E. J. Albrecht Co. v. New Amsterdam Casualty Co. (164 F.2d 389, 1947)

EVANS, Circuit Judge.

Plaintiff, a contractor, sued a subcontractor’s surety for damages for breach of contract. The subcontractor intervened ps a defendant and filed an answer and a counterclaim. The surety filed an answer advancing a plurality of defenses.

The jury found against plaintiff on its complaint and for . the defendant on his counterclaim giving him a verdict for $15,000. A directed verdict in favor of the surety was entered at the close of the plaintiff’s case, on the ground that the evidence showed there had been a material alteration in the contract without its knowledge or consent.

Briefly, the evidence: In July, 1941, plaintiff contracted with the United States Government for the construction of a size-able channel and rectification, protection project at Tuscarawas River, Massillon, Ohio which project was to be started on ten days’ notice, and be completed in 360 days. Work was actually begun in August, 1941, and completed June 14, 1944.

To complete this contract, plaintiff, on August 29, 1941, entered into a subcontract with defendant, Dushney. Dushney owned diesel and other trucks which were engaged in hauling excavated materials. He had negotiated before this, and completed, contracts with plaintiff, of a similar nature. (For another angle of the parties’ litigation, see E. J. Albrecht Co. v. New Amsterdam Casualty Co., 7 Cir., 163 F.2d 16.)

Defendant furnished the required surety, September 24, 1941, in the amount of $40,-000, and it is upon this bond that this action was predicated.

Defendant’s trucks did a large amount of hauling in the fall of ’41, from September 23 to December 23, at which date there was a cessation of work for the holiday season, and because of adverse weather conditions.

In 1942, Dushney made another contract with plaintiff wherein, as a subcontractor he agreed to excavate materials on a size-able excavation project, at Berlin Center, Ohio. He took his trucks from the Massillon to the Berlin Dam project. Plaintiff and defendant decided plaintiff should hire other truckers to carry on the Massillon work while defendant used his trucks on the Berlin Dam project. The evidence is somewhat conflicting in its details but there is no question but that it was agreed defendant should remain on the Berlin job.

Defendant claims plaintiff said there would be a thousand dollar profit for him in such substitution of truckers, that he would be charged with the cost of the truckers and would receive his "contracted-for credit for materia] hauled. The latter was done.

Defendant had no trucks at the Massillon project after May, 1942. The aforementioned substitute truckers worked there in ’42.

In the spring of ’43 the real trouble began. Plaintiff contends it repeatedly requested defendant to bring his trucks to Massillon. An impasse was reached, which according to defendant centered around a controversy over the building of a temporary (or completion of a permanent) bridge at Walnut Road in Massillon. This bridge, defendant says, would have permitted the use of his larger diesel trucks, which the city police had allegedly banned from traversing the city streets, in carting the dirt from one side of the river to the other.

Plaintiff, on the other hand, contends that the contract provision for the construction of a bridge was a matter wholly controlled by its decision. Plaintiff also points out that such a temporary bridge would have cost plaintiff a substantial sum, $7,000, as the river was 200 feet wide at the point in question. A temporary bridge, such as it had theretofore built for $300 at another —a narrow— point in the river, was out of the question here. The substitute truckers performed the haulage in smaller trucks over the city streets. Defendant argues that the use of smaller trucks increased the cost of hauling.

The plaintiff sought $19,906.61 damages, arriving at that sum in this manner:

$92,660 — cost to plaintiff of work done, less

72,752

$19,906.61

The $72,752 was the difference between $88,911.71, which Dushney would have earned under his subcontract, and $16,158.-32 which plaintiff paid out in defendant’s behalf, in the execution of the work.

Defendant’s amended counterclaim was for $35,000. This sum was stated to represent reimbursement for expenditures and a larger sum for lost profits. Precise itemization of the latter item does not appear. At this trial, however, defendant listed expenses in excess of $21,000 and an expected “value” (profit) of his subcontract at $40,500.

The evidence is conflicting as to conversations and negotiations had between plaintiff and Dushney in 1943. Plaintiff stresses its repeated requests, by phone and by letter, for completion of the project by Dushney. Dushney, on the other hand, states he did not receive some of the letters; that he made several visits to the project (sometimes on Sunday) to see how the work, and the bridge, were progressing. He contends he was entirely willing at all times to co-operate in completing the work. In view of the conflicts in the oral testimony we herewith copy parts of letters which passed between the parties.

On the issue presented by the counterclaim it appears that Dushney relies largely, if not entirely, upon plaintiff’s failure to build a bridge.

On this subject, the following pertinent excerpts appear in their contract:

“Bridges and railroad crossings de.emed necessary by the contractor will be constructed by the contractor without cost to the subcontractor.”

