Memphis Trust Co. v. Brown-Ketchum Iron Works

• Decision Date: 20 January 1909
• Docket Number: 1833.
• Citation: 166 F. 398
• Parties: MEMPHIS TRUST CO. et al. v. BROWN-KETCHUM IRON WORKS.
• Court: U.S. Court of Appeals — Sixth Circuit

166 F. 398

MEMPHIS TRUST CO. et al. v. BROWN-KETCHUM IRON WORKS.

No. 1833.

United States Court of Appeals, Sixth Circuit.

January 20, 1909

On September 17, 1904, the appellant Memphis Trust Company (whose name was later changed to the Bank of Commerce & Trust Company) entered into a contract, as owner, with the appellee, Brown-Ketchum Iron Works, for the furnishing and installing complete, on or before July 1, 1905, for the sum of $16,900, of certain ornamental ironwork in a bank and office building to be erected in Memphis, Tenn., according to drawings and specifications prepared by D. H. Burnham & Co. architects. The contract provided for payments by the owner on account of the contract price upon written certificates to be issued by the architects from time to time, as the work should progress, to an amount not exceeding 85 per cent. of the value of the materials used and labor performed, as estimated by or for the architects, and that final settlement as to the remainder and for all extras, if any, should be had and payment made 40 days after the completion of the work free of liens, charges, and claims, upon the architects' certificate thereof in writing. The contract further authorized the architects, whenever in their opinion the work done was defective or deficient, or the contractors failed to complete the work according to the specifications, to reject such defective or deficient work and require the same to be done over, or to deduct from the contract price, by means of rebate certificates to be issued by them, sufficient to compensate the owner for such defect or deficiency. It also permitted alterations in plans, materials, or workmanship desired by the owner during the progress of the work, and in case thereof a just allowance by the architect to the contractors or the owner, according as the changes should increase or decrease the expense, and for the allowance of additional time, when required by such changes, the contractors expressly waiving all claims for allowance for extra work or material unless furnished upon written order signed by the architects. It also contained an express provision that in case of failure to complete the work by the date fixed therefor the actual amount of damage to the owner for each day's delay should be determined by the architects, and be deducted from the balance otherwise due the contractors, or, if in excess of such balance otherwise due, the remainder to be refunded by the contractors. It was also expressly agreed that in all matters of dispute under the contract, including (among other things) the decision as to what should be deducted on account of defective work or what should be deducted or added on account of changes in the drawings and specifications, or the value of extra work, or the amount of additional time to be allowed to the contractor for the completion of the work, 'or in any other case or contingency whatsoever in which a dispute should arise in regard to the conditions or proper interpretation' of the agreement, such dispute should be referred to 'D. H Burnham as sole referee or arbitrator, or in case of his inability to act to such other person as may mutually be agreed upon by the parties hereto,' and that 'his decision shall in all such cases be final and binding upon the said parties.'

The building was not finished suitably for any occupancy whatever until September 1, 1905, and the work of the Brown-Ketchum Company was not finally completed until two months or more later. Plaintiff claimed (in addition to the contract price of $16,900) pay for extras furnished amounting to $1,776.60, which included an item of $1,124.54 as the amount of express charges paid on certain material above what the freight would have been; and, after allowing cash payments of $7,000 and sundries amounting to $395.25, claimed on January 11, 1906, a credit balance of $11,281.41.

At this time the trust company was claiming deductions to the amount of $979.53 on account of payments made for work which it was alleged should have been done by the Brown-Ketchum Company, and was demanding damages on account of the failure of the contractors to complete their work within the specified time.

