reading of the 

contract may support these findings, other evidence was not 

taken into account because it was improperly excluded. 

During trial, counsel for Clark Bros. twice attempted to 

introduce into evidence the deposition testimony of certain 

managing agents of the State. In refusing admission, the 

District Court relied upon (1) a lack of notice to the State 

that the depositions were to be offered, (2) that no 

cross-examination could be conducted, and (3) that Clark 

Bros. made no showing that the witnesses were unavailable. 

The District Court was in error. 

Rule 32(a) (2), M.R.Civ.P. reads in part: "The deposition 

of a party or of anyone who at the time of taking the 

deposition was an officer, director, or managing agent . . . 

may be used by an adverse party for any purpose." There is 

no provision in Rule 32 (a) (2) , M.R.Civ.P. which requires a 

finding of unavailability of the witness or that notice was 

given of the intended use of a deposition at trial. Rule 
32 (a) (2) , M.R.Civ.P. governs the use of depositions at trial, 

and the State's reliance on Rule 804 M.R.Evid. is misplaced. 

See Edington v. Creek Oil Co. (1984), 690 P.2d 970, 978, 41 

St.Rep. 1990, 2000. 

Whether one is to be considered a managing agent for the 

State depends on several factors, including the individual's 

right of general control, authority, and judgment within his 

department; whether the interests of the individua 1 are 

identified to be those of the State; and whether any person 

of higher authority possesses knowledge about the matters at 

issue. See Terry v. Modern Woodmen of America (w.D.Mo. 

1972), 57 F.R.D. 141; and Carroll v. Wisconsin Power & Light 

Co. (Wisc. 1956) 273 is. 490, 79 N.W. 2d 1. 

In this case, the depositions offered were those of the 

chief of Materials Bureau, head of Location Road Design 

Section, chief of the Preconstruction Bureau, and assistant 

supervisor of Geology Section. We find the deposition 

testimony shows that these jobs, with the possible exception 

of the latter one, entail sufficient supervisory 

responsibility to pl ace these individuals within the status 

of managing agents for the State. One might question the 

managerial status of assistant supervisor of Geology Section, 

but we need only focus on the deposition of the chief of 

Materials Bureau. 

We find the deposition testimony of the chief of 

Materials Bureau to be useful evidence on the issue of 

justifiable reliance. The witness's statements acknowledge 

that the State is aware contractors rely on State estimates 

in preparing their bids. We find it was error to exclude 

this testimony. 

The final issue is whether the exculpatory language of 

the contract relieves the State from liability for damages 

caused by the borrow underrun. The test previously applied 
by this Court in similar cases has been whether the 

contractor justifiably relied upon the plans and 

specifications in preparing its bid and executing the 

contract. 

William Clark testified that his company relied on the 

estimates provided by the State in preparing its bid, because 

it had neither the time nor resources to be independently 

investigating project data. Clark also testified that he did 

not obtain all the subsurface data which was made available 

by the Highway Department, but he did conduct on site 

investigation and talked to area ranchers about the local 

soil conditions. 

The District Court found no justifiable reliance by 

Clark Bros., in part due to the exculpatory language 

contained in the contract. The contract explicitly provided: 

1) that quantities in the bid proposal were estimates only; 

2) that payment would only be for units of work performed; 3) 

that quantity deviations of less than 25% of the estimate 

were not cause for equitable adjustment; and 4) that the 

borrow source was to be secured by the contractor. 

This is the first case before this Court concerning the 

effect of an exculpatory clause on the contractor's right to 

recover damages caused by a quantities underrun. Previous 

cases dealt with overruns but are analagous. 

In Stenerson v. City of Kalispell (1981), 629 P.2d 773, 

38 St.Rep. 938, the contractor prevailed where it had relied 

on the city's estimate of the amount of grading work to be 

done, yet ended up doing much more due to faulty estimates. 

One issue on appeal was whether exculpatory language 

exonerated the city. In holding such language to he a factor 

in determining justifiable reliance but not to he controlling 

this Court said: 

Several other cases have presented the issue of the 

effect of exculpatory clauses on a contractor's 

6 
right to recover in situations in which reliance is 

alleged by the contractor. In Haggart Const. Co. 

v. State Highway Comm'n (1967), 149 Mont. 422, 427 

P.2d 686, Haggart bid on a highway construction job 

and was told that he could use gravel in 

State-optioned pits as described in the "Available 

Surfacing Materials Reports". The gravel was later 

found to be unsuitable and the plaintiff incurred 

additional expense in obtaining gravel elsewhere. 

