Terminal Const. Corp. v. Bergen County Hackensack River Sanitary Sewer Dist. Authority, s. A--187

• Decision Date: 12 May 1954
• Docket Number: Nos. A--187,A--242,s. A--187
• Citation: 34 N.J.Super. 478,112 A.2d 762
• Parties: TERMINAL CONSTRUCTION CORPORATION, a corporation of New Jersey, Plaintiff-Respondent and Cross-Appellant, v. BERGEN COUNTY HACKENSACK RIVER SANITARY SEWER DISTRICT AUTHORITY, a bodycorporate, now known as Bergen County Sewer Authority, a corporation, Defendant-Appellant and Cross-Respondent. . Appellate Division
• Court: New Jersey Superior Court — Appellate Division

Page 478

34 N.J.Super. 478

112 A.2d 762

TERMINAL CONSTRUCTION CORPORATION, a corporation of New Jersey, Plaintiff-Respondent and Cross-Appellant, v. BERGEN COUNTY HACKENSACK RIVER SANITARY SEWER DISTRICT AUTHORITY, a bodycorporate, now known as Bergen County Sewer Authority, a corporation Defendant-Appellant and Cross-Respondent.

Nos. A--187, A--242.

Superior Court of New Jersey Appellate Division.

Argued Feb. 15, 1954.

Decided May 12, 1954.

Aaron Heller, Passaic, for plaintiff-respondent and cross-appellant (Heller & Laiks, Passaic, attorneys).

Walter Jones, Hackensack, for defendant-appellant and cross-respondent.

Before Judges EASTWOOD, JAYNE and FRANCIS.

The opinion of the court was delivered by

FRANCIS, J.A.D.

Prior to August 12, 1949, the appellant Bergen County Sewer Authority decided to have erected a sewage treatment plant and system in Little Ferry, New Jersey. The project was broken down into 18 separate parts and bids for the construction of the individual parts were sought by public advertisement.

One of the parts covered the construction of the sewage treatment plant. This was known as Contract No. 1. Elaborate information with respect to the nature of the work called for as well as of the form of the contract to be entered into was made available to prospective bidders through a document entitled 'Information for Bidders, Contract, Bonds, Certificate, Specification, Forms of Proposal for the Construction of a Portion of the Joint Sewage Works for the Overpeck Valley, Bergen County, New Jersey.' Among other things, the bidders were advised that they must inform themselves fully of the 'conditions relating to the construction and labor under which the work is now or will be performed'; also that they would be presumed to have inspected the site and to have read and become thoroughly familiar with the contract documents and that they must acquire and rely exclusively upon their own information as to the physical conditions and in particular the subsurface conditions.

Terminal Construction Corporation and Young Foundation Corporation jointly were the successful bidders, and on August 12, 1949, they executed the contract with the Authority. Subsequently the Young Corporation assigned its interest therein to Terminal.

The contract provided, among other things, that he engineer (which term was declared to mean Bogert-Childs Engineering Associates, or their duly authorized representatives),

'shall make all necessary explanations as to the meaning and intent of the specifications and drawings, shall give all orders and directions contemplated by the contract; * * * shall determine in all cases the amount, quality, acceptability and fitness of the several kinds of work and materials which are to be paid for; shall determine all questions in relation to said work and the construction thereof, and shall decide in all cases every question which may arise relative to the fulfillment of this contract on the part of the contractor. His estimate and decision shall be final and conclusive upon the contractor, except as provided by Article I, and in case any question shall arise between the parties hereto, touching this contract, such estimate and decision shall be a condition precedent to the right of the contractor to receive any money under this contract. * * *.'

During the progress of the work disputes arose between Terminal and Bogert-Childs Associates, and between Terminal and the resident engineer assigned to the project as the representative of Bogert-Childs Associates. These disputes eventuated in the litigation presently under review.

The original complaint in the action was filed on September 10, 1951, while the work was still in progress. It contained two counts, the first one of which may be described generally as a claim arising out of alleged breach of contract; the second one was on a book account.

On February 11, 1952, an amended complaint was filed reciting that the work was still uncompleted and that further moneys had become due. The issues presented by the two counts remained the same.

Finally, about a year after the institution of the action, a second amended complaint was filed. It is a much more elaborate one than either of the others and contained five counts.

