Opinion ID: 1224019
Heading Depth: 3
Heading Rank: 1

Heading: Meaning of Agreement's Turn-Key Provision

Text: On appeal, LSC focuses initially on the turn-key provision of the September 4, 1992, lease agreement. At trial, LSC requested a jury instruction defining the term turn-key to require SPI to assume all risks arising from weather-related and other job-site problems. The trial court declined to define turn-key, instead leaving the jury to decide the term's meaning: In order to find for [LSC] on this claim, you must find that it is more likely than not that both parties understood and intended, or reasonably should have understood and intended, that turn key as used in this lease meant that SPI would pay for all damages to [LSC] resulting from weather or other problems on the job. The jury's special verdict concluded that SPI did not breach its contract by failing to pay for labor costs incurred by LSC as a result of job-site equipment problems. LSC challenges the trial court's failure to define turn-key, arguing that turn-key is a legal term of art and a legal term with legal meaning. In LSC's view, `a turn-key job' is any job or contract in which a contractor agrees to complete the work to a specified point and to assume all risks. LSC maintains that by agreeing to furnish thermal remediation equipment to LSC at the turn key price of $44.00 per ton, SPI bound itself as a matter of law to absorb all added costs resulting from equipment breakdowns or freezing weather throughout the course of the soil remediation project. LSC insists that the trial court should have determined that this is what turn-key meant, that the court should have instructed the jury accordingly, and that there was no evidence to support the jury's verdict declining to find a turn-key breach. Interpreting a written contract is generally a task for the trial court; however, interpretation becomes a task for the trier of fact when the parties present extrinsic evidence to clarify a contract's meaning, when this evidence points toward conflicting interpretations of the contract, and when the contract itself is reasonably susceptible of either meaning. Alaska Diversified Contrs., Inc. v. Lower Kuskokwim Sch. Dist., 778 P.2d 581, 584 (Alaska 1989); Restatement (Second) of Contracts § 212(2). In such cases, the trial court initially determines whether the extrinsic evidence meets the criteria to create a jury question; when the court finds that the extrinsic evidence does not conflict or is incompatible with the terms of the written contract, interpretation remains a question of law for the court's determination. Alaska Diversified, 778 P.2d at 584; Alaska N. Dev., Inc. v. Alyeska Pipeline Serv. Co., 666 P.2d 33, 39 (Alaska 1983). This court exercises its independent judgment when reviewing a trial court's decision to leave interpretation of a contract to the jury. Cf. Alyeska Pipeline Serv. Co. v. O'Kelley, 645 P.2d 767, 771 (Alaska 1982). In contrast, we give deferential review to the jury's verdict interpreting the contract: we do not reweigh the evidence but ask only whether it creates room for diversity of opinion among reasonable people. Municipality of Anchorage v. Baugh Constr. & Eng'g. Co., 722 P.2d 919, 927 (Alaska 1986). We must affirm the verdict unless the evidence to support it is completely lacking or so slight and unconvincing as to make it manifestly unreasonable and unjust. United Bonding Ins. Co. v. Castle, 444 P.2d 454, 455 (Alaska 1968). We first consider whether the evidence at trial pointed toward conflicting interpretations of the lease agreement's turn-key provision. The President of SPI testified that the turn-key provision meant nothing more than, I supply the equipment, they turn the key on and it starts. SPI also presented evidence that, after the project was already underway, LSC sought a contract modification imposing all risks of operation on SPI; LSC's actions implied that the original contract did not impose these risks on SPI. LSC, on the other hand, claimed that it included the turn-key provision in the lease agreement for the express purpose of ensuring that SPI would bear all risks of operation. LSC claimed that the originally proposed price of the contract had been increased as a result of its insistence on adding the turn-key provision. [2] This evidence unquestionably presented conflicting interpretations of the lease agreement's turn-key provision. We next consider whether SPI's proposed interpretation of the turn-key provision is necessarily inconsistent with the express terms of the lease agreement. [3] LSC contends that SPI's proposed interpretation of turn-key is incompatible with the accepted legal definition of the term. To support this contention, LSC relies on case law and Black's Law Dictionary. However, the cases LSC relies on all deal with either building contracts or oil drilling contracts. [4] Likewise, while Black's Law Dictionary does define a turn-key contract as one requiring all risks to be assumed by [the] contractor, Black's does not purport to define