HAWTHORNE v KOBER CONSTRUCTION CO
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No. 81-159 IN THE SUPREME COURT OF THE STATE OF MONTANA 1981 GLENN HAWTHORNE, d/b/a HAWTHORNE STEEL et al., Plaintiff and Appellant, KOBER CONSTRUCTION COMPANY, INC., et al., Defendant and Respondent. Appeal from: District Court of the Thirteenth Judicial District, In and for the County of Yellowstone Honorable William J. Speare, Judge presiding. Counsel of Record: For Appellant: Jardine, Stephenson, Blewett & Weaver, Great Falls, Montana Jack Lewis argued, Great Falls, Montana For Respondent: Crowley, Haughey, Hanson, Toole & Dietrich, Billings, Montana Cynthia Ford argued, Billints, Montana Cebull & Jones, Billings, Montana Submitted: December 4, 1981 Decided:cB If p~ + I# Filed: ;.r. .3 'I!'! J u s t i c e Frank B. M o r r i s o n , J r . , d e l i v e r e d t h e Opinion of t h e Court. Mr. T h i s a c t i o n w a s i n s t i t u t e d by Glenn Hawthorne, d/b/a Hawthorne S t e e l (Hawthorne), a g a i n s t t h e prime c o n t r a c t o r Kober C o n s t r u c t i o n Co., Inc. (Kober) and a g a i n s t P i t t s b u r g h - D e s Moines S t e e l Company (PDM), a s t e e l s u p p l i e r . The t r i a l c o u r t e n t e r e d p a r t i a l summary judgment a g a i n s t Hawthorne and i n f a v o r of PDM. Hawthorne a p p e a l s f o l l o w i n g c e r t i f i c a t i o n by t h e t r i a l c o u r t t h a t t h e o r d e r was a n a p p e a l a b l e one. Kober c o n t r a c t e d t o b u i l d t h e Metra b u i l d i n g i n B i l l i n g s , Montana, and on J a n u a r y 2 , 1974, e n t e r e d i n t o a c o n t r a c t w i t h P M by which P M a g r e e d t o f u r n i s h s t e e l f o r t h e c o n s t r u c t i o n D D of t h e b u i l d i n g . On J a n u a r y 11, 1974, Kober e n t e r e d i n t o a s u b c o n t r a c t w i t h Hawthorne by which Hawthorne a g r e e d t o erect t h e s t e e l . On March 25, 1974, Hawthorne and h i s s o n , J a c k , m e t w i t h o f f i c i a l s o f PDM i n Des Moine, Iowa, t o d i s c u s s a r r a n g e m e n t s f o r t h e d e l i v e r y of s t e e l . A delivery date for the s t e e l was n o t s p e c i f i c a l l y d i s c u s s e d a t t h i s m e e t i n g , b u t a d e l i v e r y d a t e of May 1, 1974, had been d i s c u s s e d between t h e p a r t i e s on p r i o r o c c a s i o n s . Hawthorne, by a f f i d a v i t , s t a t e d t h a t h e m o b i l i z e d h i s employees t o commence e r e c t i o n of s t r u c t u r a l s t e e l i n J u n e , 1974. On March 4 , 1974, PDM had r e c e i v e d a d i r e c t i v e from t h e U n i t e d S t a t e s Government t o s h i p s t e e l t o t h e government on o r b e f o r e A p r i l 1 7 , 1974. The c o n t r a c t e x i s t i n g between PDM and t h e U n i t e d S t a t e s f o r t h e d e l i v e r y of s t e e l p r e - e x i s t e d t h e c o n t r a c t between Kober and Hawthorne. Hawthorne was n o t t o l d of t h e c o n t r a c t ' s e x i s t e n c e . P M d i d n o t d e l i v e r s t e e l i n May o r J u n e of 1974, and D on August 9 , 1974, P M acknowledged by l e t t e r t o ~ o b e r D C o n s t r u c t i o n t h a t i t was having s c h e d u l e problems i n m e e t i n g i t s commitments t o c u s t o m e r s b e c a u s e of t h e d i r e c t i v e i t had r e c e i v e d from t h e United S t a t e s Government on March 4 , 1974. A p p a r e n t l y Kober d i d n o t t r a n s m i t t h i s i n f o r m a t i o n t o Hawthorne. I t was n o t u n