                                            No. 96-355

                 IN THE SUPREME COURT OF THE STATE OF MONTANA

                                                1997


VICTOR RElCHENBACH d.b.a.
GENERAL CONTRACTORS
CONSTRUCTION CO.,

         Plaintiff and Respondent,



WATCO, INC., a Montana
corporation,

         Defendant and Appellant.



APPEAL FROM:           District Court of the Thirteenth Judicial District,
                       In and for the County of Yellowstone,
                       The Honorable Diana G. Barz, Judge presiding.

COUNSEL OF RECORD:

                For Appellant:

                        Gerald J. Neely, Billings, Montana

                For Respondent:

                        Court E. Ball, Kenneth W. Strong, Towe, Ball, Enright, Mackey &
                        Sommerfeld, Billings, Montana


                                                          Submitted on Briefs:    December 12, 1996

                                                                       Decided:   May 29,   1997
Filed:
Justice JamesC. Nelson delivered the Opinion of the Court.


       Pursuant to Section I, Paragraph 3(c), Montana Supreme Court 1995 Internal

Operating Rules, the following decisionshall not be cited asprecedentand shall be published

by its filing as a public documentwith the Clerk of the SupremeCourt and by a report of its

result to State Reporter Publishing Company and West Publishing Company.

       This is an appeal from the Thirteenth Judicial District Court, Yellowstone County.

Following a bench trial, the District Court enteredfindings of fact and conclusionsof law on

February 9, 1996, and subsequently enteredjudgment on February 16, 1996, in favor of

Plaintiff Victor Reichenbach,d/b/a General Contractors Construction Company. From this

judgment, Defendant Watco, Inc. appeals. We affirm.

       The sole issue on appealis whether the District Court erred, as a matter of law, by

ruling that Defendant Watco, Inc. breachedits subcontract.

                 FACTUALANDPROCEDLJRALBACKGROUND

       In February 1993,the City of Billings invited areageneralcontractors to submit bids

for the construction of a wading pool, rest rooms and sewer in Pioneer Park. The City of

Billings retained architect, Jeffrey C. Baston (Baston), to design the project and to oversee

the construction. On February 22, 1993, after reviewing Baston’s architectural plans,

addendum thereto and the project manual, Defendant/Appellant Watco, Inc. (Watco)

submitted to Plaintiff/Respondent Victor Reichenbach, d/b/a General Contractors

Construction Company (GCCC) a subcontractbid for $10,487.00 on that portion of the job

                                             2
constituting construction of a wading pool and related plumbing.       Thereafter, GCCC

submitted a bid on the general contract for the Pioneer Park construction project and gave

written notice to Watco accepting its subcontract bid on March 3, 1993.

       Subsequently,GCCC mailed to Watco a proposed written contract dated March 17,

1993, and later sent Watco a proposed addendum to the contract on April 5, 1993. The

proposedwritten contract contained terms in addition to those contained in the subcontract

bid including payment provisions, a lien waiver provision and a liquidated damages

provision for delay. Furthermore, the proposedaddendumcontaineda penalty provision for

deviations from construction specifications and plans. The parties never executed the

proposedwritten contract. On March 22, 1993,Watco sent a letter to GCCC stating that the

volume of the wading pool may have beenunder-estimated, and, consequently,the size of

the piping may be too small. On April 6, 1993, GCCC sent a letter to Baston requestingthat

he address Watco’s concerns regarding the size of the piping. On April 8, 1993, Baston

respondedby denying the requestfor a changeorder to enlargethe dimensionsof the piping.

That same day, Watco sent a letter to GCCC stating that Watco refused to work unless

Baston approvedthe changeorder. On May 24, 1993, Watco sent a letter to GCCC stating

that it would not proceedwith the construction. Thereafter, GCCC contracted with another

subcontractor to construct the wading pool for $20,660.00.

