Henderson Bridge Co. v. O'Connor & McCulloch

CHIEF JUSTICE LEWIS delivered the opietoít op the court. December 7, 1881, O’Conner & McDonald made a written contract with the Henderson Bridge Company to construct for it, by October 1, 1888, the stone abutments and piers of a bridge across the Ohio river at. Henderson, Kentucky. — 317 — June —, 1883, with consent of the company, McDonald retired, and McCulloch took his place as member of the firm and party to the contract. February 14, 1884, the company attempted to annul the contract, and did, April 9, 1884, take possession, and proceed to complete the work, which was in an unfinished state. This action was instituted August 1, 1884, by O’Conner & McCulloch, to recover of the company damages for an alleged breach of contract, and after a jury trial, lasting from November 3, to December 24, 1886, a verdict was found in favor of plaintiffs for eighty-six thousand eight hundred and five dollars and seventy-three cents, with interest thereon from April 9, 1884, making the sum of one hundred and one thousand eight hundred and thirty-seven dollars and fifty-eight cents, for which the judgment appealed from was rendered. In their petition appellees allege that soon after the contract was made O’Conner & McDonald procured the necessary plant and materials, and following directions of appellant’s engineer as to the order of doing it, performed a large and valuable portion of the work during the year 1882, and up to June, 1883, but that appellant, almost from the beginning, commenced and continued in the following manner to hinder and delay them in carrying it on, as provided in the contract: 1. That having determined to so change the original plan as to make a through instead of draw-bridge, necessitating a change in the size and location of nearly every pier, appellant commenced in the spring of 1882 to obstruct progress of the work in order to avoid — 318 — locating the foundations until an act of Congress could be passed authorizing such change, which was not done until 1883, whereby the 'Contractors were prevented pushing the work at most available places, and using men and materials to advantage. 2. That although the work was bid for and undertaken with the understanding the contractors would not be required to use stone of better quality or more expensive than such as could be gotten at Hopkins-ville and Bowling Creen quarries, appellant, before the working season of 1882 began, notified them the Hopkinsville stone would not do, and refused to permit the Bowling Green stone used except for a small portion of the work. 3. That appellant from the beginning refused to furnish plans for shore work, although the contractors had from the spring of 1882 large amounts of material ready for, and requested permission to do, such work. 4. That great expense, labor and delay were caused by the manner, not contemplated, in which the contractors were required to construct caissons, and by negligence and mistake of appellant in other ways specially set out in the petition. It is further stated that, in the spring of 1883, appellant notified the contractors it had altered the plan of the bridge so as to conform to the act of Congress just passed, and pending negotiations about prices for work to be done according to the new plan, McDonald transferred his rights and interests to McCulloch,' and a special contract in writing was, June, 1883, made between appellant and O’Connor & McCulloch for building the foundations and piers according to the specifica — 319 — tions of the original contract and the general profile of the modified plan, made part of the new contract, at prices specified and then agreed on, and which are stated in the petition. That, by reason of delays the contractors had been previously subjected to, and the radical change in the plan of the bridge, it was impossible to complete the work by October 1, 1883, and the purpose and expectation of it being done was waived by all parties at the time of the June contract, and appellant waived the provision of the original contract requiring it, and agreed said work might and could be done within a reasonable time. It is further stated that the new firm at once proceeded to work under the original and special contract, though the latter was never signed by either party, obtained large amount of additional material, increased the number of men, and in all respects, to the extent allowed by appellant, carried on the work as rapidly as practicable, and more so than usual for such work to be done, but that appellant still refused to lay out or permit them to do shore work or to use Bowling Green stone, and although they continued to work until April 9, 1884, appellant wrongfully refused to make or cause made any estimate, or to pay them any part of what was due for work done during the months of December, 1883, January, February, March and April, 1884. They further state that, while in peaceful possession of the work under the contracts, ready and able to complete it as rapidly as they had undertaken to do, appellant wrongfully and unlawfully, with a large number of men, and by force and violence, took possession, and drove them from said work, at the same time cutting — 320 — down and injuring their