t i l t h e l a t t e r p a r t of O c t o b e r , 1974, t h a t Hawthorne r e c e i v e d any shipments and t h e n , a c c o r d i n g t o Hawthorne, i t d i d n o t r e c e i v e t h e s t e e l shipments i n t h e sequence promised by PDM. On J u n e 2 , 1975, Hawthorne a t t e n d e d a meeting i n B i l l i n g s , a t which PDM's r e p r e s e n t a t i v e was i n a t t e n d a n c e . A t this t i m e , Hawthorne was shown t h e d i r e c t i v e from t h e United S t a t e s Government i s s u e d t o PDM. Hawthorne's a f f i d a v i t , which f o r p u r p o s e s of summary judgment, would have t o be taken a s t r u e , provided: "At no t i m e d u r i n g o u r m e e t i n g w i t h M r . Davis i n March, 1974, d i d he make any mention of t h e d i r e c t i v e l e t t e r from t h e U.S. Department of y Commerce; a t no t i m e was I o r anyone i n m b u s i n e s s a d v i s e d of t h e d i r e c t i v e l e t t e r from t h e U.S. Department of Commerce u n t i l t h e m e e t i n g I a t t e n d e d w i t h M r . Davis i n B i l l i n g s , Montana, on o r a b o u t J u n e 2 , 1975." By way of c o m p l a i n t f i l e d i n t h e D i s t r i c t C o u r t , Hawthorne a l l e g e d t h a t t h e d e l a y i n d e l i v e r y of s t e e l caused him t o be u n a b l e t o f i n i s h h i s work u n t i l a b o u t J a n u a r y of 1976. He a l l e g e d t h a t as a consequence of t h e d e l a y s u s t a i n e d , he suffered financial losses. PDM d i d n o t d i s p u t e t h a t i t f a i l e d t o d e l i v e r s t e e l . PDM a l l e g e d t h a t i t had no c o n t r a c t u a l r e l a t i o n s h i p w i t h Hawthorne and b e c a u s e of t h e l a c k of p r i v i t y , Hawthorne c o u l d n o t m a i n t a i n a n a c t i o n a g a i n s t PDM. The t r i a l c o u r t a g r e e d and p a r t i a l summary judgment i n f a v o r of PDM r e s u l t e d . The f o l l o w i n g i s s u e s a r e p r e s e n t e d on a p p e a l : (1) Can Hawthorne m a i n t a i n an a c t i o n a g a i n s t PDM based upon n e g l i g e n c e ? (2) I f p r i v i t y of c o n t r a c t i s r e q u i r e d , d i d Hawthorne have p r i v i t y w i t h PDM on t h e b a s i s of t h e i r i n t e r a c t i o n ? (3) Can Hawthorne p r e v a i l on t h e b a s i s of i m p l i e d o r quasi-contract? (4) Is t h e a c t i o n b a r r e d by t h e s t a t u t e of l i m i t a t i o n s ? W h o l d t h a t p r i v i t y of c o n t r a c t i s n o t r e q u i r e d t o e m a i n t a i n a n a c t i o n grounded i n n e g l i g e n c e . T h e r e f o r e , we need n o t d i s c u s s a c o n t e n t i o n t h a t p r i v i t y e x i s t e d o r t h a t t h i s a c t i o n can b e m a i n t a i n e d on t h e b a s i s of i m p l i e d o r quasi-contract. further find t h a t the action i s not b a r r e d by t h e s t a t u t e of l i m i t a t i o n s . The p r i n c i p l e i s s u e t o be d e t e r m i n e d i s whether Hawthorne can m a i n t a i n an a c t i o n f o r n e g l i g e n c e i n t h e performance of d u t i e s growing o u t of c o n t r a c t , where no p r i v i t y of c o n t r a c t existed. W e have examined t h e a u t h o r i t i e s and f i n d a division t o exist. The C a l i f o r n i a Supreme C o u r t r e s o l v e d a s i m i l a r q u e s t i o n i n d e t e r m i n i n g whether a c o n t r a c t o r who u n d e r t o o k c o n s t r u c t i o n work p u r s u a n t t o a c o n t r a c t w i t h a n owner of p r e m i s e s , c o u l d b e h e l d l i a b l e i n t o r t f o r b u s i n e s s l o s s e s s u f f e r e d by a l e s s e e where t h e l e s s e e a l l e g e d t h e c o n t r a c t o r n e g l i g e n t l y f a i l e d t o c o m p l e t e t h e p r o j e c t w i t h due d i l i g e n c e . In J ' A i r e C o r p o r a t i o n v . Gregory ( 1 9 7 9 ) , 157 C a l . R p t r . 