No. 12983 

### IN THE SUPREME COURT OF THE STATE OF MONTANA 19 

### 76

ZOOK BROTHERS CONSTRUCTION COMPANY, Plaintiff and Appellant,

-vs

# - THE STATE OF MONTANA, Defendant and Respondent.

Appeal from: District Court of the FirstJudicialDistrict, Honorable Peter Meloy, Judge presiding. Counsel of Record: For Appellant: Gough, Booth, Shanahan and Johnson, Helena, Montana Ronald Waterman argued, Helena, Montana Patrick Sullivanargued, Spokane, Washington For Respondent: Donald Douglas appeared, Helena, Montana Cannon and Garrity, Helena, Montgna Donald Garrity argued, Helena, Montana

- 

## fl\J 

# G2 k, **',-'? Filed: Submitted: June 3, 1976 Decided: 

## 25 p7rMr. JusticeWesley Castles delivered the Opinion of the Court.

Plaintiff appeals from ajudgment of the district court, Lewis and Clark County. Zook Brothers Construction Company (Zook) and theMontana Department of Highways (State) entered into a contract inJune 1967, whereby Zook agreed to construct a segment of highway referred to as the "Montana City Project1', a 6.083 segment of interstateand secondary highway inJefferson County, south of Helena, Montana. The contract allowed 300 days for completion of the project and involved a $3,000,000 contract between the parties. The instant case involves Zook's claim for damages allegedly caused by the State's failure to informZook the State lacked rightof-way access toportions of the project, which isclaimed tohave caused a delay in scheduled operations and escalated costs of completion. Zook contends 1) it isentitled todamages for costs incurred incompletion of the project, 2) for the cost of "standby"

on equipment it was unable toutilize due tounforeseen delays, and 3) for profits allegedly lost on this project and subsequent projects due to the delays and tieup of assets. The delays relied upon by Zook as a basis for its claimwere occasioned (a) by Montana Power Company's problem inobtaining a right-of-way forrelocation of a utilityline, and (b) by the inability of the Stateto obtain right-of-way across various mining claims through theproject. (a) The utilitydelay. The State, afterplanning the general location of the highway tobe constructed, took steps to secure a right-of-wayand toremove existingutilities from the area. The Montana Power Company was contacted regarding the relocation of an electricaltransmission line. A relocation contract with Montana Power was approved by the State on June 27, 1967 and contained

a provision that allutilitymoves were expected tobe completed by August 31, 1967. Relocation of the power linewas critical toZook's schedule for construction, in that the linehad tobe removed prior to construction of a frontage road upon which Zook had planned to divert traffic tocomplete the main highway construction. The power linewas not relocated untilApril 1968. (b) The mining claim delay. The Stateencountered problems inobtaining the right-of-way through various mining claims within the work area. Zook was advised tobegin construction on July 17, 1967, although the State

was aware there were various problems obtaining right-of-way through the mining claims. Ata preconstruction conference held between the Staterepresentatives and Zook personnel on July 19, 1967, Zook advised the State of its schedule for completion of the various phases of the project. The Statediscussed such diverse problems

as safety and the protection of wildlife habitat. The Statedid not advise Zook personnel of the right-of-way difficulties it was encountering. Upon receipt of the State's order toproceed on July 17, 1967, Zook began tomobilize allof the necessary equipment for completion of the project according to the agreed schedule. However,

on July 27, 1967, the State issued a suspension order toZook which prevented Zook from proceeding with construction inthe

area of themining claims during negotiation for and testing ofthese claims. Zook's schedule called for completion of "Frontage Road No.4" by September 15, 1967, and diversion of traffic from the existing route to utilize sophisticated blasting techniques, which were intended toreduce great quantities of rock to a size thatwould allow excavation with self-loading "scrapers" of large rock cuts. Zook also planned touse large quantities of the excavated rock and material as fillinthe area involved in the mining claim stop order. However, because of the State's failure to obtain the necessary right-of-way, Zook was forced to abandon 

