Opinion ID: 524344
Heading Depth: 2
Heading Rank: 1

Heading: Claims for Breach of Contract and Warranty

Text: 7 Following massive discovery, the parties filed cross-motions for summary judgment. In a lengthy memorandum and order the court ruled (1) that Mod. 164, as a matter of law, unambiguously extinguished all WPPSS's claims under Contract 213A except those sounding in warranty; (2) that Mod. 164 is ambiguous as to whether Contract 213A or 213B warranties govern the reserved claims; and (3) that Contract 213A warranties are ambiguous as to whether they attached before or after completion and turnover of PDM's contract work. 2 WPPSS contends that the court erred in its three summary judgment rulings. 8 Examining the WNP-2 contracts, we must determine initially whether certain contractual language is ambiguous. 3 Whether a contract is ambiguous is a question of law for the court. Vanderpool v. Grange Ins. Ass'n, 110 Wash.2d 483, 756 P.2d 111, 114 (1988). We review de novo the court's grant of summary judgment and its interpretation of state law. Cohen v. Paramount Pictures Corp., 845 F.2d 851, 852 (9th Cir.1988); In re McLinn, 739 F.2d 1395, 1397 (9th Cir.1984) (en banc). 9 Under Washington law, ambiguities exist when contract terms are uncertain or capable of being understood in more than one manner. E.g., McGary v. Westlake Investors, 99 Wash.2d 280, 661 P.2d 971, 974 (1983). The controlling intent of the parties must be ascertained from reading the contract as a whole, and where the language used is unambiguous, no ambiguity will be read into the contract. Taylor-Edwards Warehouse & Transfer Co. v. Burlington N., Inc., 715 F.2d 1330, 1334 (9th Cir.1983) (applying Washington law); see St. Yves v. Mid State Bank, 111 Wash.2d 374, 757 P.2d 1384, 1386-87 (1988) (holding that parol evidence not admissible to create an ambiguity). 10
11 In Mod. 164 the parties settled all claims arising from the performance of Contract 213A except those related to defective or nonconforming work accomplished prior to February 28, 1981 that may arise from PDM's failure to implement its quality assurance program properly. 12 WPPSS contends that the exclusion clause in Mod. 164 saved all breach of warranty and contract claims arising from the breakdown of PDM's quality assurance program. 4 PDM asserts that WPPSS failed to preserve any breach of contract claims. 13 The crux of the contractual dispute focuses on p 2 of Mod. 164, which reads in its entirety: 14 [Modification 164] 15 Provides for settlement and compensation for all completed contract work in place, approved and accepted by the Owner up to and including February 28, 1981 on the basis of a negotiated cost incurred of $50,329,631. Payment is in consideration of settlement and full and final compromise of all outstanding unexecuted change orders, claims, materials on site (not installed) purchased by the Contractor, all escalation, causes of action and damages arising out of or in connection with said performance of the 2808-213A Contract up to and including February 28, 1981, excluding any issues between Owner and Contractor related to defective or nonconforming work accomplished prior to February 28, 1981 and [sic] that may arise from contractors failure to properly implement the Quality Assurance Program as set forth in the 2808-213A by reference herein as applicable to this issue. 16 (emphasis added). 5 17 The court decided by summary judgment that Mod. 164, as a matter of law, preserved claims for breach of warranty only. Construing p 2, it ruled: 18 [U]nder the Mod. 164 language the claim reserved was that of warranty only since the any issue language modifies the defective and nonconforming language, which terms unambiguously signify warranty notions despite the fact that the term warranty is not used.... Manifestly, the saved claims are not ones for both breach of warranty and for breach of contract. Rather, the warranty-type language is limiting and definitive, not cumulative or collective. 19 Summary Judgment Order at 44. Although the court's analysis has some appeal, we disagree and find the terms defective or nonconforming ambiguous. 20 Those terms, as a matter of law, do not refer only to warranty concepts. In Eastlake Constr. Co. v. Hess, 102 Wash.2d 30, 686 P.2d 465 (1984), the Washington Supreme Court used the terms when it considered the appropriate measure of damages for a nonwarranty breach of contract claim. Among other instances, the court discussed the rule governing defective construction, explaining that some defects cannot be remedied without great expense, and pointing to the nonconforming insulation beneath the concrete floor in the case before it. Id. 686 P.2d at 473. 