The defendant did not deny that the materials 

reports were misleading, but rather relied on 

exculpatory provisions in the contract as a defense 

to the suit. Those provisions indicated that the 

Commission made no guaranty as to the quality and 

quantity of the materials available, and further 

that if the contractor chose to furnish his own 

materials, he would be responsible to produce 

satisfactory material. 

The district judge found that the exculpatory 

provisions were not enforceable. He noted that 

Haggart received the materials reports only 14 days 

before bid letting, giving him little time to 

investigate independently. He further found that 

few contractors bidding on such projects have 

sufficient time or test facilities to make an 

intelligent appraisal of materials. Despite the 

exculpatory clauses, the district judge concluded: 

"[Tlhere is nothing to show that appellant 

expect[ed] less than complete reliance on its 

materials reports. 

"If the State Highway Commission were allowed to 

rely on the exculpatory provisions of the contract, 

the purpose for which such reports are offered 

would be sadly frustrated, if not totally 

destroyed. No prudent contractor would proceed in 

reliance on such reports at his absolute peril; the 

necessity to guard against unforeseen deficiencies 

would result in much higher bids than conditions 

would normally warrant." Haggart, supra, 149 Mont. 

at 425, 427 P.2d at 687-688. 

We affirmed the district judge in that decision but 

noted: 

"We are not here holding that such exculpatory 

clauses may not be enforced in other situations, 

that detrimental reliance may be assumed in all 

cases, or that parties to such contracts are bound 

to exercise anything Iess than reasonable and 

prudent judqment. In other words we will look to 

justifiable reliance. ' " Haggart, supra, 149 Mont. 

at 428, 427 P.2d at 689. 

We find the Stenerson rationale persuasive. Exculpatory 

language in the contract is a factor in determining 

justifiable reliance but not controlling. 
There is considerable evidence here upon which to find 

justifiable reliance. William Clark testified that he had 

two to three weeks in which to submit his bid, which was not 

adequate to perform his own quantities estimates, and that he 

relied on the State's estimates in preparing his bid. Clark 

conducted on site investigation and made further inquiry 

about the soils in the area, but found no reason not to use 

the State's estimates. Deposition testimony, improperly 

refused at trial, of the chief of the Materials Bureau 

indicated the State is aware contractors rely on the State's 

soil analysis. Nevertheless, we are reluctant to make a 

finding of justifiable reliance as a matter of law. The case 

should be retried considering the deposition testimony and 

applying the legal principles herein set forth. 

We vacate the judgment of the District Court and remand 

fde concur: 
Mr. Justice L. C. Gulbrandson, dissenting. 

I respectfully dissent. 

I would a.ffirm the decision of the trial jud.ge to 

exclude the offered depositions of State employees. 

The State had propounded two sets of interrogatories to 

plaintiff, asking for identification of witnesses. Plaintiff 

never identified deponents as proposed witnesses although the 

interrogatories were continuing in nature, failed to list 

deponents in its proposed pre-trial order just prior to 

trial, and made no effort to subpoena said deponents. This 

Court, in Ropischke v. First Continental Corp. (1980), 187 

Mont. 471, at 510-511, 610 P.2d 668, at 689, upheld the 

exclusion of a deposition which would indicate that Rule 

32(a) should not be construed nor implemented in a void. The 

trial judge's finding of fact no. 40 clearly indicates that 

he was exercising his discretionary power to prevent an abuse 

of discovery. This Court, in Blassaro v. Dunham (1979), 184 

Mont. 400, at 404-405, 603 F.2d 249, at 251-252, stated: 

The District Court has the inherent 

discretionary power to control discovery. 

That power is based on the District 

Court's authority to control trial 

administration . . . In controlling 

discovery, the District Court must 

regulate traffic to insure a fair trial 

to all concerned, neither according one 

party an unfair advantage nor placing the 

other party a.t a disadvantage. 

. . . Discovery fulfills this purpose by 

a-ssuring the mutual knowledge of all 

relevant facts gathered. by both parties 

which are essential to proper litigation. 

