No. 12983 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

19 7 6 

ZOOK BROTHERS CONSTRUCTION COMPANY, 

Plaintiff and Appellant, 

-vs - 

THE STATE OF MONTANA, 

Defendant and Respondent. 

Appeal from: District Court of the First Judicial District, 

Honorable Peter Meloy, Judge presiding. 

Counsel of Record: 

For Appellant : 

Gough, Booth, Shanahan and Johnson, Helena, Montana 

Ronald Waterman argued, Helena, Montana 

Patrick Sullivan argued, Spokane, Washington 

For Respondent : 

Donald Douglas appeared, Helena, Montana 

Cannon and Garrity, Helena, Montgna 

Donald Garrity argued, Helena, Montana 

- fl\J G 2 k, **',-'? Filed: 

Submitted : June 3, 1976 

Decided : 2 5 p7r 
Mr. Justice Wesley Castles delivered the Opinion of the Court. 

Plaintiff appeals from a judgment of the district court, 

Lewis and Clark County. 

Zook Brothers Construction Company (Zook) and the Montana 

Department of Highways (State) entered into a contract in June 

1967, whereby Zook agreed to construct a segment of highway 

referred to as the "Montana City Project1', a 6.083 segment of 

interstate and secondary highway in Jefferson 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 inform Zook the State lacked rightof-way access to portions of the project, which is claimed to have 

caused a delay in scheduled operations and escalated costs of completion. Zook contends 1) it is entitled to damages for costs 

incurred in completion of the project, 2) for the cost of "standby" 

on equipment it was unable to utilize due to unforeseen 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 claim were 

occasioned (a) by Montana Power Company's problem in obtaining a 

right-of-way for relocation of a utility line, and (b) by the 

inability of the State to obtain right-of-way across various mining 

claims through the project. 

(a) The utility delay. 

The State, after planning the general location of the 

highway to be constructed, took steps to secure a right-of-way 
and to remove existing utilities from the area. The Montana 

Power Company was contacted regarding the relocation of an 

electrical transmission line. A relocation contract with Montana 

Power was approved by the State on June 27, 1967 and contained 

a provision that all utility moves were expected to be completed 

by August 31, 1967. Relocation of the power line was critical 

to Zook's schedule for construction, in that the line had to be 

removed prior to construction of a frontage road upon which Zook 

had planned to divert traffic to complete the main highway construction. The power line was not relocated until April 1968. 

(b) The mining claim delay. 

The State encountered problems in obtaining the right-of-way 

through various mining claims within the work area. Zook was advised to begin construction on July 17, 1967, although the State 

was aware there were various problems obtaining right-of-way 

through the mining claims. At a preconstruction conference held between the State representatives and Zook personnel on July 19, 1967, 

Zook advised the State of its schedule for completion of the various 

phases of the project. The State discussed such diverse problems 

as safety and the protection of wildlife habitat. The State did 

not advise Zook personnel of the right-of-way difficulties it was 

encountering. 

Upon receipt of the State's order to proceed on July 17, 

1967, Zook began to mobilize all of the necessary equipment for 

completion of the project according to the agreed schedule. However, 

on July 27, 1967, the State issued a suspension order to Zook 

which prevented Zook from proceeding with construction in the 

area of the mining claims during negotiation for and testing of 
these 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 to reduce great quantities of rock to a size 

that would allow excavation with self-loading "scrapers" of large 

rock cuts. Zook also planned to use large quantities of the 

excavated rock and material as fill in the 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 fill and excavation requirements were delayed several weeks. 

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 State by 

letter that the utility pole problem and theI1mining claims delay 

has really fouled up our schedule for completion of this project 

and feel we should be given full consideration 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 claim was rejected 

by the State. On March 24, 1972 Zook filed a "complete Documentation" 

[~ook's description] of its claim for an amount far in excess of 

its original claim. Following the submission of this claim, 

the State undertook an audit of the Zook records for the purpose 

of evaluation of that portion of the claim relating to equipment 

standby costs. Zook's claim was orally denied by the Director 

of the State Highway Commission after several meetings between the 

parties to discuss that claim. 

- 4 - 
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 State of Montana materially breached 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 in damages, consisting of 

$125,000 for maintenance of equipment in standby status, and 

$15,917 as additional expense for traffic control costs incurred 

due to its inability to complete Frontage Road No. 4. 

Zook appeals claiming it is entitled to damages fa.r in 

excess of those granted by the district court. The State crossappeals on the basis Zook's claim is barred 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 is not 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 State contends the claim of Zook is barred by the 

provisions of section 83-602, R.C.M. 1947, which provides in pertinent part: 

"Whenever any contracting agency of the state of 

Montana provides a procedure for the settlement 

of any question or dispute arising between the contractor and said agency, the contractor, before 
proceeding to bring an action in court under 

provision of this act, must resort to such 

procedure within the time specified in his 

contract or, if no 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 or dispute arises between 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 dispute has 

arisen * * *.If 

The State argues Zook's cause of action, if any, arose as 

of the July 27, 1967 order from the Director to stop work in the 

area of the mining claims. The State urges the contract limits the 

time for filing of a claim to within the 60 day period following 

the date of the delay. It claims the September 6, 1967 letter 

from Zook's general manager fails to state a claim in that it does 

not contain demand for additional compensation, nor does 

express an intention to submit such a claim at any 1a.ter date. 

