Phoenix Assurance Co. of New York v. Appleton City

Decision Date07 December 1961
Docket NumberNo. 16721.,16721.
Citation296 F.2d 787
PartiesPHOENIX ASSURANCE COMPANY OF NEW YORK, Appellant, v. APPLETON CITY, Missouri, et al., Appellees.
CourtU.S. Court of Appeals — Eighth Circuit

Clem W. Fairchild, Kansas City, Mo., for appellant. Rodger J. Walsh and Davis, Thomson, Van Dyke, Fairchild & Walsh, were with him on the brief.

Barkley M. Brock, Clinton, Mo., for Appleton City, Mo. Haysler A. Poague, Clinton, Mo., and Poague, Brock & Wall, Clinton, Mo., of counsel, with him on the brief.

James S. Cottingham, Independence, Mo., for appellees Byron B. Crail and American Cast Iron Pipe Co. John S. Newhouse, and Newhouse, Shaffer & Wilson, Independence, Mo., with him on the brief.

Before VOGEL, VAN OOSTERHOUT and BLACKMUN, Circuit Judges.

VAN OOSTERHOUT, Circuit Judge.

Plaintiff Phoenix Assurance Company of New York (Phoenix), a corporate surety writing bonds for compensation, brought this action for declaratory judgment to have its rights and liabilities determined upon a construction bond and a statutory bond it had furnished the City of Appleton City, Missouri (City) on behalf of Reser, d/b/a Continental Construction Company, a contractor who had entered into a written contract to construct a sewage system for the City. The City in a counterclaim and cross-petition asserted that Reser had not completed the contract in accordance with its terms, that the City is entitled to liquidated damages specified in the contract for delay, and to actual damages for the amount necessary to complete the construction, and asked that plaintiff's liability upon its bonds for such damages be established and allowed. The City also prayed that it be allowed penalties and attorneys' fees pursuant to V.A.M.S. § 375.420, for vexatious delay.

Various parties holding claims for labor and material furnished on the project intervened in the action and prayed for establishment of their claims and for judgment against Phoenix upon its bonds for the amounts found due them.

Final judgment was entered determining that Reser had not substantially performed his contract with the City and that Phoenix was liable on its bonds for liquidated damages for delay, actual damages, penalties and attorneys' fees for vexatious delay. The judgment fixes the amount of such damages. The claims of the intervenors were established against Phoenix. Phoenix has appealed from the final judgment. Jurisdiction is based upon diversity of citizenship.

Phoenix asserts points entitling it to a reversal as follows:

"I.
The trial court erred in entering judgment for the defendant on its cross claim and against plaintiff because the contract itself states that the decisions of the engineer shall be final and conclusive on all parties. * * *
II.
The trial court erred in finding and rendering money judgment against plaintiff on defendant City\'s counterclaim. * * *
III.
The court erred in finding for the defendant and against the plaintiff on plaintiff\'s claim for additional sums due from the defendant on account of work performed under the contract. * * *
IV.
The court erred in adjudging that the intervenor Lee Matthews Machinery and Rental Company recover against plaintiff.
V.
The court erred in allowing interest on the claims of certain intervenors against plaintiff."

Said points will be considered in the order stated.

I.

Phoenix contends that the contract between Reser and the City specifically provided that the decision of the City's engineer was to be conclusive as to all parties upon the question of whether the materials and workmanship conformed to the specifications, and that the city engineer approved and accepted the performance of the contract by his letter to the City dated May 20, 1957.

As a result of a pretrial conference, the parties agreed that certain issues of law be determined by the court, leaving the question of amount of damages that might be due either party for later adjudication. The issues thus submitted, as stated by the court, are:

"(1) Were the regulations of the State Division of Health integrated within the terms of the contract so that approval of the construction by that body was necessary before the project could be complete?
(2) Under the terms of the contract was the governing body of Appleton City required to accept the system as complete, or was approval by its engineer binding upon the city?
(3) If approval by the city engineer, Uri Seiden, was binding on the city, did he, in fact, approve the project?"

The court in a memorandum opinion (not reported), dated March 30, 1959, expresses its views upon such issues. The court treated the submission of the above stated issues as a motion for summary judgment on certain issues of liability alone, as contemplated by Rule 56 (c) of the Federal Rules of Civil Procedure, 28 U.S.C.A.

