#### Quarles *v.*Little Cypress Drainage District.

Opinion delivered March 30, 1925.

1. -.- Drains-t-contract for ,. construction. — Where the engineer of a drainage district severed his connection as engineer for the district, openly '.and with the district’s consent, after all the preliminary work had 'been completed, an'd thereafter made ■ the lowest bid for' the construction work, *held*that he violated no principle-of1 law in doing so,-and his contract of construction was valid, ' •

2. , Drains — rights, of subcontractor. — A. subcontractor who has partly constructed a ditch, and the work being .stopped by the district, is entitled to recover *ex contractu,*and not on a *quantum*' *'meruit,*; for' the'’ work done pursuant to the contract of the ’principal contractor' with- the district. - ;

3.' Drains — rights of subcontractor. — Where a contractor -sued a drainage district for the amount due him for- work done - under his contract- and for breach of his, contract, and his sub- - contractor brought a similar, suit, against the contractor and .. the' district, and the cases were tried together, in order to avoid a circuity of actions the subcontractor will be allowed to recover direct -from- the district the portion of the' amount due ; -the contractor which belonged- to the subcontractor. -

4.- Drains — right to' stop work. — Where a drainage 'district in a . - construction coritract,reserved the right to stop work and.com-píete it itself, and, a subcontract .provided for the same con- ' tingency, the district is not , liable to the subcontractor for stopping the work.

5; ' Drains — stoppage op Work — right- to deduct advance pay■-MENT. — Where a construction contract with a drainage ■ district ’ ■ provided for advance payment by-the district for purchase of the .....equipment, and for repayment .by deduction of part of the agreed price .per. yard, the district, .upon stopping the work under an '' option i'n the Contract wias not entitled to deduct' the Unpaid remainder of'the advance payment as against a'-subcontractor'.

6. Drains — stoppage of work — right to' deduct advance payment. — Where a construction contract with a drainage district provided for advance payment by the district for purchase of the equipment, -and for repayment by deduction of part of the agreed price per yard and further provided that this district should have the option to stop the work and complete it on the cost basis, and to employ the contractor at a fixed per centum of the cost, the district is entitled, in settling with the contractor, to charge him with the cost of the advance payment for the equipment.

*3697.,. Drains — RIGHTS qf contractor. — Where a principal contractor agreed to construct a drainage diitch at the rate of 35 cents per dübic yard; 'which was in turn subcontracted to another at : '25 cents peí' cubic1 yaM-,he was entitled to recover the’difference í -between the'two ■ amounts where the district exercised its option to stop work before completion., .

8. ’ Drains — breagh; , of contract — damage.—.Where a drainage *¡*;. ¡ ^tetrict,, hayip.g. the '-right. to ■ stop the work under a contract , . and to employ -th^( contractor on a. cost-plus, basis, exercised its option to step the work, but.failed to complete it under the co’st- ' plus' basis, it will be liable te the contractor for the work doné taflér theAíOfttjact and' fbr damages taufeed" hy failure ito completé ';.t|he ditch.undoriitho cost-plus jbasis. , - • ,. '.,.-r.

.Appeal |iiom Phillips Chancery Court.; A. L. Hutchins, Chancellor;

*reversed.*

*i‘.<ih. G. Going', Coleman, Robinson é House*and *W\ G. Doming,*for appellants: -

*'Moore, Wálher & Moore,*for app'ellees.

McCulloch, C. J.

Appellee is a drainage district ip EJiillips : Coianty,. organized-u$der .a- special statute, and, appellant, John M., Quarles, together with his part ner.ip. the practice of,.the engineering profession. Mr. BAnHwtt* were employed hy the commissioners to do the engineering - work for, the district. The engineers made thevnoeessary surveys upon- plans and specifications which were.ad opted, by .the commissioners, and an advér-r tkemétet: for bids ,-was duly- published;» ■ The coinmis*-sioners -received-one .or-.more bids-; hut. they- were -unsatis1 - factory <* and. were-rejected. .At .this point of -the- proceedings: appellant Quarles applied fa the commissioners for!-permission -to: resign -his position as engineer, and madte iatbid to do' the construction- wórk. ■ After consul-' tát'iñn- With the- attorney -for- ‘the district, who adviséd th&t Abére'Wa'á'no impropriety 'in 'Quarles -resigning his' pMitiqfi! -and hidd-irig fbr the’ work, the commissioners'p'érffiitted hiM''-tó'’fio; so, and' his hid’ was Accented' and' a contract was entered into with him hy the' coinmis-; siWrief&A The -hid1 ‘WaS'-'To remote The'Estimated :'ám'ount *370of 364,273 cubic yards of earth at thirty-five cents per cubic yard. There was also a specification of the price and quantity , of clearing and grubbing, but there is no controversy in the present litigation over that feature of the work, hence it is unnecessary tO' mention it.

