Alstom Power, Inc. v. Balcke-Durr, Inc.

Citations: 269 Conn. 599; 849 A.2d 804; 2004 Conn. LEXIS 231Docket: SC 17106

Court: Supreme Court of Connecticut; June 15, 2004; Connecticut; State Supreme Court

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The trial court denied Alstom Power, Inc.'s petition to dissolve a bond that replaced a mechanic’s lien filed by Balcke-Durr, Inc. The court determined that General Statutes § 42-158l (a) nullified the mechanic’s lien waiver signed by Balcke-Durr because the agreement was finalized after October 1, 1999. Alstom Power appealed, arguing that the trial court improperly shifted the burden of proof, failing to require Balcke-Durr to demonstrate probable cause for the mechanic’s lien, and wrongfully applied the parol evidence rule to exclude evidence suggesting the agreement predated the relevant date. Balcke-Durr countered that Alstom explicitly waived the right to have them proceed first at trial and that the exclusion of extrinsic evidence was appropriate. The appellate court agreed with Balcke-Durr on both points and affirmed the trial court's judgment.

The relevant background includes a long-term supply agreement initiated on July 5, 1998, which established parameters for equipment to be supplied by Balcke-Durr to Alstom for various projects but did not require Alstom to make any purchases. The agreement defined key terms such as 'Acknowledgement', 'Agreement', and 'Purchase Order'. Notably, it included a lien waiver provision that relinquished any lien claims related to the agreement’s terms. The parties subsequently executed five purchase orders, including one for the Lake Road project. On September 27, 1999, Alstom issued a proposed purchase order for the Lake Road project, requiring Balcke-Durr to acknowledge acceptance by signing the order, which emphasized that it constituted the entire agreement, superseding all prior communications.

The defendant received and modified the Lake Road purchase order on October 7, 1999, and returned a signed copy to the plaintiff by October 15, 1999. A dispute regarding the project led to arbitration in the summer of 2000. On February 12, 2002, the defendant filed a mechanic’s lien for $17,004,142.82 against the project property. In response, the plaintiff posted a $20,400,000 surety bond and filed a court application to dissolve or reduce it. The defendant sought to stay this application pending arbitration resolution. The trial court granted the stay for reduction but denied it for dissolution. It ordered further arguments on whether the defendant waived its lien rights under a waiver provision in the supply agreement.

During oral arguments, the plaintiff contended that the defendant had waived its right to a mechanic’s lien, while the defendant asserted that a statute (General Statutes 42-158l (a)) rendered the waiver void due to the contract's date. The trial court ruled that the waiver was indeed void based on the contract's establishment on October 15, 1999, and declined to consider prior conduct under the parol evidence rule. Consequently, the court denied the plaintiff's application to dissolve the bond and ruled in favor of the defendant. The plaintiff appealed, claiming the trial court misapplied the burden of proof regarding the bond's dissolution. The defendant countered that the plaintiff waived this issue by stating that the defendant needed to prove the lien's validity, which the court agreed with, thus not addressing the merits of the plaintiff's claim. General Statutes 49-37 (b. 5) requires the obligee of the bond to first establish probable cause for the lien’s validity, which was waived by the plaintiff during the trial.

The plaintiff presented witnesses first during the trial court proceedings regarding the application to dissolve the bond, which resulted in a waiver of the probable cause showing required by statute 49-37 (b. 5). Consequently, the court declined to review the plaintiff's first claim. In the next claim, the plaintiff argued that the trial court incorrectly applied the parol evidence rule by excluding evidence intended to demonstrate that a contract became effective before October 1, 1999. The plaintiff asserted ambiguity regarding the contract's effective date, advocating for the consideration of extrinsic evidence reflecting the parties' conduct prior to the acceptance of the Lake Road purchase order on October 15, 1999. Conversely, the defendant argued that both the supply agreement and purchase order clearly indicated that the contract was finalized upon acceptance on October 15, 1999, making extrinsic evidence inadmissible. The court agreed with the defendant, determining there was no ambiguity regarding the contract's effective date, hence properly excluding the extrinsic evidence. The plaintiff had submitted various documents showcasing interactions between the parties in August and September 1999, including notices to proceed and meeting minutes, which the trial court found contradicted the written agreement's terms, rendering them inadmissible under the parol evidence rule. Appeals regarding evidence admissibility typically receive deference unless there is clear abuse of discretion. However, the parol evidence rule, as a substantive contract law principle, is subject to plenary review. This rule holds that when parties have formalized their agreement in writing without ambiguity, it is presumed that all terms and understandings have been captured in that document.