buildings and machinery. They had, in order to do said work, purchased .and constructed, at great expense and labor, a large and peculiar plant, a considerable portion of which was unfit for any other purpose, and expended much time and means in hunting for and operating quarries, making other preparations necessary for the work, and had on hand, in good condition, a great part of the materials therefor, but that, by reason of said breach of contract and expulsion from the work, their plant, equipment and preparations became of much less value, and they lost a large part of what was so invested. That if they had been allowed to complete .said work, they could and would have made large ■profits that were lost by said act of appellant. That the reserve of fifteen per cent, on the estimates up to November 30, 1883, amounting to thirty-three thousand seven hundred and sixty dollars and thirty-four cents, and also the amount due for work subsequently done, have been withheld, and that the whole loss and .damage sustained, after deducting what has been paid to them by appellant, amounts to two hundred and .sixty thousand dollars, for which they pray judgment. We have referred in detail to the various grievances complained of in the petition, as well as to the elements of damages claimed because, in respect to each, a question of law or fact was made and passed on in the ■ lower court; but, before answering, appellant moved the court to strike out certain portions of the petition ■because irrelevant, which was sustained in part only, and also moved that appellees be required to specify the items of damages, which was overruled, and whether, — 321 — and to wliat extent, the rulings of the lower court on these motions were erroneous will be hereafter considered directly or. incidentally. In paragraph 3 of the answer it is, in substance, alleged that appellees did not well and truly, from time to time, comply with the terms stipulated in the contract of December 7, 1881, and for a long time before February 14, 1884, and up to that day, it appeared to the engineer of appellant that the work agreed to be done in said contract did not progress with sufficient •speed, or in a proper manner, and on that day said «engineer addressed a communication to the president •of -appellant as follows: “I have heretofore notified you orally on several occasions, I now notify you in writing, that the contractors, M. J. O’Connor and H. P. McDonald, and J. Q-. McCulloch, assignee of H. P. McDonald, have not well and truly, from time to time, «complied with and performed all' the terms stipulated in the -contract between them and the Henderson Bridge «Company, and that it clearly appears to me that the work under said contract does not progress with sufficient speed or in a proper manner.” That said communication having been laid before, it was resolved by the board of directors of appellant the said contract be annulled, and notice thereof be given by the president, and that thereby said contract did become null and void, the unpaid part of the value of work forfeited to appellant, and it had thereafter the right to employ another person to complete the work. That appellees were notified of the action of appellant annulling said contract, and it is a bar to the action. — 322 — Whether the demurrer was properly sustained to that paragraph of the answer depends upon the ■ construction of that part of the contract relating to the power of appellant to annul the contract, which is as follows: “If for any reason whatever, deemed sufficient to-them, the Henderson Bridge Company, through their president and board of directors, shall think fit to do so, they shall have the privilege, by giving the contractors one month’s notice to that effect, to annul the contract and discontinue the work, or continue it in such manner as they may choose. In that case the-contractor will be entitled to payment in full for all the material delivered and work done at bridge site or elsewhere, and the Henderson Bridge Company shall be obliged and entitled to take immediate charge of all the contractor’s derrick tools or other working plant in use at the time on the work included in the contract, and shall pay for them at a fair valuation, based on their actual value at the time. In order to ascertain, such value, each of the parties shall select one man to represent them as an arbitrator, whose decision shall be final. - “In case the contractors shall not well and truly, from time to time, comply with and perform all the terms herein stipulated, or in case it should appear to-the engineer of the Henderson Bridge Company that the work does not progress with sufficient speed, or in-a proper manner, the Henderson Bridge Company shall have the power to annul the contract, if it sees proper to do so; whereupon the contract on part of said company shall become null and void, and the unpaid part — 323 — of the value of the work done shall be forfeited by the contractor to the Bridge Company, and said Bridge Company shall be at liberty to employ any other person or persons in place of said contractors to do or to complete the work herein mentioned. ' “A suspension or annulment of the contract under these specifications shall not give the contractor