Where a contract with a railway company for construction work
provided for monthly payments to the contractor "on the certificate
of the engineer," and that the determination of the chief engineer
should be conclusive on the parties as to quantities and amounts,
and where, in executing the contract, each monthly account as made
up by the division engineer was sent to the chief engineer, and the
monthly payments were made on the certificate of the latter
officer, his action in making such certificate was held to be a
"determination" under the contract conclusive upon the parties in
an action at law in the absence of fraud or of such gross error as
to imply bad faith.
Page 138 U. S. 186
This action was brought by Price, McGavock & Co., for the
use of Jones, Forrest & Bodkin, to recover from the Chicago,
Santa Fe and California Railroad Company the balance alleged to be
due them under a written contract made March 21, 1887, for the
clearing, grubbing, and masonry necessary to complete the roadbed
of that company from a point on the Mississippi River to Galesburg,
Illinois, a distance of about fifty miles. The parties in writing
waived a jury and tried the case before the court, which made a
special finding of facts,
* There was a
judgment against the railroad company. 38 F. 304.
Page 138 U. S. 187
The contract contained, among other provisions, the
following:
Page 138 U. S. 188
"The aforesaid party of the first part [Price, McGavock &
Co.], in consideration of the prices hereinafter agreed to be
Page 138 U. S. 189
"
paid to them by the party of the second part [the railroad
company], hereby agree and bind themselves to construct and in
every respect to complete the grubbing and clearing, grading and
masonry, including the furnishing of materials and all other things
requisite and necessary to complete the roadbed and prepare the
same ready for receiving the superstructure, upon that portion of
the railroad of the party of the second part known and designated
as section __, number __, the first fifty (50) miles eastward from
station thirty (30), east bank of Mississippi River, of the
Chicago, Santa Fe and California Railway, in such a manner as will
conform in every respect to the annexed specifications and to the
following conditions,
viz.:
"1st. That the work shall be commenced within ten (10) days
after the execution of these presents, or as soon after as the
railway company shall have acquired a title to the lands, and shall
be completed on or before the first day of August, one thousand
eight hundred and eighty-seven."
"2d. The work shall be executed under the direction and
supervision of the chief engineer of said railway company and his
assistants, by whose measurements and calculations the quantities
and amounts of the several kinds of work performed under this
contract shall be determined and whose determination shall be
conclusive upon the parties, and who shall have full power to
reject or condemn all work or materials which in his or their
opinion do not fully conform to the spirit of
Page 138 U. S. 190
this agreement, and said chief engineer shall decide every
question which can or may arise between the parties relative to the
execution thereof, and his decision shall be binding and final upon
both parties, and whereas the classification of excavation provided
for in the annexed specifications is of a character that makes it
necessary that special attention should be called to it, it is
expressly agreed by the parties to this contract that the
determination, by the measurements and calculations of the said
engineer, of the respective quantities of such excavation shall be
final and conclusive."
* * * *
"5th. If any damage shall be done by the party of the first part
(or persons in their employ) to the owners or occupants of lands or
other property adjoining or in the vicinity of the work herein
contracted to be done, the engineer of said company shall have the
right to estimate the amount of said damage, and to pay the same to
said owner or occupant, and the amount so paid for such damage
shall be deducted from the value of work done under this
contract."
* * * *
"The aforesaid party of the second part hereby agrees that
whenever this contract shall be completely performed on the part of
the said party of the first part, and the engineer has certified
the same in writing, the said party of the second part shall,
within ten days thereafter, pay to said party of the first part any
remaining sums due for said work, according to this contract, as
follows, to-wit [here follow the prices agreed upon for different
kinds of work to be done]."
* * * *
"It is further agreed between the parties that monthly payments
shall be made by the party of the second part, on the certificate
of the engineer, for work done, deducting ten percent from the
value of work done, as agreed compensation for damages, to be
forever retained by the party of the second part in case the whole
amount of work herein named shall not be done in accordance with
this agreement."
