American Pipe & Construction Co. v. Westchester County

• Decision Date: 10 July 1923
• Docket Number: 43.
• Citation: 292 F. 941
• Parties: AMERICAN PIPE & CONSTRUCTION CO. v. WESTCHESTER COUNTY et al.
• Court: U.S. Court of Appeals — Second Circuit

292 F. 941

AMERICAN PIPE & CONSTRUCTION CO. v. WESTCHESTER COUNTY et al.

No. 43.

United States Court of Appeals, Second Circuit.

July 10, 1923

The American Pipe & Construction Company sued in April, 1914, to enjoin the defendants from entering into a contract for the building of a sewerage settling or reducing plant until the payment of the complainant's claim, and to restrain, by injunction, such construction, as well as the payment of interest on bonds issued for such work. It prayed that the amount of the complainant's claim be fixed, that a receiver be appointed for any funds in the hands of the defendants applicable to that purpose, and that personal judgment be taken against the County of Westchester. In March, 1914, an action at law was started by the complainant for breach of contract. The law action was tried and dismissed, and later that dismissal was reversed by this court. American Pipe & Construction Co. v. County of Westchester, 225 F. 947, 141 C.C.A. 71. A stipulation was later entered into whereby the pleadings and bill of particulars in that action were regarded as a pleading and bill of particulars in this equity action, and, pursuant to the stipulation, an amended answer was subsequently filed. By consent, a special master was appointed, 'to take testimony, with all the powers and rulings upon the testimony as to its admissibility or otherwise, that he would have if he were a referee appointed by the state court, or as if the trial was had in open court in equity. ' The suit then became a claim for damages for breach of contract. The answer contained a counterclaim, which alleged illegal payments theretofore made by the sewer commissioners in payment of claims presented by the complainant. The master, after may and protracted hearings, filed his report in February, 1919. In his report, he allowed one item of the defendant's counterclaim, and allowed certain items of the complainant's claims, with interest. The costs were ordered to be divided by the parties. The District Court with some modifications confirmed the master's report. Exceptions were filed, and the case is here on appeal by both parties. The contract was made by the Mack Paving &amp Construction Company. The complainant was a subcontractor and later, by assignment dated October 5, 1911, became the assignee of all the claims of the contractor.

John C. Wait, of New York City (Howard G. Wilson, of New York City, of counsel), for complainant.

William A. Davidson, Co. Atty., of Portchester, N.Y. (Charles M. Carter, of White Plains, N.Y., of counsel), for defendant Westchester County.

Before ROGERS and MANTON, Circuit Judges, and LEARNED HAND, District judge.

MANTON Circuit Judge (after stating the facts as above).

The contract in question was made January 16, 1908. It was for the Bronx Valley sewer, in the valley of the Bronx, along the line of the Harlem Railroad, and was known as work on sections 1 to 5, and tunnels through the hills under the city of Yonkers, known as sections 6 and 7. Sections 1 to 5 were about 12 miles in length, and sections 6 and 7 about 3 miles in length, making a total of about 15 miles. The sewer commission was created pursuant to chapter 646 of the Laws of 1905 of New York, and authorized the payment of moneys for the work of construction by the county of Westchester. The work was commenced in February, 1908, and completed in February, 1911. The work was let to the lowest bidder, plaintiff's assignor, after competitive bidding, and payment was provided for on a per lineal foot of sewer basis. The claims filed are 55 in number, amounted to $891,952.86, and are for breaches of the contract due to alleged wrongful or erroneous certification of the engineer; also additional work caused by errors or omissions of the engineer and damages for delay. Before the claims in question were made, the county had already paid to the contractor $1,867,872. Among other things, the contract provided as to the engineers' authority, 'clause 20' authorizing changes in 'the line and grade of that portion of the sewer, * * * providing such change does not * * * materially affect the character of the work to be done or alter the amount of the entire work. ' Clause 21 does not authorize any changes. It provides how alterations in line, grade, and dimension shall be compensated for 'at the unit prices stated, according to the quantity actually done,' and clause 22 provides:

'The engineer, subject to the approval of the commission, may change the type or class of standard section or foundation used from time to time as he may deem best. * * * '

We shall first consider the defendants' appeal. It appeals from the court's refusal to sustain its counterclaim, wherein it seeks to recover moneys audited and paid by the sewer commission in settlement of claims 1, 5, 31, and 43. It also appeals from allowances made by the master, as confirmed by the court, from certain items of the complainant's claims.