any claim for damages against the Henderson Bridge Company.” It will be seen that the contract provides three distinct states in which the power of annulment might be exercised by appellant. Neither party contends the first one existed. Nevertheless, we think it should be looked to in determining the general meaning of the contract in respect to the relative rights and duties of the parties in case of annulment. The second condition obviously involves a right of the contractors to trial and decision by court and jury of the question of due compliance with, and performance of, the terms of the contract, for power of the company to alone decide it is utterly inconsistent with both the context and language used. But absolute power to annul the contract and take possession of and complete the work whenever it appeared to its engineer, or he was satisfied, the work did not progress with sufficient speed or in a proper manner, was in unambiguous terms given to the company, to be exercised without question by, or, it seems to us, previous notice to, the contractors; for as the right to .notice always implies the right to be present to contest or participate in something about to be — 324 — done, notice could not have 'availed appellee! inasmuch as they had no power, even if heard at all, to either contest or appeal from the act of annulment. Cases have been cited by counsel where it was held contractors were entitled to notice and opportunity to be present when the engineer is making estimates of work done, and also where he acted in the capacity of arbitrator of disputed matters between them and employers ; but here the engineer acted as the agent and employe of the company, and neither his good faith in the representation he made to the company, nor the action based on it, can, in the absence of an' allegation in the petition of fraud, be called in question by appellees; and though the contract may appear to be somewhat harsh as respects the power retained by the company by its own will to annul it, and thus inflict a forfeiture of unpaid part of the value of work done, yet as the terms are plain, and must be presumed to have been agreed to by the contractors with full knowledge of their import, there is no reason to regard it invalid, for such clauses are essential, and usually inserted in contracts for building railroads, bridges and other large structures, to secure faithful and skillful execution and prompt completion, and are always upheld, this court having heretofore sustained a con-' tract containing a provision, identical with the one before us. (Elizabethtown & Paducah Railroad Company v. Geoghegan, 9 Bush, 56.) But it is contended, as was pleaded, that having made and paid estimates for work done, with its permission, by appellee, after October 1, 1883, the time clause of the original contract was waived by appellant. — 325 — It is, however, argued for the other side that the third condition, in which the power to annul existed, does not relate to time merely, but- as well to the manner the work was to be done, and hence the right was not lost or waived by failure of appellant to exercise it during the contract time. The proper construction of the clause depends upon the meaning of the phrase “or in a proper manner,” and the connection in which it should be used. Obviously it, like the connecting phrase, “with sufficient speed,” refers to and qualifies the verb “progress,” and consequently the simple inquiry is whether it can be made to work where it is hitched, as it evidently is not needed elsewhere. It seems to us to have been put where it is to give a better guaranty of completion of the work within the time fixed than was afforded without it, and thus to serve a purpose and have a meaning, for, to assure the completion of the masonry within the time fixed, less than two years, required methods adopted, and materials and appliances provided and kept on hand, suitable and sufficient for the great undertaking; and that such was the purpose and meaning of the language used, as interpreted by appellant; is shown by the letter of its engineer to appellees, of date the same as his communication to the president, in which he complains of them, not because the work had not actually progressed ‘cwith sufficient speed ’ ’ during the winter months, but that they were not preparing in a proper manner to commence at the beginning of the working season, and finish the masonry during the year 1884. — 326 — It is clear that time was intended to be, and was, the essence of the third condition, and as appellant failed, within the contract period, to annul upon the ground it appeared to the engineer the work did not progress with sufficient speed or in a proper manner, but accepted and paid for work subsequently done under the contract by appellees, it must be regarded as having elected to waive the right which consequently was lost; for it is a settled rule that when a party has the right to elect to do a thing to the injury of another, his election, when once made, is final and conclusive, and he can not afterwards alter his determination. (Addison on Contracts, vol. 1, 406.) The original contract having thus and to that extent become obsolete, it is necessary to ascertain in what