Maryland Casualty Co. v. Board of Water Com'rs

• Decision Date: 09 August 1933
• Docket Number: No. 267.,267.
• Citation: 66 F.2d 730
• Parties: MARYLAND CASUALTY CO. v. BOARD OF WATER COM'RS OF CITY OF DUNKIRK et al.
• Court: U.S. Court of Appeals — Second Circuit

66 F.2d 730 (1933)

MARYLAND CASUALTY CO. v. BOARD OF WATER COM'RS OF CITY OF DUNKIRK et al.

No. 267.

Circuit Court of Appeals, Second Circuit.

August 9, 1933.

COPYRIGHT MATERIAL OMITTED

Gibbons & Pottle, of Buffalo, N. Y. (Frank Gibbons, of Buffalo, N. Y., and George F. Cushwa, of Baltimore, Md., of counsel), for complainant-appellant.

J. L. Hurlbert, of Dunkirk, N. Y. (Samuel L. Drago, of Dunkirk, N. Y., of counsel), for appellant Merchants' National Bank of Dunkirk.

Arthur B. Towne, of Dunkirk, N. Y. (Thomas P. Heffernan, of Dunkirk, N. Y., of counsel), for appellee Board of Water Com'rs.

Glenn W. Woodin, of Dunkirk, N. Y., for appellees W. M. Pattison Supply Co. and others.

Thomas P. Heffernan, of Dunkirk, N. Y., for appellees Norwood Engineering Co. and others.

Wm. S. Stearns, of Fredonia, N. Y., for appellee Estate of Arthur L. O'Connell.

Stanley & Gidley, of Buffalo, N. Y. (Arthur E. Otten, of Buffalo, N. Y., of counsel), for appellee Warsaw Elevator Co.

Shire & Jellinek, of Buffalo, N. Y. (Edward L. Jellinek and Joseph Swart, both of Buffalo, N. Y., of counsel), for appellee Buffalo Steel Co.

Locke, Babcock, Hollister & Brown, of Buffalo, N. Y. (H. W. Huntington, of Buffalo, N. Y., of counsel), for appellee United States Cast Iron Pipe & Foundry Co.

Joseph C. White, of Dunkirk, N. Y. (Thomas P. Heffernan, of Dunkirk, N. Y., of counsel), for appellees McMachan and others.

Elton D. Warner, of Dunkirk, N. Y. (Thomas P. Heffernan, of Dunkirk, N. Y., of counsel), for appellee American Locomotive Co.

Penney & Penney, Wilcox & Van Allen, and Ladd, Garono & Jaeckle, all of Buffalo, N. Y. (E. H. Farnham, of Buffalo, N. Y., of counsel), for other appellees.

Before MANTON, L. HAND, and SWAN, Circuit Judges.

SWAN, Circuit Judge.

The board of water commissioners of the city of Dunkirk, a municipal corporation hereinafter referred to as the board, entered into two contracts with Loyd Contracting Company, hereinafter referred to as Loyd, for the construction of a filtration plant and a clear water basin. The contract for the filtration plant was dated April 20, 1926, and the contract price was $136,900; that for the clear water basin was dated August 12, 1926, and the price was $14,000. Bonds in like amounts for the faithful performance of the respective contracts were executed by the complainant, the Maryland Casualty Company, hereinafter referred to as the surety. The condition of each bond is that the principal shall faithfully perform the contract, and save the board harmless from damages arising out of any default, and pay all laborers and materialmen. When Loyd applied to the surety for these bonds, Loyd assigned to the surety all interest in the moneys to be received under the contracts. This assignment was not recorded. Subsequently Loyd made another assignment of its interest in such moneys to Merchants' National Bank of Dunkirk, hereinafter referred to as the bank, to secure notes given by Loyd for money borrowed for the prosecution of work under the contracts. The bank's assignment was forthwith recorded.

In the summer of 1927 and after part of the work under the contracts had been performed, Loyd became in default, and the board passed a resolution terminating Loyd's employment, taking possession of the property, and calling upon the surety to proceed to complete the contracts. This it did, making a contract with the Pitt Construction Company, hereinafter referred to as Pitt, to complete the work. In July, 1928, the work was completed and accepted by the board, which has nearly $47,000 on hand representing money retained and unpaid on the contracts. Of this sum, about $19,000 represents percentages retained at the time of the termination of Loyd's employment. The cost to the surety of completing the contracts was more than $47,000.

In September, 1927, this suit was commenced by the surety. Numerous liens had been filed with the board on account of labor and materials furnished to Loyd, and these lien claimants, as well as Loyd, the board, and the bank, were made parties defendant. Another class of defendants are those who filed no mechanics' liens but who claim the right to recover from the surety under the terms of its bonds. The court below held that both classes of claimants were entitled to be paid the amounts found due them respectively out of the $47,000 retained by the board. They were given also a decree against the surety for any deficiency. Any surplus of the fund was awarded to the surety. The bank was held entitled to retain $7,067.83 paid to it by the board on July 2, 1927, by reason of the above-mentioned assignment given to the bank by Loyd, but the bank's claim to recover a large additional sum was postponed until after the surety was reimbursed. Loyd was decreed to pay the surety whatever the latter may pay under the decree.