"For the purpose of avoiding all causes of difference or dispute
between the parties to this contract relative to its true
Page 138 U. S. 191
intent or meaning, and for the purpose of adjusting in an
amicable manner any difference that may or can arise relative
thereto, it is hereby mutually understood and agreed by the parties
as follows, to-wit:"
"1. No extra charges will be claimed or allowed on account of
changes, either in the line or grade of the road, the prices herein
mentioned being considered as full compensation for the various
kinds of work herein agreed to be performed."
"2. Whenever work is required to be done which is not now
contemplated or covered by the prices herein mentioned, the
engineer shall fix such prices for the work as he shall consider
just and equitable, and the said parties shall abide by such
prices, provided the party of the first part enter upon and
commence such work with full knowledge of the prices so fixed by
the engineer; but if the party of the first part decline executing
said work at the price fixed by the engineer, then the party of the
second part may enter into contract with any person or persons for
its execution the same as if this contract had never existed, and
if extra work, or work not provided for in this contract is
performed by the contractors, without protest or notice in writing
to the engineer and to the party of the second part before prices
shall have been fixed to such work, then the engineer shall
estimate the same at such prices as he shall deem just and
reasonable, and his decision shall be final, and the party of the
first part shall accept of said prices in full satisfaction of all
demands against the party of the second part for said extra work;
but nothing shall be deemed extra work that can be measured or
estimated under the provisions of this contract."
* * * *
"5. It is expressly agreed by the party of the first part that
the party of the second part may at any time pay so much of the
money due the party of the first part on the running or final
estimates above mentioned to the laborers employed by the party of
the first part as may be due said laborers, and charge the same to
the party of the first part."
"6. In case any or all work embraced in this contract shall be
permanently suspended by and on account of the party of
Page 138 U. S. 192
the second part, which it is hereby agreed the party of the
second part may do, for other causes than heretofore provided in
this contract, then, in that case, all further operations under
this contract shall be suspended within three days after receiving
written notice from the party of the second part requiring the
further progress of the work to be suspended, and the party of the
first part shall have their choice either to consider such
suspension temporary and resume work on the same within ten days
after receiving notice to resume work, or may consider the same at
an end, and shall receive full pay for all work by them performed
under this contract, and at the prices herein stipulated, upon the
estimate of the engineer, which shall be final and conclusive
between the parties to this contract; which estimates shall not
include any anticipated profits that might have accrued from the
completion of the said work, it being understood that no claim for
damages shall be made by the party of the first part on account of
any profits that might accrue from the completion of the same."
MR. JUSTICE HARLAN, after stating the facts in the foregoing
language, delivered the opinion of the Court.
The written contract between the parties in this case does not
materially differ from the one before this Court in
Martinsburg
& Potomac Railroad Co. v. March, 114 U.
S. 549,
114 U. S.
553.
Page 138 U. S. 193
In that case, the contractor did not allege in his declaration
that the engineer ever certified in writing the complete
performance of the contract, together with an estimate of the work
done and the amount of compensation due him according to the prices
established by the parties, which certificate and estimate was made
by the agreement a condition of the liability of the company to pay
the contractor the balance, if any, due him. Nor did the
declaration allege any facts which, in the absence of such a
certificate by the engineer, whose determination was made final and
conclusive, entitled the contractor to sue the company on the
contract. It was held, in accordance with the principles announced
in
Kihlberg v. United States, 97 U. S.
398, and
Sweeney v. United States, 109 U.
S. 618, that the declaration was fatally defective in
that it contained
"no averment that the engineer had been guilty of fraud, or had
made such gross mistake in his estimates as necessarily implied bad
faith, or had failed to exercise an honest judgment in discharging
the duty imposed upon him."
Some observations in that case are pertinent in the present one.
