As I write this on the centennial of the New Hampshire Supreme Court’s decision in Osgood Construction Co. v. Claremont, 81 N.H. 29 (1923), it remains one of the most interesting contract decisions I have yet encountered. (Coincidentally the losing defendant, Town of Claremont, was represented by a prior iteration of my law firm – which of course has nothing to do with my musings today!) Here’s what happened:
The case involved a water system improvement project that included constructing a concrete dam. The concrete specifications provided that “Sand, broken stone or gravel will be at all times subject to the approval or rejection of the engineer.” When the plaintiffs were preparing their bid, they asked the Town’s engineer “if they could base their bid upon the use of native stone, and he told them that they could. Accordingly they did so, reducing their bid $1.25 a yard upon the understanding that they could use local or native stone in the concrete.” Id. at 32. When the engineer later tested it, he found that “the local stone was wholly unsuitable for use in the concrete,” id. at 31, and required the plaintiffs to import different stone from elsewhere.
The plaintiffs sued to recover the additional expense, and lost at trial based on the trial judge’s conclusion that the engineer’s statement “falls considerably short of Mr. Osgood’s claim that [the engineer] told them unconditionally that the local stone might be used, and is rather more consistent with the statement . . . that local stone might be used if it proved to be suitable.” Id. at 32. But the Supreme Court reversed the decision, reasoning:
“If the defendants accepted the plaintiffs’ bid upon the basis of the lower price for local stone, they obtained the advantage of the use of such stone if it proved suitable. Making the contract in this way to obtain this advantage in price, they took the risk of the suitability of the local stone. Having taken the risk, they must bear the loss or extra expense rendered necessary by the discovery that the local stone could not be used.” Id. at 32.
Shifting the risk of nonconforming materials from contractor to owner normally requires proof that the contractor was misled about what materials could be used. Peter Salvucci & Sons, Inc. v. State, 110 N.H. 136, 147 (1970) (awarding the cost of importing distant gravel to a contractor who “is misled by incorrect plans and specifications issued by the public authorities as the basis for bids and who, as a result, submits a bid which is lower than he would have otherwise made”). Osgood reached the same result by construing the engineer’s statement that local stone could be used for bidding purposes as a firm promise – or as the Court put it, “the plaintiffs had a right to understand that, if their bid was accepted, they could use the local stone.” Id. at 33.
If the takeaway from Osgood were simply that owner approval of construction materials may be inferred from careless answers to pre-bid questions, it would hardly be surprising. What is more interesting to me is the Court’s willingness to overturn a factual finding of the trial court as to what the parties really meant. “When there is a question of fact concerning what was intended by certain terms within a contract, the dispute is to be resolved by the trier of fact, whose findings will be upheld if supported by the evidence.” R. Zoppo Co. v. City of Dover, 124 N.H. 666, 671 (1984). The trial judge found that engineer’s unspoken qualification “Yes, if it meets spec” should reasonably be implied under the circumstances. But the Supreme Court saw no ambiguity, and therefore no issue of fact to be resolved; an unqualified "Yes" was, in its view, “the only reasonable interpretation that can be placed upon the language used,” id. at 33.
The lesson of Osgood a century later remains important: pre-bid statements on what bidders may furnish in compliance with contract requirements need to be precise, or they risk giving unintended leeway to the successful bidder.
The case involved a water system improvement project that included constructing a concrete dam. The concrete specifications provided that “Sand, broken stone or gravel will be at all times subject to the approval or rejection of the engineer.” When the plaintiffs were preparing their bid, they asked the Town’s engineer “if they could base their bid upon the use of native stone, and he told them that they could. Accordingly they did so, reducing their bid $1.25 a yard upon the understanding that they could use local or native stone in the concrete.” Id. at 32. When the engineer later tested it, he found that “the local stone was wholly unsuitable for use in the concrete,” id. at 31, and required the plaintiffs to import different stone from elsewhere.
The plaintiffs sued to recover the additional expense, and lost at trial based on the trial judge’s conclusion that the engineer’s statement “falls considerably short of Mr. Osgood’s claim that [the engineer] told them unconditionally that the local stone might be used, and is rather more consistent with the statement . . . that local stone might be used if it proved to be suitable.” Id. at 32. But the Supreme Court reversed the decision, reasoning:
“If the defendants accepted the plaintiffs’ bid upon the basis of the lower price for local stone, they obtained the advantage of the use of such stone if it proved suitable. Making the contract in this way to obtain this advantage in price, they took the risk of the suitability of the local stone. Having taken the risk, they must bear the loss or extra expense rendered necessary by the discovery that the local stone could not be used.” Id. at 32.
Shifting the risk of nonconforming materials from contractor to owner normally requires proof that the contractor was misled about what materials could be used. Peter Salvucci & Sons, Inc. v. State, 110 N.H. 136, 147 (1970) (awarding the cost of importing distant gravel to a contractor who “is misled by incorrect plans and specifications issued by the public authorities as the basis for bids and who, as a result, submits a bid which is lower than he would have otherwise made”). Osgood reached the same result by construing the engineer’s statement that local stone could be used for bidding purposes as a firm promise – or as the Court put it, “the plaintiffs had a right to understand that, if their bid was accepted, they could use the local stone.” Id. at 33.
If the takeaway from Osgood were simply that owner approval of construction materials may be inferred from careless answers to pre-bid questions, it would hardly be surprising. What is more interesting to me is the Court’s willingness to overturn a factual finding of the trial court as to what the parties really meant. “When there is a question of fact concerning what was intended by certain terms within a contract, the dispute is to be resolved by the trier of fact, whose findings will be upheld if supported by the evidence.” R. Zoppo Co. v. City of Dover, 124 N.H. 666, 671 (1984). The trial judge found that engineer’s unspoken qualification “Yes, if it meets spec” should reasonably be implied under the circumstances. But the Supreme Court saw no ambiguity, and therefore no issue of fact to be resolved; an unqualified "Yes" was, in its view, “the only reasonable interpretation that can be placed upon the language used,” id. at 33.
The lesson of Osgood a century later remains important: pre-bid statements on what bidders may furnish in compliance with contract requirements need to be precise, or they risk giving unintended leeway to the successful bidder.
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