Keachie v. Starkweather Drainage District

Owen, J.

The question of ranking importance is whether the court erred in reading out of the contract the provision that “In the interpretation of these specifications and the contract and upon all questions concerning the execution of the work the decision of the commissioners shall be final.” Whether this provision of the contract is valid should be met at once', because of its commanding influence on the rights of the parties hereto.

This provision differs from the ordinary provision of like tenor found in nearly every building or construction contract only in the personnel of the arbitrators or umpires appointed to decide upon the contract, specifications, and work. If the word “architect” be substituted for the word “commissioners,” we will have here a provision that is usual and customary in construction contracts. The effect of a provision of this kind is not doubtful. It is well settled in the law. It is not void because it ousts the court of jurisdiction, as earnestly contended by respondents. This court, in Hudson v. McCartney, 33 Wis. 331, gave full scope and effect to a provision of this nature in no uncertain terms, and the language of that case has since frequently met with approval. Oakwood Retreat Asso. v. Rathborne, 65 Wis. 177, 26 N. W. 742; Bentley v. Davidson, 74 Wis. 420, 43 N. W. 139; Wendt v. Vogel, 87 Wis. 462, 58 N. W. 764; Chapman v. Rockford Ins. Co. 89 Wis. 572, 62 N. W. 422. It is firmly established that, where matters are thus left to the decision of an architect, his decision is final unless impeached for fraud, accident, or mistake; and “the mistake here referred to is not a mere error in judgment as to the quality of the work or the responsibility for defects therein, upon conflicting evidence, which may be overthrown by a preponderance of evidence before the jury, but it means unintentional misapprehension or ignorance of some material fact, and it must be clearly established by the evidence, and so gross and palpable that it is equivalent in its effects to dishonest, fraudulent, Or merely arbitrary action.” Wendt v. Vogel, 87 Wis. 462, 466, 58 N. W. 764. This principle was recognized by the trial judge, but he seemed to be of the opinion that such powers could not be conferred upon one of the parties to the contract, and this "notwithstanding the fact, fully recognized, that this court has repeatedly enforced contracts where they were agreed to be performed to the full satisfaction of one of the contracting parties. Exhaust V. Co. v. C., M. & St. P. R. Co. 66 Wis. 218, 28 N. W. 343; Warder, Bushnell & Glessner Co. v. Whitish, 77 Wis. 430, 46 N. W. 540; Parr v. Northern E. M. Co. 117 Wis. 278, 93 N. W. 1099; Manning v. School Dist. 124 Wis. 84, 102 N. W. 356.

Given the premise that one may lawfully contract to perform certain work according to plans and specifications to ■the satisfaction of a third party, and that contracts to be ■executed to the satisfaction of one of the contracting parties will be enforced, it is difficult to appreciate the logic which condemns a contract to be pérformed according to plans and •specifications to the satisfaction of the other contracting party. Certainly no consideration of public policy, calls for the condemnation of one that does not also condemn the other.. The powers and duties oí the one appointed as arbiter are not materially different in the one case than in the other. In neither case can the arbiter act arbitrarily or capriciously/ There must be the exercise of honest judgment, and the person performing the contract is not to be denied the fruits thereof by a fraudulent, arbitrary, or capricious action on the part of the other.

Such considerations, however, do not constitute the underlying reason for upholding the contract. That reason is well stated in Delaware & H. C. Co. v. Pennsylvania C. Co. 50 N. Y. 258, as follows:

“When the parties stand upon an equal footing, and intelligently and deliberately, in making their executory contracts, provide for an amicable adjustment of any difference that may arise, either by arbitration or otherwise, it is not easy to assign at this day any good reason why the contract should not stand and the parties made to abide by it, and the judgment of the tribunal of their choice.”

Whether this is a wise or provident contract is entirely beside the question. That is something with which courts are not concerned. There is no doubt that parties may contract in such cases to submit such .differences to an umpire or arbiter and agree that his decision shall be final. The validity of that agreement is not dependent upon the relation which the arbiter bears to the parties. They may agree to partial as well as impartial arbiters if they see fit to do so. Courts have no reason to interfere with the rights of parties to voluntarily contract in the one case that they do not have in the other. We therefore hold that this provision of the contract is valid and operates to confer upon the commissioners the same powers that are conferred' upon architects by similar provisions in building-contracts. .

