Fisher Sand & Gravel Co. v. State Ex Rel. South Dakota Department of Transportation

1997 SD 8, 558 N.W.2d 864, 1997 S.D. LEXIS 11, 1997 WL 56946

• Court: South Dakota Supreme Court
• Decided: February 12, 1997
• Docket: 19247
• Status: Published

Opinions

GILBERTSON, Justice (on reassignment).

[¶ 1.] The State of South Dakota through the Department of Transportation appeals a jury verdict in favor of Fisher Sand & Gravel Co. for negligence resulting from a highway construction contract. We reverse and remand with instruction.

FACTS & PROCEDURE

[¶ 2.] The State of South Dakota Department of Transportation (DOT) accepted bids for a concrete paving project to begin in June 1992 on twenty miles of U.S. Highway 12 between McIntosh and McLaughlin in Cor-son County, South Dakota. Bids were due June 25, 1991. Fisher Sand & Gravel Co. (Fisher), an aggregate supplier with offices in Mitchell and Spearfish, received notice of the project and ordered the proposal, planning to quote the sand and fine aggregate gravel products needed to mix the paving concrete. Prior to submitting its bid, Fisher received “Addendum No. 1,” dated June 17, which stated:

All fine aggregate [sand] must have been tested by ASTM P 214¹ for Alkali-Silica Reactivity and shall have obtained a value of 0.225% expansion or less. SDDOT has tested all major commercial sources in SD and has the results on record. To obtain a copy of the results please contact the Division of Engineering, Project Development Engineer.

All sources not previously tested by SDDOT must be tested by SDDOT prior to performance of design mix work. The preparation of the sample and actual testing procedure ASTM P214 requires approximately 21 days to obtain results....

[¶ 3.] The State was in the process of examining the cracking and deterioration of its paving projects and wished to avoid similar problems on this project. Fisher received this addendum on June 20, 1991, before DOT’s bid deadline. The following day, Fisher acquired the list of test results from the testing of twenty-one pits referenced in the addendum.

[¶ 4.] Fisher planned to use sand from its pit located at Fort Yates, North Dakota, which had not yet been tested by DOT. Harry Swank, chief estimator for Fisher, and Gene Fisher, its president, were not concerned about Fisher’s ability to provide sand which met the specifications because, in their experience, there had never been a problem they could not remedy by blending sands or mixing additional material with the sand. Fisher, as subcontractor, submitted its proposal utilizing Fort Yates sand to Sundt Corporation. Sundt incorporated Fisher’s proposal into its own bid and was awarded the paving contract for the project on July 5, 1991.

[¶ 5.] Independent testing by Twin Cities Testing in January 1992 and testing by the DOT in July 1991 of samples of the Fort Yates sand yielded the same results: the Fort Yates sand did not meet DOT’s specifications unless fly ash was incorporated into the aggregate mixture. DOT advised Sundt this sand could not be used for the project because it did not meet specifications, which, according to DOT, required that the sand itself, without addition of fly ash, test for alkali-silica reactivity at .225 percent or less expansion. Following meetings with DOT and Sundt, and following failed attempts at a compromise using the Fort Yates sand, Fisher obtained an alternate source of sand from the Northern Con-Ag Rauville pit located near Watertown, South Dakota. This source was on DOT’s list of tested sources provided to Fisher at the time of bidding and was obtained by Fisher at a total additional cost of $420,330.49, including transportation and testing.

[¶ 6.] On June 14, 1993, Fisher sued DOT alleging negligence, violation of reasonable construction standards, breach of contract and breach of good faith and fair dealing. Fisher claimed damages of $610,008.99, which included the additional cost of the sand, as well as “mark up” of $74,398.50 (17.7%) and .“lost sales revenue” of by-products from the Fort Yates pit.

[¶ 7.] The jury returned a verdict for Fisher in the amount of $406,012.74 for negligence, but explicitly found no breach of contract by DOT. At a separate hearing, the trial court granted Fisher’s motion for prejudgment interest. DOT appeals, raising the following issues:

1. Whether the jury should have been instructed on Fisher’s negligence claims and whether the jury’s verdict on negligence is supported by the evidence?

