Court Opinion

ID: 9639069
Source: CourtListenerOpinion
Date Created: 2023-08-22 16:03:32.289502+00
Date Added: 2024-06-11T18:10:11.976073
License: Public Domain

MANTON, Circuit Judge
(dissenting). The contract sued on is for service and the furnishing of materials and labor on a cost plus basis in the construction of houses. The owner agreed to pay such costs incurred by the contractor in performance of the construction work plus a fee of 6 per cent, .of the cost. The action seeks to recover an unpaid balance of $128,351.75.
The main defense presented to us is that paragraph III of the contract, providing that “it is understood and agreed by and between the parties hereto that the work included in this contract is to be done under the direction and to the satisfaction of the general superintendent of mines,” was not complied with, in that the plaintiff in error was unable to satisfy the mine superintendent. The contract provided, among other things, in paragraph IV, that “the contractor agrees on 24 hours’ notice to remove all materials condemned by the superintendent whether worked or unworked, and to take down all portions of the work which the superintendent shall condemn as unsound and improper, and to make good all work damaged or destroyed thereby within the scope of the contract,” and in paragraph VII that the materials and workmanship shall be strictly in accordance with the plans and specifications, and any defect, patent or discoverable by the exercise of reasonable care and the usual tests, will be repaired or finished within one year after the completion of the work. Paragraph VIII provides that the estimated cost of the work is to be determined from the itemized estimate of costs prepared by the contractor, based on plans and specifications prepared by the architect, to be approved in writing by the superintendent of mines, and that “nothing herein shall be construed as binding the contractor to complete the work within the estimated cost, it being understood that said estimate is made for the sole purpose of determining the amount of the contractor’s profit.” And paragraph XII provides that nothing shall be construed as binding the contractor to finish the work within any specified time and due allowance shall be made for delays of any kind affecting the progress of the work.
The findings of fact made by the referee should be accepted, and the question open for our review is whether there are any errors of law in the judgment rendered by the court below. David Lupton’s Sons v. Automobile Club of America, 225 U. S. 494, 32 S. Ct. 711, 56 L. Ed. 1177, Ann. Cas. 1914A, 699; Fleischman Co. v. United States, 270 U. S. 355, 46 S. Ct. 284, 70 L. Ed. 624; Aronstam v. All-Russian Central Union, etc. (C. C. A.) 270 F. 460. The referee’s findings, approved by the District Court, established these facts: That the plaintiff in error took hold of the contract in good faith and pressed the work to completion with energy; there was no bad faith, lingering delays, or soldiering of any character, and no padding of the cost; and it has been found that the moneys requested for payment were expended for labor and services. Eurther, it is found that the work was done in a skillful and workmanlike manner in conformity with the plans and specifications furnished, and that as a result there was a *544substantial performance of the contract. The contract provided that “final payment, including the full amount to be paid under this contract, shall be made within 30 days after substantial completion of the wort.” There is a finding that the cost of the work did not exceed the fair and reasonable value of performing the same, and that the fair cost of the services unpaid for is the amount sued for herein. The contract provides for inspection by the superintendent and that the plaintiff in error would have opportunity to correct the defects pointed out in his complaints. There is a finding that such defects as were pointed out were supplied, corrected, and repaired prior to September 18,1919, and further that at no time was there a refusal to correct any work the superintendent requested to be corrected.
After September 18, 1919, there were no requests made. On that day, a letter was written stating in effect' that the plaintiff in error need not work further on the job and that the defendant in error would take care of unfinished items. There is a finding that, on every occasion when defective work was pointed out, the plaintiff in error carried out the superintendent’s direction to the letter. The final inspection of the work resulted in a finding that the superintendent took an active part in the work and that he ought to have been satisfied. When the letter of September 18,1919, was written with the authority of the mining company, putting an end to the services of the plaintiff in error, it was a breach of the contract in depriving the plaintiff in error of the opportunity to finish its work on a cost plus basis.