But this does not settle the case, as the trial judge seemed to think, as indicated by the suggestion in his opinion that if the provision be thus construed there was nothing left -for the court to do but to render judgment on defendant’s counterclaim. True, it does mean that some dignity attaches to the findings of the commissioners that the contract has not been performed in accordance with the specifications, which findings were accorded scant consideration by the trial court, to put it mildly, In fact, it means that their findings concerning the amount of material remaining unexcavated to complete the contract are final, binding, and conclusive unless impeached for fraud, error, or mistake so gross as to amount to constructive fraud on their part. This applies as well to other delinquencies on the part of the contractors, if there be any. Notwithstanding this, however, the question of the ultimate right of the plaintiffs to recover is for the determination of the court.

The plaintiffs urge numerous reasons for the avoidance of the rather disastrous effect of the findings of the commissioners upon their right to recover, which we will now consider.

As we proceed, it is necessary to bear in mind certain facts not yet appearing. As set forth in the statement of facts, it was found necessary to prosecute a considerable portion of the work by the use of a floating dredge. The proper and efficient way of using a. floating dredge is to dig down stream. The water from above tlien fills the ditch and is held back by the lower end thereof against which the dredge is working. Thus sufficient water is maintained to keep the dredge afloat and up with its work. The water, too, carries the loose material and débris down stream ahead of the dredge and the ditch cleans itself. In digging up stream it is necessary to build dams below the dredge for the purpose of holding' water to enable it to continue its progress up stream. In such case the slush and mud stirred up by the dipper of the dredge floats under the dredge and back down the ditch where it lodges somewhere along the course and fills up the ditch. The dams must be removed and, when that is done, slush, mud, and débris are let down the ditch below the dam and tend to fill up the lower stretches of the ditch.

As already stated, at or about the time the contractors claimed to have completed the work the commissioners found 38,480 cubic yards in the bottom of the ditches which it was necessary to excavate in order to bring the ditches to the grade required by the plans and specifications. The contractors claimed that this resulted from material that had filled into the ditches after they had been dug; that the ditches had been dug to grade in the first instance; that it was the duty of the commissioners to keep them free and dear; and that the contractors were not obliged to re-excavate. This contention attracts attention to that provision of the contract which provides that “no ditch or lateral shall be finally accepted until completed for its entire length, and until such acceptance the contractor shall keep such ditch or lateral in good condition or repair at his own expense until it is finally accepted by the commissioners.” The court construed this provision as, requiring acceptance on the part of the commissioners of each ditch, main, or lateral as it was completed. Plaintiffs’ attorneys contend for that construction here. The question is not very material in view of the fact, as the trial court found, that even though the commissioners were obliged to accept each ditch upon its individual completion, no request therefor was made by the contractors, because of which he held them responsible, for the removal of 10,000 yards of earth in the West main which he found they had not removed. Nevertheless, the question of the proper construction of the contract is here, and we should dispose of it.

It will be observed that the language quoted is negative, and prohibits the commissioners from accepting any ditch until completed for its entire length. This language might justify an inference that upon such completion the ditch was to be SO' accepted, if such an intent could find support in other provisions of the contract or the conduct of the parties. We fail to discover any such intent revealed in the written contract, and the conduct of the parties in fact negatives such intent. That the commissioners did not so construe it is certain. That Keachie took the same view is evidenced by his testimony. At the trial the court asked him this question: “Why didn’t you make a demand for payment of the balance due on each ditch when you completed it?” Keachie answered: “Because it was not in accordance with the contract.” In order to- give the construction contended for it is necessary to infer a positive provision that each ditch shall be accepted upon its completion from a negative provision that it shall not be finally accepted until completed for its entire length. The inference is by no means inevitable, and in view of the obvious contrary construction by both parties we do not hesitate to repudiate it.