       On June 30, 1994, GCCC filed a complaint against Watco alleging that Watco had

breached its subcontract to construct the wading pool.       Watco answered denying all


                                            3
allegations. On December 12, 1995,a benchtrial was held in the Thirteenth Judicial District

Court, Yellowstone County. Thereafter, on February 9, 1996, the District Court entered its

findings of fact and conclusions of law. The District Court determined that the parties

formed a contract on March 3, 1993, under which Watco was obligated to supply materials

and construct a wading pool as describedin its subcontractbid. The District Court held that

Watco breachedits subcontractby refusing to perform any work describedin the subcontract.

On February 16,1996, the District Court enteredits judgment, awarding GCCC $10,253.00,

costs and interest thereon. From this judgment, Watco appeals. We affirm.

                                      DISCUSSION

       Did the District Court err, as a matter of law, by ruling that Watco breached its

subcontract?

       On appeal,Watco doesnot object to any factual findings made by the District Court,

but rather objects only to certain conclusions of law reached by the District Court.

Specifically, Watco objects to the following conclusionsof law:

       4.    By submitting the proposed agreement with different or additional
       terms and discussing substitutions in the original contract, [GCCC] did not
       breach the contract, commit anticipatory repudiation, or in any way excuse
       nonperformance by [Watco].

       5.    By refusing to perform any part of the work called for by the
       subcontract, [Watco] breachedits subcontract.

       We review a district court’s conclusionsof law to determinewhether the distict court

correctly interpreted the law. Chamberlin v. Puckett Constr. (1996), 277 Mont. 198,202-03,


                                             4
921 P.2d 1237, 1240. We recently considered the issue of anticipatory repudiation in

Chamberlain and concluded that “a demand for performance of a term not contained in the

parties’contract, accompaniedby an unequivocalstatementthat the demandingparty will not

perform unlessthe additional term is met, constitutes an anticipatory breach of the contract

excusing performance by the other party.” Chamberlain, 921 P.2d at 1240. We note, here,

that the parties stipulatedthat a subcontract was formed on March 3, 1993. Consequently,

the issue on appeal centers on whether the District Court properly concluded that GCCC’s

actions did not constitute anticipatory repudiation or in any way excuse Watco’s

nonperformance of the subcontract, and, therefore, that Watco breached this subcontract

when it refused to proceed with construction of the wading pool.

       Watco arguesthat its nonperformancedid not constitute breach of its subcontract,but

rather was excuseddue to GCCC’s anticipatory repudiation. Specifically, Watco points out

that GCCC sent to Watco a proposed written subcontract and addendum containing

numerous additional terms not addressedin the original subcontract bid which included

penalty, payment and liability provisions. Watco contends that taken as a whole, by

proposing these numerous additional contractual terms, GCCC communicated its

unequivocal intention not to perform its contractual duty and thereby causedanticipatory

repudiation of the subcontract. Watco assertsthat this Court should “extend” the rule in

Chamberlain concerning anticipatory repudiation to include those situations where one

contractual party merely makes a demand for performance of terms not contained in the


                                             5
original contract, without any accompanyingunequivocalstatementthat the demandingparty

will not perform unlessthe demand is met. SeeChamberlain, 921 P.2d at 1240.

       Alternatively, Watco argues that the additional proposed contract terms materially

altered Watco’s obligations under the subcontract bid and were neither standard form

provisions nor were the provisions implied from industry custom and usage. Therefore,

Watco arguesthat these additional proposedprovisions createda generalexcusefor Watco’s

nonperformance under the subcontract. Specifically, Watco assertsthat these additional

provisions causedWatco to fear nonpayment due to delay in construction and causedWatco

to “reasonablybelieve” that a public health violation would occur if its suggestedpiping size

changes for the wading pool were not approved by Baston, a violation for which Watco

believed it would be held responsible.

