Minnesota Court of Appeals Holds Evidence of Contractors Profit Inadmissible in Dispute Concerning Proper Unit Price to Apply to Excavation Work Through Rock

AyrCom Contractors, Inc. v. U.S. West Communications, Inc.,
1995 Minn. App. LEXIS 981 (Minn. Ct. App. Aug. 1, 1995)

Contract which contained two unit prices for laying cable in rock was ambiguous and court admitted extrinsic evidence regarding the meaning of the ambiguous provisions. Evidence regarding the contractor’s profit or loss was not admissible because its relevance was outweighed by its substantial prejudice regarding the meaning of an ambiguous contract provision. A state’s requirement of a “certificate of authority” to conduct business in the state as a prerequisite to maintaining an action was not a requirement for subject matter jurisdiction, but rather was related to a party’s capacity to sue and, therefore, was waived if not raised timely.

A contractor sued an owner for breach of contract and for attorneys’ fees arising out of its mechanics’ lien claim related to a contract to lay approximately 25 miles of fiber optic cable. The dispute centered around the contract’s two different unit prices for laying cable through rock: $18.90 per linear foot of cable laid or $490 per cubic yard of excavation. The contractor claimed that the cubic yard price applied to the rock excavation, while the owner claimed that the linear foot price applied. The jury found that the owner had breached its contract and awarded damages in excess of $600,000. The owner appealed from the trial court’s denial of its motion for judgment n.o.v. or, in the alternative, a new trial.

The owner challenged the trial court’s exclusion of evidence relating to the contractor’s profit and loss for the project. The owner contended that evidence of profit would have shown, among l court determined, however, that even though this evidence of profit or loss appeared relevant, its prejudicial impact significantly out-weighed its relevance because a reasonable profit would not show that the owner’s interpretation of the contract the only reasonable interpretation. The court noted that the issues in the case involved what the parties intended at the time they entered the contract and whether those intentions were reasonable. Therefore, evidence of the project’s profitability had limited relevance. The court also found that the owner was able to cross-examine the contractor’s key witness effectively, despite the exclusion of the evidence of profitability.

The owner also argued that the evidence adduced at trial did not support the verdict. The trial court, however, concluded that the contract, as it related to the different unit prices, was ambiguous and therefore permitted extrinsic evidence for the purpose of determining the reasonable interpretation of the unit price provision and the parties’ intent with respect to that provision. The appellate court agreed that the contract was ambiguous and found that the jury was entitled to accept the contractor’s interpretation of the unit price provision. The court also found that there was ample evidence in the record to support the jury’s calculation of damages. Therefore, the appellate court upheld the jury’s verdict.

In addition to the issues discussed above, the contractor appealed from the trial court’s dismissal of its mechanics’ lien claim. The trial court had, prior to trial, dismissed the contractor’s mechanics’ lien claim on a summary judgment motion on the grounds that the contractor failed to obtain a “certificate of authority” to conduct business in Minnesota prior to filing that lien claim. The contractor filed its complaint in October 1991, the owner filed its answer in November 1991, the contractor obtained its certificate in November 1992, and the owner challenged the lien claim in December 1992, more than a year after filing its answer.

In reviewing the dismissal of the lien claim, the appellate court distinguished between the notions of “subject matter jurisdiction” and “capacity to sue.” The appellate court noted that while subject matter jurisdiction may be challenged at any time, the right to challenge a party’s capacity to sue is waived if it is not timely asserted. By failing to challenge the contractor’s capacity to sue in a timely manner, the owner had waived its right to do so and, therefore, the court reversed and remanded the dismissal of the contractor’s mechanics’ lien claim.

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