But a brief review of the situation, we think, will demonstrate that the construction contended for by plaintiffs would not result to their material advantage. Even though the commissioners were obliged accept a given ditch upon its completion, it must be conceded that they were under no obligation to do so until the ditch tendered for acceptance was completed throughout its entire length. It appears that in digging the East main ditch they started at the head and dug as far as the Northwestern Railway Company’s tracks,' in 1912; that the 870 feet lying between that company’s right of way and Lake Monona were excavated in the latter part of the year’ 1913, and that the 100 feet across said right of way were not' excavated until July, 1915. This ditch, therefore, was not completed throughout its entire length until about the time the contractors claimed to have completed the contract, it being- about the last work they did. Clearly, there was no' time when the contractors could have demanded acceptance of this ditch, thereby relieving them from the 'duty of keeping the same clear. As to the West main ditch, the court found that it never was dug deep enough and that there were 10,000 yards of unexcavated material-in the bottom thereof, the cost of the removal of which he deducted from the' contract price. It would seem ; clear that they were never in a position to- demand the acceptance of this ditch. As to lateral W-8, it appears that ■ the contractors deepened the same for a distance of 1,000 feet just before their so-called completion of the contract.Measurements were taken in lateral E-2 immediately after its completion in June, 1915, and it was found that 449 cubic yards therein remained unexcavated, and similar observations are justified with reférence to- other ditches. Furthermore, not a single ditch was completed to a one-to-one slope, as required by the contract. The reason for not doing so is stated by Keachie as follows:

“I stated to the commissioners that a one-to-one slope could not be dug with a floating dredge, and after the ditch was constructed I stated that the slope of the ditch would approach an angle of forty-five degrees, that is one to one, due to the effect of erosion and frost, and that dirt does not support itself. I explained to- the commissioners that by digging the ditches wider at the bottom the banks in sloughing in would approximate a one-to-one slope. I made that explanation twice. The second time was when Sacket and I went to Mr. Riley after receipt of the commissioners’ letter of December 19, 1911. Early in 1913, when we purchased the small dredge, I stated that we would dig the laterals with that machine, making them wider at the bottom and with more perpendicular slope; that we would do the best we could to get a one-to-one slope. I made that explanation to show why they were not getting a one-to-one slope. They had it in their specifications and they were ignorant.”

The record discloses nothing more nearly approaching a modification of the contract' than the testimony quoted. There is no evidence whatever that the commissioners waived the one-to-one slope, or that there was any agreement as to the increased width or the increased depth that should be given these ditches in lieu of the one-to-one slope. Keachie represented that by digging the ditches in this manner they would eventually take the one-to-one slope, and the district would get the ditches called for by the specifications. This was an important matter, because it appeared that a one-to-one is an ideal slope for a drainage ditch. We cannot hold that the one-to-one slope was waived, nor that the deeper and wider ditch satisfied the requirements of the contract. The commissioners went no further than to permit the contractors to> have their own way as to the method employed in producing a ditch that should satisfy the requirements of the contract. Ditches not dug to a one-to-one slope, therefore, did not respond to the requirements oí the contract, and the commissioners were under no obligation to accept them, even though the contract be construed as requiring such acceptahce upon completion of each particular ditch.

The contractors further contend'that the commissioners waived their right to' object that the work was not done according to plans and specifications, by reason of the fact that payments were made from time to- time as the work progressed under the provisions of the specifications that “intermediate payments based upon approximate estimates for work performed during the preceding month will be made during the first week of each succeeding month during the progress of the work, and will be payable on or about the 15th day of each succeeding month. Such payments shall be eighty per cent, of the contract price for the work that shall be completed to the satisfaction of the commissioners or such other portion or percentage thereof as may be agreed upon between the parties hereto, and the remainder of the contract price shall be paid within ten days after the completion of the contract to .the satisfaction of the commissioners.” It is settled in this state that

