Opinion ID: 2358186
Heading Depth: 1
Heading Rank: 3

Heading: Interpretation of Agreement for Engineering Services

Text: The District first contends that the trial court erred when it awarded Perkins compensatory damages in the amount of $212,151.39. Specifically, the District asserts that no money was due and owing to Perkins under the contract because the contract awarded compensation based on the actual construction costs, and construction did not occur. In reply, Perkins states the contract was not contingent upon actual construction of the sewage system; rather, the payment provisions within the contract provided a time outline for when payment would be due should construction begin. The contract contemplates the performance of certain engineering services by Perkins. Those services are specifically listed in Section A of the contract. The dispute at issue here arises under Section B of the contract. That provision states in relevant part: 1. The Owner shall compensate the Engineer for design and contract administration engineering services in the amount as shown in Attachment 1 When Attachment 1 is used to establish compensation for the design and contract administration services, the actual construction costs on which compensation is determined shall exclude legal fees, administration costs, engineering fees, land rights, acquisition costs, water costs, and interest expense incurred during the construction period. 2. The compensation for preliminary engineering services, design and contract administration services shall be payable as follows: (a) a sum which equals eighty percent (80%) of the compensation payable immediately after the construction contracts are awarded. (b) A sum equal to fifteen percent (15%) of the compensation will be paid on a monthly basis for general engineering review of the contractor's work during the construction period on percentage ratios identical to those approved by the Engineer as a basis upon which to make partial payments to the contractor(s). However, payment under this paragraph and of such additional sums as are due the Engineer by reason of any necessary adjustments in the payment computations will be in an amount so that the aggregate of all the sums paid to the Engineer will equal ninety-five percent (95%) of the compensation. A final payment to equal 100 percent shall be made when it is determined that all services required by the Agreement have been completed except for the services set forth in Section A-20 hereof. In connection with these payment provisions under the contract, the trial court made the following findings: There is no provision in the Contract stating that the engineer would be paid for engineering services contemplated by Section A of the Contract if, for any reason, the project was not constructed. Nor is there a provision providing for payment of various services rendered prior to construction contract's [sic] being awarded. There is also no provision in the Contract stating that the engineer would not be paid for engineering services if the project was not constructed. From the evidence presented it is obvious to the court that Perkins' [sic] expected to be paid and that the district intended to pay Perkins for his work. Further, the District did pay Mr. Malone, the first engineer for his work in a reduced agreed upon amount. Based on these findings, the court awarded Perkins compensatory damages in the amount of $212,151.39. We conclude that under the express terms of the contract, Perkins was entitled to be compensated for his services. The Restatement (Second) on Contracts § 227 (2004) provides explicit standards of preference regarding the interpretation of express conditions located within contracts: (1) In resolving doubts as to whether an event is made a condition of an obligor's duty, and as to the nature of such an event, an interpretation is preferred that will reduce the obligee's risk of forfeiture, unless the event is within the obligee's control or the circumstances indicate that he has assumed the risk. The following commentary explains the rationale for such standards of preference: The non-occurrence of a condition of an obligor's duty may cause the obligee to lose his right to the agreed exchange after he has relied substantially on the expectation of that exchange, as by preparation or performance. The word forfeiture is used in this Restatement to refer to the denial of compensation that results in such a case. The policy favoring freedom of contact requires that ... the agreement of the parties should be honored even though forfeiture results. When, however, it is doubtful whether or not the agreement makes an event a condition of an obligor's duty, an interpretation is preferred that will reduce the risk of forfeiture. For example, under a provision that a duty is to be performed when an event occurs, it may be doubtful whether it is to be performed only if that event occurs, in which case the event is a condition, or at such time as it would ordinarily occur, in which case the event is referred to merely to measure the passage of time. In the latter case, if the event does not occur some alternative means will be found to measure the passage of time, and the non-occurrence of the event will not prevent the obligor's duty from becoming one of performance. If the event is a condition, however, the obligee takes the risk that its non-occurrence will discharge the obligor's duty ... If the event is within his [obligee's] control, he will assume this risk. If it is not within his [obligee's] control, it is sufficiently unusual for him to assume the risk that, in case of doubt, an interpretation is preferred under which the event is not a condition. The Restatement (Second) on Contracts § 227, comment b (2004) (emphasis added). Likewise, another well-recognized treatise on contracts, Corbin on Contracts, states one who unjustly prevents the performance or the happening of a condition of promissory duty thereby eliminates it as a condition. Thus, that party cannot escape liability by preventing the happening of the condition on which it was promised. 