The claim of damages was disputed by the Brown-Ketchum Company upon the ground that its delay was caused by the delay of the architects in approving necessary detailed drawings, in connection with the existence of a quarantine and a strike affecting appellee's drafting department. The amount of the claimed deductions was likewise in dispute. The express charges referred to had been incurred under an arrangement made August 24, 1905, by which the trust company instructed the Brown-Ketchum Company to ship the remaining items of material by express, the charges (estimated at $150) on material previously shipped by that method to be the subject of future consideration, and to be allowed to the Brown-Ketchum Company in case it should be found upon investigation that that company was not responsible for the delay in the completion of their work. The amount of these earlier express charges was thus still in dispute. At this juncture the Brown-Ketchum Company asked the trust company for a payment of $8,000 on account, and payment was declined until the claim of the trust company for failure to complete the building on time should be adjusted. The parties accordingly decided to arbitrate all matters so in dispute. It being ascertained that Mr. Burnham was about to leave the country and could not act, a written agreement was made on January 20, 1906, reciting the provision in the contract of September 17, 1904, for an arbitration by Mr. Burnham of all matters of difference between the parties, the fact that differences had arisen and Mr. Burnham's inability to act, and substituting Mr. E. R. Graham (who was a member of the firm of D. H. Burnham & Co.) 'in place and stead of said D. H. Burnham,' and agreeing 'to leave to the said E. R. Graham, as sole referee and arbitrator, all matters of difference or controversy between the parties,' the arbitration to take place at such time during the month of February, 1906, as Mr. Graham should fix. This agreement expressly provided that submission to such arbitration should be a condition precedent to any suit brought by either party against the other. It also reserved the statutory builder's lien in favor of the Brown-Ketchum Company in case the trust company should fail to abide by the arbitrator's award. Contemporaneously therewith, and upon the strength of said agreement of arbitration, the trust company paid to the Brown-Ketchum Company $7,579.20, which was the precise balance before then unpaid upon the 85 per cent. of the contract price provided to be paid in advance of final adjustment, this payment being referred to in the written agreement substituting Mr. Graham as arbitrator. Mr. Graham fixed February 1st for the arbitration, at his office in Chicago, notifying both parties. On the day before the date fixed for the hearing, the Brown-Ketchum Company sent to the arbitrator a written statement of its claims and of its positions regarding the matters in dispute. On February 1st representatives of both parties appeared before the arbitrator. The trust company's representative was prepared to proceed with the arbitration. The representatives of the Brown-Ketchum Company, under advice of counsel (who accompanied them to the meeting), gave written notice declining to proceed with the arbitration, upon the ground that Mr. Graham and the firm of D. H. Burnham & Co. were 'more or less directly interested' in the pending disputes, and that Mr. Graham was thereby disqualified to act as arbitrator, the alleged disqualification being based upon the proposition that the delay of the contractors was due to the fault of the architects in not approving drawings. Another arbitrator having been suggested on behalf of the trust company, and being objected to by the Brown-Ketchum Company as being disqualified for similar reasons, the trust company insisted on proceeding with the arbitration, and the arbitrator announced his intention to so proceed. After hearing the statement of the trust company's representative of its claims upon the merits, the Brown-Ketchum Company's representatives and its counsel withdrew, and the arbitration was proceeded with. The arbitrator made his award under date of February 1, 1906, finding due to the Brown-Ketchum Company (independently of damages for delay) the sum of $1,695.89. In arriving at this sum the arbitrator deducted from the claim of the contractors the entire amount of the express charges paid on material. As the contractors' claim was $3,702.21, it is apparent that the deductions made in addition to the amount of the express charges were about $100 less than the aggregate of the deductions claimed by the trust company on account of work which it was claimed should have been done by the contractors. The arbitrator found that through the fault of the Brown-Ketchum Company the trust company had sustained actual damages of $3,558.14 (principally on account of lost rentals) by reason of appellee's delay in completing the work on time. By the award the Brown-Ketchum Company was required to pay to the trust company the resulting balance of $1,862.25. The Brown-Ketchum Company repudiated the award, and filed its bill asking that it be set aside, and for a decree for $3,702.21, upon the ground that Graham was disqualified to act by reason of his interest before referred to; that the agreement to arbitrate was an executory undertaking entered into on complainant's part under a mistake of fact, from which it had the right to withdraw, and did withdraw, before the arbitration was entered upon. The bill contains no more direct charge of fraud on...