McCullough v. Clinch-Mitchell Const. Co.

• Decision Date: 22 May 1934
• Docket Number: No. 9810.,9810.
• Citation: 71 F.2d 17
• Parties: McCULLOUGH et al. v. CLINCH-MITCHELL CONST. CO.
• Court: U.S. Court of Appeals — Eighth Circuit

71 F.2d 17 (1934)

McCULLOUGH et al. v. CLINCH-MITCHELL CONST. CO.

No. 9810.

Circuit Court of Appeals, Eighth Circuit.

April 20, 1934.

Rehearing Denied May 22, 1934.

Montreville J. Brown, of St. Paul, Minn. (William H. Oppenheimer, of St. Paul, Minn., and Price Wickersham, of Kansas City, Mo., on the brief), for appellants.

E. H. McVey, of Kansas City, Mo. (Addison L. Gardner, Jr., of Chicago, Ill., and C. A. Randolph, of Kansas City, Mo., on the brief), for appellee.

Before STONE and SANBORN, Circuit Judges, and WYMAN, District Judge.

STONE, Circuit Judge.

Appellee had a general contract with the St. Paul & Kansas City Short Line Railroad Company for the grading of a number of miles for new trackage. It made a subcontract with appellants for the doing of this work over a portion of this mileage. Under this contract appellants worked from July 1, 1929, until January 29, 1930, during which time a portion of the work covered by the subcontract was done. For several months before the latter date a difference had existed between the parties which culminated in appellants abandoning the work upon the latter date under the claim that appellee had breached the contract. Thereafter, appellee, acting under the provisions of the contract, went into the United States District Court and secured possession of the equipment and supplies (then on the work) of appellants and proceeded to complete the construction called for by appellants' contract. Thereafter, it filed a supplemental pleading for an accounting for the damages it claimed to have suffered through the failure of appellants to carry out their contract. Appellants answered and also stated a counterclaim for damages on account of the alleged breach of the contract by appellee. After an answer to the counterclaim, the case was referred to a master who made a careful and extended report embodying numerous findings of fact and several conclusions of law, the result of which was a determination against the counterclaim and in favor of appellee for $25,067.48 and costs. Exceptions to the report were overruled and a decree entered against appellants for the above sum. From that decree they appeal.

I. One matter presented here is the propriety of permitting the filing of the supplemental bill of complaint containing the claim for damages. We can find no exception in the record to this action of the court although the order granting leave shows a hearing and that appellants' counsel were present. Nor is there any objection to this action preserved in the amended answer and counterclaim filed thereto. The first appearance in the record of any challenge of this action of the court is in the assignment of errors on this appeal. It is obvious this point has been waived for lack of presentation to the trial court.

II. Another matter urged is directed to the point that vital error was committed in not determining that there could be no recovery by appellee and that there should be recovery by appellants because the contract provided for submission of disputes to the arbitration of the chief engineer of the railroad company; that such a dispute existed; that such arbitration was insisted upon by appellants but was denied and prevented by appellee; that such denial constituted a breach of a material part of the contract; and that such breach justified appellants abandoning the work and recovering damages.

The subcontract expressly made part thereof the main contract between the appellee and the railway company. Both parties agree that the terms of the main contract are fully applicable to the subcontract. The dispute is concerning certain terms of such main contract and what was done thereunder. The contract provided for excavations and fills in accordance with the profile which was expressly stated to be approximate. The basis of both contracts was cubic yard payments grounded on differences of material handled. We are particularly concerned with two paragraphs of the contract which are as follows:

"9. It is mutually agreed that the plans, specifications, dimensions or location of the work covered by this agreement may be altered whenever the Chief Engineer considers such alteration necessary and expedient, but, unless such alteration shall have materially changed the character of the work, no extra compensation shall be allowed therefor. In case such alterations shall materially change the character of the work, before the commencement of the work covered thereby the parties hereto shall agree in writing as to the reduced or increased compensation to be made therefor. * * *

"35. It is mutually agreed that, to prevent all disputes and misunderstandings in relation to any stipulations contained in this agreement, or in reference to any of the specifications and plans made a part thereof or their performance by either of said parties the Chief Engineer shall be, and he is hereby made, an umpire to decide all matters arising out of or growing out of this agreement, and the decision of the Chief Engineer on any point or matter touching this agreement shall be final and conclusive between the parties hereto, and each and every of said parties hereby waives any and all right of action, suit or suits, or other remedy, in law or otherwise, under this agreement or arising out of the same."