### its plan of traffic diversion and various filland excavation requirements were delayed severalweeks. Restrictions on work in the vicinity of the mining claims

were lifted on September 

### 22, 1967; the power poles were removed by October 

### 17, 1967; Frontage Road No. 4 was then available for construction work. On September 6, 1967, Zook personnel informed the Stateby letter that the utility pole problem and theI1miningclaims delay has really fouled up our schedule for completion of this project and feelwe should be given fullconsideration for these delays." On November 12, 1968, Zook submitted a claim for damages resulting from the delays which it claimed caused the 116 day

over-run on the scheduled completion date. This claimwas rejected by the State. On March 24, 1972 Zook filed a "complete Documentation"

[~ook's description] of itsclaim for an amount far inexcess of itsoriginal claim. Following the submission of this claim, the Stateundertook an audit of the Zook records for the purpose of evaluation of that portion of the claimrelating to equipment standby costs. Zook's claim was orally denied by the Director of the StateHighway Commission after severalmeetings between the parties to discuss that claim.



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# -Zook brought suit in the district court to recover the amount claimed, based on the state's alleged breach in failing to

secure the right-of-way. After a lengthy trial the district court determined: "The Stateof Montana materiallybreached its contract with Zook and the damages which Zook suffered thereby were a direct and proximate result of such breach." Zook was awarded a total of $140,917 indamages, consisting of $125,000 formaintenance of equipment in standby status, and $15,917 as additional expense for traffic control costs incurred due to itsinability to complete Frontage Road No. 4. Zook appeals claiming it isentitled to damages fa.r in

excess of those granted by the district court. The State crossappeals on the basis Zook's claim isbarred by the special statute of limitations prescribed by section 83-602, R.C.M. 1947, and by the terms of the contract and the judgment of the district court that a breach had occurred isnot supported by the evidence. Hearing

was had on March 5, 1976 before this Court, and on March 25, 1976, the Court ordered additional briefs and argument limited to: 1. Causal connection between breach and damages. 2. Equipment standby costs. 

### 3. Traffic control costs. 

### 4. Administrative costs. Arguments heard on June 3, 1976 were restricted to a discussion of the four items enumerated. The Statecontends the claim of Zook isbarred by the provisions of section 83-602, R.C.M. 1947, which provides inpertinent part: "Whenever any contracting agency of the state of Montana provides a procedure for the settlement of any question or dispute arisingbetween the contractor and said agency, the contractor, beforeproceeding tobring an action incourt under provision of this act, must resort to such procedure within the time specified inhis contract or, ifno time is specified, within ninety (90) days after the question or dispute has arisen

# ** *.I' The contract between the parties contains a provision requiring: "In case any claim ordispute arisesbetween the parties hereto, respecting any matter pertaining to this agreement

# *

# ** said claim or dispute shall be referred to the Commission by the contractor in writing, and a request for a hearing within a period of sixty (60) days after the claim or disputehas arisen

# ** *.If The Stateargues Zook's cause of action, if any, arose as of the July 27, 1967 order from the Director to stopwork in the

area of the mining claims. The Stateurges the contract limits the time for filing of a claim towithin the 60 day period following the date of the delay. It claims the September 6, 1967 letter from Zook's general manager failsto state a claim inthat it does not contain demand for additional compensation, nor does express an intention to submit such a claim atany 1a.terdate. It alsonotes the letter does not direct itself to the Commission. These alleged facts areurged as grounds for finding that Zook time failed topresent a claimwithin the/provided, i.e. 60 days. This Court 

### is inagreement with the district court

## 's conclusion that these contentions are totallywithout merit. The claim isneither barred on statutorynor contractual grounds. The letter from Zook was addressed to a Mr. Richard B. Dundas, District Engineer, StateHighway Commission, and was sent approximately 40 days after the work stoppage order was promulgated. Zook's letter clearly expressed the contractor's concern regarding the effect of the delays on the over-all project.'i. A

Thereafter the Stateconsidered thematter, audited Zook's records regarding 

### its claim for standby expenses and held several hearings, atZook's request, regarding the varied claims of Zook. To date, Zook has received only an oral denial of 

### its claims on February 26, 1973, by theDirector of the StateHighway Department. Litigation was commenced April 20, 1973 and is clearlynot barred by the contractual limitations nor the statutory limitations. The logical rule, and the rule adopted inotherjurisdictions, 

### is that a claim or disputeARISES atthe time the State submits a final estimate to the contractor for his approval or rejection. Terry Contracting, Inc. 