respect it was modified by the special agreement of June, 1883. There is some controversy as to the precise form of that special agreement. The material portion of it, as shown by the copy filed by appellees, is, in substance, as follows: That on account of certain changes in arrangement, plan, sizes of foundations and piers from what was contemplated by the contract of December 7, 1881, and in view of increased cost, a special agreement between the parties to said contract had become necessary, fixing upon the price to be paid for the work resulting from such change of plan; that said foundations and piers were to be constructed in accordance with the specifications contained in said contract of December 7, 1881, and attached thereto, and the general profile of modified plan, made part of the special agreement, and to be taken in lieu of — 327 — the one attached to the original contract, and then follows a special reference to description of and price to be paid for each pier. It is, however, alleged in the answer' of appellant that the special agreement as really drawn np and adopted by the parties, contained additional stipulations, in substance, that it was not to vitiate or annul the provisions or specifications of the original contract,except so far as it became a supplement; and that in consideration of the payments mentioned therein, appellees were, in a skillful and workman-like manner, and with all labor, machinery and materials sufficient .and proper, to execute and complete the foundations for the piers according to the provisions of the original contract, and the general profile of modified plan. It seems to ns the provisions of the original contract and specifications attached to and forming part of it, even without the additional -stipulations mentioned, remained in full force and unaffected by the special agreement, except as to the change in arrangement and plan of foundation and pier, and the increased price resulting therefrom. For it is expressly provided in the special agreement, according to the version of appellees, that the work was to be done in accordance •with the original specifications in which were contained the clauses giving power to annul. Besides, not only did appellees continue to work under, and recognize as binding, the original contract, but the gist of this action is the alleged breach of it by appellant, and the principal questions raised by the pleadings are in regard to the proper construction of its various provisions. — 328 — Although the power of appellant to annul the contract at will, was, as before said, waived and lost by failure to exercise it within the time fixed, the right still existed to terminate it whenever appellees in fact failed or refused to progress with sufficient speed or in a proper manner to complete the work within a reasonable time, or within the time agreed on. when the supplemental contract was made, if there was such agreement; for that waiver did not have the effect to impair any other right appellant had under the contract, fairly construed, nor to release appellees, from the performance of any duty imposed upon them. In our opinion appellant had the right to annul, even after termination of the original contract time,, whenever appellees failed or refused either to comply with and perform any of the terms of the contract, or to progress with the work with the speed and in the manner just stated, provided the non-performance or delay was not caused by the fault of appellant contributing substantially to it. One of the alleged causes of delay was the refusal of the engineer to permit the use of Bowling Green stone, except for certain portions of the work, and the question of profits also depends somewhat on whether the action of the engineer in regard thereto was proper. The clause of the contract on the subject is as follows: “Bridge Masonry — This is to be of limestone, and of such quality as the engineer may approve, it being understood that should the engineer so direct, stone from the white stone quarry at Bowling Green * * shall be used.” Whatever doubt there might be about the meaning — 329 — of that clause is'removed by another, which provides that no stone will be accepted unless proved, to the satisfaction of the engineer, that it will withstand, without injury, the influence of water, ice and weather. We think the lower court properly instructed the jury the contractors had no right to require the company to accept that stone, except for certain purposes specified in the instruction, but erred in giving the following: “The contractors had the right to have the whole work laid out for them, and to work on all parts of it at once, subject to the right of the engineer to direct the application of force to any portion of the work which, in his judgment, required it, to order the increase or diminution of force at any point he-might indicate, and if the jury find that the contractors were denied that right after the making of the agreement of June, 1883, and that delays resulted from such denial, then such delays were not chargeable to the contractors, and not grounds of annulment.” The principal objection to that instruction is that it is contradictory, and, therefore, misleading, for it is hard to reconcile