The first count charges that the work was completed on November 1, 1951, at which time Terminal became entitled to a balance due under the contract of $294,913.38, which the Authority had refused to pay. For the first time an allegation was included that the refusal to pay was actuated by the fraud of the Authority and the engineer referred to in the contract. The specific charge appearing in the complaint is:

'10. Defendant and the engineer as referred to in the contract, wilfully, illegally, fraudulently and contrary to the contract, refused to approve payments, all to the damage of the plaintiff.'

The same language appears in each of the five counts. No specification of the nature of the fraud is set out. Vide R.R. 4:9--1. Nor was it set out any more definitely in the pretrial order.

The second count alleges that Terminal performed certain extra work at the authorization of the agent of the Authority under an agreement to pay therefor. And a recovery is sought in the amount of $216,535.59 which it is said the Authority and its engineer had illegally and fraudulently refused to approve.

The third count alleges that the Authority by its engineer ordered the plaintiff to perform wall concrete work contrary to the contract and contrary to plaintiff's schedule of operations, as the result of which damages in the amount of $90,000 were suffered, payment of which has been refused illegally and fraudulently.

The fourth count charges that the Authority by its engineer ordered plaintiff to perform the slab concrete work in a manner contrary to the contract and contrary to plaintiff's schedule of operations. As a result damages in the amount of $39,560 were sustained which the defendant had illegally and fraudulently refused to pay.

The fifth count alleges that the Authority its engineer requested 'changes, additions and modifications in the contract and specifications,' which plaintiff undertook. As the result of this 'extra work' a recovery of $6,023.88 is sought because payment had been illegally and fraudulently disapproved.

The Authority admitted that a certain balance was due under the contract to Terminal, a tender of which had been made and refused. However, by stipulation during the course of the trial, payment was accepted without prejudice.

Further obligation was denied and in addition the Authority asserted that if Terminal were entitled to any recovery, there should be deducted $22,273 for defective work, and $23,700 representing liquidated damages under the contract for delay in completion of 237 days at the agreed rate of $100 per day. This total sum of $45,973 had already been deducted from the final payment made to Terminal. Consequently it was necessary at the trial to submit to the jury for separate finding the problem of the amount of the set-off, if any, to which the Authority was entitled.

After a protracted trial, during which the third and fourth counts of the complaint were dismissed by the court, the jury returned a verdict in favor of Terminal on its claims in the amount of $414,257.71. In addition, a special finding was made that only $5,786.39 of the deducted $45,973 should be allowed. As a result the difference of $40,186.61 was added to the verdict for Terminal and a total judgment of $454,444.32 was entered in its favor.

The Authority now appeals from the adverse judgment and Terminal has cross-appealed from the dismissal of the third and fourth counts of its complaint.

A major factor at the trial involved the nature and extent of the authority conferred by the parties upon the engineer under the clause of the contract already recited. It will be observed that by their voluntary agreement they conferred upon Bogert-Childs Engineering Associates or their duly authorized representatives authority to make final and conclusive decisions with respect to the meaning and intent of the specifications and drawings, the amount, quality, acceptability and fitness of the several kinds of work which were to be paid for, all questions in relation to the work and the construction thereof and relative to the fulfillment of the contract by the contractor. And more specifically it was agreed that as to all questions 'touching the contract' the estimate and decision of the engineer would be a condition precedent to the right of the contractor to receive any money under the contract.

Such a stipulation is a common one in modern construction contracts and decisions made thereunder by the person named have long since been regarded as dispositive of disputes between the parties, in the absence of clear proof of fraud upon he part of such person. T. Foster Callahan, Inc., v. Commissioners, etc., Union Twp., 102 N.J.L. 705, 133 A. 408 (E. & A.1926); Landstra v. Bunn, 81 N.J.L. 680, 80 A. 496 (E. & A.1911); Sheyer v. Pinkerton Construction Co., 59 A. 462 (N.J.E. & A.1904, not in official reports); Bradner v. Roffsell, 57 N.J.L. 412, 31 A. 387 (E. & A.1894); Chism v. Schipper, 51 N.J.L. 1, 16 A. 316, 2 L.R.A. 544 (Sup.Ct.1888). Fraud in this connection has a broader connotation than is ordinarily implied. In addition to its ordinary significance, in construction contracts it includes arbitrary action and gross mistake. 9 Am.Jur., Building and Construction Contracts, § 34; Restatement of the Law, Contracts, § 303.

Where such ground is not established, failure to obtain the engineer's certificate or a favorable decision from him precludes recovery. However, when fraud is proved, the legal significance thereof is that the necessity for favorable action of the engineer is eliminated as a condition precedent to the maintenance of the suit, but the contractor still has the burden of demonstrating...