2. Whether Fisher’s expert properly testified, over objection, about his opinion of what the defendant thought or intended with reference to Addendum # 1 and/or the use or incorporation of fly ash under the Addendum?

3. Whether DOT’s proposed jury instructions Nos. 1, 2, and 3 were warranted under the facts and circumstances of this case?

4. Whether Fisher was entitled to prejudgment interest on the jury’s award of damages on the negligence count?

ANALYSIS AND DECISION

Whether the jury should have been instructed on Fisher’s negligence claims and whether the jury’s verdict on negligence is supported by the evidence?

[¶ 8.] Fisher was a subcontractor who entered into a subcontract approved by DOT to provide the general contractor, Sundt, with aggregate. Fisher knew of DOT’s speeifiea-tions for aggregate prior to entering its bid and had acquired a list of test results of suppliers that met DOT’s specifications. Notwithstanding this information, Fisher continued with its plan to use its own aggregate from Fort Yates, North Dakota which had not been tested nor approved by DOT.² Prior to entering its bid, Fisher made no attempt to see if its North Dakota aggregate would meet DOT’s specifications.

[¶ 9.] SDCL 31-2-34 is the jurisdictional statute which allows Fisher to sue DOT. That statute provides in part that Fisher may sue DOT “respecting any claim, right, or controversy arising out of the work performed, or by virtue of the provisions of any construction contract entered into by the South Dakota department of transportation.” (emphasis added). Under this statute, if there is no contract or quasi-contract, there is no lawsuit.

[¶ 10.] In Sweetman Const. Co. v. State, 293 N.W.2d 457 (S.D.1980), we interpreted SDCL 31-2-34 to place a subcontractor in privity of contract with the State where the subcontract between the subcontractor and the general contractor had been approved by DOT.³ In Candee Const. Co. v. Dep’t of Transportation, 447 N.W.2d 339, 344 (S.D.1989), cert. denied, 494 U.S. 1067, 110 S.Ct. 1785, 108 L.Ed.2d 786 (1990), we held this interpretation of the statute did not limit the plaintiff to contract causes of actions, but also authorized recovery under a quantum meruit theory for extra work done and extra materials provided. However, to bring the suit under the statute one had to be a “contractor” with the State pursuant to a contract or subcontract. That is exactly what happened in the case now before us.

[¶ 11.] The jury explicitly found that DOT had not breached its subcontract with Fisher and awarded Fisher no damages on its contract. Fisher did not appeal this determination. Yet despite the fact the jury found DOT had fully complied with its contractual obligations to Fisher, we are now asked to determine whether DOT should pay Fisher $406,012.74 in damages for negligence concerning DOT’s interpretation of and conduct under the contract DOT did not breach.

[¶ 12.] In order to prevail in a suit based on negligence, a plaintiff must prove duty, breach of that duty, proximate and factual causation, and actual injury. Lien v. McGladrey & Pullen, 509 N.W.2d 421, 423 (S.D.1993). Whether a duty exists is a question of law, fully reviewable by this Court on appeal. Tipton v. Town of Tabor, 538 N.W.2d 783, 785 (S.D.1995). We therefore consider the existence of a duty under the de novo standard. Bland v. Davison County, 507 N.W.2d 80, 81 (S.D.1993) (“[W]e must determine if a relationship exists between the parties such that the law will impose upon the defendant a legal obligation or reasonable conduct for the benefit of the plaintiff.”).

[¶ 13.] What duty did DOT owe Fisher? Outside of the contract there was no relationship between them. Thus, the facts here can be distinguished from those presented in Mid-Western Elec. Inc. v. DeWild Grant Rechert & Assoc., 500 N.W.2d 250, 253 (S.D.1993) and Limpert v. Bail, 447 N.W.2d 48, 51 (S.D.1989), where no privity of contract existed between the parties. There, to find a duty, the Court relied on a foreseeable third party and the obligations arising from the undertaking of professional services. The policy concerns expressed by the Court in the above cases, i.e., protection of innocent third parties who relied on the actions of others, do not present themselves in the instant case. DOT was not “rendering services to another” as was found necessary under the theory of professional negligence addressed by the Mid-Western and Limpert Courts.