8-40 Arthur L. Corbin, Corbin on Contracts § 40.17 (2004). See also Am.Jur.: 17A Am.Jur.2d Contracts § 687 (2004)(One who prevents or makes impossible the performance or occurrence of a condition precedent, upon which that person's liability depends under the contract, cannot insist or rely on the condition ... A promisor who prevents or hinders the occurrence or fulfillment of a condition in a contract excuses the condition, and the liability of the promisor is fixed regardless of the failure to perform the condition.). Our case law also supports this same principle of law in the enforcement of private contracts. In Ingham Lumber Co. v. Ingersoll & Co., 93 Ark. 447, 125 S.W. 139 (1910), Ingersoll entered into a written contract with Ingham whereby Ingham employed Ingersoll to cut and manufacture lumber on its land. After Ingersoll began to perform under the contract, the manager of Ingham notified Ingersoll to stop cutting and manufacturing the timber on account of a shortage of money. In short, Ingersoll wanted to continue its work under the contract, but was prevented from doing so by Ingham. In holding in favor of Ingersoll, we said, [a] contract is not invalid, nor is the obligor therein in any manner discharged from its binding effect because it turns out to be difficult or burdensome to perform. Id. We find no reason why the same principle of law should not also extend to a written contract entered into by an improvement district for the purpose of securing the services of an engineer. After all, our case law has never allowed an improvement district to negotiate contracts with parties, abandon the improvement, and then be wholly relieved from its duty to pay for completed preliminary work. Gould v. Sanford, 155 Ark. 304, 244 S.W. 433 (1922)(preliminary expenses can be imposed on the property owners of the district, but services performed as part of the issuance for bonds are not services preliminary in nature); Elkins v. Huntington-Midland Highway Dist., 161 Ark. 556, 256 S.W. 835 (1923)(allowing recovery of engineering fees as preliminary expenses). In this case, Perkins had no control over whether construction contracts would be awarded or whether the improvement would in fact be constructed. Nevertheless, the District asks us to find that Perkins assumed the risk when he entered into the agreement because payment under the contract was contingent upon actual construction of the sewage system. As explained earlier, when it is doubtful whether or not an agreement makes an event a condition of an obligor's duty, an interpretation is preferred that will reduce the obligee's risk of forfeiture unless the event is within the obligee's control. The Restatement (Second) on Contracts § 227, comment b (2004). Here, the trial court examined the payment provisions of the contract and, in resolving any doubt as to whether construction of the improvement was a condition of the District's obligation to pay for engineering services performed by Perkins, the trial court adopted an interpretation that reduced the risk of forfeiture. In other words, because construction of the proposed improvement was not within Perkins's control, he did not assume the risk of forfeiting payment if the project was not constructed. We cannot say that the trial court clearly erred in ruling that payment under the contract was not contingent upon actual construction of the sewage system. The District nonetheless contends that it had a right to abandon the proposed improvement project. While we certainly agree with the District that an improvement district has a right to terminate construction of a proposed improvement project, Arkansas law imposes an obligation on improvement districts to pay preliminary expenses for contemplated improvement projects that are for any reason not made. Arkansas Code Annotated § 14-92-238 (Repl.1998) specifically provides as follows: Preliminary Expenses (a) In case, for any reason, the improvement contemplated by any suburban improvement district organized under this subchapter is not made, the preliminary expense shall be a first lien upon all the land in the district and shall be paid by a levy of a tax thereon upon the assessed value for county and state taxation. (b) The levy shall be made by the chancery court of the county and shall be collected by a receiver to be appointed by the court. Ark.Code Ann. § 14-92-238 (emphasis added). The purpose of this statute is to provide a means for payment of preliminary expenses incurred by improvement districts in connection with improvements contemplated by such districts even if those improvements are, for whatever reason, abandoned. Thus, to the extent that the engineering services performed by Perkins are deemed to be preliminary expenses, construction is not a condition of payment for those expenses under Arkansas law.