A. R. Young Const. Co. v. Road Improvement Dist. No. 2

TRIEBER, District Judge (after stating the facts as above). The original contract between the district and the construction company, entered into on October 16, 1918, contained, among others, the following provision: “That, for and in consideration of the payments to be made as hereinafter set forth, the contractor hereby agrees to furnish all tools, labor, equipment, and material required, and to build and construct the improved road in ,said road improvement district No. 2 of Johnson county, Ark.; in exact accordance with the plans and specifications, the originals of which are on file in the office of the state highway commission at Little Rock, Ark., copies of which are on file in the office of the secretary of the board, and the proposal filed with and accepted by the board on this 16th day of October, 1918, copy of said plans, specifications,- and proposal being attached hereto and made a part hereof as fully as though copied in full herein, under the direct supervision and to the entire satisfaction'of the state highway department, subject to the inspection, at all times, and the approval of the Secretary of Agriculture of the United States, and in accordance with the laws of the state of Arkansas, and the rules and regulations of said Secretary of Agriculture and pursuant to the Act of Congress approved July 11, 1916 (39 Stat. 355 [Comp. St. §§ 7477a-7477i]), entitled ‘An act to provide that the United States shall aid states in the construction. of rural post roads and for other purposes.’ “It is further agreed and understood between the parties hereto that the board expects to secure state and federal aid to the amount of not less than $150,000, to the end that the bituminous macadam may be constructed without cost to the owners of the real property within the district. In the event that the board should fail to secure state and federal aid to the amount of such $150,000, or fail to secure such fund's from some other source than by assessment upon the real property in the district, then and in that event the board shall have the right at its option to cancel and annul so much of this contract as provides for the construction of anyi part of the proposed improvement, other than grading, culverts, and bridges. In such event the contractor shall not be entitled to any damages on account of such annul [135] ment of the contract, but shall be paid in full for all work done prior to such annulment, and be discharged from further liability under this contract.” A supplemental contract was entered into, which' provides: “Glassification. “In subhead ‘Solid Rock’ and in subhead ‘Loose Rock’ nine cubic feet shall be substituted for the expression ‘one cubic yard,’ and under the head ‘Grading Classifications’ graded will be divided «into three classes, earth, loose rock, and solid rock,, as set out on page E-2 of the specifications. In so much as there is no price stipulated for solid rock, if solid rock is encountered, it shall be paid for at 82.50 per cubic yard.” The specifications referred to as part of the contract contained the following provision: “Supervision and Decision of Engineer. “The engineer shall have full supervision over the entire work, and his ¡decision as to the quality of both material and' construction, and the meaning of all drawings and specifications, shall be final and conclusive. All orders and instructions to the contractor shall be given by the engineer only.” On April 14, 1919, the board of commissioners of defendant district directed its engineer to request the contractor to put on additional grading force, and on April 22, 1919, it adopted the following resolution: , “Resolved: That the A. R. Young Construction Company be given until June 1, 1919, to put additional grading force on the work in order to complete the work within the time provided in the contract; and should said construction company fail to provide such additional grading force by June 1, 1919, then the board of commissioners will exercise its rights to proceed with the work as provided in the contract, in. this respect.” Also the following resolution was presented by Joe Huddleston and unanimously adopted by the board: “Resolved: That the secretary of this board is hereby instructed to notify the A. R. Young Construction Company that the financial condition of this district is such that they (the board) will proceed to put on the macadam wearing surface as provided in the contract, and the said A. R. Young Construction Company is hereby notified that the board of commissioners have voted to have this portion of the work done, and for said A. R. Young Construction Company to proceed with the necessary preparations and work of putting on this portion of the work as provided in the contract.” After a copy of this resolution had been served on the plaintiff, it proceeded with the work, and put on the macadam wearing surface. On April 5, 1920, the board of defendant district adopted another resolution hereinbefore set out, which was served on the plaintiff. On May 3, 1920, the following resolution was adopted by the Board: “May 3, 1920. Resolved that the engineer for