21 The Eastlake court also adopted the measure of breach of contract damages in construction cases set forth in Restatement (Second) of Contracts, Sec. 348 (1981). That section provides in pertinent part: 22 (2) If a breach results in defective or unfinished construction and the loss in value to the injured party is not proved with sufficient certainty, he may recover damages based on 23 .... 24 (b) the reasonable cost of completing performance or of remedying the defects if that cost is not clearly disproportionate to the probable loss in value to him. 25 686 P.2d at 474 (emphasis added). Eastlake and other Washington cases demonstrate that the terms defective and nonconforming may be associated with breach of contract, as well as warranty claims. See, e.g., Maryhill Museum of Fine Arts v. Emil's Concrete Constr. Co., 50 Wash.App. 895, 751 P.2d 866, 869-70 (1988) (following Eastlake's adoption of Sec. 348 for determining breach of contract damages in construction cases); see also Fuller v. Rosinski, 79 Wash.2d 719, 488 P.2d 1061, 1063-64 (1971) (defective performance of contract to plant lawn and construct rock wall and alpine area), overruled on other grounds, Eastlake, 686 P.2d at 472-74; Marine Enters. v. Security Pac. Trading Corp., 50 Wash.App. 768, 750 P.2d 1290, 1291 (1988) (defective refrigeration system). 26 Further, the court's conclusion loses its force when we view Contract 213A as a whole. See McGary, 661 P.2d at 974. The contract contains provisions in which the terms are not used as terms of warranty. For example, Contract 213A, GC p 26.1 states in part: 27 Workmanship: Work shall be performed by qualified workmen utilizing practices that will result in the specified quality of product. All workmanship shall be free of defects or faults. 28 (emphasis added). Contract 213A, GC p 28.0 states in part: 29 [PDM] shall, without charge, replace any material or correct any workmanship found by [WPPSS] not to conform to the Contract requirements, unless [WPPSS] consents to accept such material or workmanship with an appropriate adjustment in Contract Price. 30 (emphasis added). Such use of the terms outside the warranty clauses suggests that the court erred in finding the words defective and nonconforming unambiguously to preserve only warranty claims. Those words may be understood in more than one manner. 31 PDM argues that we should determine whether the terms are ambiguous in light of all surrounding circumstances. It contends that Mod. 164 represented the culmination of lengthy negotiations resulting in the settlement of WPPSS's claims. The only claim left was the warranty claim. However, Washington law is clear that [t]he intent of the parties to the contract is to be gleaned from the document itself, and only if it is ambiguous is parol evidence regarding the parties' actual intent admissible. McGary, 661 P.2d at 974 (emphasis added); see Seattle Totems Hockey Club, Inc. v. National Hockey League, 783 F.2d 1347, 1354 (9th Cir.) (applying Washington law), cert. denied, 479 U.S. 932, 107 S.Ct. 405, 93 L.Ed.2d 357 (1986); Barnett v. Buchan Baking Co., 45 Wash.App. 152, 724 P.2d 1077, 1081 (1986), aff'd, 108 Wash.2d 405, 738 P.2d 1056 (1987) (stating that court should determine parties' intent in an unambiguous contract from the language of the contract itself). We may resort to extrinsic evidence only after we conclude that a contract is ambiguous. But see Continental Ins. Co. v. Paccar, Inc., 96 Wash.2d 160, 634 P.2d 291, 293 (1981) (finding a latent ambiguity when contract language becomes doubtful in light of extrinsic circumstances). 32 We conclude that the court erred in ruling that the terms defective and nonconforming, as a matter of law, unambiguously signal warranty claims only. Because we find that the evidence of intent presented by the parties gives rise to conflicting inferences, summary judgment is improper. We reverse and remand this issue of the parties' intent to the district court. 6 33
