Needles v. Kansas City

• Decision Date: 09 September 1963
• Docket Number: No. 2,No. 49336,49336,2
• Court: Missouri Supreme Court
• Parties: Enoch R. NEEDLES, Ruben N. Bergendoff, Ellis E. Paul, Theodore J. Cambern, Josef Sorkin, James P. Exum, Elmer K. Timby, and Carl L. Erb, partners, doing business as Howard, Needies, Tammen & Bergendoff, Appellants, v. KANSAS CITY, Missouri, a municipal corporation, Respondent

Page 300

371 S.W.2d 300

Enoch R. NEEDLES, Ruben N. Bergendoff, Ellis E. Paul,

Theodore J. Cambern, Josef Sorkin, James P. Exum, Elmer K.

Timby, and Carl L. Erb, partners, doing business as Howard, Needies, Tammen & Bergendoff, Appellants, v. KANSAS CITY, Missouri, a municipal corporation, Respondent.

No. 49336.

Supreme Court of Missouri, Division No. 2.

Sept. 9, 1963.

Motion for Rehearing on Count One or to Transfer to Court En

Banc Denied Oct. 14, 1963.

Clyde J. Linde, Billy S. Sparks, Kansas City (Linde, Thomson, VanDyke, Fairchild & Langworthy, Kansas City, of counsel), for appellants.

Keith Wilson, Jr., City Counselor, Herbert C. Hoffman, Associate City Counselor, Ned B. Bahr, Asst. City Counselor, Kansas City, for respondent.

BOHLING, Commissioner.

Plaintiffs Enoch R. Needles, Ruben N. Bergendoff, Ellis E. Paul, Theodore J. Cambern, Josef Sorkin, James P. Exum, Elmer K. Timby and Carl L. Erb are partners engaged in business as consulting engineers under the name of Howard, Needles, Tammen & Bergendoff with fully staffed offices in Kansas City, Missouri, New York, New York, and elsewhere. The firm originated in Kansas City and has specialized in major bridges, turnpikes and interstate highway systems. The plaintiffs, herein referred to as 'Engineers,' sued the City of Kansas City, Missouri, in three counts. They sought a judgment in Count I for a balance of $106,938.59, with interest, on a claimed fee of $654,761.34 for professional services to the City in connection with what is known as the 'Broadway Bridge' project in the vicinity of the Kansas City Municipal Airport. Counts II and III of the Engineers' petition are alternative counts, each seeking the recovery of $110,005.00 out-of-pocket expenses incurred by the Engineers in performing additional work required of them in connection with additional plans adopted during the construction of the Broadway Bridge project for expanding said facilities; Count II on the theory an emergency situation existed making the City liable and Count III on the theory that the said services fell within certam general clauses of an agreement of April 3, 1952.

The trial was to the court. The City admitted a balance of $29,753.26 was due the Engineers under Count I, and plaintiffs had judgment on said count for $29,753.26, with interest from April 2, 1957, of $8,211.85. The judgment, entered on general findings, was in favor of the City on the alternative Counts II and III. Following the overruling of their motion for new trial, plaintiffs appealed. Plaintiffs question the judgment on each count.

The issue under Count I involves the interpretation of the following portion of the contract provision (later quoted in full) covering the Engineers' compensation; to-wit: 'a fee of Five and 8/10 Per Cent (5.8%) on the total principal amount on the bonds required to finance this project.' The Engineers contend their 5.8% should be based on $11,288,988.66, an amount obtained after deducting, as provided in the contract, from a $13,000,000 bond issue the interest on the bonds during construction and the Engineers' compensation. The City bases the 5.8% on a lesser amount, $9,958,207.15, which we understand is claimed to be the actual construction costs of said project shown by the City records as of February 17, 1961.

Ordinance 15,368 of Kansas City, March 10, 1952, authorized the Mayor to contract with the Engineers for services in connection with the location, construction and financing of a new bridge across the Missouri River; and a contract between the City and the Engineers was entered into April 3, 1952, for what is known of record as the Broadway Bridge project, which was to be financed by $4,500,000, principal amount, revenue bonds of the City, payable solely out of toll revenues derived from said project. (Consult RSMo 1949, Secs. 234.210-234.300, V.A.M.S.) This contract provided for 'a fee of six per cent (6%) on the total principal amount on the bonds required to finance this project' to the Engineers. It was a 'package deal' contract and embraced unusual features in that the Engineers were to furnish, among others, financial and legal services in addition to engineering services of designing and supervising the construction work.