407, 598 P.2d 60, t h e C a l i f o r n i a Supreme C o u r t s a i d : ". . . Where a s p e c i a l r e l a t i o n s h i p e x i s t s between t h e p a r t i e s , a p l a i n t i f f may r e c o v e r f o r l o s s of e x p e c t e d economic a d v a n t a g e t h r o u g h t h e n e g l i g e n t performance of a c o n t r a c t a l t h o u g h t h e p a r t i e s were n o t i n contractual privity." The Oregon Supreme C o u r t h a s d e n i e d r e c o v e r y on t h e b a s i s of l a c k of p r i v i t y . Co. (1974), 270 O r . I n Mandal v . Hoffman C o n s t r u c t i o n 248, 527 P.2d 387, t h e City of Salem had c o n t r a c t e d w i t h a l a n d s c a p i n g f i r m which i n t u r n s u b - c o n t r a c t e d t h e work t o t h e p l a i n t i f f . In a totally separate contract, t h e c i t y h i r e d t h e d e f e n d a n t t o do s i t e development work. The p l a i n t i f f s u b c o n t r a c t o r a l l e g e d t h a t b e c a u s e of n e g l i g e n c e on t h e p a r t o f t h e s i t e d e v e l o p e r , p l a i n t i f f was u n a b l e t o c o m p l e t e i t s work w i t h i n p r e s c r i b e d t i m e and t h e r e b y s u f f e r e d damage. I n d e c i d i n g f o r d e f e n d a n t , t h e Oregon Supreme C o u r t said: "The q u e s t i o n i s w h e t h e r n o n - i n t e n t i o n a l cond u c t of t h i s n a t u r e w i l l c o n s t i t u t e a breach o f d u t y , w i t h i n t h e framework o f t h e law o f t o r t s , t o a person i n t h e p o s i t i o n of plaint i f f i n t h i s c a s e . W h o l d t h a t t h e r e i s no e s u c h d u t y where t h e o n l y n e g l i g e n c e c h a r g e d i s t h e f a i l u r e t o perform a c o n t r a c t w i t h a t h i r d party." The p h i l o s o p h y of t h e Oregon c o u r t was, a t o n e t i m e , the established rule. There i s a t r e n d of a u t h o r i t y , r e p r e s e n t e d by t h e C a l i f o r n i a Supreme C o u r t , moving away from p r i v i t y a s a requirement i n t h i s type of a c t i o n . T h i s C o u r t was a p i o n e e r i n a b o l i s h i n g p r i v i t y a s a requirement f o r recovery i n a p e r s o n a l i n j u r y o r wrongful death case. 513 P.2d 268. B r a n d e n b u r g e r v . Toyota ( 1 9 7 3 ) , 162 Mont. 506, W e h a v e n o t f e l t p e r m a n e n t l y bound t o a r c h a i c l e g a l c o n c e p t s no m a t t e r how d e e p l y r o o t e d t h e y may b e . We view p r i v i t y t o b e a c o n c e p t h a v i n g p r o p e r a p p l i c a t i o n i n t h e a r e a o f c o n t r a c t law. T h e r e s e e m s t o b e no sound p u b l i c p o l i c y argument f o r e x t e n d i n g i t s a p p l i c a t i o n t o t o r t . P l a i n t i f f ' s a c t i o n sounds i n t o r t . The a c t i o n i s o n e f o r negligence i n t h e performance of a c o n t r a c t u a l duty. With r e s p e c t t o s u c h a n a c t i o n P r o f e s s o r P r o s s e r , Law o f T o r t s , 4 t h E d . , S e c t i o n 93, s a y s : ". . . by e n t e r i n g i n t o a c o n t r a c t w i t h A , t h e d e f e n d a n t may p l a c e h i m s e l f i n s u c h a r e l a t i o n toward