34 The court ruled Mod. 164 ambiguous as to whether the warranty provisions of Contract 213A or 213B govern the reserved claims. 7 We find the court's reasoning persuasive and conclude that the language in Mod. 164 is ambiguous as to this issue. 35 As stated before, the parties in Mod. 164 settled claims arising from the performance of Contract 213A up to and including February 28, 1981 excluding: 36 any issues between Owner and Contractor related to defective or nonconforming work accomplished prior to February 28, 1981 and [sic] that may arise from contractors failure to properly implement the Quality Assurance Program as set forth in the 2808-213A by reference herein as applicable to this issue. 37 Mod. 164, p 2 (emphasis added). 38 WPPSS argues that this portion of p 2 expresses unambiguously that the parties intended Contract 213A provisions to govern all reserved claims. It interprets the reference to 213A as defining what agreement would govern all saved claims. Emphasizing that Contract 213A governed work accomplished before February 28, 1981, it contends that the same contract should govern all claims related to that work. 39 On the other hand, PDM contends that Mod. 164 superseded and replaced the warranty provisions in Contract 213A with those of Contract 213B regardless of whether the work was performed under Contract 213A or 213B. Contract 213A provisions were otherwise extinguished by p 8 of Mod. 164, which states in pertinent part: 40 Delete the following specification pages and insert attached revised or added pages as follows: 41 Delete: 1A Section [contains 213A warranty provisions] in its entirety 42 Insert: 1A Section [contains 213B warranty provisions] in its entirety, FBS, 3/1/81. 43 It argues that the parties in Mod. 164 intended Contract 213B provisions to govern any claims, or alternatively, that the language in Mod. 164 is ambiguous. 44 The court found the above portion of p 2 ambiguous. It explained: 45 That portion of p 2 which states as set forth in the 2808-213A by reference herein as applicable to this issue falls squarely within Washington's broad definition of ambiguity. While it is manifest that 213B, at a minimum, applies to work accomplished after March 1, 1981 which was not done to correct defective work done before March 1st, the ambiguous reference in the same paragraph (2 of Mod. 164) to 213A read with or without the other provisions in 213A and 213B leave the construing reader with a choice of whether the parties intended to define performance and breach remedies of the saved 213A claims by reference to the otherwise extinguished provisions (213A) of the modified contract or by reference to the substituted 213B provisions. This is so since the phrase could be read as simply using 213A to define Quality Assurance Program. 46 Summary Judgment Order at 38. 47 We agree with the court that the reference to 213A might define the quality assurance program requirements only, but that it might address available remedies as well. We find the language ambiguous. Reviewing the extrinsic evidence offered to assist with the interpretation of this ambiguity, we agree with the court's conclusion that neither party presented evidence that demonstrated unequivocally that either the warranties of Contract 213A or those of Contract 213B govern the saved claims. The court properly denied summary judgment. 48
49 At a trial bifurcated to address contract interpretation issues, a jury found that WPPSS had not established that the parties in Mod. 164 intended Contract 213A warranties to govern any reserved claims. We affirm the court's denial of summary judgment on that issue and affirm the jury verdict. Therefore, we need not reach the issue whether the parties intended Contract 213A warranties to attach before or after completion and turnover of contract work.
50 The court granted summary judgment in favor of PDM on its two counterclaims. In the first, involving retentions and unpaid invoices under Contracts 213A and 213B, PDM established successfully that WPPSS owed it $2 million. Although WPPSS appealed that ruling, its brief failed to argue the issue. The parties stipulated to dismissal of that portion of the appeal and we entered a Stipulation and Order to that effect on September 16, 1988. 51 In its second counterclaim, involving a separate contract for construction work on WNP-5, PDM established that WPPSS owed it $366,897 plus interest and sale taxes. Because we uphold the court's decision in PDM II in WPPSS's favor, we need not reach the contract interpretation issues raised by WPPSS relating to this counterclaim. See infra Part II.