the district is hereby instructed, in compliance with the request of the federal engineer and inspector, to place concrete head walls on all drain pipe in the federal aid section. And, further, that for the amount of 12 and 18 inch pipe required to be placed by the federal engineer, the price of 81.50 per lineal foot for 12-inch, and 82.50 per foot for 18-inch, in place, be allowed the contractor.” The plaintiff in November, 1920, after having received a copy of the resolution of September 6, 1920, notified defendants that, as they had no moneys with which to pay plaintiff for the work as it pro [136] gressed, and having failed to pay any estimates for work after October, 1920, it was willing to stop further work as requested by the defendants, on condition that they pay the plaintiff the moneys due on all estimates, all retained percentages, which under the contract were 15 per cent, of the sums due the plaintiff on the monthly estimates, and the December, 1920, estimate as soon as ascertained, the money then in the hands of the defendants having been reduced to a sum approximately equal to these amounts due the plaintiff, but that none of these payments were made by the defendants, and no payments whatever since October, 1920.. The first question to be determined is, By whom was the contract breached? The original contract provided that: “In the event that the board should fail to secure state and federal aid to the amount of sueb $150,000, or fail to secure such funds from some other source than by assessment upon the real property in the district, then and in that, event the board shall have the right at its option to cancel and annul so much of this contract as provides for the construction of any part of the proposed improvement other than grading, culverts, and bridges. In such event the contractor shall not be entitled to any damages on account of such annulment of the contract, but shall be paid in full for all work done prior, to such annulment, and be discharged from further liability under this contract.” It will be noticed that the reservation of the right of the defendants to cancel the contract, if they failed to secure $150,000 state and federal aid, excepted “the grading, culverts, and bridges.” When they notified the plaintiff, by the resolution of April 5, 1919, “to proceed to put the macadam wearing surface as provided in the contract,” which recited that “it (the board) is fully advised of the cost of construction and its financial condition,” they waived the right of cancellation for failure to receive the state and federal aid therefor, and plaintiff had the right to proceed with the work and make all arrangements necessary to perform the work, such as providing for the machinery, contract for the necessary rock, and other material required for the construction of the road. The order of September 6, 1920, to stop all work, except that mentioned in the resolution, was only agreed'to by the plaintiff upon the conditions set forth in its November letter to the commissioners, which the defendants failed to comply with. The failure to make the pa]rments due plaintiff as shown by the estimates of its engineer, and their inability to provide the funds for futtire payments for the work, the repudiation of the supplemental agreement, as found by the trial court, and the order of September 6, 1920, directing the stoppage of the construction by the plaintiff was .a breach of the contract by the defendants. Anvil Mining Co. v. Humble, 153 U. S. 540, 14 Sup. Ct. 876, 38 L. Ed. 814; Phillips, etc., Const., Co. v. Seymour, 91 U. S. 646, 23 L. Ed. 341; Guerini Stone Co. v. Carlin Constr. Co., 248 U. S. 334, 39 Sup. Ct. 102, 63 L. Ed. 275; U. S. Fidelity & Guaranty Co. v. Robt. Grace Constr. Co., 263 Fed. 283 (3d C. C. A.); Moore v. Security T. & L. Ins. Co., 168 Fed. 496, 93 C. C. A. 652; United Press Ass’n v. National Newspaper Ass’n, 237 Fed. 547, 150 C. C. A. 429. The last two cases were decided by this court. In the Guerini Stone Co. Case the court said: [137] “The Circuit Court of Appeals very properly held that in a building or construction contract like the one in auestion, calling for the performing of labor and furnishing of materials covering a long period of time and involving large expenditures, a stipulation for payments on account to be made from time to time during the progress of the work must be deemed so material that a substantial failure to pay would justify the contractor in declining to proceed.” The fifteenth finding, that under the contract the defendants had the right to annul any part of the contract, other than that relating to grading, culverts, and bridges, is clearly wrong, for it disregards the resolution of the commissioners of April 22, 1919, before set out. We therefore conclude that the plaintiff is entitled to such damages as the law entitles it to. What these damages may he is well settled. They are loss of « anticipated profits, if the contractor had been permitted to complete the contract, and also the outlay and necessary expense incurred by the contractor in preparing for performance of the work in accordance with the terms of the contract. A leading case on that