B t h a t t h e law w i l l impose upon him a n o b l i g a t i o n , s o u n d i n g i n t o r t and n o t i n c o n t r a c t , t o a c t i n s u c h a way t h a t B w i l l n o t be i n j u r e d . The i n c i d e n t a l f a c t of t h e e x i s t e n c e o f t h e c o n t r a c t w i t h A d o e s n o t n e g a t i v e t h e r e s p o n s i b i l i t y of t h e a c t o r when h e e n t e r s upon a c o u r s e of a f f i r m a t i v e c o n d u c t which may be e x p e c t e d t o a f f e c t t h e i n t e r e s t s of a n o t h e r p e r s o n . ". . . t h e r e a r e s i t u a t i o n s i n which t h e maki n g of t h e c o n t r a c t c r e a t e s a r e l a t i o n between t h e d e f e n d a n t and t h e p r o m i s e e , which i s s u f f i c i e n t t o impose a t o r t d u t y of r e a s o n a b l e care. By t h e same t o k e n , t h e r e a r e s i t u a t i o n s i n which t h e making of a c o n t r a c t w i t h A may c r e a t e a r e l a t i o n between t h e d e f e n d a n t and B , which w i l l c r e a t e a s i m i l a r d u t y toward B , and may r e s u l t i n l i a b i l i t y f o r f a i l u r e t o act." The f a c t s of t h i s c a s e speak s t r o n g l y i n f a v o r of a d o p t i n g t h e r u l e e n u n c i a t e d by P r o s s e r . A t r i e r of f a c t c o u l d d e t e r m i n e , from t h e r e c o r d b e f o r e t h e t r i a l c o u r t h e r e , t h a t PDM had r e a s o n t o know t h a t Hawthorne was r e l y i n g upon P M t o d e l i v e r s t e e l f o r e r e c t i o n i n J u n e of 1974. D L i k e w i s e , t h a t t r i e r of f a c t c o u l d f i n d t h a t P M c o u l d D D f o r e s e e damage t o Hawthorne a r i s i n g from f a i l u r e of P M t o honor i t s c o n t r a c t commitment t o Kober. Thus, t o p a r a p h r a s e P r o s s o r , by e n t e r i n g i n t o a c o n t r a c t w i t h Kober, P D M h a s p l a c e d i t s e l f i n such a r e l a t i o n toward Hawthorne, t h a t t h e law w i l l impose upon PDM an o b l i g a t i o n , sounding i n t o r t , t o a c t i n such a way t h a t Hawthorne w i l l n o t be i n j u r e d . W e do n o t i n t e n d t o i n d i c a t e a b r e a c h of d u t y on t h e p a r t of PDM. I f t h e r e a r e m a t e r i a l i s s u e s of g e n u i n e f a c t , t h o s e f a c t s must be d e t e r m i n e d . W s i m p l y h o l d t h a t , viewing e t h e f a c t s i n a l i g h t most f a v o r a b l e t o Hawthorne, a g a i n s t whom summary judgment w a s e n t e r e d , a s u f f i c i e n t c a s e i s p r e s e n t e d t o f o r e c l o s e t h e e n t r y of summary judgment. T h i s c a s e i s governed by t h e t h r e e y e a r s t a t u t e of l i m i t a t i o n s applicable t o negligence cases. 202(3), MCA. S e c t i o n 27-2- Hawthorne's c l a i m f o r n e g l i g e n c e i s r o o t e d i n t h e f a i l u r e of P M t o honor a c o n t r a c t commitment f o r t h e D d e l i v e r y of s t e e l i n May of 1974. could n o t run b e f o r e t h a t time. The s t a t u t e o f l i m i t a t i o n s H a w t h o r n e ' s c o m p l a i n t was f i l e d i n A p r i l of 1977, w i t h i n t h e t h r e e y e a r p e r i o d of limitations. Accordingly, it w a s timely. P a r t i a l summary judgment i n f a v o r o f P i t t s b u r g h - D e s Moines S t e e l Company i s v a c a t e d . t h e D i s t r i c t Court t o proceed W e Concur: Chief J u s t i c e - The c a u s e i s remanded t o
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