### v. Stateof New York, 280 N.Y.S.2d 450 (1967); Waterman v. Stateof New York, 241N.Y.S.2d 314 (1963). To date,

no such final estimate has everbeen submitted toZook by the State. The State's reliance on statutoryor contractual limitations 

### is alsowithout merit for the reason the State, through its own actions, led Zook tobelieve that its claimwould receive timely attention and would be reviewed by the Statepending an administrative decision on itsmerits. Zook relied upon the assurances inthe State's letter dated September 12, 1967, that the State would give fullconsideration to allfactors relative to the State's failure to obtain right-of-way. Clearly, the State isforeclosed from raising a statuteof limitations defense given the above facts. The State alsourges therewas insufficient evidence in the record of the district court to support a finding therewas a breach of contract upon which tobase an award of damages to the contractor, Zook. This Court, indetemining a similar dispute, held the failure toobtainhighway right-of-way is a materialbreach of contractwhich, if it delays 

### a contractor, 

### willsustain an award of damages. Laas v. Montana Highway Comm'n, 157Mont. 121, 125, 132,483 P.2d 699 (1971).The Standard Specifications portion of the contract entered intohere provides inpart: "07.17 FURNISHING RIGHT-OF-WAY. Allright-of-way for the roadway shallbe provided by the Commission without cost to the contractor. Allright-of-way may not have been obtained atthe time when thebids are opened and the proposal considered, and inthat case the award willnot be made until the entireright-of-way has been obtained. The 'submission of a bidwillbe construed as an acceptance of this conditionby thebidder, and no claim for damage or loss of unavoidable delay in securing right-of-way willbe considered by the Commission. If the contract ismaterially delayed because of right-of-way difficulties, due considerationwillbe given by the Commission inextending the contract time tomake proper allowances therefor." (Emphasis supplied.) The contractbetween Zook and the Statewas signed nearly four months prior to the State's obtaining of the right-of-way in the

area of the mining claims. Considering similar evidence as establishing a breach of contract, this Court noted in

# - Laas: "There 

### is littlequestion but that therewas a breach of contract by the State in failingto secure the right-of-way across the Emery property. 

# **

# * The standard specifications, one of the contracting documents, specificallyprovided that the Statewould provide allof the right-of-way for the roadway without cost tothe contractor. The same document further provided that if the right-of-way had not been obtained atthe time when thebids were opened, the award would not be made until the entireright-of-way had been obtained. Clearly, the plaintiff had a right to assume, when he received the award and the order toproceed, that the right-of-way had been obtained, orwould be obtained without detriment tohim. "The standard specifications take into account that there may be delaybetween the time the bids areopened and the award 

### is.made because of unavoidable difficulties in securing the right-of-way, and further provide that no claim fordamages or loss of anticipated profits on that account may be made. But, no provision ismade for delay in securing right-of-way after the award has been made and the order toproceed given. The standard specifications further provide that if the contract ismaterially delayed because of right-of-way difficulties, due considerationwill be givenby the State inextending the contract timetomake proper allowance therefor. This may assist the contractor inavoiding the penalty clause, but it 

### is a farcry from compensating him for idledmen and equipment because ofdelay brought about by the failure of the State to secure the right-of-way before awarding the contract, or inreasonable time thereafter

# ."
The district court determined in its conclusions of law that "The State of Montana materially breached itscontract with Zook and the damages which Zook suffered thereby were a direct and proximate result of such breach." It is clear the record supports such a conclusion and it will not be set aside by this Court. Zook acted inreliance upon the State's implicit representation the right-of-way had been obtained and suffered great

I expense as a result. The record indicates that Zook assembled ample equipment to complete this project in the time intended. Testimony from Zook's and the State's witnesses was presented to the effect that Zook was a competent and efficient highway contractor and this project was performed as efficiently as possible, under the circumstances. Zook proceeded with grading activities even though foreclosed from operation in two critical areas, Frontage Road No. 