It was said:
"We are to presume from the terms of the contract that both
parties considered the possibility of disputes arising between them
in reference to the execution of the contract, and it is to be
presumed that in their minds was the possibility that the engineer
might err in his determination of such matters. Consequently, to
the end that the interests of neither party should be put in peril
by disputes as to any of the matters covered by their agreement, or
in reference to the quantity of the work to be done under it, or
the compensation which the plaintiff might be entitled to demand,
it was expressly stipulated that the engineer's determination
should be final and conclusive. Neither party reserved the right to
revise that determination for mere errors or mistakes upon his
part. They chose to risk his estimates and to rely upon their
right, which the law presumes they did not intend to waive, to
demand that the engineer should at all times and in respect to
every matter submitted to his determination, exercise an honest
judgment and commit no such mistakes as, under all the
circumstances, would imply bad faith. "
Page 138 U. S. 194
The only difference between that case and the present one is
that the alleged mistakes of the engineer in the former were
favorable to the railroad company, while in this case they are
favorable to the contractors. But that difference cannot affect the
interpretation of the contract. In the present case, the agreement
was that the work should be executed under the direction and
supervision of the chief engineer of the railroad company and his
assistants, by whose measurements and calculations the quantities
and amounts of the several kinds of work should be determined, and
"whose determination shall be conclusive upon the parties." Any
decision of the chief engineer relating to the execution of the
contract was to be "binding and final upon both parties." His
measurements and calculations as to excavations were made "final
and conclusive."
What are the substantial facts found by the court below? The
work was in four divisions, each division being in charge of an
assistant or division engineer, who acted under the general
direction of the chief engineer. The agreement provided for monthly
payments to the contractor, on the certificate of the engineer,
"for work done;" ten percent from the value thereof to be retained
by the company until the whole work was completed in accordance
with the contract. The work was under the immediate supervision of
the division engineer. On the first day of each month he made up
and forwarded to the assistant chief engineer an estimate of work
done on each section of his division, according to quantities and
classifications. Upon such estimates the assistant chief engineer
ascertained the amount due the contractor to the beginning of the
month. These monthly estimates were approved by both the assistant
chief engineer and chief engineer. This course was pursued until
the work was substantially completed, and was accepted and taken
possession of by the company. Subsequently, without the knowledge
or cooperation of the contractors, Baker, a subordinate engineer of
the railroad company who had not supervised the work of the
plaintiffs, reestimated and reclassified it, and upon such
reestimate and reclassification, which were approved by the chief
engineer,
Page 138 U. S. 195
the company claimed that the monthly estimates upon which the
plaintiffs had been paid from time to time were much too large.
We are of opinion that the ultimate facts, as found by the
court, do not authorize the railroad company to go behind the
estimates made from time to time by its division engineer, which
were approved and certified by the assistant chief engineer and
chief engineer. Within a reasonable interpretation of the contract,
the last monthly estimate of work done on division 9 -- that being
the only division here in dispute -- followed by the acceptance by
the company of the whole work, was a certificate of complete
performance, entitling the plaintiff to be paid in full according
to the terms of the contract. While there was evidence tending to
show that the estimates by the division engineer, upon which the
last monthly certificate was based, were not made up from actual
measurements on the ground, but from reports by subcontractors,
there was also evidence tending to show that the remeasurements and
reclassifications which the company caused to be made after the
completion and acceptance of the work, and which it calls the
"final estimate," were inaccurate. But there is no fact distinctly
found indicating fraud upon the part of the company's engineers or
such gross mistakes by them as imply bad faith. It is found only
that the monthly estimates might, with reasonable care, have been
made nearly accurate and that, if the remeasurements and
reclassifications were correct, the discrepancy between them and
the monthly estimates, upon which the plaintiffs were paid from
time to time, could be explained only upon the ground of
negligence, incompetency, or dishonesty upon the part of the
division engineer. But the court did not find that the monthly
estimates were inaccurate, or that the chief or division engineer
was dishonest, or that the subsequent remeasurement and
reclassification were correct. The mere incompetency or mere
negligence of the division or chief engineer does not meet the
requirements of the case unless their mistakes were so gross as to
imply bad faith.