“Where a building contract provides that the building shall be constructed according to certain plans and specifications to the satisfaction of the supervising architect, who shall inspect all material and work as the building is constructed, with power to reject any material or work not deemed by him to be in compliance with the contract, and to require unsatisfactory constructions to be removed and the work done over in a satisfactory manner, the manifest intent is that unsatisfactory material or construction shall be promptly rejected, and that the architect shall not, by silence, allow unsatisfactory construction to proceed to a point where its removal from the building will be attended with serious loss to the builder, and then reject it; that a failure to reject material or work seasonably, and in the manner contemplated by the contract, operates as a waiver of defects in regard thereto and an irrevocable acceptance of such material or work as satisfactory under the contract, in the absence of some clear, unmistakable provision in such contract to the contrary.” Ashland L., S. & C. Co. v. Shores, 105 Wis. 122, 127, 128, 81 N. W. 136.

This rule applies where the work of construction proceeds under the supervision of the architect who is required to inspect all material and work as the building is constructed and has power to reject any material or work not deemed by him to be in compliance with the contract. The rule simply gives effect to the intention of the parties as expressed by their contract. In other words, it derives its force from the contract, and applies only where the work and material are to be inspected as the construction proceeds. While the construction work here was not that of a building, no reason is perceived why the same rule might not apply if such appeared to be the intention of the parties. Manifestly, inspection as the work proceeds should be a prerequisite to the application of the rule. The contractor should be charged with some responsibility. Where he contracts to do a certain thing in a certain manner and in accordance with certain specifications it is his duty to make his work comply with the .contract and specifications unless he is relieved from thát duty' by the terms of the contract itself. The contract here does not provide for inspection. The intermediate payments were to be based upon approximate estimates. On the assumption that the ditch was dug to the required prism, these estimates were very simple, in the computation of which the only factor to be ascertained was the distance dug or traversed during the month. As a matter of practice, the estimates were approximated in this way. No attempt was made to take accurate measurements of the work in order to. arrive at these estimates, and this was thoroughly understood by the contractors. Furthermore, owing to the manner in which the ditches were dug, actual measurements were impracticable, for the reason that a considerable portion, if not all, of the ditch dug during the month was filled, partially at least, with water, mud, and slush kicked back by the operation of the dredge, and the bottom of the ditch had not assumed stability or permanent form. Under the circumstances, we hold that the rule of the Shores Case, supra, does not apply, and this is not affected by the fact that commissioners, from time to time, called the contractors’ attention to manifest irregularities in the work, such as that two of the laterals headed up stream where they opened into one of the main ditches, that certain other places required straightening, and that other portions of the work were, obviously, not to grade. These were discrepancies manifest upon casual observation and did not call for technical inspection or actual measurement.

The contractors further claimed a waiver on the part of the commissioners by reason of the following circumstances: In an annual report filed by the commissioners with the circuit court on July 1, 1914, occurs this paragraph:

■ “Said commissioners do further report that the work of excavating and construction of ditches according to plans approved by the court is progressing in a satisfactory manner, with the exception that the contractor seems to be unable to do. the work as rapidly as the property owners and commissioners wish it done.”

It further appears that on April 11, 1914, George Riley, one of the commissioners, wrote to. the plaintiffs that he was instructed by the commissioners to- request that a renewal bond be furnished. The surety company, as a condition precedent to the issuance of a new bond, caused the following stipulation to be drawn and signed:

“Stipulated by George R. Keachie and Howard L. Dessert of Madison, Wisconsin, principals, the Title Guaranty & Surety Company of Scranton, Pennsylvania, surety, and the commissioners of Starkweather drainage district, Dane county, Wisconsin, obligee, on that certain bond or undertaking, dated on or about the 19th day,oí March, 1913, in the sum of nine thousand ($9,000) dollars, conditioned for the performance of a contract, dated the 3d day of February, 1913, between said principal and said obligee, for the construction of ditches, drains, and laterals at the Stark-weather drainage district:

“First. That said contract has been satisfactorily performed to date hereof in accordance with its terms and to the satisfaction of said obligee, except in so far as the time for completion is concerned;

“Second. That the time for the completion of said contract be, and hereby is, extended to and including the 1st day of January, 1915;

“Third. That the time within which any action may be brought against the surety on said bond is hereby extended to June 1, 1915.