In May, 1914, claims 1, 5, 31, and 43 were compromised and settled by the payment of $205,574.17 to the contractor. This was some $60,000 less than the claims filed by the contractor, and payment was made in full accord and satisfaction of these items of claims. The defendants contended below, and do here, that the complainant was not entitled to payment of these claims, or any part thereof. The allowances of these claims were made by the new or second sewer commission and were paid by it. The claim is that these payments were illegal, because the second commission had no power to audit the claims. It may be conceded that the rule of law is settled in New York state that a succeeding auditing body may not reaudit a claim on which its predecessor had finally passed. Osterhoudt v. Rigney, 98 N.Y. 222; People ex rel. Myers v. Barnes, 114 N.Y. 317, 20 N.E. 609, 21 N.E. 739; People ex rel. Smith v. Clarke, 174 N.Y. 259, 66 N.E. 819. But, where the auditing body is legislated out of existence before it has completed its duties, the rule is different. An auditing board may reconsider its audit, however final, during its own life, until it has come to the conclusion of its work. This action is taken as provisional only. Equitable Trust Co. v. Hamilton, 226 N.Y. 241, 123 N.E. 380.

The rule in the Equitable Case, we think, applies to a successor board or commission, created, not to undertake new audits, but to conclude the work left unfinished by the first. This sewer commission was created to build a sewer. Its personnel had changed, and, when the audits of the commission were made, it was composed of a different group of commissioners than made up its membership when first organized. The fact that its members were legislated out of office at once, and new ones substituted, did not change the work which remained to be completed when the new commissioners took the place of the old, with authority to complete the work which included auditing accounts and the payment of moneys due. The second commission was therefore free to decide on the claims as though nothing had been done by the first. Its powers necessarily included a decision whether the contractor did the work described by the contract. This, in turn, involved a decision as to what the work in fact was and what the contract meant.

The engineer's decision was not conclusive as between the commission and the county, because the decision was intended only to settle disputes between the two parties to the contract, it being a part of the contract, and not the commission's power, which was fixed by the statute. If it acted out of its jurisdiction, the audit is illegal. Smith v. Hedges, 223 N.Y. 176, 119 N.E. 396. But, in general, it is conclusive. Albany City Nat. Bank v. City of Albany, 92 N.Y. 363. The act of 1907, c. 747, Sec. 3 (see, also, chapter 646, Sec. 14, of the act of 1905) directs the levy of a tax to pay all judgments and expenses against the county of Westchester in any way arising out of the construction or maintenance of the sewer. It was pursuant to the act of 1905, which provided that adjustments might be made of the work under the terms of the contract, that this application was made. It resulted in $205,574.17 being paid. The court said on the previous appeal:

'As to these claims the Bronx Valley sewer commission are legally constituted agents of the county of Westchester for the auditing of the claims. They had the sole authority to audit them, and when they refused to do so the county was bound by their action, which is to be taken as conclusive evidence of the intention not to audit them.' 225 F. 947, 141 C.C.A. 71.

The only ground upon which a recovery back might be granted upon this counterclaim under the authorities is where fraud is established, or where illegality of payment is established. Auditing and payment by the Bronx Valley sewer commission is conclusive upon an accounting. Nelson v. City, 131 N.Y. 4, 29 N.E. 814. There it was said:

'When the auditors honestly allow a claim, acting within their jurisdiction, and no fraud has been practiced upon them in procuring the allowance. the liability of the municipality is fixed, and the claim is no longer subject to dispute.'

The commissioners having allowed these claims without fraud or illegality, and it appearing that they acted within their jurisdiction the liability of the county is fixed, and the claim is no longer subject to dispute. Indeed, the directing and actually paying the money is a recognition of the liability of the county, and precludes it from defending upon the ground that it was not originally liable to pay the debts in question. We find that there was no determination of these claims by the first commission, or during the term of office of the first commission. They never passed upon the merits...