WILLIAMS ENGINEERING, INC. v. GOODYEAR, 496 So.2d 1012 (La. 1986)

WILLIAMS ENGINEERING, INC. v. DAVID GOODYEAR, ANDREW GOODYEAR, BART LaROCCA, JOHN LEYENS AND FRANK FRIEDLER, JR.

No. 86-C-0291.Supreme Court of Louisiana.
October 20, 1986. Rehearing Denied November 13, 1986.

APPEAL FROM TWENTY-FOURTH JUDICIAL DISTRICT COURT, JEFFERSON PARISH, STATE OF LOUISIANA, HONORABLE JAMES L. CAMMELLA, J.

Robert E. Leake, Jr., Lawrence Mann, Hammett, Leake
Hammett, for applicant.

Russ M. Herman, Steven J. Lane, Herman, Herman, for respondent.

WATSON, Justice.

[1] In this dispute over engineering services, both plaintiff, Williams Engineering, Inc.,[1] and plaintiffs-in-reconvention, the owners of the project,[2] claim breach of a contract to construct a water slide. Williams, the engineer, attempted to collect professional fees of $33,641 and plaintiffs-in-reconvention, the owners, asserted that Williams’

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nonfeasance and malfeasance caused them damages of $409,669.[3]

[2] After eight days of trial, a jury concluded that both sides breached the contract, but that Williams was not in bad faith.[4] Leaving aside the court costs and expert witness fees, the owners recovered a differential of $74,200 in damages for Williams’ breach of the contract.[5] [3] The court of appeal[6] reversed the jury’s award to Williams on the ground that the engineer was not entitled to any further compensation and increased the quantum awarded the owners to the sum of $204,928.[7] A writ was granted to review the judgment.[8] [4] ISSUES [5] The questions are: [6] (1) whether a professional engineer breached his contract of employment by failing to: (a) notify the owners until after completion of a “cost-plus” project that the price had more than doubled; (b) give the owners other alternatives; or (c) re-estimate the cost; and [7] (2) the measure of damages. [8] FACTS [9] From the evidence, the jury could reasonably have concluded that the following facts were established: The Goodyear group of investors contacted Southbend Construction Company about building a recreational facility, a water slide. Southbend advised the leading member of the group, David Goodyear,[9] that engineering services were necessary for the project and recommended Williams Engineering. After a meeting with Williams in December of 1978, and receipt of Williams’ proposed contract, the investors decided to proceed and leased a tract of property for three years on January 10, 1979. The group executed Williams’ contract on January 19, 1979. It was his personal form contract and more detailed than the standard contract for engineering services. [10] To implement the project, the investors met with Williams again on February 8, 1979. The investing group had two concerns: (1) the cost of the project; and (2) the feasibility of opening for business before the summer of 1979. Williams gave a preliminary estimate of $409,300 but advised the Goodyear group that it was impossible to have completion by summer on a bid basis. He advised the investors that a “fast track” method, which had concurrent design and construction, was the only feasible way to implement the project. Williams suggested that Southbend be the cost-plus contractor, an understandable reciprocity. Williams advised the owners that Southbend was an honest nonunion contractor on which they could rely. Because Southbend did not pay union scale, there would be a labor economy on the project and the fast track method would also allow

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advance purchase of materials at uninflated prices. Williams then prepared a cost-plus contract between the owners and Southbend which was executed by the parties the first week in March.

[11] The design phase of the contract was completed on April 18, 1979. During the design and construction, Williams rendered monthly invoices to the owners for his fees which were based on a percentage of the cost of construction. During the period of construction, Williams continued to bill the owners based on a projected construction cost of $409,300. This sum included a ten percent contingency fund. [12] Because of prior information about the possible cost of a water slide, the principal movers in the project, Goodyear and Bart LaRocca, thought Williams’ figure was high and hoped that the final construction cost would be less than his estimate. Various savings during construction and Williams’ assurance that he had over-estimated many items encouraged this thought.[10]
The owners’ naivete’ is perhaps understandable in a group which signed both engineering and construction contracts without maximums, in which the engineer and the contractors would profit by a percentage of the completion figure.[11] [13] During the course of construction, Williams sent the owners a monthly invoice showing the total cost as $409,300. On August 1, 1979, three days before the slide opened, Williams’ bill showed the cost as $409,300; the facility 85% complete; and, the balance of his fee as $2,528.20. Williams issued a Certificate of Substantial

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Completion to the contractor on August 4, 1979, and the waterslide opened for business. Twenty days later, the owners were billed for construction costs of $888,688 covering 81.8% completion, a sum more than double Williams’ original estimate. Williams claimed an additional fee of $28,628.[12] Williams later billed the owners on January 1, 1983, for an additional fee of $36,144 based on the projected cost of the project, if completed as designed, which was estimated by an expert at $988,985. The owners paid $824,000 for the facility. According to Williams’ expert Ewing, the water slide, as constructed, should have cost only $645,593.