The various questions raised by this appeal and the facts upon which they rest will sufficiently appear in the course of this opinion. Most of the questions were considered by the District Court in an opinion rendered in connection with its interlocutory decree. See (D. C.) 43 F.(2d) 418.

I. First will be considered issues between the surety and the board. The surety contends that the fund of nearly $47,000 payable by the board should be largely increased on account of (a) extra excavation, (b) extra filling, and (c) overpayments made to Loyd. There are also other matters in dispute, which will be dealt with seriatim.

(a) Extra Excavation. The plans and specifications upon which Loyd made its bids showed approximate rock levels which were found to be erroneous in that in many places the rock was considerably below the grade indicated on the plans. This necessitated extra excavation, which the surety contends increased the expense for the filtration plant by $25,000 and for the clear water basin by $6,300. It admits a payment of $569.60 for such extra excavation and claims the balance, amounting to $30,730.40. In pressing its claim the surety relies upon the principles declared in such cases as United States v. Spearin, 248 U. S. 132, 39 S. Ct. 59, 63 L. Ed. 166; United States v. Atlantic Dredging Co., 253 U. S. 1, 40 S. Ct. 423, 64 L. Ed. 735; United Construction Co. v. Haverhill, 9 F.(2d) 538 (C. C. A. 2); Pitt Construction Co. v. City of Alliance, 12 F.(2d) 28 (C. C. A. 6); Faber v. City of New York, 222 N. Y. 255, 118 N. E. 609; McGovern v. City of New York, 202 App. Div. 317, 332, 333, 195 N. Y. S. 925, approved on appeal in 235 N. Y. 275, 277, 139 N. E. 266. But we do not understand that these authorities include a case where, in the absence of fraud, negligence, or peculiar knowledge by the owner, the contract specifically covers the possibility of mistake and makes provision for that eventuality. See Foundation Co. v. State of New York, 233 N. Y. 177, 135 N. E. 236; Christie v. United States, 237 U. S. 234, 249, 35 S. Ct. 565, 59 L. Ed. 933; Faber v. City of New York, 222 N. Y. 255, 259, 261, 118 N. E. 609. Such is the case here. Paragraph 4 of the specifications states that the drawings show "approximate grades for excavation"; paragraphs 9 and 11 make provision for extra work generally and for changes or corrections in the plans; while paragraph 25 deals specifically with extra excavation. It provides that excavation must be carried to "grades shown on the plans, or to such increased depth as may be necessary to obtain a firm foundation"; and that "an extra allowance will be made for any extra excavation beyond that required by the plans * * * and this extra excavation will be paid for per cubic yard at the price bid upon under that item." Loyd had bid $2 per cubic yard for extra excavation, and prior to bidding had an opportunity, which it had exercised so far as it desired, to inspect the site and make test borings. Rightly, we think, the District Court construed paragraph 25 as controlling. That the parties construed it in the same way is practically demonstrated by the fact that after the mistake had been discovered in the plans for the filtration plant, the same provisions and bid for extra excavation were repeated in the plans and specifications for the clear water basin.

(b) Extra Filling. The specifications required Loyd to place an embankment about the structures and on one side this extended down to Lake Erie. On that side dirt was loosely piled but not placed by Loyd in accordance with the specifications. On December 8, 1927, an extraordinarily severe storm on Lake Erie washed away a considerable portion of this dirt. It had to be replaced, and for this extra expense the surety claims $3,710, contending that the plans were defective in not calling for a retaining wall. In support of this contention reliance is placed on the fact that after the storm the board's engineer ordered sheet piling to be put in. This does not, however, necessarily compel the inference that the original plans were defective. There is conflict in the testimony as to whether any dirt was washed out before the December storm. Harshbarger, Pitt's engineer, mentions two washouts, but the board's engineer testified to the contrary, and is apparently supported by Loyd and Sturup. Since the pile of dirt had not been placed in accordance with the specifications, and since the December storm was of such unusual severity, we do not think the washout and the subsequent use of sheet piling was proof that the plans were defective. Hence the District Court's finding that the board is not responsible for the expense of the extra filling is sustained. Tompkins v. Dudley, 25 N. Y. 272, 82 Am. Dec. 349; Booth v. Spuyten Duyvil Rolling Mill Co., 60 N. Y. 487; Norton v. Fancher, 92 Hun, 463, 36 N. Y. S. 1032.

(c) Overpayments to Loyd. The contracts provided for monthly payments as the work progressed of "85% of the value of the work performed and material furnished for said improvements based upon the estimate of the Board's engineers." The remaining 15 per cent....