The contract between Quarles and the commissioners was dated October 12, 1920, and contained a stipulation to the effect that the district should advance to the .contractor the sum of. $25,000 in money, one-half of which, was to be paid over when the dredging, machinery ' should arrive at a certain railroad station near the work, and the other one-half when . the machinery was installed and ready for operation at the place where the system of canals was to begin, and it was further stipulated1 that the amount so advanced should. be repaid by a deduction of ten cents per cubic yard for the removal of the dirt as the work progressed. A supplemental contract between the parties contained the following pro vision :

> “Now, I hereby agree with the commissioners of said drainage district that, at any time subsequent to the date of which I shall begin work on said system of drainage and canals, and upon five days’ notice in writing given me by the said board of1 commissioners of said drainage district to turnover to the said board of commissioners of said- district the uncompleted work, to the end that said board have complete charge, thereof from that date; and I further agree to go on with the performance of said work, to superintend the same, and to cause ' said work to be completed, under the management and direction'of .the said board of commissioners at their expense,-and as compensation for my services, from the date that said board of commissioners take over said work, I am to receive 15 per cent.- of thé cost of construction of said uncompleted work, the same, to be paid me on monthly estimates by the said board ¡until said work is completed.”

Quarles subcontracted--the work to ,B. *L.*Cheshire under written contract dated December 1, 1920, at the *371price of thirty cents per cubic yard, fox moving earth, and the contract, after specifying all of the other items, contains a stipulation for an advancement of $25,000 for the cost of installation of the machinery, and also the following stipulation:

> ‘ • The party of the first part agrees that, in event the board of commissioners of the Little Cypress Drainage District takes over the contract on cost-plus, basis (as provided in contract executed between the commissioners and the party of the-first.part),, that the party of the first part agrees to pay to the party of the second part an amount to equal all expenses that the party of the seeond part has paid out for securing equipment, which covers , cost of plant, dismantling, transportation, erecting, and all other expenses by installation of equipment. Should the commissioners . take over contract before equipment, shall have excavated 50,000 cubic yards of excavation, the party of the firs,t part agrees to .pay the cost of operation, shall pay for all material on hand, such as supplies, and shall pay the party of the .second part the amount of two thousand dollars ($2,000), which is to compensate the said party of the second part for installing equipment and starting the organization. The party of the first part shall be entitled to receive all pay on work completed, if same is taken over" before machine has excavated the stipulated yardage.”

'On December 6, 1920, Cheshire subcontracted the Work to appellant T. D. Hunt at'twenty-five cents per cubic yard for the removal of earth, and the written contract between them contains the same stipulations as those referred to above in the contract between Quarles and’ Cheshire. The district advanced $25,000 in accordance'with the contract, which was used in the purchase of machinery and other equipment, and the additional dost of installation of the machinery at the place of' wérk ran the initial cost up to $32,881.63. After installing the equipment, appellant Iiunt proceeded with the' construction work, and, in addition to a certain amount of grubbing and clearing, he excavated and removed 73,850;70 *372cubic yards of earth. He was paid $8,447.10- on estimates, and nothing more has been- paid to-him-or-to Quarles. Thd Commissioners then, under date of July 29/ 1921, gave" notice to Quarles, as principal-contractor,; of the election of the district to exercise the option-in the non-tract for stopping the work and taking overo the construction of the ditch. The work was accordingly ■stopped, and nothing further1 has -been, done toward, the 'completion of the improvement-.-' Assessments of-benefits were made, and taxes levied and bonds were sold, fend part of the money for; the purchase price of the4 bonds was paid over to the commissioners.

' ’ Quarles subsequently brought 'suit against the'district, allegingbreack of the contract by the commissioners,' and also alleging that he had held-‘himself in readiness"'to comply with’the contract,''both;as to the ^Construction of the work on the original terras specified Or 'on the cost-plus'básis specified in the Supplemental contract, and prayed for the recovery of compensation for the'amount of work "done'as'well as damages for being 'prevented from doing the' remainder of the work.

, Appellant Hunt also, instituted, a , separate-faction against the district and against Quarles to recover .the amount of earned compensation , under his .'-contract and for damages for breach of the' contract. ,.

, ., These. actions were ■ instituted in t-he .circuit court, but,-on motion of.-the. district, were transferred; to the chancery court, and pr.oceeded.there to-final-trial--and decree.. The district answered, pleading the -¡invalidity of- Qiiarles’ contract; with , the district on- account- of; his ,hav¡ipg been engineer, of .the district-in the formation of the, plans,, and also pleading that the contract-.was.?-.an improvident one and .should .be set aside. .-There! were -Other denials with respect,/to. the amount: of . outlay claimed .by-each;of the appellants.,, audit was’.also.-denied that there were, any damages,-..sustained-. The ¡chancery court rendered -a final decree dismissing,' Quarles-’ complaint for want of equity ou the. ground that the. contract *373with the district was void by reason of Ms former- relation to the district as engineer. The court held that-Hunt could recover from the district only on the *quantum mer-uit*basis, and, after stating his account with the district, brought him out in debt to the district in the sum-of $14,288.22. The account between Hunt and--the district was stated by the court in its decree as follows:

> credit.

