Elliott v. Missouri, K. & T. Ry. Co.

• Decision Date: 17 April 1896
• Docket Number: 721.
• Citation: 74 F. 707
• Parties: ELLIOTT v. MISSOURI, K. & T. RY. CO.
• Court: U.S. Court of Appeals — Eighth Circuit

74 F. 707

ELLIOTT v. MISSOURI, K. & T. RY. CO.

No. 721.

United States Court of Appeals, Eighth Circuit.

April 17, 1896

This is an appeal taken by John S. Elliott from the decree of the circuit court which enjoins him from prosecuting an action at law in the court below to recover the purchase price of certain railroad ties, which he furnished to the Missouri Kansas & Texas Railway Company, the appellee, under certain contracts between them. These parties agreed in these contracts: That the appellant should furnish a large number of cross-ties to the railway company, that the railway company should pay him for all ties delivered at the rate of 33 cents and 38 cents, each, for first-class ties, and at the rate of one-half of those prices for second-class ties. That 'said ties are to fully conform to the following specifications: They must be eight (8) feet long, nor more and no less, six (6) inches thick, and fully eight (8) inches wide at the narrowest end; must be full hewn, free from score marks, and not winding, and with all bark removed. The ends of all ties must be sawed off. All ties must be cut from white oak, post oak, and burr oak, and must be piled at places of delivery in open cribs, having alternate layers of two and five ties, and on even ground. ' That 'the party of the second part (the railway company) shall appoint an inspector to inspect and classify all said ties, and his inspection and judgment of said classification shall be binding on said first party. No ties shall be considered delivered on this contract until inspected by said inspector passed upon, and received by him. ' The railway company appointed its inspector, and the appellant delivered his ties under these contracts during the months of February, March April, May, and June, 1892. The inspector examined classified, and accepted the ties. He reported to the railway company the number of each class of ties that the appellant had furnished during each of these months, and the company paid him for the ties he delivered during February, March, and April, on the basis of these reports, but it refused to pay him on this basis for those delivered in May and June, on the ground that the classification made by its inspector was incorrect. The appellant thereupon brought his action at law for the purchase price of these ties upon the basis of the reports of the inspector. The railway company then exhibited its bill in the court below to enjoin this action at law. It alleged in this bill that the appellant, Elliott, had fraudulently claimed and represented to the inspector that a first-class tie was not a tie which fully complied with the terms of the contracts, but that it was such a tie as it was the custom to accept upon Western railroads; that the inspector thereupon ignored the specifications of the contracts, and counted and classified, according to this custom, a large number o the ties as first-class ties that were in fact second-class ties; that this classification was erroneous and fraudulent; that the company subsequently made a second inspection and classification according to the specifications of the contracts; and that the fraudulent count and classification of the inspector charged the company, at the prices fixed in the contracts, with $5,293.91 more than it actually owed to the appellant.

The appeallant answered this bill. In this answer he denied that he ever made any claim or representation to the inspector that a first-class tie was not one which fully complied with the specifications of the contracts, or that it was such a tie as was customarily accepted on Western railroads; denied that the inspector ignored the contracts, or counted or classified the ties according to any such alleged custom; and averred that he left the counting and the classification of the ties solely to the judgment, knowledge, and discretion of the inspector and that his count and classification were just and correct under the terms of the contracts. The case was referred to a master to find the facts and to report his conclusions of law. He found that the ties in dispute, which the inspector reported as containing 70,262 first-class ties and 5,644 second-class ties, were subsequently counted and classified by the employes of the railway company as containing 38,567 first-class ties and 37,225 second-class ties, and that this variance in the count and classification resulted in a difference of $5,293.91 in the amount due under the contracts. He found that the allegations of the bill that the appellant made fraudulent statements and representations to the inspector, to the effect that the ties should be counted and classified according to an alleged custom on Western railroads, and not according to the specifications of the contracts, were not sustained by the evidence; that there was no proof that the appellant ever made any such statements or representations; and that any mistakes or errors that were made in the count or classification of the inspector were the mistakes and errors of the inspector, in which the appellant had no part. He made numerous findings upon other issues, which are not material in the view of the case taken by this court, and he reported as one of his conclusions of law that the appellant was entitled to recover the entire amount which he claimed in his action at law. The railway company filed exceptions to this report, which present the question of the correctness of this legal conclusion. The circuit court sustained these exceptions, held that the error of the inspector in his classification was so gross that the appellant was not entitled to recover upon the basis of the report, that the amount due him was $5,293.91 less than the amount claimed in his action at law, and rendered a decree which perpetually enjoined him from prosecuting it. It is upon the appeal from this decree that this case is now before us for consideration.

