Six Companies v. Joint Highway Dist. No. 13

• Decision Date: 25 April 1940
• Docket Number: No. 9113.,9113.
• Parties: SIX COMPANIES OF CALIFORNIA et al. v. JOINT HIGHWAY DIST. NO. 13 OF CALIFORNIA.
• Court: U.S. Court of Appeals — Ninth Circuit

110 F.2d 620 (1940)

SIX COMPANIES OF CALIFORNIA et al. v. JOINT HIGHWAY DIST. NO. 13 OF CALIFORNIA.

No. 9113.

Circuit Court of Appeals, Ninth Circuit.

March 14, 1940.

Rehearing Denied April 25, 1940.

COPYRIGHT MATERIAL OMITTED

Paul S. Marrin, Thelen & Marrin, and DeLancey C. Smith, all of San Francisco, Cal., and Eugene E. Trefethen, of Oakland, Cal., for appellant Six Companies.

Jewel Alexander, W. C. Bacon, and Redman, Alexander & Bacon, all of San Francisco, Cal., for appellant Surety Companies.

Archibald B. Tinning, of Martinez, Cal., and T. P. Wittschen, of Oakland, Cal., for appellee.

Before DENMAN, MATHEWS, and HEALY, Circuit Judges.

HEALY, Circuit Judge.

Six Companies of California, a Nevada corporation, contracted with Joint Highway District No. 13 of the State of California to construct the Broadway Tunnel, near Oakland. For convenience these parties will be referred to as the Contractor and the District. After part performance the Contractor attempted to rescind and brought suit to recover the reasonable value of materials and labor theretofore furnished, asserting that the District had breached the contract and had misrepresented the nature of the country through which the tunnel was to be driven.

The District answered, alleged a wrongful abandonment of the contract, and by cross complaint sought damages against the Contractor and its sureties. The court found on all issues in favor of the District, awarding damages in a large sum on the cross complaint. The Contractor and its sureties appeal.

The contract, dated June 4, 1934, was for the construction of two parallel tunnels, together with approaches and appurtenant structures, the tunnels to penetrate the Coast Range between Alameda and Contra Costa counties.¹ Prior to bidding the Contractor was furnished with a copy of the plans and specifications. The specifications, which were made a part of the contract, invited attention to a geological report on file in the office of the District Engineer. The Contractor examined this report and copied a part of it. It also copied an estimate of the cost of the work prepared by the District Engineer, and inspected a test bore and test pits on the ground.

The contract required completion of the work within 720 days from its date; but the specifications contained a clause entitling the Contractor to an extension of time under conditions presently to be stated. There was a provision for liquidated damages in the amount of $500 per day in the event of delay. Time was made of the essence.

The Contractor met with difficulties which put it behind schedule. Slides occurred during the construction of an approach, and other incidents delayed the commencement of the tunnel work. There was delay in getting the proper equipment and trouble in working out an efficient method of pouring concrete. The Contractor had assumed that for the major portion of the distance to be tunneled the country rock would hold without artificial support until the concrete lining was installed in the bores. However, unstable and swelling ground was encountered to the extent that constant timbering was necessary and all timbers had to be left in place. In April or May, 1935 the Contractor complained to the District Engineer that the work had been delayed by bad ground and rainy weather. Shortly thereafter it requested an extension of time, but the request was denied. In August of that year it again requested an extension and claimed additional compensation because of the difficult ground conditions.

On the day the latter request was filed a cave-in occurred which led to a stoppage of the work by order of the state Industrial Accident Commission. After work was resumed a second cave-in caused a further interruption. Finally, on May 11, 1936, the Contractor filed its last application for an extension, which was denied three days later.

On June 10, 1936 the District delivered a check representing a progress payment for the month of May. The amount certified as due by the District Engineer was actually $3500 more, but the difference was withheld as liquidated damages for the seven days' delay occurring subsequent to May 24, 1936, the date fixed for final completion of the work. The Contractor returned the check and by letter to the District purported to rescind, one of the stated grounds for rescission being the retention of the $3500. On the same day — June 13 — the Contractor quit work, at which time the project was about 70% complete. The District promptly gave notice that unless work was resumed within three days the action would be regarded as an abandonment. Some two weeks thereafter the Contractor commenced this suit. Later the District let new contracts for the completion of the project and in December, 1936 filed its cross complaint.

