Opinion ID: 524344
Heading Depth: 3
Heading Rank: 1

Heading: Reservation of Breach of Contract, Warranty Claims

Text: 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