the right of the contractors to work on all parts at once, the denial of which was a wrong done them, with the right given by the contract to the engineer “to direct the application of force to any portion of the work which, in his judgment, required it, and to order the increase or diminution of force at any point he may direct.” The main question in this case is the true measure of damages in case, as found by the jury, appellees were illegally prevented by appellant from completing the work. — 330 — But we will first consider the following instruction given by the lower court: “If the Bridge Company had the right to annul the contract under the evidence in this case and the law as laid down in the foregoing-instructions, then it has the right to retain the fifteen per cent, of the value of the work done, which was held back by it under the contract, but has no other claim for damages; and if the jury find that there was a lawful annulment, they will find for the plaintiffs eighty-five per cent, of the value of all work by the contractors from December 1, 1883, to February 14, 1884, that is to say, eighty-five per cent, of the unestimated work.” While, as already said, appellant had the right to annul the contract, even after the termination of the original contract time, for either of the causes mentioned, does it necessarily follow that it had a right to retain the fifteen per cent. ? Although it was competent for the original contractors to agree for the fifteen per cent, to be retained by appellant in case of violation of the contract by them, still, considered as a forfeiture, the right to it must be clearly shown, and can not be implied and regarded as liquidated damages; there must be consideration for it. In one clause of the contract appellant agreed to pay the original contractors one thousand five hundred dollars for each month the work might be completed before October 1, 1883, which, though it was unavailable, must be presumed to have been the consideration or inducement, in part at least, for the contractors to agree to the forfeiting clause, while McCulloch was — 331 — no party to that contract, and does not appear to have made an agreement, express or implied, to give np any part of his earnings. But, independent of these peculiar features of the case, we think the true rule is that when an employer has, in any way, waived his right to annul a building contract, his right to stipulated damages for either non-performance or delay by contractors, should be regarded as also waived, unless there is an express agreement to the contrary. Besides, as appellant was in default in making estimates and paying for work done after November 30, 1883, it had no right to either annul the contract for non-performance or claim the retained percentage. For its right to annul was given upon the condition and faith it would comply with the stipulations on its part; one of the most essential to the contractors being payment according to estimates for the work of each month by the fifteenth of the succeeding one. In our opinion, therefore, so much of the first, as well as fourth instruction, as directs the jury to find in favor of appellant, in any case, the fifteen per cent, of value of work done by appellees, is erroneous. The case of Elizabethtown & Paducah Railroad Company v. Greoghegan (9 Bush, 56) is unlike this. There the contest was not between the contractor, but his creditor and the employer, and it was held the latter was entitled, as against the creditor, to the retained per cent., because he had not only abandoned and left the work, but made no claim to the money in contest. Instruction five is as follows : “If the jury find that the defendant, without right, prevented the plaintiffs from completing said work contracted to be done by — 332 — them, the jury should find as the damages in favor of the plaintiffs, first, equal to' what the contractor had at the time they were so stopped from said work fairly, prudently and in good faith expended upon said work, and in preparation therefor, after deducting therefrom the amounts of payments received by the contractors from the Bridge Company, and the value of the plant and materials applicable for said work and procured therefor, which the contractors had still on hand; and the jury may give interest thereon at the rate of six per cent, per annum from April 9, 1884; and, secondly, such an additional amount as, added to said first amount, would equal the profits, if any, which the contractors would have made had they been allowed to complete the said work, the said profits to be computed as the difference between the amount which the contractors were to have received for said work when completed' and the amount which it would have cost the contractors to complete the same had they been allowed to complete it, making a reasonable deduction from such profits for the less time the contractors were engaged in the work,, and for their release from the care, trouble, labor, risk and responsibility which would have attended a full execution of the contract by them. “In determining the amount which would have been received by the contractor as the contract price for masonry, had they been permitted to complete the work, the jury shall