Upon the first issue, the court found that the State Health Department regulations were not expressly made a part of the specifications or the contract, and expressed doubt whether the standards of performance set out in such regulations constitute part of the contract, but found it unnecessary to determine such issue because of its view that the contract called for acceptance by the governing body of the City, and that the City had never accepted the work.

In Missouri and generally, it appears to be well-established that parties to a building contract may agree that a designated person, such as a named architect or engineer, shall determine questions relating to the performance of the contract and the amount due, and that such determination shall be final and conclusive, absent fraud or gross mistake. Martinsburg & Potomac R. R. Co. v. March, 114 U.S. 549, 5 S.Ct. 1035, 29 L.Ed. 255; Kihlberg v. United States, 97 U.S. 398, 24 L.Ed. 1106; United Const. Co. v. City of St. Louis, 334 Mo. 1006, 69 S.W.2d 639; Stiers Bros. Const. Co. v. Moore, Mo.App., 158 S.W.2d 253.

In the cases just cited and in other cases relied upon by Phoenix, the court found that the contracts clearly placed the responsibility for finally determining a disputed issue upon a designated person. Here, the City contends and the court determined that the contract required acceptance by the governing body of the City. Our reading of the contract satisfies us that the contract is ambiguous with respect to the issue of who was to approve the performance.

A contract is ambiguous if it is reasonably susceptible of different tenable constructions. Maritz, Inc., v. ACF-Wrigley Stores, Inc., 8 Cir., 283 F.2d 75, 78; Paisley v. Lucas, 346 Mo. 827, 143 S.W.2d 262, 267.

In the Maritz case, supra, we quoted and applied the rules of construction pertaining to ambiguous contracts as stated by the Supreme Court of Missouri in Veatch v. Black, 363 Mo. 190, 250 S.W.2d 501, 507, as follows:

"`A contract of doubtful meaning will be given a construction which will make it fair and reasonable between the parties and will not give one party an unfair advantage of another. Mecartney v. Guardian Trust Co., 274 Mo. 224, 202 S.W. 1131, 1134(2). "Common sense and good faith are the leading characteristics of all interpretations." Paisley v. Lucas, 346 Mo. 827, 143 S.W. 2d 262, 268(5-7). Consideration is given to the contract as a whole and the fundamental rule for construing its language is to ascertain and give effect to the intention of the parties. Paisley v. Lucas, supra; Larson v. Crescent Planing Mill Co., Mo.App., 218 S.W.2d 814, 819(2). Greater regard is given the clear intention of the parties than the particular words used in attempting to express it. Larson v. Crescent Planing Mill Co., supra; Rickey v. New York Life Ins. Co., 229 Mo.App. 1226, 71 S.W.2d 88, 93. The court considers the relationship of the parties, the subject matter of the contract, the usages of the business, the surrounding facts and circumstances leading up to and attending its execution, and the apparent purpose which the parties were undertaking to accomplish.\'"

In American Indemnity Co. v. Swartz, 8 Cir., 250 F.2d 532, 536, we said:

"The burden is upon the appellant to demonstrate error. To obtain a reversal the appellant must show that the conclusion reached by the trial court as to the interpretation of the contract is irrational, illogical, unsound, or contrary to any local or general law applicable to the interpretation of an insurance contract. Grundeen v. United States Fidelity & Guaranty Co., 8 Cir., 238 F.2d 750, 753."

With the foregoing principles of interpretation before us, we look to the facts in our present case. Standing in isolation the portion of the contract relied upon by Phoenix, which reads:

"The materials and workmanship used in the work herein contemplated shall be subject to the inspection of the Engineer, and his decision as to what conforms to specifications shall be conclusive on all parties, and all condemned materials shall be immediately removed from the vicinity of the work."

lends some support to Phoenix's position. However, as the trial court aptly pointed out, the paragraph immediately following reads:

"Failure or neglect of the Engineer to condemn or reject bad or inferior materials shall not be taken to imply acceptance if it shall become evident before the final acceptance by the Governing Body. The issuance of payment for the construction shall indicate final acceptance of the work. However, the Contractor shall be responsible for any failure which may occur within one year of the date of completion."

Phoenix contends that the qualifying paragraph last quoted applies only to defective materials. The contract when considered as a whole leaves us in serious doubt whether the parties intended to treat defective workmanship in a different manner from defective materials.

The opening paragraph of the contract provides that all work and material shall be "to the satisfaction of the engineer and acceptance by the Governing Body of the City." In a later paragraph it is stated that the contractor will complete the work in...

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