[¶14.] Prosser and Keeton on Torts (5th ed 1984) introduces the relationship between tort actions and contract actions as follows:

Tort obligations are in general obligations that are imposed by law on policy considerations to avoid some kind of loss to others. They are obligations imposed apart from and independent of promises made and therefore apart from any manifested intention of parties to a contract or other bargaining transaction. Therefore, if the alleged obligation to do or not to do something that was breached could not have existed but for a manifested intent, then contract law should be the only theory upon which liability would be imposed.

Id. at § 92, at 656.

[¶ 15.] We have followed the same distinction.

It may be granted that an omission to perform a contract obligation is never a tort, unless that omission is also an omission of a legal duty. But such legal duty may spring from extraneous circumstances, not constituting elements of the contract as such, although connected with and dependent upon it, and born of that wider range of legal duty which is due from every man to his fellow, to respect his rights of property and person, and refrain from invading them by force or fraud.

Smith v. Weber, 70 S.D. 232, 236, 16 N.W.2d 537, 539 (1944). Citing Smith, we held in Weeg v. Iowa Mutual Ins. Co., 82 S.D. 104, 110, 141 N.W.2d 913, 916 (1966), that negligence that consists merely in the breach of a contract will not afford grounds for a tort action by third parties and is limited under a breach of contract cause of action to the party to the contract or for whose benefit the contract was made. See also Kunkel v. United Security Ins. Co., 84 S.D. 116, 135, 168 N.W.2d 723, 733 (1969).

The independent tort must be separate and distinct from the breach of contract. While the intentional tort may occur at the time of and in connection with the breach, or may arise out of the same transaction, it is not committed merely by breaching the contract, even if such action is intentional.

Hoffman v. Louis Dreyfus Corp., 435 N.W.2d 211, 214 (S.D.1989) (citing 22 AmJur2d Damages § 752 (1988)).

[¶ 16.] Herein the duty DOT owed Fisher can arise solely from the contract. Fisher never hired DOT to interpret the contract and DOT never volunteered to do the same. In Garrett v. BankWest, Inc., 459 N.W.2d 833, 843 (S.D.1990), we held that when a contracting party does not act in good faith under the contract, the other party has a remedy under the contract for breach thereof but no independent tort cause of action exists for the same claim. This is also consistent with the explicit terms of SDCL 31-2-34, dealing solely with litigation over contracts. “Where a defendant is charged with negligence because of his failure to perform an act allegedly required by contract, the question of whether the defendant had a duty to perform the act usually must be determined from the terms of the contract. The defendant’s duty will not be extended beyond the duties described in the contract.” Holubek v. City of Chicago, 146 Ill.App.3d 815, 100 Ill.Dec. 370, 372, 497 N.E.2d 348, 350 (1986).

[¶ 17.] In alleging negligence by DOT, Fisher claims it had the right to use fly ash to comply with the addendum, that it had the right to use a blend of sands, and that DOT was negligent in denying Fisher its right to use the Fort Yates sand source. Fisher farther claims DOT was negligent in failing to follow industry standards regarding Fisher’s alleged rights, that DOT was negligent in drafting and interpreting the parties’ contract, and that DOT acted arbitrarily in denying Fisher’s proffered material. In setting forth these allegations regarding its rights and DOT’s obligations, Fisher fails to recognize that the contract between these parties created their rights and obligations. These duties are implied by the parties’ own promises, and not imposed by law. See Trippet Trust v. Blevins, 1996 SD 29, ¶ 8, 545 N.W.2d 216, 222; SDCL 53-1-1. See also S & S Trucking v. Whitewood Motors, Inc., 346 N.W.2d 297, 299 (S.D.1984) (testimony to show industry custom and usage is inadmissible when it conflicts with the express terms of a contract); Thibeault v. Pickering, 2 Mass.App.Ct. 421, 313 N.E.2d 586, 588 (1974) (holding impermissible the assumption that a custom of the trade imposed a duty on the defendant which had not been imposed by the parties’ written agreement).