determine whether, upon the evidence, there should be an addition to, or deduction from, the original contract prices fdr the masonry by reason of the change of plan approved by the Secretary of War in March, 1883, and should add to or deduct — 333 — from the original contract price for the masonry as they .shall believe from the evidence the cost thereof was increased or diminished by" such change of plan.” All authorities agree that a person injured is entitled to recover, as compensation, such damages as are the natural and proximate consequence of the act complained of; but there is difficulty in applying the rule .and adopting tests that will in each case assure justice to both parties. It seems to us, however, clear the instruction just ■quoted is radically wrong for several reasons: 1. It makes the employer responsible for the mistakes, misfortunes and miscalculations of the contractors : for although all the expenditures may have been made fairly, prudently and in good faith, they may not have, in all respects, been judicious, beneficial to the company, or promotive of the character of work required by the contract to be done. The evidence shows expenses were incurred opening quarries that ■did not furnish suitable stone, procuring- materials washed away by floods, and in other ways that proved abortive, for all which the company was made liable under that instruction. 2. Appellees were made practically sole judges ■of their own prudence, fairness and good faith in making expenditures, and, as a result of the error in overruling the motion to require them to specify the items of damages claimed, appellant was deprived of a fair opportunity to disprove the correctness of their statement of the amount of such expenditures, and for the first time made by them as witnesses during the trial; and it is demonstrable the jury accepted it as — 334 — trae, and deducting therefrom the amount paid by appellant, returned a verdict for the balance. 3. It required the jury to go behind and disregard the estimates and payments made and accepted for work done at prices agreed on and fixed. The case relied on to justify that instruction is United States v. Behan, 110 U. S. Reports, 338. There the appellee had, under a contract with an engineer officer, undertaken to do certain work, which ivas discontinued ; whereupon he made out an account for the actual and reasonable expenditures in the prosecution of the work, together with his unavoidable losses or materials on hand at the time the work was stopped. But the circumstances of that case are essentially different from this. There nothing had been paid the contractor for work, materials or losses. It does not appear the contract provided for periodical estimates and payments, nor, in fact, what amount, if any, work had been done. Here the contractors had been engaged more than two years, and five months longer than the original contract time. Much of their machinery had been used, and of course lessened in value, in doing work for which they had been paid, as also for materials, used in the work. It seems to us there can be no safer or more just rule for awarding damages than “according to the usual course of things from such breach of contract, or such as may reasonably be supposed to have been in contemplation of the parties at the time they made the contract, as the probable result of the trade.” .(Hadley v. Baxendale, 9 Exchequer, 341.) — 335 — It is provided in a clause, already quoted, of tlie original contract that, in case the company annulled the contract, and discontinued the work at anytime, which it had the right to do by giving the contractors one month’s notice, they were to be entitled to payment in full for all the materials delivered and work done at bridge site or elsewhere, and the company was to be obliged and entitled to take immediate charge of all the contractors’ derrick tools and other working plant in use at the time on the work included in the contract, and pay for them at a fair valuation, based on their actual value at the time, to be ascertained and decided by arbitrators; and it seems a part of the plant and tools have already been so received and paid for. When the parties to such a, contract as this have themselves agreed upon a basis of settlement and payment for the injury sustained, neither has a right to complain if adopted by the court; and we, therefore, think the damages to appellees, resulting from the act of appellant, if found to have been illegal, should be regarded as consisting of — first, the value of such of their derrick tools and other plant as were in use at the time, not already paid for; second, the value of the materials then on hand, or delivered or ready for delivery subsequent to November 30, 1883 ; third, the reasonable value of unestimated work done after that date; fourth, the amount of fifteen per cent, earnings retained, the last two items to be paid for in any event; fifth, interest on the whole amount from April 9, 1884; sixth, whatever profits it may be shown could have been made, if appellees had been permitted to complete the work. — 336 — For the errors indicated, the judgment is reversed, and cause remanded for a new trial and further -oro■ceedings consistent with this opinion.