It made no difference to this superintendent, under the contract, what the cost of the work, if it was honestly incurred. The parties did not contract to satisfy the superintendent as to the cost. Provision as to that is found in paragraph I, as follows: “And the contractor agrees to accept said employment and to erect and construct said buildings and improvements for the owner in a skillful and workmanlike manner and at the lowest cost consistent with good workmanship and the quality of materials contracted for, it being understood that the contractor" has had a large experience in the construction of such work and the purchase of materials therefor, and will give to the owner the full benefit and advantage of its skill and experience in these lines.”
No time was set for the completion of the work. And it was not within the power, of the superintendent of mines, in breach of the contract, to discharge the plaintiff in error. He could, of course, have severed the relationship only when the work was completed. Indeed, after writing the letter on September 18,1919, the mining company completed some unfinished items, employing the subcontractors who had contracted with the plaintiff in error, and using the materials, tools, and supplies which the plaintiff in error brought to the job.
There were problems as the work progressed. The most prominent of these was the selection of the site, referred to as plot No. 2, which had an unsuitable foundation upon which to build. Some of the work here was abandoned. The selection was made by the superintendent; the directions for the work in the location were given by him.
The superintendent of mines, in his correspondence and statements, conceived the idea that the work should not have cost more than $500,000, whereas in fact it far exceeded that sum. Basing all his claims of dissatisfaction upon the cost above that figure, he reached a state of mind which resulted in arbitrary action. As the referee said: “The superintendent appears to have felt a personal responsibility for the selection of the sites for the houses,” which proved to be unsuitable, and further said that, at the time of this discovery, the superintendent’s attitude toward the plaintiff in error was “one of obvious bias and even extreme hostility.” He further said in his report: “The estimate sent in by the plaintiff on January 6,1919, exceeded so greatly what the owner and the superintendent and architect had expected the work to cost that the superintendent, who no doubt felt responsibility to his superiors for the expected cost of $500,000, was greatly alarmed, and from that time on his attitude toward the plaintiff became strained and, finally, decidedly hostile.” The prevailing opinion says: “The plaintiff is defeated in a large recovery by what was apparently the obstinacy and prejudice of the company’s superintendent— we speak from the opinion.”
In all the findings below, there is an absence of expression of dissatisfaction as to any particular part of the work prior to September 18, 1919. Such as were listed from time to time as requiring completion or repair were found to have been corrected. The site and plot No. 2 were ultimately abandoned by direction of the superintendent and the plaintiff in error was exonerated from blame or fault in the endeavor to build upon it by the findings of the referee. With the findings thus made, there is nothing to support the general statement in the finding 15 that the superintendent was in good faith dissatis-
*545fíed. Such a finding so stated is meaningless and valueless.
The parties had contracted as to the cost of the work; the contract did not contemplate that the plaintiff in error was to satisfy the engineer as to cost. A cost plus contract never contemplates satisfying misconceived notions as to cost. The cost of the work was uncertain. The parties recognized this in making a cost plus contract. Such a contract is nothing more than a service in the purchase of materials, supply of labor, and in the performance of the work. The idea of the superintendent as to the cost not to exceed $500,-000 was an unwarrantable assumption by him of terms of the contract, which the parties did not agree upon. It undoubtedly resulted in bringing to his superintendeney arbitrary action. The plaintiff in error was bound to follow the direction of the superintendent under clause 3, paragraph III, and to accede to his demands in the selection of the sites or in the prosecution of the work. The findings amply support the claims of the plaintiff in error that it met all his requirements in this respect, and therefore that it fulfilled the covenants of the contract on its part to be performed.