### 4 and the railroad overpass. Zook alsoworked as much as possible during the winter shutdown as allowed by the contract, and thereby made some use of the equipment held on the project for completion inthe spring. Thus, Zook made every reasonable attempt tomitigate its damages under the State's breach. Having determined the State's failure to timely relocate the utility lines and obtain right-of-way through themining claims

was a breach of contract that materially damaged Zook, the question now becomes the proper measure of those damages. Section 17-301, R.C.M. 1947, provides:"For thebreach of an obligation arising from contract, themeasure of damages, except where otherwise expressly provided by this code, is the amount which willcompensate the party aggrieved for alldetriment proximately caused thereby, or which, in the ordinary course of things, would be likely toresult therefrom." For damages tobe recoverable under section 17-301, they must "have been within the contemplation of the parties when they entered into the contract, and such asmight naturally be expected toresult from 

### itsviolation." Myers v. Bender, 

### 46 Mont. 497, 508, 129 P. 330. On appeal, Zook seeks compensation for three separate

areas of damage: 1) increased costs of performing the contract; 2) standby costs for idled equipment; and 3) lostprofits. These constitute the proper measure of damages under the facts. The contract was let for almost $3,000,000. It involved complete construction of over sixmiles of interstatehighway. Atone time or another, Zook had approximately $3,000,000 worth of equipment on thejob. It isclear the losses claimed by Zook were foreseeable and would naturally flow from a substantial delay inperformance of the contract. The delay that did occur was caused by the State, therefore these losses are properly compensable under section 17-301, 

### R.C.M. 1947. 1) To establish itsclaim for increased performance costs, Zook utilized the actualbusiness records maintained during its work on the Montana CityProject. These records were introduced and admitted without objection during trial. Zook's records contained actual costs consistent with the pay items within the State's contract. Zook limited its cla.imto nine critical items of highway construction costs thatwere influencedby the Sta.tel 

### s breach.Zook's records show it cost Zook $1,440,483 in straight fieldcosts toperform thework. It also incurred indirectjob costs of $166,088 and a general administrative expense of $158,408. Payments by the State for these several items totaled $1,146,293.42, resulting inZook's loss of $618,685.58 on itsperformance of the contract. Zook introduced several alternativemethods of determining 

### its loss. One method consisted of an audit of costs and revenues for the entirejob including equipment ownership expense. Under thismethod, Zook suffered a loss of $652,542,85. Another method calculated the reasonable cost of performing the contract and compared it to the Statepayments. Escalated costs ineight areas of job performance were compared against Staterevenues. The result showed a loss toZook of $663,026.66. Methods of computing the amount of damages may vary from

case to case. Under the facts of this case, the Court believes the result derived from Zook's actual cost records isthe best evidence of Zook's actual loss. We mention the other methods and the losses they show only to reinforce the determination that the loss shown by Zook's actual cost records 

### isreasonably certain and accurate. 2) Zook claims damages of $613,387 for equipment standby. The claim isbased on a listof approximately 100pieces of equipment idledbecause of the State's breach. Standby time was computed by examining Zook's business records to determine the actual operating and repairhours for each piece of equipment ineach week of

a 

### 10 month period running from August 1967 toMay 1968. These hours were subtracted from a base of 40 hours per week. The differencewas standby.This method of computing standby time was necessary since neither Zook nor the Statemaintained standby records during the Montana City Project. In the absence of such records, theuse of a 40 hour week as the measure of standby time was reasonable under the circumstances. Zook planned to schedule 2 10-hour work shifts 6 days a week or at least 2 8-hour shifts

### 5 days a week. This, the evidence shows, is common practice in the construction industry. Compared to the anticipated operating hours of 80 to 120hours per week, 40 hours 

### isnot an arbitraryguideline. To establish the cost of the standby time, Zook used 50 per cent of thehourly rentalrates promulgated by theMontana Highway Department and approved by the StateHighway Commission. There was testimony inthe record stating these rates were reasonable and below prevalent rentalrates attha.t time. During trial, counsel for the Staterepresented that it could not find certain pieces of equipment shown on Zook's records asworking on the Montana City Project

# . Zook deleted and eliminated standby claims for several items, reducing the damages claimed by some $66,000. Zook's claim for equipment standby costs of $613,387 is reasonable and amply supported by the record. 3) Zook,finally, asks for an award of lostprofits on the contract in the amount of $88,249. This amount isequivalent to the 

### 5 per cent profit Zook anticipatedwhen itbid on thejob. The rule inMontana as statedby this Court inCruse v. Clawson, 137 Mont. 439, 448, 352 P.2d 989, and cited in -9 Laas is that a party: 