It also notes the letter does not direct itself to the Commission. 

These alleged facts are urged as grounds for finding that Zook 

time 

failed to present a claim within the/provided, i.e. 60 days. 

This Court is in agreement with the district court ' s conclusion that these contentions are totally without merit. The claim 

is neither barred on statutory nor contractual grounds. The letter 

from Zook was addressed to a Mr. Richard B. Dundas, District Engineer, State Highway 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 State considered the matter, audited Zook's 

records regarding its claim for standby expenses and held several 

hearings, at Zook'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 the Director of the State Highway Department. 

Litigation was commenced April 20, 1973 and is clearly not barred 

by the contractual limitations nor the statutory limitations. The 

logical rule, and the rule adopted in other jurisdictions, is that 

a claim or dispute ARISES at the time the State submits a final 

estimate to the contractor for his approval or rejection. Terry 

Contracting, Inc. v. State of New York, 280 N.Y.S.2d 450 (1967); 

Waterman v. State of New York, 241 N.Y.S.2d 314 (1963). To date, 

no such final estimate has ever been submitted to Zook by the State. 

The State's reliance on statutory or contractual limitations 

is also without merit for the reason the State, through its own 

actions, led Zook to believe that its claim would receive timely 

attention and would be reviewed by the State pending an administrative decision on its merits. Zook relied upon the assurances 

in the State's letter dated September 12, 1967, that the State 

would give full consideration to all factors relative to the State's 

failure to obtain right-of-way. Clearly, the State is foreclosed 

from raising a statute of limitations defense given the above facts. 

The State also urges there was insufficient evidence in 

the record of the district court to support a finding there was a 

breach of contract upon which to base an award of damages to the 

contractor, Zook. This Court, in detemining a similar dispute, held 

the failure to obtain highway right-of-way is a material breach of 

contract which, if it delays a contractor, will sustain an award of 

damages. Laas v. Montana Highway Comm'n, 157 Mont. 121, 125, 132,483 

P.2d 699 (1971). 
The Standard Specifications portion of the contract entered 

into here provides in part: 

"07.17 FURNISHING RIGHT-OF-WAY. All right-of-way 

for the roadway shall be provided by the Commission 

without cost to the contractor. All right-of-way may 

not have been obtained at the time when the bids are 

opened and the proposal considered, and in that case the 

award will not be made until the entire right-of-way has 

been obtained. The 'submission of a bid will be construed 

as an acceptance of this condition by the bidder, and no 

claim for damage or loss of unavoidable delay in securing 

right-of-way will be considered by the Commission. If 

the contract is materially delayed because of right-of-way 

difficulties, due consideration will be given by the 

Commission in extending the contract time to make proper 

allowances therefor." (Emphasis supplied.) 

The contract between Zook and the State was 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 little question but that there was a breach 

of contract by the State in failing to secure the 

right-of-way across the Emery property. * * * The 

standard specifications, one of the contracting documents, specifically provided that the State would 

provide all of the right-of-way for the roadway without 

cost to the contractor. The same document further 

provided that if the right-of-way had not been obtained 

at the time when the bids were opened, the award would 

not be made until the entire right-of-way had been obtained. 

Clearly, the plaintiff had a right to assume, when he 

received the award and the order to proceed, that the 

right-of-way had been obtained, or would be obtained 

without detriment to him. 

"The standard specifications take into account that there 

may be delay between the time the bids are opened and the 

award is .made because of unavoidable difficulties in 

securing the right-of-way, and further provide that no 

claim for damages or loss of anticipated profits on that 

account may be made. But, no provision is made for delay 

in securing right-of-way after the award has been made and 

the order to proceed given. The standard specifications 

further provide that if the contract is materially delayed 

because of right-of-way difficulties, due consideration will 

be given by the State in extending the contract time to make 

proper allowance therefor. This may assist the contractor 

in avoiding the penalty clause, but it is a far cry from 

compensating him for idled men and equipment because of 
delay brought about by the failure of the State to 

secure the right-of-way before awarding the contract, 

or in reasonable time thereafter ." 

The district court determined in its conclusions of law 

that "The State of Montana materially breached its contract 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 in reliance 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 also worked 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 

in the spring. Thus, Zook made every reasonable attempt to mitigate 

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 the mining 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 the breach of an obligation arising from 

contract, the measure of damages, except where 

otherwise expressly provided by this code, is 

the amount which will compensate the party aggrieved 

for all detriment proximately caused thereby, or 

which, in the ordinary course of things, would be 

likely to result therefrom." 

