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Terminal Construction Corp. v. Bergen County Hackensack River Sanitary Sewer District Authority

Decided: May 12, 1954.

TERMINAL CONSTRUCTION CORPORATION, A CORPORATION OF NEW JERSEY, PLAINTIFF-RESPONDENT AND CROSS-APPELLANT,
v.
BERGEN COUNTY HACKENSACK RIVER SANITARY SEWER DISTRICT AUTHORITY, A BODY CORPORATE, NOW KNOWN AS BERGEN COUNTY SEWER AUTHORITY, A CORPORATION, DEFENDANT-APPELLANT AND CROSS-RESPONDENT



Eastwood, Jayne and Francis. The opinion of the court was delivered by Francis, J.A.D.

Francis

Prior to August 12, 1949 the appellant Bergen County Sewer Authority decided to have erected a sewage treatment plant and system in Little Ferry, New Jersey. The project was broken down into 18 separate parts and bids for the construction of the individual parts were sought by public advertisement.

One of the parts covered the construction of the sewage treatment plant. This was known as Contract No. 1. Elaborate information with respect to the nature of the work called for as well as of the form of the contract to be entered into was made available to prospective bidders through a document entitled "Information for Bidders, Contract, Bonds, Certificate, Specification, Forms of Proposal for the Construction of a Portion of the Joint Sewage Works for the Overpeck Valley, Bergen County, New Jersey." Among other things, the bidders were advised that they must inform themselves

fully of the "conditions relating to the construction and labor under which the work is now or will be performed"; also that they would be presumed to have inspected the site and to have read and become thoroughly familiar with the contract documents and that they must acquire and rely exclusively upon their own information as to the physical conditions and in particular the subsurface conditions.

Terminal Construction Corporation and Young Foundation Corporation jointly were the successful bidders, and on August 12, 1949 they executed the contract with the Authority. Subsequently the Young Corporation assigned its interest therein to Terminal.

The contract provided, among other things, that the engineer (which term was declared to mean Bogert-Childs Engineering Associates, or their duly authorized representatives),

"shall make all necessary explanations as to the meaning and intent of the specifications and drawings, shall give all orders and directions contemplated by the contract; * * * shall determine in all cases the amount, quality, acceptability and fitness of the several kinds of work and materials which are to be paid for; shall determine all questions in relation to said work and the construction thereof, and shall decide in all cases every question which may arise relative to the fulfillment of this contract on the part of the contractor. His estimate and decision shall be final and conclusive upon the contractor, except as provided by Article I, and in case any question shall arise between the parties hereto, touching this contract, such estimate and decision shall be a condition precedent to the right of the contractor to receive any money under this contract. * * *."

During the progress of the work disputes arose between Terminal and Bogert-Childs Associates, and between Terminal and the resident engineer assigned to the project as the representative of Bogert-Childs Associates. These disputes eventuated in the litigation presently under review.

The original complaint in the action was filed on September 10, 1951, while the work was still in progress. It contained two counts, the first one of which may be described generally as a claim arising out of alleged breach of contract; the second one was on a book account.

On February 11, 1952, an amended complaint was filed reciting that the work was still uncompleted and that further moneys had become due. The issues presented by the two counts remained the same.

Finally, about a year after the institution of the action, a second amended complaint was filed. It is a much more elaborate one than either of the others and contained five counts.

The first count charges that the work was completed on November 1, 1951, at which time Terminal became entitled to a balance due under the contract of $294,913.38, which the Authority had refused to pay. For the first time an allegation was included that the refusal to pay was actuated by the fraud of the Authority and the engineer referred to in the contract. The specific charge appearing in the complaint is:

"10. Defendant and the engineer as referred to in the contract, willfully, illegally, fraudulently and contrary to the contract, refused to approve payments, all to the damage of the plaintiff."

The same language appears in each of the five counts. No specification of the nature of the fraud is set out. Vide R.R. 4:9-1. Nor was it set out any more definitely in the pretrial order.

The second count alleges that Terminal performed certain extra work at the authorization of the agent of the Authority under an agreement to pay therefor. And a recovery is sought in the amount of $216,535.59 which it is said the Authority and its engineer had illegally and fraudulently refused to approve.

The third count alleges that the Authority by its engineer ordered the plaintiff to perform wall concrete work contrary to the contract and contrary to plaintiff's schedule of operations, as the result of which damages in the amount of $90,000 were suffered, payment of which has been refused illegally and fraudulently.

The fourth count charges that the Authority by its engineer ordered plaintiff to perform the slab concrete work in a

manner contrary to the contract and contrary to plaintiff's schedule of operations. As a result damages in the amount of $39,560 were sustained which the defendant had illegally and fraudulently refused to pay.

