Bethlehem Steel Co. v. Turner Construction Co.

Bethlehem Steel Company (plaintiff) subcontracted to provide, erect, and paint the structural steel for a building that Turner Construction Company (defendant) built for Mutual Life Insurance Company. Mutual agreed to pay the costs of materials. The contract set the steel price at $182 per ton but contained a price-adjustment, or escalator, clause stating: “The price or prices herein stated are based on prices for component materials, labor rates applicable to the fabrication and erection thereof and freight rates, in effect as of the date of this proposal. If, at any time prior to completion of performance of the work to be performed hereunder, any of said material prices, labor rates and/or freight rates shall be increased or decreased, then in respect of any of said work performed thereafter there shall be a corresponding increase or decrease in the prices herein stated.” The contract limited the maximum adjustment for increases in steel prices to $15 per ton. Bethlehem uniformly increased the prices it charged for steel items produced at its mill, such as steel bars and sheets, by $10 per ton before the contract was signed. Once construction began, Bethlehem invoiced Mutual periodically for steel furnished in accordance with the contract, including the $10 increase. Mutual objected, arguing that “prices for component materials” referred to changes in prices that Bethlehem paid for raw materials such as iron ore and steel scrap. Bethlehem insisted that the term meant prices regularly charged to the trade for manufactured steel items, ultimately billing Mutual nearly $95,000. Mutual and Turner refused to pay. Bethlehem filed a lien against the building and filed for foreclosure. Mutual’s controller testified he understood the provision to refer to increases in the price of raw materials, not manufactured steel items. But the trial judge granted summary judgment for Bethlehem based on the contract language, and the appellate court affirmed. Turner appealed to New York’s highest court.