We are of opinion that the judgment is supported by the finding
of facts, and it is
Affirmed.
*
"The court, from the testimony in the case, finds the following
facts, to-wit:"
"That on the 21st day of March, A.D. 1887, the plaintiffs and
the defendant entered into a contract in writing, as set forth in
the foregoing bill of exceptions, by which the plaintiffs agreed to
do all the clearing, grubbing, and masonry necessary to complete
the roadbed of the defendant from the bank of the Mississippi River
to Galesburg, a distance of about fifty miles; that on the 21st day
of March, A.D. 1887, the plaintiffs entered into a contract with
Jones, Forrest & Bodkin which is in terms as set forth in the
foregoing bill of exceptions, and that the parties have stipulated
in writing as set forth in the bill of exceptions, and that the
defendant was at all times aware that the plaintiffs had made the
said agreement with Jones, Forrest & Bodkin and never objected
thereto."
"The court further finds that the work covered by the contract
was, for the purpose of construction, divided by the defendant into
four divisions, and that the work of each division was by the
defendant put in charge of an assistant or division engineer, who
was employed by the defendant and acted under the general direction
of the chief engineer of the defendant."
"The court further finds that the plaintiffs, through Jones,
Forrest & Bodkin and their subcontractors, performed the said
work according to the terms of the said contract, and that the same
has been accepted and taken possession of by the said
defendant."
"The court further finds that shortly after the entering into of
said contract between Jones, Forrest & Bodkin and the
plaintiffs, the said Jones, Forrest & Bodkin sublet all of the
work on division 9 except a portion of section 119 (respecting
which section there is no controversy between the parties in this
suit), and that according to the said contract of subletting, the
said subcontractors were to receive from Jones, Forrest &
Bodkin 90 percent of what was coming to Jones, Forrest & Bodkin
according to their contract with the plaintiffs."
"The court further finds that the said subcontractors performed
their work under the charge of the division engineers; that upon
the first of each month, each division engineer made up and
forwarded to the assistant chief engineer a paper showing his
estimate of the work done on each section of his division, both
according to its quantities and classifications, upon which were
computed and extended in the office of the said assistant chief
engineer the aggregate amounts coming to said plaintiffs, under the
terms of the said contract, to the beginning of said month; that
said papers were headed 'monthly estimate,' and bore the
attestation of the division engineers, and were approved by the
assistant chief engineer and chief engineer; that said certificates
were all in form identical with the one set forth in the preceding
bill of exceptions; that from month to month, tissue copies of said
certificates were delivered to the plaintiffs and payment made for
the amount thereby shown to be coming to them, less 10 percent
reserved under the contract and less previous payments made; that
each month the defendant sent to the division engineers in the
field tissue copies of said certificates; that the plaintiffs sent
their said tissue copies of said certificates to Jones, Forrest
& Bodkin, together with their check for the amount coming due
to them under the contract; that thereupon Jones, Forrest &
Bodkin from time to time paid to their subcontractors the amounts
coming due to them according to the quantities and classifications
of said certificates, and that the defendant had knowledge that the
plaintiffs were paying Jones, Forrest & Bodkin, and that said
Jones, Forrest & Bodkin were from time to time paying to their
subcontractors in accordance with said certificates."
"The court finds that Dressier, the division engineer of
division 9, sent in his last month's paper on November 1st, and
that his successor, Baker, sent in a monthly paper on division 9 on
December 1, which was the last month's paper on that division and
which paper adopted Dressler's figures as shown in his last monthly
paper and added something thereto for work done subsequently."
