Opinion ID: 169163
Heading Depth: 2
Heading Rank: 1

Heading: Force-Majeure Clause

Text: 27 The contract's force-majeure clause contains the following language: 28 The time for Completion of Construction shall be extended for the period of any reasonable delay which is due exclusively to causes beyond the control and without the fault of [Hutton], including Acts of God, fires, floods, and acts or omissions of [the City] with respect to matters for which [the City] is solely responsible. 29 Aplt.App. Vol. IV at 933. Hutton argues that late delivery of utility poles was beyond the control and without the fault of [Hutton]. Id. In essence it contends that it should be excused for all delays caused by its suppliers or subcontractors, at least when those delays arise without its fault and are beyond its control. The district court rejected this contention on the ground that Hutton could be charged with fault in selecting the supplier. 30 In our view, the district court essentially got it right. The most reasonable interpretation of fault of [Hutton] in the force-majeure clause is fault of Hutton and those to whom it delegates its responsibilities under the contract. The contract did not specify a source of the poles. The City was concerned only with the ultimate performance, not whom Hutton employed to reach the result. Under Hutton's interpretation of the force-majeure clause, it could protect itself from liability arising from a particular type of delay simply by arranging that a contractual partner assume responsibility for that type of delay. In other words, delays could be excused or not depending solely on whether Hutton chose to outsource a particular operation or line of supply. It would be absurd to assume that the City was concerned about delay only when caused by Hutton, and not by a supplier or subcontractor that Hutton decided to employ. Not only would Hutton's interpretation provide a perverse incentive for contractors to outsource work and supplies needlessly, but it also ignores the potential legal remedies of the contracting parties. Under Hutton's view the supplier, the one ultimately responsible for the delay, would be immune from paying damages. Because Hutton would have no liability to the City arising from the supplier's delay, the supplier would owe nothing to Hutton on that account. And it is unclear how the City could have a contractual cause of action against the supplier, whose contract is only with Hutton. See Melvin A. Eisenberg, Third-Party Beneficiaries, 92 Colum. L. Rev. 1358, 1402-06 (1992) (owner should ordinarily not have cause of action against subcontractor unless contractor becomes insolvent). If, however, Hutton is liable to the City for the delay, it could seek relief from its supplier. In particular, if Hutton is concerned about paying damages caused by a supplier's delay, it can protect itself by paying the supplier a higher price and obtaining a delay-damages clause in its contract with the supplier. 31 We do not suggest that Hutton was at fault in its choice of supplier, only that it is responsible to the City for its supplier's delays when those delays are not themselves excused by a force majeure. Hutton does not suggest that the supplier's failure was caused by a natural catastrophe or the like. In short, a delay by a subcontractor or supplier is not itself a force majeure. 32 In so holding, we are not stating a new rule of contract law. Although we have not found a Kansas case in point, courts have treated contractors as responsible for the performance of their suppliers and subcontractors. See, e.g., Johnson Mgmt. Group CFC, Inc. v. Martinez, 308 F.3d 1245, 1252 (Fed.Cir.2002) (A contractor is responsible for the unexcused performance failures of its subcontractor); Olson Plumbing & Heating Co. v. United States, 221 Ct.Cl. 197, 602 F.2d 950, 957 (1979) (The contractor alone is responsible for the deficiencies of its suppliers and its subcontractors absent a showing of impossibility. Plaintiff's failure to produce a leak-free system was due to the deficient design of [its] supplier [and was not] the fault of the Government.). Accordingly, a contractor assumes the risk that its subcontractor or supplier will fail, at least when its contract with the owner does not call for a specific supplier or subcontractor to complete a task. Decisions to this effect generally arise in cases analyzing the contract doctrines of impossibility and impracticability, but the lesson from such cases is nevertheless helpful in interpreting a force-majeure clause. As one treatise puts it: 33 When a promised performance is known by both parties to be impossible unless some third party performs, it may be a reasonable interpretation that the promise is conditional upon performance by the third party. The performance would then be discharged if the third party does not do its part. This will usually not be the interpretation, however, if nothing is said about the third party's contract or involvement in the contemplated performance. In this context, a division among courts has developed in the so-called middleman cases, in which a seller agrees to supply a good to a buyer but then contracts with another party to manufacture the good. . . . Courts have been more inclined to bind the middleman to the contract if the contract is silent on the source of supply, and more likely to release the middleman if the source is referenced in the agreement. . . . The originating source was more likely to be a basic assumption on which the contract was made (a so-called sole source of supply contract) if the source is mentioned in the agreement. 34 14-75 Corbin on Contracts § 75.6 (2006) (footnotes omitted). See also Morin Bldg. Prods. Co. v. Volk Constr., Inc., 500 F.Supp. 82, 89 (D.Mont.1980) (In this case, Morin assumed the risk of performance; it assumed the risk that delivery of the metal siding would be delayed by problems with its subcontractors and suppliers. There is nothing in the contract between the parties which excuses Morin for delays caused by its subcontractors or suppliers. Thus Morin had an obligation to timely deliver . . . .). 35 We should add that our holding is a limited one. The sole concern here is damages for delay when time is of the essence of the contract. We are not deciding whether the City could have declared Hutton in default, sought another contractor, and recovered from Hutton for the increased cost. Cf. United States v. Wegematic Corp., 360 F.2d 674, 675, 677 (2d Cir.1966) (Friendly, J.) (rejecting an argument that performance was impossible and upholding liquidated damages for delay, but noting that it was not deciding whether the Government could have . . . recover[ed] not merely [liquidated] damages for delay but also the higher cost of replacement equipment). 36 Hutton suggests that the commencement-date clause of the contract supports its interpretation of the force-majeure clause. It contends that the contract must contemplate that Hutton would be excused upon the late delivery of essential materials because the commencement date was to be set after notice in writing from [Hutton] that [Hutton] has sufficient materials to warrant commencement and continuation of construction, Aplt.App. Vol. IV at 933. But we draw the contrary inference. Because Hutton is to provide notice that it has sufficient material before the commencement date is set, one would infer that it is responsible if its notice turns out to be erroneous. In other words, its notice constitutes a representation that the supply of necessary material will be adequate to complete the project on time; delay caused by lack of material is then its responsibility. We note that the force-majeure clause itself makes no reference to the availability of materials. 37 Hutton also argues that the City is partly responsible for the poles' delay because of the City's own delay in approving specifications. But even if this contention were correct, partial responsibility does not matter under the force-majeure clause, which makes the City's delays relevant only with respect to matters for which [it] is solely responsible. Aplt.App. Vol. IV at 933. The City's contributions to delays could, however, affect the amount of damages to which it is entitled; we take up that question below. 38 Hutton's final argument on this issue is that it qualified its bid based upon the supply of the poles. Aplt. Br. at 23. Hutton's bid included the following letter dated March 21, 2000, which Hutton argues was adopted as part of the contract: Please be advised that this bid proposal is being submitted with material deliveries as follows: . . . Steel Poles—Sixteen (16) weeks after receipt of order. Aplt.App. Vol. IV at 946. But Hutton does not explain the relevance of this notice. The City asserts that all specifications for the poles were resolved by July 27, 2000, and that receipt of the poles 16 weeks later, on November 15, 2000, would have been well within the completion time frame under the modified commencement date of October 23, 2000. Aplee. Br. at 25. Hutton offers no argument in response. 39 For the above reasons, we affirm the district court's determination that the force-majeure clause does not assist Hutton.