this term generally, but only as used in [the] building trade and [i]n [the] oil drilling industry. [5] Neither the case law nor the dictionary attaches a fixed meaning to turn-key when the term is used in other types of contracts. LSC has thus failed to establish that turn-key has any settled legal meaning in the context of an equipment lease agreement. Use of the term in this unfamiliar setting almost inevitably generates uncertainty as to its intended meaning. Notably, even as commonly applied in oil drilling and construction contracts, the term could arguably support allocating all operational risks to LSC. In the oil industry, for example, the turn-key driller bears all responsibility for difficulties encountered while drilling a well (but is not responsible for problems that arise after the well's delivery to the owner); in fact, the driller does not even guarantee a producing well. Totah Drilling Co. v. Abraham, 64 N.M. 380, 328 P.2d 1083, 1091 (1958). This allocation of risk would seemingly favor SPI's argument that it only bargained to furnish a functioning soil decontamination machine, with LSC to bear all risks during operation. Moreover, courts encountering turn-key provisions in novel contexts have not hesitated to look beyond the definition typically applied to the term in construction and oil drilling cases. For example, in explaining its willingness to go beyond the term's usual meaning, the court in Smithco Eng'g., Inc. v. International Fabricators, Inc., 775 P.2d 1011 (Wyo. 1989), quoting Justice Holmes, stated: A word is not a crystal, transparent, and unchanged, it is the skin of a living thought and may vary greatly in color and content according to the circumstances and the time in which it is used. The use of the term turn key does not abrogate the general rule that the entire contract must be considered to determine the meaning. Id. at 1015-16 (quoting Towne v. Eisner, 245 U.S. 418, 425, 38 S.Ct. 158, 159, 62 L.Ed. 372 (1918)) (citation omitted). [6] A final measure of the turn-key provision's ambiguity in the present case may be found in the language of the equipment lease agreement itself. One clause in the agreement specifies that SPI will provide [a]ll required parts, oil, grease, for maintenance of equipment. No penalty charges or damages may be attributed or charged to SPI for down time. This clause suggests that SPI's repair responsibilities were meant to be limited to routine maintenance. Another clause guarantees SPI $3,000 a day or $175 an hour for the time value of its equipment if LSC or even a third party government agency request[s] the processor to stop production. This suggests that the onus was on LSC to assure that processing not be interrupted. When read as a whole, the lease agreement thus undermines LSC's claim of certainty as to the turn-key provision's meaning. LSC highlights several clauses of its September 1, 1992, service agreement with SPI. The agreement's preface provides that [i]f soil conditions materially change, prices and quotes will be subject to change by mutual agreement. The fourth clause provides that the plant will be operated on a round-the-clock basis until completion of the project or work is stopped due to inclement weather. At first blush, these portions of the service agreement appear to be in tension with the lease agreement, particularly its provision for a $3,000 per day standby rate. However, unlike the lease agreement, which was project specific, the service agreement set conditions for all dealings between the parties over the ensuing three-year period. Moreover, the September 1 service agreement and September 4 equipment lease agreement are separate contracts; as a separate contract, the service agreement amounts, at most, to extrinsic evidence of the lease agreement's meaning  a point serving to illustrate LSC's tacit recognition of the ambiguity of the lease agreement itself. All of the foregoing considerations support the trial court's conclusion that the lease agreement's turn-key provision was ambiguous and that the extrinsic evidence pointed to two competing meanings, each viable and neither inconsistent with the agreement's plain terms. Given these circumstances, the trial court properly instructed that the task of interpreting the agreement was a factual matter for the jury. Alaska Diversified, 778 P.2d at 584. By concluding that the extrinsic evidence supported reasonable but conflicting interpretations of the contract and thereby made interpretation a jury question, we have necessarily determined that the jury would have acted reasonably in accepting either of the conflicting interpretations. The evidence supporting SPI's claim that LSC bore the burden of costs resulting from equipment breakdown is neither slight nor unconvincing; this evidence creates room for diversity of opinion among reasonable people. It is therefore sufficient to support the jury's verdict. Municipality of Anchorage v. Baugh Constr. & Eng'g. Co., 722 P.2d 919, 927 (Alaska 1986). LSC's claim to the contrary is groundless. [7]