The fifth count alleges that the Authority by its engineer requested "changes, additions and modifications in the contract and specifications," which plaintiff undertook. As the result of this "extra work" a recovery of $6,023.88 is sought because payment had been illegally and fraudulently disapproved.

The Authority admitted that a certain balance was due under the contract to Terminal, a tender of which had been made and refused. However, by stipulation during the course of the trial, payment was accepted without prejudice.

Further obligation was denied and in addition the Authority asserted that if Terminal were entitled to any recovery, there should be deducted $22,273 for defective work, and $23,700 representing liquidated damages under the contract for delay in completion of 237 days at the agreed rate of $100 per day. This total sum of $45,973 had already been deducted from the final payment made to Terminal. Consequently it was necessary at the trial to submit to the jury for separate finding the problem of the amount of the set-off, if any, to which the Authority was entitled.

After a protracted trial, during which the third and fourth counts of the complaint were dismissed by the court, the jury returned a verdict in favor of Terminal on its claims in the amount of $414,257.71. In addition, a special finding was made that only $5,786.39 of the deducted $45,973 should be allowed. As a result the difference of $40,186.61 was added to the verdict for Terminal and a total judgment of $454,444.32 was entered in its favor.

The Authority now appeals from the adverse judgment and Terminal has cross-appealed from the dismissal of the third and fourth counts of its complaint.

A major factor at the trial involved the nature and extent of the authority conferred by the parties upon the engineer under the clause of the contract already recited. It will be

observed that by their voluntary agreement they conferred upon Bogert-Childs Engineering Associates or their duly authorized representatives authority to make final and conclusive decisions with respect to the meaning and intent of the specifications and drawings, the amount, quality, acceptability and fitness of the several kinds of work which were to be paid for, all questions in relation to the work and the construction thereof and relative to the fulfillment of the contract by the contractor. And more specifically it was agreed that as to all questions "touching the contract" the estimate and decision of the engineer would be a condition precedent to the right of the contractor to receive any money under the contract.

Such a stipulation is a common one in modern construction contracts and decisions made thereunder by the person named have long since been regarded as dispositive of disputes between the parties, in the absence of clear proof of fraud upon the part of such person. T. Foster Callahan, Inc., v. Commissioners., etc., Union Twp. , 102 N.J.L. 705 (E. & A. 1926); Landstra v. Bunn , 81 N.J.L. 680 (E. & A. 1911); Sheyer v. Pinkerton Construction Co. , 59 A. 462 (N.J.E. & A. 1904, not in official reports); Bradner v. Roffsell , 57 N.J.L. 412 (E. & A. 1894); Chism v. Schipper , 51 N.J.L. 1 (Sup. Ct. 1888). Fraud in this connection has a broader connotation than is ordinarily implied. In addition to its ordinary significance, in construction contracts it includes arbitrary action and gross mistake. 9 Am. Jur., Building and Construction Contracts , § 34; Restatement of the Law, Contracts , § 303.

Where such ground is not established, failure to obtain the engineer's certificate or a favorable decision from him precludes recovery. However, when fraud is proved, the legal significance thereof is that the necessity for favorable action of the engineer is eliminated as a condition precedent to the maintenance of the suit, but the contractor still has the burden of demonstrating the breach of the contract and his right of recovery.

In instructing the jury no explanation was given as to the significance of the engineer's power of final decision nor as to the relation between the charge of fraud and the need for proof of fraud in the absence of a favorable decision from the engineer. On the subject of fraud, the court merely said:

"With reference to all counts and to all claims generally, Terminal charges * * * that the engineer acted arbitrarily and fraudulently and particularly with reference to his failure to present the bills which were submitted by Terminal and the claims which were submitted by Terminal to the Authority for their approval. I think Mr. Lincoln himself said that he, in many instances, didn't discuss it with the Authority or didn't present these claims to the Authority. And Mr. Bogert himself said that specifically with reference to the items in the last count, that none of those were presented to the Authority for their approval or disapproval, even though they had said they would do so. Terminal says that Mr. Lincoln acted fraudulently and without the use of reasonable discretion and that his fraud is attributable to the body for which he acted as agent."

This portion of the charge seems to have been left in isolation for such consideration as the jury saw fit to give it. And the impression to be gathered is that even if no fraud was found, recovery could be had on any claim arising out of a dispute between the contractor and the engineer, if the jury agreed with the contractor's construction of the contract or its claim as to the authority of the engineer. No particular objection was made to this portion of the charge and it is mentioned for guidance at the retrial which is hereinafter ordered.

It is plain, moreover, from the language of the compact that Bogert-Childs Associates was not the agent of either the Authority or of Terminal. Rather the firm occupied the status of independent arbiter between them for the purposes specifically agreed upon. Bradner v. Roffsell, supra. The fact that it drew the specifications and had a hand in the preparation of the information for the bidders and in the fashioning of the contract was not a legal obstacle to the assumption of this position so long as the parties voluntarily agreed thereon. Cf. Jones v. St. John's College , 6 Q.B. 115, 124 (1870).