> 73,850.70 cubic yards removed at 8%. ',. ! ,,,

> per yard ..,$

> Rental on drainage boat at $30 per day...!.! ' 2]10j}.Q0

> Grubbing right-of-way.,...,1...' l,8Q0’.'p0

> Additional cost of installation...7,881.68

> Maintenance of organization during.v

> delay ......!.!..!i.. 1,100.00

> Total ’ / ' $19,158.88

> DEBIT. _ ; . . !

> Amount advanced for purchase and in-

> stallation of equipment...!....$25$00,C)Q

> Amount paid on estimates........ 82447.10

> Total .!.!.!.........!„,::.$33;447.10

> Balance due from Hunt to district...........!..$Í4,288!22

The court also in its decree declared a.lien in favor of the district on the drainage boat, which was,part,,of the equipment and on which-advances were., made,.-apd ■held that appellant Hunt' and his surety were, liable on his bond executed during the pendency of, the aption for the retprn of the equipment,if., ordered by ■ the-,pourt.,.

Learned counsel for appellee defend the cou^t.’s decree on the ground, that- the contract of- Quarles:,'with the district was illegal and void, and that Hunt .was entitled to recover only on *quantum*meruit> and-that the court allowed him the amount, to which he- Was .entitled. Counsel base their contention on the- .decision-:of.-. th-iá court in the case of *Carter*v. *Bradley County Road Improvement*District, 155 Ark 288, but we am ofithfe *374opinion • that the rule announced in that case is not applicable to the present .case. -In the Carter case the engineer of the improvement district had, while serving as engineer for.the State Highway Commission, entered into, a contract with the road improvement district to do the engineering work, and this court held that, he was not entitled to recover either on the contract or..on the *quantum meruit,*notwithstanding the fact that the work was done after the claimant had severed his connection with the State Highway Commission'. In the present case Quarles severed his connection with appellee district as engineer before he bid for the construction work, and this was done without any concealment, openly and with the approval of the attorney for the district as well as the commissioners. He resigned as engineer after all preliminary work had been done and the plans had been completed and approved. It was even after bids had been advertised for and received and no satisfactory bids had been made. There is nothing in the proof to justify the conclusion that there ’ was any collusion between Quarles and the commissioners whereby he was to take advantage of his position as engineer for The purpose of securing an advantageous contract with the district. There is nothing to show that the resignation was a mere evasion of duties devolving upon • Quarlés as engineer. On the contrary, hé had, as before stated,' completed all 'of the engineering work to be done up to that time, and when the bid1 was made there were no official or confidential relations existing between Quarles and the district. He was perfectly free then to enter into a contract with the district, and we can perceive no principle of law that would forbid his doing so. Nor is the proof sufficient to justify the conclusion that ■ the' contract was an improvident one. The bid was much less than the bids received by' the commissioners from other persons. There is testimony in the record of other work being done cheaper, and other testimony tending to show that the'price stipulated for in Quarlescontract was too high, but we are of the opinion1 that the testimony as a *375whole does not justify a finding that the contract was improvident or that the commissioners could, by the exercise of diligence, have secured a contract at a lower price. The contract entered into was free front fraud or collusion, and we can see no reason why it should not be upheld. ’ " • 1

' Our conclusion therefore is that Quarles’ contract was valid and that he is entitled to recover earned compensation and for damages which arose, for which he should’ bé allowed compensation as- in other cases under settled 'principles of law.