The Contractor predicates its claimed right to rescind on three grounds: (a) that the retention of the liquidated damages, together with the implied purpose of the District to make further deductions for delay, was a material breach of the contract; (b) that the District misrepresented the nature of the ground through which the tunnels were to be driven; and (c) that the District breached the contract by refusing to perform certain work in setting lines and grades. All these grounds were enumerated in its rescinding letter.

(a) With respect to the withholding of the liquidated sum, it is urged that the District failed to obtain its engineer's opinion whether the work had been unavoidably delayed;² and that, assuming the engineer had ruled on the subject, his opinion was arbitrary and capricious, or so grossly mistaken as not to be a binding determination.

The trial court found that the delays were not attributable to Act of God or to stormy or inclement weather, and that they were not unavoidable. Also that the District Engineer had in fact passed on the Contractor's claimed right to an extension, and that in ruling adversely the engineer acted fairly and honestly in the exercise of his judgment. These findings are supported by the evidence.

The question whether there were unavoidable delays was one committed by the contract to the judgment of the engineer. His judgment may be impeached for fraud only, or for mistake so gross as to amount to fraud. American Hawaiian, etc., Co. v. Butler, 165 Cal. 497, 504, 513, 133 P. 280, 286, Ann.Cas.1916C, 44; Connell v. Higgins, 170 Cal. 541, 150 P. 769; Gray v. Cotton, 166 Cal. 130, 134 P. 1145. See also, United States v. Gleason, 175 U. S. 588, 20 S.Ct. 228, 44 L.Ed. 284; Northern Pac. Ry. Co. v. Twohy Bros. Co., 9 Cir., 95 F.2d 220, 225. There is persuasive evidence, most of it coming from the Contractor's own witnesses, that by the use of proper methods and equipment the delay could have been avoided. Clearly, no grounds exist for holding that the decision of the engineer was either fraudulent or palpably unreasonable.

It is argued that, because of the stoppage order of the state authorities following the cave-ins, and in line with a local statute,³ the delay in performance was excused by operation of law. The court found, however, that any delays which occurred were caused by the Contractor's own acts; and there is ample support for the holding that the cave-ins were due to the Contractor's incompetence. We think the state statute has no application to a situation like this. See Restatement, Contracts, Vol. 2, § 458.

It is urged that the delay was excused under the modern doctrine of impossibility of performance. We find no merit in the argument. The ground conditions encountered were not vitally different from those which the Contractor should reasonably have anticipated. See Williston on Contracts (Rev.Ed.), Vol. 6, § 1931, p. 5410; Restatement, Contracts, Vol. 2, §§ 454, 456.

(b) The Contractor asserts that it was misled by statements in the geological report to the effect that the rock structures were favorable from an engineering standpoint. It refers also to provisions in the specifications which it claims gave rise to a similar belief. On this issue the trial court properly found that the District made no misrepresentations; that the Contractor assumed the risk of unfavorable ground conditions; and that even if the facts had been misrepresented the point was waived.

The contract stipulated that there was no guaranty of the accuracy of the geological report, and that bidders were not relieved of the duty of making their own investigations; and that the submission of a bid should be considered as prima facie evidence that the bidder had examined the site and had satisfied himself as to the conditions. Also that the Contractor was skilled in the trade while the District was not.

Moreover, it affirmatively appears that the Contractor was under no illusions concerning the possible difficulties to be met with in tunneling the Coast Range, and that it was not misled by the geological report or by any provision in the contract. Indeed, there was no claim of misrepresentation until more than a year after the work began. It was not until August, 1935 that the Contractor claimed the right of rescission on this ground; and even then it waited almost a year longer before attempting to rescind.

(c) With respect to the claim that the District breached the contract by failing to indicate lines and grades, the evidence shows that the District maintained the required monuments on a center line following within 100 to 300 feet of the core. From the end of this line the Contractor was compelled to extend the lines and grades into the drifts. It several times complained that the District was not fulfilling its obligation in this respect, but the latter as consistently maintained that it was doing all the contract required.

We may assume, without deciding, that the District was at fault in failing to continue the lines into the drifts. From the commencement there had been an honest dispute in respect of this matter, and remembering the magnitude of the...