subject is United States v. Behan, 110 U. S. 338, 4 Sup. Ct. 81, 28 L. Ed. 168. The court there said: “As before stated, the primary measure of damages is the amount of the party’s loss; and this loss, as we have seen, may consist of two heads or classes of damage — actual outlay and anticipated profits.” This has been uniformly followed by the courts. A late decision reaffirming it is Guerini Stone Co. v. Carlin Constr. Co., supra. The plaintiff is therefore entitled, in addition to the amounts awarded by the -decree, to the anticipated profits, which it can establish by proper evidence, and the expenses necessarily incurred in preparing for performance of the contract, but not for payments made to its employees, or expenses incurred in retaining the machinery and organization after it had abandoned the contract. Nor is it entitled to any damages for the quarry. The finding of the court that the defendants are entitled to $5,GOO damages against the plaintiff cannot be sustained. The specifications, which were made a part of the contract, provided that: “The engineer [of defendants] shall have full supervision over the entire work, and his decision as to both material and construction * <¡ o shall be final and conclusive.” The approval and acceptance of the construction, by the engineer in charge, who by the contract is made the final arbiter of the work, can only be set aside for fraud, or if guilty of such a wanton or arbitrary disregard of the contractor’s rights as to be equivalent to fraud. Chicago, etc., R. R. v. Price, 138 U. S. 185, 195, 11 Sup. Ct. 290, 34 L. Ed. 917; Choctaw & Memphis R. Co. v. Newton, 140 Fed. 225, 233, 71 C. C. A. 655 (decided by this court) ; Second National Bank v. Pan-American Bridge Co., 183 Fed. 391, 395, 105 C. C. A. 611 (6th C. C. A.) ; Coal & Iron Ry. Co. v. Reherd, 204 Fed. 859, 879, 123 C. C. A. 155 (4th C. C. A.). The evidence of the engineer, introduced as a witness by the defendants, establishes that the work was approved by him, and there is no claim on the part of the defendants that the engineer did not act honestly. From his evidence it appears that he was inexperienced in the [138] construction of such a road, but it was the defendants who employed him. He testified, after explaining how the asphalt should he applied; “Q. You were on the job every day? A. No, sir. “Q. How often were you on the job? A. Nearly every day. “Q. And you observed the work as it was being done from day to day? A. Yes, sir. “Q. Was there ever any of this asphalt section ordered taken up by you? A. Yes, sir. • “Q. And was it taken up? A. Near Clarksville there; yes, sir. “Q. And was it redone by the contractor as you directed? A. Yes, sir. “Q. Now, I believe you have testified, Mr. Levy, as to the cost of resurfacing this asphalt road with asphalt? A. Yes, sir. “Q.< I wish you would describe in your judgment just what has to be done down there in order to resurface this road. A. Just what do you mean on that, to bring it up to the specifications or resurface it? “The Court: Resurface it,' as you claim it should be resurfaced. A. On a course that which has an excess of asphalt, such as that section had at or near Knoxville, I should say, west of Knoxville, would require the addition of considerable stone screenings. “Q. How much now? A. I don’t know. I put in what I thought was enough, at one time to 150 yards was rolled in addition, and it did not start to take it up. “Q. Well, it was done under your directions to the contractor? A. Yes, sir. “Q. Did you ever ask him to come back and put more in afterwards? A. No, sir; I left about that time. “Q. And you have never made any further request of the contractor to bring this up to what you thought it should be according to the plans and specifications? A. No, sir.” Mr. Mitchell, plaintiff’s foreman of the construction, testified that all the work was done under the supervision of the defendants’ engineer; that he required some of the work done over, which was done, and was satisfactory to the engineer and accepted by him. It was error to charge plaintiff with $5,000 for defective work. The court allowed interveners $5,000 for loss of anticipated profits. This finding is amply sustained by the evidence. But the court held that plaintiff is liable for this sum. In this we are of the opinion the court erred, as the contract was breached by the defendants, as hereinbefore found by us, and they should be held liable for this sum. It is true that the interveners did not complete the work within the time required by the terms of the contract, but that was waived by the plaintiff as well as the defendants, and the interveners permitted to proceed with the work without objections from either, after the expiration of the time limit. Nor did the commissioners, in the resolution of September 6, 1920, when they directed all the work, including the grading, to stop, put it on that ground. The delay was clearly waived. The cause is reversed, with directions to refer the questions of damages the plaintiff is entitled to, to a master, to proceed in conformity with this opinion, and in all other respects the decree is to conform to the views expressed in the opinion.-