(Citations omitted. ) 

I also do not concur in the majority's decision to 

apply the Stenerson rationale to the underrun situation in 
this case. In my view, there is substantial evidence in the 

record to support the trial judge's findings of fact and 

conclusions of law. 

Several pertinent findings read as follows: 

12. The state's invitation to bid and 

standard specifications called for unit 

price bids on listed work items. Two 

contract work items listed were item 

11 1-030-000 (Excavation-Unclassified 

Borrow) in the amount of 1, 658,857 cubic 

yards, and item 112-001-000 (Compaction 

Roadbed) in the amount of 1,930,034 cubic 

yards. The State ' s standard 

specifications. . . concerning bid 

schedule quantities state: 

"02.04 INTERPRETATION OF QUANTITIES IN 

BID SCHEDULE. The quantities appearing 

in the bid schedule are approximate only 

and are prepared for the comparison of 

bids. The unit prices to be tendered by 

the bidder are to be tendered expressly 

for the scheduled quantities as they may 

be increased or decreased within the 

restricting percentage hereinafter 

stipulated. Payment to the contractor 

will be made only for the actual 

quantities of work performed and accepted 

or materials furnished in accordance with 

the contract." 

13. The material to be used as 

unclassified borrow was to come from 

contractor furnished sources, which was 

not unusual to the industry. Since such 

sources, were not identified until after 

the contract was awarded, the state could 

not test unclassified borrow material 

that would actually be used prior to 

estimating the quantities used in the bid 

schedule. 

16. Rather than basing its bid on unit 

prices, Clark Bros. estimated the total 

cost of constructing the highway 

embankment in place, and then used the 

state ' s estimated quantities of 

unclassified borrow and roadbed. 

compaction as divisors into its total 

projected costs to obtain unit prices for 

the borrow and compaction. By using such 

method, instead of that specified by the 

standard specs, plaintiff assured itself 

of claiming a loss if there were an 

underrun below the estimated quantities, 
and claiming it should be paid more if 

there were an overrun above the estimated 

quantities for these items. William 

Clark also acknowledged his awareness 

that contractors were not to submit 

unbalanced bids. 

17. The method used by plaintiff to 

compute unit prices also ignored these 

factors if there were an underrun: (a) 

Less equipment would be needed, or it 

would be needed for a shorter period. 

(b) Less hauling, fuel and manpower 

expense would be incurred. (c) Less 

landowner royalty would have to be paid 

for borrow. 

30. The plain meaning and clear intent 

of standard specifications 02.04, 04.02 

and 09.03 are that changes in quantity 

may occur in the actual performance of 

contract work between anticipated or 

estimated quantities, and actual 

quantities used, and in such event, the 

contractor will be paid at contracted 

unit prices for actual quantities used 

and will bear the risk of loss for 

changes of quantity of less than 25% for 

major items. The changes of the 

unclassified borrow and road compaction 

in this case were both less than 25%, and 

the testimony of Roger Blossom indicated 

this was not uncommon. 

31. Plaintiff cannot be said to have 

justifiably relied on exact amounts of 

borrow and compaction work to do when the 

bid proposals and contract specifically 

provided the amounts were estimates and 

subject to increase or decrease, when 

plaintiff's officers were well acquainted 

with such terms and conditions, and when 

William Cia-rk testified an overrun or 

underrun didn't much affect the total 

cost of a project and that plaj-ntiff's 

bid would not have been much different 

whether the state estimated a round 

figure or specific amount of unclassified 

borrow or road compaction. 

The trial judge, in an explanatory comment to his 

findings, stated: 

It is difficult to see how the state 

could make it any clearer to contractors 

bidding on highway jobs that various 

parts of the work to be done, such as 

borrow excavation and compaction, are 
just estimates and not specific amounts 

of materials to be supplied. If the 

contract terms and provisions are too 

loose in allowing for a 25% variation on 

such items, the contractor's association 

or the individual bidder should request 

amendment thereof before a contract is 

signed, but after execution, the court is 

"not to insert what has been omitted or 

to omit what has been inserted" (sec. 

1-4-101, MCA 1983). As an experienced 

bidder and contractor, plaintiff must be 

held to the plain terms of the contract, 

as well as defendant. 

I concur in that statement and would affirm the 

decision of the trial judge. 

t