“The selection of the excavation areas and disposition of the excavation material shall be determined by the contractor and the sub-contractor agrees to abide by the decision so made.” :

The subcontractor also:—

“agrees and represents that he has inspected and familiarized himself with the premises in connection with which the work covered by this subcontract is to be performed * * * and further agrees and represents that he has examined and familiarized himself with the general contract between the contractor and the United States * * *

“The subcontractor shall maintain all haul roads including city, state and county roads used by him and shall repair any city, state or county road damaged by his operation * *' *

“The work of constructing and removing temporary roads will be performed by the subcontractor without cost to the contractor insofar as the subcontractor’s trucks and road maintenance equipment are needed for this temporary construction. * * *”

A permanent bridge structure had been begun by plaintiff at Walnut Road, over which Dushney believed a temporary deck could be laid so that his diesel trucks might be economically employed in the work. But the bridge was never brought to the stage of completion where he could have utilized it, and that was what he had been waiting for.

Plaintiff states that on pressing Dushney for immediate production of the trucks for use, Dushney finally said that some were on their way. When they failed to arrive he informed plaintiff the trucks had been involved in an accident. They never “showed up.” Plaintiff decided to use the same truckers who had substituted for Dushney in ’42, again in ’43 and ’44. The project was finally completed but without further help from Dushney.

The contested issues in this court are:

(1) The correctness of the directed verdict in favor of the surety company.

(2) The refusal of the trial court to direct a verdict in favor of the plaintiff on the counterclaim and the vulnerability, for lack of .evidence, of the jury’s verdict in defendant’s favor on the counterclaim. Plaintiff insists that its alleged obligation (upon which defendant’s counterclaim is predicated) was, under the contract, dependent on the good faith of plaintiff’s determination that a bridge was not needed.

(3) The validity of the jury’s verdict in defendant’s favor on its counterclaim, in the face of defendant’s contention that the contract was terminated. On the hypothesis of its not having expired, plaintiff argues there was no default and no damage.

(4) Trial errors, including rulings on evidence, instructions to jury, etc.

On the issue presented by the counterclaim it appears that Dushney relies largely, if not entirely, on plaintiff’s failure to build a bridge. On this subject the parties contracted “Bridges and railroad crossings deemed necessary by the contractor will be constructed by the contractor without cost to the subcontractor.”

Notwithstanding this language, we agree with the District Judge that the words of the contract “deemed necessary by the contractor” did not permit plaintiff whimsically to refuse to build a bridge. Its action was subject to the test of its fraud or bad faith in reaching its decision. If in bad faith, it refused to build a bridge for the subcontractor, it could not escape liability because of the words of the contract “deemed necessary by the contractor.” National Grain Yeast Company v. City of Crystal Lake, 7 Cir., 147 F.2d 711; Fidelity Fuel Co. v. Martin Howe Coal Co., 7 Cir., IS F.2d 470; Lewis Mfg. Co. v. Snyder, 6 Cir., 37 F.2d 299; Shepherd v. Union Central Life Ins. Co., 5 Cir., 74 F.2d 180; Williston on Contracts, (Rev’d Ed.) Sec. 675A; American Jurisprudence, “Contracts,” Sec. 340.

This language, however, made the plaintiff the judge of the necessity of building bridges. As to the necessity or advisability •of building any bridge, its decision was final and beyond dispute except for the single limitation that its determination must not be motivated by bad faith or in fraud of Dushney.

The importance of this distinction between reasonable action and bad faith action appears when we examine the evidence bearing on this issue. The court ruled, after hearing argument, that whatever discretion was vested in the plaintiff with respect to the building of a bridge would have to be reasonably exercised; that the subcontractor and surety could show what the conditions were and could contend that the discretion was not exercised reasonably.

We are convinced that there was no evidence of bad faith or fraudulent action on the part of the plaintiff. There was some evidence indicating that the expenditure of seven thousand dollars was unreasonable in view of the shortened distance which the material would have to be hauled.

And there is dispute as to the cost of a bridge. Also there was certainly sharp dispute over the usability of part of the route if the bridge were constructed and rain fell to make the new filled-in dirt track impassible. This is the point over which the parties differed. We might assume that they differed honestly as to the advisability of a bridge. But that is not the question here presented. The parties settled that question when they made their agreement.

They made their own contract. They did so after going over the situation personally, viewing the premises and considering the routes which could be taken to carry the material which was to be hauled.

They agreed in writing that the contractor, the plaintiff, was to be the sole judge of the necessity of the construction •of a bridge. It was the contractor’s judgment which was conclusive, subject only to bad faith or fraud on its part. Mistake