The trial court in his charge on the subject of the relationship between Bogert-Childs and the Authority, and particularly the relationship between the Authority and Robert Lincoln, an employee of Bogert-Childs who was assigned by it as resident engineer on the project, advised the jury that:

"You will have the contract before you and you can refer to Article 29 and see exactly how far his powers extended in connection with his work under this contract."

He charged also that:

"With further reference to all counts and claims generally, Terminal charges * * * that Mr. Lincoln was the agent acting for and in behalf of the Sewer Authority and within the scope of his real or apparent authority * * *."

And:

"With reference to all counts and claims generally, the Bergen County Sewer Authority maintains that Lincoln was not its agent and that they were not bound by any of his actions; that the work for which claims are made were extra work items and required formal work orders from the authority to bind it to payment; that Mr. Lincoln had no authority to obligate the sewer authority in financial matters as his powers and duties were fully set forth in the contract and Terminal had full knowledge of Mr. Lincoln's proper powers and duties; * * *."

Farther along, the court said:

"If, after considering all of the evidence that has been produced before you, you find that the plaintiff, Terminal Construction Corporation, has sustained the burden which the law casts upon it and by the greater weight of the evidence the Terminal Construction Corporation has satisfied you that it is entitled to collect for all or any part of the claims set forth in the several counts of the complaint, then of course the plaintiff is entitled to recover a judgment in such amount as may be justified in the evidence and that amount can be in any amount up to or less than the sum total of its aggregate claims. * * *."

In its total effect and in spite of the language of the contract, this charge permitted the jury to find that Lincoln was the agent of the Authority in ordering and directing

much of the work which formed the basis for the contractor's claims. And a favorable verdict for Terminal was authorized if such a finding were made.

Obviously Lincoln's status rose no higher than that of his employer Bogert-Childs. Nowhere in the record is there any proof of an authorization express or implied running directly from the Authority to him. According to Ivan Bogert, one of the members of the engineering firm, Lincoln was its employee and a subordinate on the project; specifically he "was in charge of the supervision of the field inspection forces, and in charge of the review and checking of contractor's estimates." (One possible exception to the absence of agency between the Authority and Bogert-Childs or Lincoln arose out of the authorization under Article 55 to the contractor to act in an emergency. However, it is not material on this phase of the case and will be discussed later in connection with one of the claims sued upon.)

Terminal's president was under no misapprehension as to Lincoln's authority to depart from the contract or specifications or to order the doing of extra work, because months before the largest claim presented here was incurred he wrote to Bogert-Childs:

"* * * Mr. Lincoln has told the writer personally many times in the past that he is invested with no powers whatsoever with reference to moneys, and that his job is solely for construction supervision and procedures. * * *."

And on another occasion Terminal's office manager in correspondence with the same firm called attention to the fact that the engineer had no authority to order the contractor to proceed with extra work or changes in the work because, under Article 36 of the contract, such an order must come directly from the Authority and be approved and countersigned by it.

Under the circumstances we conclude that it was error to submit to the jury for determination the issue of agency between Lincoln and appellant. It is somewhat doubtful from an examination of the language employed in noting

the objections to the charge that this criticism was called to the court's attention particularly. In any event, appellant submitted a request to charge to the effect that Bogert-Childs and Lincoln "are not agents of the Bergen County Sewer Authority." This was denied and objection noted.

Another request inconsistent with the refusal just referred to was charged. Under it the jury was instructed:

"That Bogert-Childs Engineering Associates are independent contractors engaged to perform functions designated in the contract between the parties."

The court refused to charge:

"64. That Mr. Robert Lincoln is an employee of Bogert-Childs Engineering Associates employed to perform part of this contractual duty of contract supervision."

It cannot go unnoticed that the case had many complexities which rendered the task of charging the jury unusually difficult. But we are constrained to hold that the instructions on the subject of agency were erroneous and must have been confusing and misleading to the jury. Middleton v. Public S. Co-ordinated Transport , 131 N.J.L. 322 (E. & A. 1944); State v. Erie R. Co. , 84 N.J.L. 661 (E. & A. 1913). For this reason a reversal of the judgment for respondent must be ordered.

Since the action must be remanded for a new trial, it seems advisable to review the individual claims advanced under the various counts of the complaint and the general charge of fraud with respect thereto.

The first count presents three separate claims: (1) for $36,771 representing 8,755 cubic yards of dirt excavated for which no payment had been made; (2) for $134,336.25 representing 113,425 cubic yards of earth fill allegedly put into an embankment, the construction of which was called for by the contract; (3)(a) for $8,540 representing 17,080 pounds of structural steel used but not paid for, and (b) $16,853 covering 33,706 pounds of miscellaneous fabricated steel used and not paid for.