[14] There was expert testimony that Williams was not entitled to any further fees because he had breached the contract. His failure to: look at other water slides; employ a professional estimator; make full disclosure to the owners of other contract possibilities, such as a fixed fee contract or a contract with a maximum exposure; and his failure to furnish revised cost estimates during the period of construction resulted in damages to the owners. [15] The water slide was a financial failure; the owners lost their lease and had to pay to have the slide removed. Although the basic reason for the loss was lack of customers, the delayed opening and elimination of a covering or skin on the mountain were negative factors. [16] LAW [17] It is well settled that a written contract is the law between the parties. LSA-C.C. art. 1901.[13] Pertinent portions of Williams’ service contract are as follows: [18] “1.2 SCOPE AND CONCEPT PHASE [19] “. . . WILLIAMS’ Opinion of the Construction Cost. . . .” [20] “1.3 PRELIMINARY DESIGN PHASE [21] “. . . statement of WILLIAMS’ Opinion of the Construction Cost based upon designs developed to this point. . . .” [22] “1.4 DESIGN DEVELOPMENT PHASE [23] “. . . WILLIAMS’ Opinion of the Construction Cost of the PROJECT based upon designs established at this point. . . .” [24] “1.5 CONTRACT DOCUMENT PHASE [25] “(c) advise OWNER of adjustments to previous Opinions of the Construction Cost when changes in requirements, general market conditions, or other conditions warrant. . . .” [26] “1.7 CONSTRUCTION PHASE [27] “(b) advise and consult with OWNER during Construction Phase. . . .” [28] “6.3 BASIC SERVICES FEE BASED ON PERCENTAGE OF NET CONSTRUCTION COST [29] “When the Agreement stipulates that the OWNER shall pay WILLIAMS for Basic Services performed under Article 1 pursuant to a percentage of the Net Construction Cost, the fee shall be initially computed on WILLIAMS’ Opinion of the Net Construction Cost times the percentage rate which is to be determined from the curve specified in the Agreement. During the progress of the service, WILLIAMS’ fee shall be adjusted by similar computations using revised Opinions of

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the Net Construction Cost prepared during the various phases and, finally, at the conclusion of the services, by computations based on the actual Net Construction Cost of the PROJECT to OWNER.”

[30] “ARTICLE 7 GENERAL CONSIDERATIONS [31] “WILLIAMS shall act as OWNER’s agent with respect to those phases of the PROJECT to which the Terms and Conditions of this Agreement apply. [32] * * * * * * [33] “WILLIAMS’ Opinion of the Net Construction Cost (Project Cost Estimate) is his best opinion of the probable lowest responsible Contractor’s bid for the Work and is supplied as a guide only. Since WILLIAMS has no control over the labor and material market or over competitive bidding and contractor market conditions, he cannot and does not guarantee the accuracy of such cost opinions. Their accuracy will also vary at the different phases of the Engineering Service.” [34] This contract specifically provided that it could only be modified in writing. LSA-C.C. art. 1934 gives the measure of damage for breach of contract.[14] These owners do not claim the profit of which they have been deprived but only the loss sustained from the doubling of the construction price. [35] In Moossy v. Huckabay Hospital, Inc., 283 So.2d 699
(La., 1973), there was a contract for architectural services with no limit on the cost of construction. The architect was awarded a percentage fee on the basis of the last estimated project cost, but, since the facility was not constructed, the architect was found not entitled to a percentage of the lowest bid. [36] Rosenthal v. Gauthier, 224 La. 341, 69 So.2d 367
(1953) involved a standard architectural contract which did not have a cost limitation. There was conflicting testimony about whether the architect had

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carte blanche on the costs. On the basis of parole evidence about the parties’ intentions, the architect’s suit for his fee was dismissed. Rosenthal is in accord with other jurisdictions,[15] which regard contracts without cost limitations as incomplete and allow parole testimony to supply the omission. See, for example, Keene v. Farris, 67 S.W.2d 526 (Mo.App., 1934); Svarz v. Dunlap, 134 Wn. 555, 235 P. 801 (1925); Hite v. Aydlett, 192 N.C. 166, 134 S.E. 419 (1926); Petrus v. Bunnell, 129 So.2d 702 (Fla.App., 1961); and Spitz v. Brickhouse, 3 Ill. App.2d 536, 123 N.E.2d 117 (1954).