The duty of the superintendent is made clear by paragraph IV, which gave power to the superintendent or his representatives to make inspection to condemn as unsafe or improper the work improperly performed. And in paragraph VIII it required the work to be done in accordance with the plans and specifications and made plaintiff in error responsible for completion and for defective work within a period of one year after completion. If there were defects indicated by plaster cracks or leaks, plaintiff in error should have had opportunity to make these repairs. To refuse it such opportunity was a breach of the contract obligation. Indeed, the referee found that the superintendent did periodically inspect the houses, list the defects, and required the superintendents of the plaintiff in error and its subcontractors to remedy the defects as they occurred.
Moreover, it appears that, after the plaintiff in error left the work under the circumstances described, the defendant in error approved the accounts of the subcontractors and subsequently paid them all, indicating that this was done in pursuance to the terms of the contract and within the privilege of the contract accorded the plaintiff in error. It likewise points out the ultimate satisfaction of the superintendent with the plaster work. The letter of September 18th does not state that the mining company discharged the plaintiff in error because of dissatisfaction with the work. The acceptance of the subcontractors after that date, at the prices agreed upon for completing the unfinished items, is a conclusive affirmation of the continuance of the contract, and points to the satisfaction of the superintendent .with the plaintiff in error’s work. Retaining the tools, supplies, and materials is another indication of satisfaction.
The rule of law for this circuit is announced in Sullivan v. Wingerath, 203 F. 460, where the contract provided that the work be performed to the satisfaction of a specified architect. There Noyes, J., said:
“The trial court, in charging in accordance with the request of the plaintiff, correctly stated the law. The ease was not one in which the necessity for, or finality of, an architect’s certificate was involved. It was simply a ease in which the parties had agreed that the work should be done ‘to the satisfaction of the architects.’ But in such a case the agreement as made must be lived up to. The question is not whether the work ought to be satisfactory hut whether it is satisfactory. When parties agree that the question of the performance of a contract shall be left to the determination of a third person, his decision is final, in the absence of mistake/ fraud, or arbitrary action amounting to legal fraud.”
In Geo. A. Fuller Co. v. Young Co., 126 F. 343 (Third circuit, where this contract was made and performed), where the satisfaction of an architect was required under the terms of the contract, the court pointed out that the provisions of the contract must be read together, and the right to be satisfied may not be isolated and read from the rest of the context, and said:
“If one of the parties to an agreement is permitted thereby to assert dissatisfaction with the other’s work and materials, while he continues to enjoy them at a diminished price, to be fixed by himself without appeal, it may be conceded that the contract, although improvident, js not unlawful. But a conclusion so harsh should rest upon clear and plain language, which a positive rule of law requires to be enforced. In our opinion, no such conclusion can be properly drawn from the contract of February, 1901. Its provisions must be read together, and its true meaning can only be gathered by considering the instrument as a whole.”
In City of Cleveland v. Walsh (C. C. A.) 279 F. 57, the contractors built a filtration plant under the requirement of final accept*546anee by the director of public utilities. Tbe city contended that because of defects in construction it could refuse payment, but tbe court, through Denison, J., said:
“The specific defects were unknown during all this period [of six months, during which the city at least took partial possession without complaint], although the city had opportunity to find them; they pertained to matters which had passed the city’s current inspection with approval; they were capable of correction by the- contractor and the contract contemplated such correction rather than a general refusal without opportunity given for perfecting.”
See, also, Cope v. Beaumont (C. C. A.) 181 F. 756.
It will not do to merely bluntly announce that there was good faith in the dissatisfaction of this superintendent. Dissatisfaction must be founded on cause. It may not be arbitrary or unreasonable. If it is arbitrary action, it amounts to a legal fraud.. It was not the duty of the superintendent to fix the prices, and his views as to the cost of the work are unimportant, because the parties had contracted otherwise. As long as this contractor entered upon the service and work for the owner in a skillful and workmanlike manner and at the lowest cost consistent with good workmanship and the quality of materials contracted for, the views or action of a superintendent on the matter of eost were immaterial. The findings support the claim of the plaintiff in error that the work was done in accordance with this provision of the contract under the direction of the superintendent, and that is sufficient to support this action for the unpaid balance:
The judgment should be reversed.