"The court further finds that the work under said contract was
substantially completed, with the exception of a small amount of
grading, before the last of said monthly papers was so made up and
sent to the plaintiffs, and that said plaintiffs paid what was
coming to Jones, Forrest & Bodkin according to the showing of
said last monthly certificate, and Jones, Forrest & Bodkin, in
reliance upon the correctness of said certificate, paid to their
subcontractors on division 9 (that being the only division here in
dispute) what was coming to them in accordance with the showing of
said last monthly certificate, except in the case of one of their
subcontractors who was paid $880.00 less and another subcontractor
who was paid about $500.00 less than said certificate shows to have
been coming, a portion of which was for work on division 9 and a
portion for work on division 10, respecting which division l0 there
is no dispute, but there is no evidence showing what exact portion
of said $880.00 and $500.00 belonged to division 9, and what
portion to division 10; that such payments by Jones, Forrest &
Bodkin to their subcontractors were made at various tunes down to
January 12, 1888, but were all made before Jones, Forrest &
Bodkin had any knowledge of Baker's remeasurements, hereinafter
mentioned, or of any claim on the part of the defendant that
Dressler's estimates were erroneous."
"The court further finds that sometime after the last of these
monthly certificates was delivered to the plaintiffs one George T.
Baker, who had had charge of division 7, made certain
remeasurements and reclassifications of the work done in divisions
8 and 9; that the work on these two divisions prior to November
26th had not been done under the supervision of said Baker, but was
done under the supervision of one F. F. Ames and R. Dressler,
respectively, and that said Baker embodied the results of his
remeasurements and reclassifications in the estimate called the
final estimate, which said estimate was approved by the assistant
engineer-in-chief and the engineer-in-chief, and delivered to the
plaintiffs in March, 1888."
"The court further finds that the said reestimate and
reclassification so made largely changed the quantities and
classifications of the work done on division 9 from the showing of
quantities and classifications of said division made in the several
monthly certificates, including the one made after the substantial
completion of the work as aforesaid; that said reclassification and
remeasurement of said Baker were made without the cooperation or
knowledge of the plaintiffs or their subcontractors, and that the
plaintiffs had paid to Jones, Forrest & Bodkin, and Jones,
Forrest & Bodkin had made payments to their subcontractors
under their said contracts, as above set forth, and according to
the quantities and classifications shown by the monthly
certificates before either of them had knowledge of said Baker's
remeasurements and reclassifications."
"The court further finds that the said last monthly certificate
of the work on division 9 could, with reasonable care upon the part
of the division engineer, have been made nearly accurate, and that
upon the assumption of the correctness of said Baker's so-called
final estimate the discrepancy between it and the said certificate
could be the result only of negligence or incompetency upon the
part of the division engineer in charge of said division unless the
said division engineer was purposely dishonest; but the court finds
that there was no proof of dishonesty in which the plaintiffs of
their subcontractors took any part or of which they had any
knowledge."
"The court further finds that the effect of the said monthly
certificates of quantities and classifications of work done on
division 9 was to cause the plaintiff's to pay to Jones, Forrest
& Bodkin more on account of each of said certificates than they
would have paid if said certificates had been made according to the
remeasurement and reclassification of said Baker, and Jones,
Forrest & Bodkin in turn to pay more to their subcontractors
than they would have paid if the said monthly certificates had been
made according to Baker's remeasurement and reclassification, so
that if the plaintiffs are to be paid for the entire work according
to the revision made by Baker, they will be the losers to the
extent of the errors said to have been corrected on division
9."
"The court further finds that according to the said estimate of
Baker, upon the divisions other than division 9, there is a balance
due to the plaintiffs from the defendant of $17,351.68, and that on
the basis of the last monthly certificate of Dressier on division
9,
viz., the certificate of November 1st, as above set
forth, there is a balance due on that division of $11,586.48, in
which amount is included so much of the sums of $880.00 and $500.00
as is applicable to division 9, as above referred to."
"The court therefore finds in favor of the plaintiffs for the
amount of $28,938.16."