[37] It is generally recognized that an architect or engineer has an affirmative duty to give a definite idea of the reasonable cost of a project. Zannoth v. Booth Radio Stations, 333 Mich. 233, 52 N.W.2d 678 (1952); Durand Associates, Inc. v. Guardian Investment Co., 186 Neb. 349, 183 N.W.2d 246
(1971). In the Durand case, an unreasonably low estimate of costs was held to be a breach of the contract.[16] I Durand, as in Moossy, the project was not completed because the bids submitted were too high. [38] In many instances, excessive costs are the fault of the owner and the architect is not penalized. See, for example Pieri v. Rosebrook, 128 Cal.App.2d 250, 275 P.2d 67
(1954). [39] Zannoth, supra, held that the absence of a written cost limitation does not relieve the architect of responsibility for staying within an owner’s means. Exceeding the cost limitation is a breach of contract because the architect is bound to make full disclosure of all matters which his principal should know. See Edward Barron Estate Co. v. Woodruff, 163 Cal. 561, 126 P. 351, 42 L.R.A., N.S. 125 (1912); Jones v. J.H. Hiser Constr. Co., 60 Md. App. 671, 484 A.2d 302 (1984); an Kellogg v. Pizza Oven, Inc., 157 Colo. 295, 402 P.2d 633
(1965). [40] Kaufman v. Leard, 356 Mass. 163, 248 N.E.2d 480
(1969) involved an architect who ordered and directed work in excess of his client’s budget resulting in a much more expensive house. The architect was allowed his fee but was held responsible for the proven excess costs (adjusted for a reasonable margin of error). [41] In Kostohryz v. McGuire, 298 Minn. 513, 212 N.W.2d 850 (1973), the court relied on Durand to hold that an estimate which was too low by one-half established, without expert testimony, a breach of the architect’s contractual duty to render a reasonably accurate statement of probable construction costs. The measure of damages was the difference between the cost of the property and its market value. [42] In Kellogg v. Pizza Oven, Inc., 157 Colo. 295, 402 P.2d 633 (1965), damages for the owners were fixed at the difference between the architect’s estimated costs and a building’s actual costs, less a ten percent contingency and the price of alterations in the plans. [43] CONCLUSION [44] The vigorous contention of Williams and the amicus curiae is that Williams did not guarantee the cost of the project and cannot be cast in damages for the overrun on costs. However, there was expert testimony that Williams breached the contract, not by giving an inaccurate initial estimate, but by failing to employ a professional estimater, failing to look at other water slides, failing to advise the owners about other contractual possibilities, and failing to provide revised cost estimates. The

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owners, while admitting a somewhat blind faith in Williams, argue that they could have modified the design of the project or given it up entirely if they had been fully apprised of what their exposure might be.[17]

[45] Aside from his failure to make complete and reliable disclosure to these owners of their construction options, it is clear that Williams breached the contract by failing to re-estimate the cost during the course of construction. The breach caused the resulting damages to the owners. The owners were completely unaware that the cost had escalated and received this rude advice almost a month after the facility opened. Contrary to Williams’ contention that the written contract was abrogated by the cost-plus, fast track contract, the owners were more in need of reliable estimates of construction costs under that contract than they would have been if bids had been received. Had bids been received, the architect’s responsibility for estimating costs would have ended when he completed his design and bids were submitted. In this instance, the design and construction phases were pursued simultaneously and the engineer had an on-going responsibility to keep the owners advised of the costs. [46] Any doubt about the meaning of the contract must be considered in light of the fact that Williams, the engineering professional who drafted the instrument, was dealing with lay persons.[18] The contract clearly envisions revised opinions of costs as warranted.[19] Such revisions were needed here, if only as a “guide”. As of August 1, 1979, Williams still showed the net construction cost of the project as $409,300.[20] [47] By advising the owners that certain items were under his estimate, Williams lulled the owners into a false sense of financial security. Then on August 24, 1979, twenty days after completion of the project, the net construction costs escalated, without any warning by the advising engineer, to $888,688, more than twice the estimate of August first.[21] Williams breached the contract in failing to provide revised estimates of costs and is not entitled to any further fee. [48] This exact factual situation has not been presented before in Louisiana. It is unreasonable to think that the owners were indifferent to the final cost of this project. There is no evidence that they were responsible for the overrun of over 100%. On the contrary, it appears that they placed immense faith in Williams and the contractor and were lulled into a false sense of security by the invoices which Williams submitted. [49] Although the jury did not find bad faith, there is certainly an element of misrepresentation in the engineer’s failure to reveal even an approximation of the true cost of the project until after construction was completed. [50] It is impossible to offset the market value of the project against the excess cost because the structure became worthless long before the architect’s final bill was submitted to the owners.

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[51] There is no factual basis for the jury’s award of damages and the court of appeal correctly amended that award to reflect the actual damages sustained by the owners. [52] For the foregoing reasons, the judgment of the court of appeal is affirmed. [53] AFFIRMED. [54] LEMMON, J., concurs.