Whatever appellant Hunt is entitled to recover,'it mhst be under the contract and not on the *quantum mer-uit.*He had no contract with the district, for his contract was with'Quarles, but, since Quarles and Hunt are both parties to this' suit, Hunt should be allowed, in order to prevent circuitous actions, to recover directly from the district the amount he is entitled to under the contract and for which the district is liable under its contract with Quarles. ; Hunt is, of course, entitled to recover for the amount of excavation and removal of dirt at the stipulated price under his own contract with Quarles, and also for the price of the grubbing, which is undisputed. He is not entitled to recoyer anything from the district by way of damages for breach of contract, for the simple reason that the district did-pót,break the contract so far,as allowing the construction of the improvement to be made under the terms of the contract. The district in its contract expressly reserved the right, and option of stopping the work at any time and completing the job. Hunt is bound, so far as any liability of the district to him, is concerned, by the stipulations in the contract between Quarles and the district. It is a hard feature of the contract, but he can obtain no relief from it, for the reason that it became a part of his own contract. For the same reason he is not entitled to recover anything as reimbursement for the additional cóát of the installation of equipment. Nor is:Ke entitled to recover for the expensé of maintaining a *376crew while, the equipment was idle. These are items purely of .damages for breach of the contract, and, as we- have already seen, there was. no breach of the contract .by the. district so far as concerned Hunt, for the reason that, the district reserved its ..right to stop the work at any time, and the stoppage of the work was not a breach but was within the. reserved rights of the district. On the other hand, the district should not .be permitted to deduct from, its liability to Hunt for earned compensation .the full amount advanced for the purchase of equipment. This is so because the district expressly, agreed- in.tits contract to claim the right of deduction only to the extent of, ten .cents per cubic yard of excavation and removal of dirt during the progress of-the /w;or.k., Having contracted to accept the return of the money .in that way . only, the district cannot, after haying made an election to stop the work,, insist upon the subcontractor returning the money advanced for the equipment.; The account between Hunt and the district should be stated,as. follows:

> . CREDIT.

> 73,850,70.; cu. yds., removed at 25c per yd.$18,462.67

> Amount allowed on grubbing... 1,800.00

> ’ Total :...:.$20,262.67.

> DEBIT.

> Amount"'paid on''estimates.:...!...$ 8,447.10

> Amount of "deduction at 10c per cubic •'-"■yard for ad-vaneément on equip-'merit .....i....:.;.'.:.:...;-....J.. ' 7,358.70

> Total '.:::..:..:...:.:.$15,805.80

> Balance..due. Hunt*....,..-.:.-....<.:....$ 4,456.87

• - The-decree in-favor of- Hunt should be for the balance stated above. -- .

-.-..¡Turning-.to- the.-.claim of Quarles, we are of the opinion-that.-he is. entitled to recover from the district the balance, of-ten-pent s per cubic yard-on the removal of, earth-.by- Hunt,.-which is- the -difference between the. amount-he: is.-entitled-to;.-under.- his,-- contract and - the.-. *377amount to be recovered by Hunt under bis contract. Quarles is entitled, under bis. supplemental contract .with tbe district to fifteen. per centum, of tbe cpst. of tbe improvement made under bis supervision. According to tbe undisputed evidence, it would .have cqst. $1.40;QQ0 to complete tbe work, and Quarles field, .himself in readiness to do tbe work when called on by-.tbe district,, .-and was not able to obtain : any other • employment, during tbe period wbicb would have been, .covered- .by, tbe, -,completion of the work. He is-therefore entitled to recover the compensation wbicb be would have, earned .under the contract if performed.. Quarles is-.alsp.,chargeable with tbe balance of tbe ,sum advanced by. tfi;e; district on equipment after deducting the amount charged, .to Hunt. Notwithstanding, the stipulation-.,in-the .contract for the deduction .of the advancement-on,the .estimates of work done, Quarles is responsible.for the. full-amount, inasmuch as be is allowed under the contract to- recoyer fifteen per centum of tbe total cpst of the- completion, pf tbe improvement. He stands-in a different attitude from Hunt in this respect, for, under bis,.contract,.¡fie, ¡was,pot cut off from earning additional compensation by tbe election of tbe district to complete tbe work itself. A fair interpretation of tbe contract is that the district had the right to stop the progress of tbe work under tbe contract and change to the cost-plus basis-,:and, if should not be denied tbe return of the amount of money advanced merely because it madh this'change. Quarles took bis chances under the contract on the loss of.bis equipment, and, if be claims the fifteen per centum on tbe -cost of completing tbe work, - he. must- return the money advanced for the equipment'.- Qiiarles’ account with the district should therefore be státed a? follows;

> CRKDir.

> 73,850.70 eu. yds. removed at 10c per yd.¡,..$. 7,385.07

> Amount allowed, 15 per cent of cost of completing tbe work..i.L.:. 2l;000.00

> Total .: ..l.:...'.:,..$28,385.07

> *378■debit.

> Balance of amount advanced for equipment, - after deducting amount charged to Hunt.$17,641.30

> Balance due Quarles.:$10,743.77

It is conceded that Quarles is entitled to' recover this amount from the district. Both of the appellants are entitled to recover' interest from the time of the commencement of their respective actions.

It is conceded by- both Quarles and Hunt that there are items of account to be settled between them; in this litigation; and that, on the remand of the cause, those matters will be either settled-or litigated.' We are not asked to decide any issue between them, but they ask’ that the cause be remanded for that purpose. ' -

The decree of the chancery court is therefore reversed, and the cause remanded with directions to the court to enter a decree in favor of appellants Hunt and Quarles for the respective amounts stated above, with interest, and for further proceedings not inconsistent with this opinion.