John Cosgrove and W. M. Williams, for appellant.

Geo. P. B. Jackson, for appellee.

Before CALDWELL, SANBORN, and THAYER, Circuit Judges.

SANBORN Circuit Judge, after stating the facts as above, .

A provision in a contract to perform work or to furnish material, that the report of an engineer, inspector, or arbiter as to the amount and quality of the work done or material furnished under the contract shall be conclusive upon the parties to the agreement, is a legal and binding stipulation, and can only be set aside for fraud, or for such gross mistakes as imply bad faith or a failure to exercise an honest judgment. Kihlberg v. U.S., 97 U.S. 398; Sweeney v. U.S., 109 U.S. 618, 3 Sup.Ct. 344; Railroad Co. v. March, 114 U.S. 549, 553, 5 Sup.Ct. 1035; Railroad Co. v. Price, 138 U.S. 185, 11 Sup.Ct. 290; Lewis v. Railway Co., 49 F. 708; Williams v. Railway Co., 112 Mo. 463, 20 S.W. 631. The contracts in this case provided that the railway company should appoint an inspector to inspect and classify the ties; that his inspection and judgment of said classification should be binding upon the appellant; that no ties should be considered delivered under the contracts until they were inspected, passed upon, and received by this inspector; and that the railway company would pay to the appellant the prices named in the contracts for all ties so delivered thereunder. The legal effect of these provisions was to make this arbiter's 'inspection and judgment of the classification' of the ties as binding upon the railway company as upon the appellant. This was its legal effect, because the company thereby agreed that his inspection and classification should constitute a delivery of the ties to it, and that it would pay to the appellant the stipulated prices for the ties so classified and received. Under these contracts the railway company appointed one I. W. Brewton inspector. According to his classification and report, the appellant is entitled to recover $5,293.91 more than he is awarded by the decree. The appellant is enjoined from collecting this amount, not on the ground that either the appellant or the inspector was guilty of any fraud upon the company, for there is no evidence in support of that charge, but on the sole ground that Brewton committed mistakes so gross in his classification of the ties that he cannot escape the just imputation of bad faith.

Before entering upon the consideration of the question whether the charge of gross error in the inspector's classification on which this decree rests, is established by the evidence in this case, we will dispose of a preliminary objection to his report and classification. This objection is in the nature of a demurrer to the report. It is that his classification is of no binding force because it was made without authority. The argument is that the only error claimed in this case was in estimating the dimensions of the first-class ties,-- that the dimensions of these ties were fixed by the contract, that they were capable of accurate ascertainment by actual measurement, that the dimensions of each tie necessarily classified it, that there was no room for the exercise of the judgment of the inspector, and hence that, in every case in which he reported as a first-class tie one that was not eight feet long, eight inches wide, and six inches thick, his action was ultra vires, and without binding force. The answer to this argument is that these parties agreed that Brewton's inspection and judgment of this classification should be conclusive upon them. They evidently supposed, when they made these contracts, that disputes might arise between them over matters as easy of ascertainment as the number and dimensions of 75,906 cross-ties, and they provided an arbiter to settle these disputes, and covenanted to abide by his decision. Their supposition proved to be in accordance with...