“Signed and sealed this 27th day of May, 1914.

“Keachie & Dessert,

“By George R. Keachie.

“The Title Guaranty & Surety Co.,

“By (signed but name not readable)

“Attest: J. H. Law, Secretary.

“Starkweather Drainage District,

“By-George C. Riley, Treas.”

In view of the undisputed facts, it is difficult to under-, stand the reason, motive, or purpose of the commissioners in making the (quoted) observation in their report to the court. The same is true of the stipulation above set forth. As to- the stipulation, the evidence is clear that the commissioners did not authorize it to be signed by Mr. Riley, who purported to sign it on behalf of the commissioners. In fact, it satisfactorily appears that the whole matter was handled by Mr. Riley himself without the knowledge of the other commissioners, and that it in fact does not constitute the act of the commissioners. But however that may be, we see no reason for holding that what was said in the report of the commissioners to the court, or in the stipulation either, constitutes conduct on the part of the commissioners which reacted either in the nature of waiver or estoppel. So far as the report is concerned, there is no evidence that the contractors ever read it, or knew of this assertion which it contained, nor that they relied upon it, nor that their future conduct was in any manner influenced by it. While they knew of the stipulation, presumably, there is no suggestion that their future conduct was in any manner controlled or affected thereby, or that they were led to act to their damage in reliance thereon. In fact, it affirmatively appears that numerous corrections were made in the ditches after the date of the report as well as the stipulation, which conduct negatives the idea that the contractors construed either document as an expression by the commissioners of their satisfaction with the work already completed or as indicating their acceptance thereof.

In the statement of facts we have set forth the only new provision of the second contract which provides for the payment of damages for failure to complete the contract within the specified time. The trial court construed this provision as one calling for a penalty instead of liquidated damages. In this we think the court was in error. The amount allowable thereunder, and which defendants claimed, is $2,163.04. A more difficult situation for the computation of actual damages could hardly be imagined. It was pre-eminently a case justifying a provision for stipulated damages. The parties so designated it in the contract, and while such designations are not given effect by courts, if they appear to have been used ill-advisedly and not to' express the real intention of the parties (Grant M. Co. v. Marshall & Ilsley Bank, 166 Wis. 547, 165 N. W. 14) we see no indication that the parties here did not intend it to be what they called it. The provision should be construed as one calling for liquidated damages.

We think the court erred in refusing to credit the defendants with $100 advanced to the Chicago, Milwaukee & St. Paul Railway Company, as security for the expense of opening the railway bridge over lateral E-2 and in allowing $61.62 to the plaintiffs for the cost of the removal and replacement of the bridge at the point where lateral E-2 crosses the right of way o f the railway company. It wi^l be unnecessary to prolong this opinion by a recital of the evidence bearing upon these items.

We are impressed that there is another very troublesome barrier to plaintiffs’ recovery. The plaintiffs are seeking to recover on the contract. It is an entire contract, and in order to recover they must show substantial performance. The court found that the cost of completing the contract was $1,875, even ignoring the findings of the commissioners. We do not decide whether, under the circumstances, a finding that the contract had been substantially performed could be sustained. We do no more than suggest that it would require rather generous consideration to do so. This feature should have the serious attention of the trial court on a new trial.

We appreciate that there is little left of the case, yet we do not feel that we can or should render judgment. We think the plaintiffs should be accorded the opportunity of impeaching the findings of the commissioners, if they can. No attempt to this end was made, and in fact was not necessary, in the view the court took of the case. Justice requires that they be not deprived of the opportunity now. Another reason why we cannot render judgment is that we have no way of estimating the expense of completing the contract, unless we be governed by the unit cost of excavation applied by the trial judge to the 10,000 yards which he found to remain unexcavated. There is no evidence that this applies to other portions that must be excavated. However, it will not be necessary to retry the case asb initio. The testimony taken on the former trial may be considered as in the case upon a new trial, and only such additional testimony as may be necessary tO' meet the views of the court as expressed in .this opinion need be taken.

By the Court. — Judgment reversed, and cause remanded for further proceedings in accordance with law and with this opinion.