[¶ 18.] The jury found DOT had not breached its written contract with Fisher. In order to maintain its tort claim against DOT, Fisher must show DOT’s acts or omissions resulted in the breach of an independent duty not already defined by the contract. Smith, Kunkel, Weeg and Hoffman, supra. Fisher has not demonstrated that DOT breached any duties, rights, or obligations independent of those imposed upon them under the contract. See Beck v. Farmers Insurance Exchange, 701 P.2d 795, 800 (Utah 1985) (when “the duties or obligations of the parties are contractual rather than fiduciary ... a breach of those express or implied duties can give rise only to a cause of action in contract, not one in tort.”).⁴

[¶ 19.] If one in good faith fully complied with the contract, one cannot be held liable for actions arising out of the contract under a theory of negligence.

Rights are not to be determined by playing a game of labels. If the relationship of the parties is such as to support a cause of action in tort, that cause of action is not to be denied because the parties happened also to have made a contract. Conversely, a breach of contract is not, standing alone, a tort as well. And it cannot be converted into a tort merely by attaching to the contract, or to the breach, new labels that sound in tort.

Redgrave v. Boston Symphony Orchestra, Inc., 557 F.Supp. 230, 238 (D.Mass.1983). “ ‘Conduct that is merely a breach of contract is not a tort.’ ” Matter of Cert. of a Question of Law, 399 N.W.2d 320, 322 (S.D.1987) (quoting Weeg, 82 S.D. at 109, 141 N.W.2d at 916).

[¶ 20.] In Lesmeister v. Dilly, 330 N.W.2d 95, 99 (Minn.1983), the Minnesota Supreme Court held apportionment of 5% fault to the defendant for negligence was inconsistent with the jury’s finding no breach of contract by the defendant. The court recalculated the share of negligence, reducing this defendant’s apportionment to 0%. Id. at 100. Likewise, in Compton v. Polonski, 567 S.W.2d 835, 839 (Tex.Civ.App.1978), a Texas appellate court, reviewing a jury’s verdicts in which the jury found no breach of contract between the parties, but found the plaintiff had been negligent in fulfilling its obligations under the contract, characterized the two verdicts as “in fatal conflict.” Id. at 840. Compare Thibeault, 313 N.E.2d at 588 (court found no error in directed verdict for defendant heating contractor on negligence and breach of contract claims where failure of defendant to perform a duty not required by parties’ written contract did not render defendant liable for negligence); Roberts v. Auto-Owners Ins. Co., 422 Mich. 594, 374 N.W.2d 905, 909 (1985) (holding that “in a contractual setting, a tort action must rest on a breach of duty distinct from contract.” Mere failure to perform an obligation under a contract “cannot give rise to a negligence cause of action in tort.”); Uptown Heights Assoc. v. Seafirst Corp., 320 Or. 638, 891 P.2d 639, 647 (1995) (holding that a party to a contract could not be liable in tort for conduct which the party was entitled to do under the contract, noting that “[a] contrary ruling would contravene public policy and undermine the stability of contractual relations.”); Interwest Const. v. Palmer, 886 P.2d 92, 101 (Utah.App.1994) (defendant could not be held liable for negligence where there existed no duty independent of the parties’ contract and no breach of the contract had been shown).

[¶ 21.] Here, Fisher bid a project without attempting to comply with the project’s specifications. At that time, he simply took the position that he would use the material he chose regardless of DOT’s requirements, “no if s, and’s or but’s.” When forced by DOT to comply with the contract specifications, Fisher subsequently did not prevail in an action for breach of contract against DOT. The law is clear in this jurisdiction that a breach of contract does not, by itself, constitute a tort. We are unwilling to go even beyond this and hold that a contract, legally complied with, by itself may provide a basis for tort action based solely on that valid compliance. As such, Fisher cannot prevail in an action sounding in tort for DOT had no, and thus did not violate any, non-contractual duty towards Fisher.