# "** J; may recover for loss of profits where it is shown that such loss is the natural and direct result of the actof the defendant complained of and that such amount iscertain and not speculative."The record 

### is repletewith testimony that Zook was a competent and efficient highway contractor and that it performed the project as efficiently as possible under the circumstances. Highway construction 

### is a hazardous pursuit withno guarantee that a profit willbe realized on any particularjob. Under the facts of this case, however, we are convinced Zook should recover its anticipated profit. The delays, caused by the State, greatly increased operating costs. They seriously disrupted Zook's schedule and moved the project intohigher wage periods and bad weather. The evidence showed Zook had the necessary equipment and expertise to perform the contract ina workmanlike manner
were it not for the State'sbreach. Under these facts, Zook should receive the benefit of 

### itsbargain. Zook also alleges that its losses on theMontana City Project forced it to sellmuch of 

### its equipment, thus decreasing 

### itsprofits for several subsequent years. We concur with the district court that the evidence as to these alleged losses isvague and speculative. We find no basis inthe record for an award of damages for loss of future profits. This Court in Spackman v. Ralph M. Parsons, Co., 147Mont. 500, 509, 414 P. 2d 918 (1966), said the verdict of the trialcourt willbe set aside if: 

# ** it canbe shown with reasonable conviction that the [finder of fact]

# * ** (3) made a mistake of law or fact; (4) based its findings on a misunderstanding of law or fact JC 

# * Jc." Where a verdict does not appear tohave resulted frompassion and prejudice, and any errormay be ascerta.inedby mathematical calculation, this Court may properly modify thejudgment without reversing it. See: Nesbitt v. City of Butte, 118Mont. 84,94, 163P.2d 251; Miller v. Emerson, 120Mont. 380, 381, 186 P.2d 220;A.T. Klemens & Son v. Reber Plumbing and Heating Co., 139Mont. 115, 126, 360 P.2d 1005. This Court, after a review of the district court's findings of fact and conclusions of law, is unable to determine a basis for thejudgment rendered. From the record we cannot discern a basis that supports the damages award given, either inthe first judgment or in the amended judgment which added an additional amount incompensation for traffic control expenses incurred. The districtcourtwas faced with an enormous volume of highly complex accounting evidence and detailed technical testimony presented

on behalf of Zook and the State. A thorough review of the evidence and the record of the district court trialof this matter, leads this Court to the conclusion that Zook 

### isrightfully entitled to the damages set forth in this Opinion, less the $140,917 awarded inthe districtcourt.

We Concur:

Justices --.".*----

/-*"'- 7,

4.. &&&C CLL-
V 

## -Hon. Edward T. Dussault, District Judge, sitting for Chief Justice James T. Harrison.Mr. Justice Frank I. Haswell, concurring inpart and dissenting inpart:I concur inthe holding of themajority that the State breached the construction contract and that Zook's claim isnot barred by the special statuteof limitations. I dissent from the amount of damages awarded by the majority

## -- $1,320,321.58, or almost 10 timesthe damages awarded by the districtcourt. This award isbased on Zook's contention that the delays resulting from relocation of utilitypoles and acquisition of right-of-way over mining claims in one segment of the project caused a "ripple effect" on other segments of the project with the result that the entire construction project as conceived and bid had tobe changed materially which caused losses half again asgreat as the amount of the original bid and award. In my view, the focus of the issue is whether the State's breach caused the damages claimed by Zook. On appeal, the function of this Court is simply todetermine the sufficiency of the evidence to support the district court's finding and judgment. Holenstein v. Andrews, 166 Mont. 60, 530 P.2d 476; Kirby v. Kelly, 161Mont. 66, 504 P.2d 683, and cases cited therein. Here the district court found that only $140,917 of the claimed damages were caused by the State's breach. The gistof the district court's reasoning is found in the following excerpt from its opinion: "It is the opinion of this Court that both the State and the contractor miscalculated the total time allowed for the completion of the contract. There was an overrun of 116 days due, inpart, to the delays occasioned by the State innot having the entire right-of-way available. Work started on July 25, 1967, and the complete right-of-way was available inmid-October, 1967. However, during this timethe contractor was available towork on and did work on a major portion of the project." In my view, the evidence, though conflicting, is sufficient to support this finding and judgment of the district court. I would affirm thejudgment.

Justice 

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