The second count claims $216,535.39, allegedly for extra work made necessary by the unusual and excessive flow of water from the nearby Hackensack River into the site of Terminal's work.

The demands of the third, fourth and fifth counts are as set forth above, except that at the trial the amount sued for on the fifth count was reduced to $2,980.55.

FIRST COUNT

I.

Excavation

It being obvious that excavation would be a necessary incident of the structures to be built, measures were taken to estimate the extent thereof before bids for the various parts of the project were sought publicly. To accomplish this, preliminary survey work was done at the site by one Florio Job, the engineer of the Borough of Little Ferry, who was not an employee of either the Authority or of the project engineer. Then "a complete engineering estimate" was made by employees of Bogert-Childs. As a result, when bids were called for the form of proposal set forth that the "estimated quantity" of earth excavation involved was 76,000 cubic yards and a bid price per cubic yard, called a unit price, was sought.

Paragraph 24 of the "Information for Bidders" required the bidders to "satisfy themselves by personal examination of the location of the proposed work, and by such other means as they may choose, as to the actual conditions and requirements of the work and the accuracy of the estimate of the Engineer, and shall not, at any time after the submission of a bid, dispute or complain of such statement or estimate of the Engineer, nor assert that there has been any misunderstanding in regard to the nature of the work or the amount of the work to be done." And by paragraph 23 thereof public notice was given that the quantities were approximate only and set forth as a basis for the uniform comparison of bids.

Section 1.16 of the specifications attached to the contract provided that for measurement purposes the quantity of dirt excavated would be the "actual number of cubic yards of earth contained between surfaces represented by (a) the original surface of the ground, (b) the underside of the masonry in earth, * * * and (c) vertical planes defined by the outermost footing of the structure * * *." And it was also stipulated in section 1.6 that "excavations carried beyond the lines and grades shown on the drawings or established by the Engineer together with its disposal shall be at the contractor's expense."

It was further agreed that the contractor was to submit estimates of the work done the previous month and upon approval thereof by the engineer, partial payment of the contract price would be made by the Authority. Provision was made also that all of these estimates and payments were subject to correction at the time of the semi-final payment, which was to take place within 30 days after the filing of the certificate of completion by the engineer.

During the first 12 months of excavation monthly estimates of the dirt removed were submitted, approved by the resident engineer Lincoln and paid for. The last of these 12 estimates, covering September 1950, was approved for a cumulative total to that time of 72,900 cubic yards.

However, when the thirteenth estimate was submitted for October, seeking payment for 6,130 additional yards, the record indicates a realization on the part of Lincoln that the cumulative total claimed of 79,030 cubic yards was already beyond the gross estimate of 76,000 cubic yards set down in the form of proposal, and that although the contractor "was pretty well along" there was a considerable amount of excavation yet to be done. Upon consultation with his superiors, he received instructions to cut back the estimate to that of the previous month, namely, 72,900 cubic yards.

Thereafter and through the twentieth estimate for the period ending June 30, 1951, although the total claimed yardage was increased only by 2,514 cubic yards, Lincoln pursuant to orders held the estimate at 72,900. The twenty-first

estimate for the month of July 1951 increased the claimed excavation to a total of 82,199 cubic yards and Lincoln with approval of his superiors increased the allowance to 76,000, the gross estimate in the proposal.

The twenty-second and twenty-third estimates for August and September 1951 for some reason dropped down to 81,574, that of October went up to 82,350 and remained at that figure from October 1951 through the last estimate which was submitted in January 1952.

During the period between June 1951 and January 1952 a separate excavation item was set up designated "Earth excavation at Lagoon." Terminal's estimates for this work totaled 13,469 cubic yards. So the total excavation claim was 95,819 cubic yards.

The controversy over the quantity of earth removed which qualified for payment was a sharply defined one. Terminal used the open-cut method of excavation, as it had the option of doing under the contract. Lincoln asserted that earth removed from the sloping sides of the excavations exceeded the specified payment lines and he called attention to the requirement that the measurements must be based upon vertical planes defined by the outermost footing of the structure.

Furthermore, on April 14, 1950, the contract was supplemented to provide that the deep section of the pump and blower house of the plant would be built within a temporary cofferdam of steel sheet piling. In consideration of the relinquishment by Terminal of the open-cut method of excavation for this portion of the project, and for the extra labor and materials, the Authority agreed to pay an additional sum of $38,400. This supplement provided that in all other respects the original agreement remained unchanged.

Terminal's president conceded in part of his testimony that in excavating within this cofferdam the payment lines established by the original agreement were exceeded and that in this area computations of excavation were not according to the contract. (The record does not show the extent ...


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