Shortly after appellants entered upon their work, the chief engineer, acting under the authority of paragraph 9 above, made a change by flattening a curve whereby appellants were required to excavate materially further into a hill. As soon as appellants discovered this change, they made claim to appellee that this alteration was one which would "materially change the character of the work," within the meaning of paragraph 9. There was extended negotiation between the parties as to whether this alteration was such material change or not and as to whether the matter should be determined by the chief engineer. Appellee finally refused to recognize the alteration to be of that character and would not submit the matter to the arbitration of the chief engineer. Faced with this final determination of appellee, appellants gave notice that they regarded the refusal to submit the matter to the chief engineer as a breach of the contract and unless some satisfactory arrangement was made they would abandon the work on a definite date. Subsequent negotiations failed to alter this situation and work was abandoned on the indicated date. The contention here of appellants is that a dispute in relation to the agreement existed between the parties which they were not able to determine themselves and, therefore, should have been submitted to the chief engineer, under the provisions of paragraph 35, above.

The evidence leaves no question and the master finds that a dispute existed as to whether the alteration in line by the chief engineer did constitute a material change within the meaning of paragraph 9. It is equally clear that appellants repeatedly and without alteration of such position insisted upon the submission of this dispute to the chief engineer. It is also clear that, as a subcontractor, they had no standing to independently require the chief engineer to entertain such dispute and that they had been informed by appellee that the engineer would not entertain complaints from subcontractors. Also, it is clear that appellants repeatedly urged appellee to bring this dispute to the attention of and submit it to the chief engineer and that appellee refused to do so up to the time when the work was abandoned by appellants.

Neither party challenges the applicability of paragraph 35 to a bona fide dispute of this character. The position of appellee is that the paragraph is invalid as constituting a waiver of any rights to appeal to the courts and, therein, an ouster of judicial jurisdiction; that, if valid, such provision of the contract is independent and collateral and cannot be pleaded in bar; that, if valid, the provision was complied with by an informal submission to the chief engineer; that, if valid, such provision applies only to a bona fide dispute and that the contention made by appellants that this alteration of line by the chief engineer constituted a material change, within the meaning of paragraph 9, was not made in good faith.

Validity of Arbitration Provision.

By validity, as here discussed, is meant the judicial recognition of the lawfulness of an arbitration agreement. The method of legal enforcement will be discussed under the next heading.

It can hardly be said that the decisions as to validity of provisions in contracts for arbitration of disputes between the parties thereto are in a very satisfactory condition. This unsatisfactory situation is brought about by opposing considerations. On one side are the judicial recognition of the desirability of parties settling their differences out of court; the danger of judicially remaking and enforcing a contract different from that to which the parties agreed by substituting the determination of a judge or a jury as to matters largely dependent upon expert qualifications for the determination of an expert agreed upon by the parties and who would have personal knowledge of all the matters bearing upon the dispute; and the practical utility and often necessity of such procedure in the case of construction contracts. On the other side is the supposed public policy that one cannot be held to an agreement restraining his resort to the courts to settle his justiciable rights. As to the encouragement of arbitration, it was long ago said that "as a mode of settling disputes, it should receive every encouragement from courts of equity." Burchell v. Marsh, 17 How. 344, 349, 15 L. Ed. 96. As to the dangers of remaking a contract, the Supreme Court has said "the contract did not contemplate that the opinion of the court should be substituted for that of the engineer" (Ripley v. United States, 223 U. S. 695, 704, 32 S. Ct. 352, 356, 56 L. Ed. 614);...