Oral testimony or extrinsic evidence cannot be used to contradict or vary the terms of an integrated contract, as this would undermine the contract's integrity. The parol evidence rule allows for the introduction of parol evidence primarily for specific exceptions, such as to clarify ambiguities, prove collateral agreements, add missing terms, or demonstrate mistakes or fraud, provided that such evidence does not alter the contract's terms. Generally, unambiguous contracts with a merger clause cannot be modified by outside evidence. To determine the parties' intent, courts interpret the contract language in light of the circumstances and give words their common meaning. Any ambiguity must arise from the contract language itself, not from one party's interpretation. In reviewing the supply agreement and the Lake Road purchase order, it is concluded that there was no ambiguity regarding the contract's effective date. The supply agreement clearly stated that a binding contract was contingent upon the defendant's acceptance of a purchase order from the plaintiff, as outlined in §6.1, which specifies that the agreement does not obligate the parties to enter into purchase orders. Additionally, terms related to the purchase order are clearly defined, indicating that the purchase order activates the agreement. §5.1 establishes the priority of documents in case of inconsistencies.

The purchase order takes precedence over all other agreements, including the supply agreement, indicating that both parties intended for the purchase order to be the legally binding contract. The supply agreement shows that the parties did not intend to create a binding contract until the plaintiff issued a purchase order and the defendant accepted it. The defendant accepted the Lake Road purchase order on October 15, 1999, which explicitly required acceptance by signing and returning an acknowledgment. This acceptance established a valid contract, affirming the trial court's conclusion that the Lake Road purchase order constituted the entire agreement between the parties, superseding all prior communications and agreements. The merger clause in the purchase order confirms the intention for a fully integrated agreement, thus rendering any extrinsic evidence inadmissible to alter the agreement's effective date. The judgment is affirmed, with all justices concurring. Additionally, General Statutes 42-1581 (a) states that any waiver of a contractor's right to claim a mechanic’s lien or make a claim against a payment bond is void. General Statutes 49-37 (b. 5) outlines the process for establishing the validity of a lien, including requirements for probable cause and the opportunity for parties to contest the lien's validity or amount. The court may deny the application if probable cause is established, void the bond if not, or reduce the bond amount if excessive.

The defendant presents three alternate grounds for affirmance: (1) the supply agreement's §49 states that Swiss law governs, which deems a prospective lien waiver in a construction contract unenforceable; (2) the lien waiver in §19.2 is defective as it fails to specify the property it applies to; and (3) the lien waiver does not invalidate the defendant’s lien rights against the property owners involved in the plaintiff's project. However, the court affirms the trial court’s judgment and does not address these grounds. The supply agreement, executed by the parties' predecessors, outlines that the plaintiff can accept or reject proposals from the defendant without incurring liability, and any acceptance is contingent upon a mutually agreed Purchase Order. The term "works" in the agreement encompasses all supplies and services from the defendant. The defendant acknowledged the Lake Road purchase order dated September 27, 1999, stating it was accepted on October 15, 1999, within the ten-day response period. Connecticut General Statutes §49-37(b) allows for a judicial hearing to determine the validity or amount of a lien substituted by a bond, while §52-409 mandates a stay of litigation if arbitration is applicable. The trial court, after granting the defendant’s request for clarification, confirmed that the plaintiff's application to discharge the mechanic’s lien was denied because the plaintiff had posted a bond. The court noted that the term "acknowledgment" in the agreement is synonymous with "acceptance," thus considering the defendant’s letter as an acceptance of the purchase order. The plaintiff's claim regarding the admissibility of extrinsic evidence to modify an implied contract was not distinctly raised at trial and is therefore not reviewed on appeal. The trial court ruled that all documents submitted by the plaintiff were inadmissible under the parol evidence rule.