[¶ 22.] Thus, we conclude that as DOT had no duty to Fisher outside of the contract and the jury found DOT did not breach that contract, an award in favor of Fisher based upon a negligence theory cannot be upheld. Our decision under this issue is dispositive of all other issues on appeal.⁵ For the reasons set forth above, we reverse and remand with instructions to enter judgment in favor of DOT on the negligence claim as consistent with the jury’s verdict on the contract claim.⁶

[¶ 23.] MILLER, C.J., and AMUNDSON and KONENKAMP, JJ., concur. [¶ 24.] SABERS, J., dissents.

1 . The American Society for Testing and Materials (ASTM) is a "nationally recognized industry laboratory and an association that develops and implements standards for the industry,” according to Hany Swank, Fisher’s chief estimator and contract administrator. P 214 is a proposed test formulated by ASTM which “provides a means of detecting the potential of an aggregate used in concrete for undergoing alkali-silica reaction and resulting potentially deleterious internal expansion.” Proposal P 214: Proposed Test Method for Accelerated Detection of Potentially Deleterious Expansion of Mortar Bars Due to Alkali-Silica Reaction, American Society for Testing and Materials.

2 . Gene Fisher testified that he "just told Harry [Swank] that no if's, and’s or hut's about it we were going to get the sand from Fort Yates.”

3 . Both the construction contract at part VII.4., and the South Dakota DOT's Standard Specifications for Road and Bridges (1990 ed) at § 8.1, incorporated by reference into the contract, require the State's written consent to the subcontract between the prime contractor and Fisher, as subcontractor.

4 . The dissent relies upon Mid-Western, 500 N.W.2d 250, for the thesis that an action for professional negligence may be maintained independently of a cause of action for breach of contract. Mid-Western is clearly distinguishable from the case now before us. Unlike the contractual relationship between DOT and Fisher, in Mid-Western, there was no contractual relationship between the parties. We recognized a duty in tort because to do otherwise would "deny a plaintiff his day in court.” Herein, Fisher got its day in court on its breach of contract claim and it lost. We are now asked to expand Mid-Western such that even if one in good faith fully complied with the contract, one could still be held liable for actions arising out of the contract under a theory of professional negligence.

The argument of the dissent that DOT was guilty of professional negligence despite fully complying with its contractual obligations is illogical and sends the state of the law of contracts down a dangerous and slippery path. It is serious enough when limited to the situation of professional negligence. However, if this thesis is valid to begin with, it will undoubtedly be argued in the future that there is no rational justification for limiting it to causes of action for professional negligence and precluding it for all other actions involving negligence. This is the very position advocated by the special concurrence in Mid-Western, 500 N.W.2d at 257 (Sabers, X, concurring specially).

How will contracting parties, and parties considering entering into a contractual agreement, be negatively influenced by the thought that even if they in good faith fully comply with the contractual obligations to a party with whom they have no other non-contractual relationship, they may still have to go through the substantial expense of a trial and be liable for even more substantial damages for negligence?

5 . The dissent also argues that Fisher is entitled to a new trial based on improper jury instructions because the jury was instructed on theories of breach of contract and negligence. Fisher pled and argued its case on both theories of contract and tort, did not object to the jury instructions or verdict forms pertaining to both theories which instructed the jury that if it found for Fisher, it could do so on a theory of negligence, contract or both. Fisher did not file any post-trial motions claiming jury confusion or requesting a new trial. Failure to object to a jury instruction waives the issue for appeal. Schaffer v. Edward D. Jones & Co., 1996 SD 94, ¶ 15, 552 N.W.2d 801, 807 (1996). See also SDCL 15-6-59(a)(7) (grant of new trial due to error of law, such as instructions to the jury, "must be based upon an objection, offer of proof or a motion to strike.”). Neither was this issue ever raised or briefed by Fisher on appeal. In other words, this issue raised by the dissent has never been raised by Fisher at any stage of this proceeding.

6 . As we reverse on the merits, Fisher is also not entitled to any prejudgment interest. SDCL 21-1-13.1.