Further investigation and study resulted in enlarging the project for much greater user by the public. This involved, among other things, the acquisition of additional land and easements for the construction of said project and all appurtenances incident to such construction, including, for instance, increasing the traffic lanes of said bridge from three to four lanes, and the proposed revenue bonds from $4,500,000 to $13,000,000. The Engineers so recommended to the City in a Feasibility Report dated March 29, 1954, revised June 1, 1954.

Stifel, Nicolaus & Company, investment bankers of Chicago, Illinois, were the financial advisers on this project. The Feasibility Report submitted by the Engineers was prepared after consultations with the financial advisers, particularly with respect to the contingent fund stated therein.

This Feasibility Report (approved in Ordinance 18,107, July 23, 1954) carried the Engineers' estimated costs of the project, which was copied in the Prospectus for the sale of the $13,000,000 Broadway Bridge Revenue Bonds. Said estimate of the costs read: 'Construction cost of the Main River Bridge between Fifth and Broadway and the Airport Terminal Plaza $7,250,000. Airport Plaza, Richards Road and Extension with Connection to U. S. 71 $2,000,000. Toll Facilities and Equipment $200,000. Total Construction Cost $9,450,000. Utility Relocation $150,000. Right of Way $245,000. Engineering, Fiscal Agent and Testing $650,000. Administration and Financing, including Bond Discount $300,000. Interest During Construction $1,137,500. Allowance for Contingencies $1,067,500. Total Bond Issue $13,000,000.' (Emphasis supplied.)

The record indicates the City objected to the 6% Engineers' fee of the original contract on the enlarged project, and the Engineers reduced it to 5% (see 'Engineering * * * $650,000' item of Feasibility Report). The City also objected to the fee being based on the item for Engineers' fees and the interest during construction. Negotiations resulted in an agreement upon a fee of 5.8% 'on the total principal amount on the bonds required to finance this project,' after deducting the interest paid on the bonds during construction and the Engineers' fee.

Ordinance 18,107, July 23, 1954, as above indicated, approved the Engineers' general plan for said project and authorized the issuance of $13,000,000, principal amount, of 'Broadway Bridge Revenue Bonds,' estimated to be necessary therefor.

Ordinance 18,167, August 13, 1954, authorized the execution of a 'Supplemental Agreement' between the City and the Engineers amending certain provisions of their agreement of April 3, 1952. It was executed by the parties August 24, 1954.

Later, February 25, 1955, Ordinance 18,746 directed the establishment of specified allocations of the Broadway Bridge Construction Fund, including, among others, the following: 'Architectural and Engineering Services $655,000'; and 'Contingencies $1,218,245.'

The Broadway Bridge Revenue Bonds, authorized July 23, 1954, by Ordinance 18,107, Sec. 2, were sold October 7, 1954. Actual construction of the project started November 11, 1954. The bridge, substantially completed, was opened to traffic September 5, 1956, and a certificate of completion was issued November 14, 1957.

By February or March, 1955, contracts had been awarded or bids had been received for all major construction connected with the original project under the Supplemental Agreement and other matters had so progressed that the final costs could be generally established. This disclosed that funds were available from the sale of the bonds for additional construction, the actual costs having been less than the Engineers' estimated costs. For instance, on Contract No. 1: 'Three River Piers,' 'Original Estimate, June 1954, $1,513,000.00.' 'Gross Contract Amount $932,300.00.' 'Final Contract Amount $821,527.98.' 'Contingent Item in Contract $100,000.' The Engineers had testimony $81,250 was saved on interest during construction because the project was finished in less than the estimated time. These differences between the Engineers' estimate and the actual costs amounted to $1,718,207.03. Said amounts were put in the contingent fund as they occurred, and the $1,067,500.00 contingent fund shown in the 1954 Feasibility Report reached $2,769,152.78, we understand, about January, 1957. The Engineers term this difference 'savings.' The City terms it 'overestimates,' carelessly and negligently made by the Engineers. There was testimony from R. N. Bergendoff (one of plaintiff Engineers and their principal witness who went into some detail respecting the costs of materials and the bids received) and James L. Jeffers (a vice-president of Stifel, Nicolaus & Co., investment bankers of Chicago, Illinois) that the low bids received on this project were the result of a drop in the price of steel and the fact that the contractors engaged in this type of construction were looking for jobs at that time. We find no contrary testimony of record.

The City also questions the $1,067,500 allowance for contingencies made by the Engineers in their official estimate of the costs. The evidence established that this estimate was made after consultation with the financial advisers. Mr. Jeffers and Mr. Bergendoff gave testimony to the effect that investors want ample funds on hand to complete a project of this nature, one financed by revenue bonds and not revenue producing until completed; that an allowance for contingencies in the estimated costs of the project is absolutely necessary for marketing the bonds and financing it, and the contingent item is generally 10 to 15% of the issue, but sometimes is higher. The allowance for contingencies on the...