       GCCC responds that under the definition of anticipatory repudiation as set forth in

Chamberlain, it did not causeanticipatory repudiation of the subcontract. GCCC contends

that whether the additional contract terms contained in the proposed written contract and

addendumwould materially alter Watco’s duties is irrelevant. Rather, GCCC arguesthat it

never made an accompanyingunequivocal statementthat it would not perform if Watco did

not agree to the additional contract terms, and, therefore, it did not cause anticipatory

repudiation of the subcontract. SeeChamberlain, 921 P.2d at 1240. Additionally, GCCC

responds that the proposed additional terms did not create a general excuse for Watco’s

nonperformance of the subcontract. Relying on Crook v. Mortenson-Neal (Alaska 1986),


                                             6
727 P.2d 297, GCCC contends that to propose additional contractual terms after accepting

a subcontract bid is a common industry practice. SeeCrook, 727 P.2d at 301 (holding that

industry custom and circumstances of a particular construction project dictate that certain

proposed contract terms are reasonably expected to be included in the final subcontract).

       Furthermore, GCCC argues that Watco’s fear of nonpayment as well as its fear of

liability did not excuse its nonperformance of the subcontract. First, GCCC asserts that

Watco cannot now use its fear of nonpaymentdue to delay in completion of the construction

project asjustification for its nonperformanceunder the subcontract when Watco itself was

a major cause for the delay. Second, GCCC argues that Watco’s fear of liability is

unpersuasive because Watco could not lawfully have been subjected to any additional

liability as a result of agreeingto any of the proposed additional terms. That is, relying on

numerous casesincluding Sandkay Constr. Co. v. State (1965), 145 Mont. 180, 399 P.2d

1002 and Ace Plumbing & Heating, Inc. v. Helena Flats School Dist. (1983), 204 Mont. 81,

662 P.2d 1327, GCCC assertsthat a subcontractor is not responsible for errors or defects in

an owner’s plans and specifications. Consequently, GCCC contends that becauseWatco’s

fear of nonpayment and fear of liability did not provide an excuse for its nonperformance

of the subcontract, Watco’s refusal to perform any part of the work required under the

subcontract constituted breached of the subcontract.

       As discussed above, whether addressing anticipatory repudiation in particular or

excuseof nonperformance in general, both parties concentratetheir arguments on whether


                                             7
proper turnover of water. The plumbing as it was drawn in the plans will not
meet the State Health Code requirements for turnover.

       This job was bid per specifications and not as a design build project.
The architect has refused to issue a change order to correct the problems.
We will not be involved and held responsiblefor a design that doesn’t meet
code or accomplish the design objectives.

       We will not return the contract orproceed any further unless these
issues can be resolved.

      Also, unlessthe architect is willing to cooperateand communicate, we
have no further interest in thisproject. [Emphasis added.]

Watco again wrote to GCCC on May 24, 1993, stating:

       I finally received a call from Jeff Baston on May 10, 1993.

        He said that claims had been denied, that the job was either in
arbitration or going into arbitration, and that there was possiblelitigation with
Gary’s Excavating. (He didn’t give the reason.)

        We talked about the wading pool, the gallonage,the pipe sizing, and the
stainless skimmers not being available. I askedhim to provide a waiver and
not hold us responsiblefor lack of turnover with his pipe sizing and calculation
ofwater gallonage. He said that he could not do that. I then askedhim to send
me a drawing on how he felt that the pool should be plumbed. He said he
would send me a letter showing how he calculated the gallonage. The only
thing I receivedwas a copy of the letter he send[sic] to Keith Bell at the Dept.
of Health. (Copy enclosed).

       Z have the stainlessfor the wading pool in my warehouse but Z have
decided against signing the contract and going ahead with the project. It
seems apparent the work performed would not be paid on time and could
possible (sic] drag on for months or years or maybe never bepaid.

      Also, the architect has set up the contract documents to allow him to
hold someone else responsible even though his spectftcations are in error.
 [Emphasis added.]
       Upon review of the evidence, we conclude that Watco failed to perform under the

subcontract formed on March 3, 1993, irrespective of GCCC’s proposal for additional

contract terms. Consequently, we hold that the District Court correctly concluded that

GCCC did not commit anticipatory repudiation or in any way excuse Watco’s

nonperformance. Accordingly, we hold that the District Court correctly ruled, as a matter

of law, that Watco breachedits subcontractby refusing to perform any part of the work under

the subcontract.

      Affirmed.




We Concur:




                                           10
