To read the article click here

This case has far reaching implications for commercial contractors (and their insurers), involved in construction defect disputes. Since most "construction defects" involve some violation of some provision of the building code, an owner now has two (2) years from the date of discovery of the defect (irrespective whether the contract statute of limitations has expired) to bring a cause of action against builders and their insurance companies.

Abraham v. T. Henry Construction, Inc., Or. App. __, WL 2766868 (2009)

The disputes arose from contract drawings which showed a set of steam prevacuum sterilizers enclosed within walls depicted by unlabeled double lines.  One drawing, that of equipment and furniture, had unlabeled double lines on both sides of, and enclosing, two sets of two vacuum steam sterilizer equipment.  Another drawing, the interior elevation plan, did not include any wall designations.  Dick Pacific took the position that the unlabeled double lines represented a wall or item of equipment that was to be supplied and installed by a follow-on contractor.  The technical specifications, however, called for stainless steel modular walls encasing the prevacuumed sterilizers.

Dick Pacific submitted a request for information to obtain the designation of the wall type.  The Corps responded that the technical specifications provided sufficient information and that no increase in the contract or time was justified for modular walls.  Dick Pacific submitted a proposed change order for stainless steel walls and indicated it would not proceed with the work unless directed.  The Corps. took the position that the modular walls did not constitute a change to the contract.  Dick Pacific, through its contractor ISEC, completed the walls and submitted a change order request for $99,479 for the construction and delay costs.  The Corps. denied Dick Pacific's request and the matter was appealed to the Armed Services Board of Contract Appeals (ASBCA).

One of Dick Pacific's arguments on appeal was that the Contract Documents were subject to more than one reasonable one interpretation, thus, the contract was ambiguous.  It reasoned that any contract ambiguity should trigger the order of precedence clause, which expressly stated that the contract drawings governed over the technical specifications.  The technical specifications were last in order of importance in the order of precedence clause.  The Corps. countered by arguing that despite the omission of a wall labeled in the drawings, the contract specifications and drawings read as a whole clearly required modular walls.  It contended that even if there were an ambiguity, Dick Pacific had a duty to make an inquiry or seek bid clarification.

The ASBCA found that the specifications and drawings reasonably read, as a whole, required modular walls for the sterilizers.  It relied primarily on several sections of the technical specifications that designated both sterilizers and modular walls as contractor installed equipment, defined the fabrication requirements for the walls and cited the wall layout on the drawings.  Although the drawings failed to show what type of wall was to be installed, the Board found that the depiction of the sterilizers on the drawings made it reasonably clear that modular walls were required in those locations.  The Board found no ambiguity in the contract.

This case provides important guidance to the industry on what is often a confusing issue.  Some parties think that an order of precedence clause creates an automatic solution to a contract interpretation dispute.  That is however not the case.  First the contractor must demonstrate that the contract documents are contradictory before it can resort to the order of precedents clause.  In this instance, the ASBCA found that the contract documents interpreted together, were not ambiguous and therefore, did not resort to the order of presence clause.

Dick Pacific/GHEMM JV, ASBCA No. 55806, 2007 WL 3265023

One of the more significant facts in the case was that Rudd conceded that the contract was formed between Rudd and Tacoma Fixture when Tacoma Fixture would make telephone calls to Rudd to order products and Rudd would agree to deliver the products.  Because of this concession, the Court analyzed whether the terms contained in Rudd's invoices were additional terms, rather than original terms of the parties' contract.

The Court analyzed the issue in the case under RCW 62A.2-207, which addresses when additional terms become a part of the parties' agreement under the UCC.  That section provides as follows:

(1)        A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

(2)       Additional terms are to be construed as proposals for addition of a contract. Between merchants such terms become a part of the contract, unless: (a) the offer expressly limits acceptance to the terms of the offer; (b) they materially alter it; or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

(3)      Conduct by both parties, which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case, the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provision of this Title.

The Court found that part 1 did not apply because:  first, the terms on the invoice were additional terms construed as proposals that Rudd conceded were not accepted by Tacoma Fixture; and (2) acceptance by Rudd was not made expressly conditional on Tacoma Fixture's acceptance of the additional terms.

The Court held that part 2 of the statute did not apply because it was a contract between merchants and the additional terms (warranty disclaimer, remedy limitation, and form selection clause) materially altered the contract.

Therefore, the Court held that part 3 of the statute applied and that the terms of the parties' agreement were governed by their oral agreement and the supplemental terms provided by the UCC.  The additional terms that Rudd relied on as a basis for its summary judgment motion did not form a part of the parties' agreement, and the Court of Appeals affirmed the trial court's denial of Rudd's motion for summary judgment.