For damages to be recoverable under section 17-301, they 

must "have been within the contemplation of the parties when 

they entered into the contract, and such as might naturally be 

expected to result from its violation." 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) lost profits. 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 six miles of interstate highway. At one time or 

another, Zook had approximately $3,000,000 worth of equipment on 

the job. It is clear the losses claimed by Zook were foreseeable 

and would naturally flow from a substantial delay in performance 

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 its claim for increased performance costs, 

Zook utilized the actual business records maintained during its 

work on the Montana City Project. 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.im to nine critical items of highway 

construction costs that were influenced by the Sta.tel s breach. 
Zook's records show it cost Zook $1,440,483 in straight field costs 

to perform the work. It also incurred indirect job 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 in Zook's loss of $618,685.58 on its performance of the 

contract. 

Zook introduced several alternative methods of determining 

its loss. One method consisted of an audit of costs and revenues 

for the entire job including equipment ownership expense. Under 

this method, Zook suffered a loss of $652,542,85. Another method 

calculated the reasonable cost of performing the contract and 

compared it to the State payments. Escalated costs in eight areas 

of job performance were compared against State revenues. The 

result showed a loss to Zook 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 is the 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 is reasonably certain and 

accurate. 

2) Zook claims damages of $613,387 for equipment standby. 

The claim is based on a list of approximately 100 pieces of equipment idled because of the State's breach. Standby time was computed 

by examining Zook's business records to determine the actual operating and repair hours for each piece of equipment in each week of 

a 10 month period running from August 1967 to May 1968. These 

hours were subtracted from a base of 40 hours per week. The 

difference was standby. 
This method of computing standby time was necessary since 

neither Zook nor the State maintained standby records during the 

Montana City Project. In the absence of such records, the use 

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 120 hours per week, 40 hours is not an arbitrary guideline. 

To establish the cost of the standby time, Zook used 50 

per cent of the hourly rental rates promulgated by the Montana 

Highway Department and approved by the State Highway Commission. 

There was testimony in the record stating these rates were reasonable 

and below prevalent rental rates at tha.t time. During trial, 

counsel for the State represented that it could not find certain 

pieces of equipment shown on Zook's records as working on the 

Montana City Proj ect . 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 lost profits on the 

contract in the amount of $88,249. This amount is equivalent to 

the 5 per cent profit Zook anticipated when it bid on the job. The 

rule in Montana as stated by this Court in Cruse 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 act of the defendant complained of and that such 

amount is certain and not speculative." 
The record is replete with 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 with no guarantee 

that a profit will be realized on any particular job. 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 into higher wage periods and bad 

weather. The evidence showed Zook had the necessary equipment 

and expertise to perform the contract in a workmanlike manner 

were it not for the State's breach. Under these facts, Zook 

should receive the benefit of its bargain. 

Zook also alleges that its losses on the Montana City 

Project forced it to sell much of its equipment, thus decreasing 

its profits for several subsequent years. We concur with the 

district court that the evidence as to these alleged losses is vague 

and speculative. We find no basis in the record for an award of 

damages for loss of future profits. 

This Court in Spackman v. Ralph M. Parsons, Co., 147 Mont. 

500, 509, 414 P. 2d 918 (1966), said the verdict of the trial court 

will be set aside if: 

* * it can be 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 to have resulted from passion and 

prejudice, and any error may be ascerta.ined by mathematical 

calculation, this Court may properly modify the judgment without 

reversing it. See: Nesbitt v. City of Butte, 118 Mont. 84,94, 

163 P.2d 251; Miller v. Emerson, 120 Mont. 380, 381, 186 P.2d 220; 
A.T. Klemens & Son v. Reber Plumbing and Heating Co., 139 Mont. 

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 the judgment rendered. From the record we cannot discern a 

basis that supports the damages award given, either in the first 

judgment or in the amended judgment which added an additional amount 

in compensation for traffic control expenses incurred. The 

district court was 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 trial of this 

matter, leads this Court to the conclusion that Zook is rightfully 

entitled to the damages set forth in this Opinion, less the $140,917 

awarded in the district court. 

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 in part and dissenting 

in part: 

I concur in the holding of the majority that the State 

breached the construction contract and that Zook's claim is not 

barred by the special statute of limitations. 

I dissent from the amount of damages awarded by the 

majority -- $1,320,321.58, or almost 10 times the damages awarded 

by the district court. This award is based on Zook's contention 

that the delays resulting from relocation of utility poles 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 to be changed materially which caused losses 

half again as great 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 to determine 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, 161 Mont. 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 gist of 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, in part, 

to the delays occasioned by the State in not having 

the entire right-of-way available. Work started on 

July 25, 1967, and the complete right-of-way was 

available in mid-October, 1967. However, during 

this time the contractor was available to work 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 the judgment. 

Justice 

- 15 -