
    SAVAGE CONSTRUCTION COMPANY v. THE UNITED STATES.
    [No. 28682.
    Decided March 4, 1912.]
    
      On the Proofs.
    
    The contract is for construction work connected with the Illinois and Mississippi Canal. The defendants’ officer annuls the contract. The court find as an ultimate fact that “ the annulment of the contract at the time and under the circumstances set forth herein loas so capricious and erroneous as to imply had faith on the part of the engineer officer in charge." The principal questions involved relate to the damages the claimant should recover.
    I.The decision of the engineer officer in charge, in the absence of fraud, or such gross error as to imply bad faith, it is well settled by a long line of decisions, will control in matters wherein he is authorized to exercise his judgment. But where prior delinquencies on the part of the contractor have been canceled by an extension of the contract time the engineer can not go back and annul the contract therefor.
    II.Where the work was under suspension by reason of freezing weather and the admonition of the engineer in charge, the question whether the contractor had failed to prosecute the work diligently had not arisen; and the annulment of the contract based on an assumption that the contractor had so failed or would fail was so capricious, unwarranted, and erroneous as to imply bad faith on the part of the engineer.
    III. The decision of an engineer officer in charge as to the quality of material is final when properly exercised, but it can not be so exercised in advance of the work as to forestall his judgment when the materials are actually furnished.
    IV. Where the suspension of work is not only by reason of the severity of the weather but also by reason of the notice and admonition of the engineer officer in charge, the contractor can not be charged with want of diligence and the engineer can not exercise his judgment.
    V.There can be no recovery for profits where the evidence indicates that there would have been none. But where the contractor was without fault and the unauthorized annulment of the contract prevented him from completing the work he is entitled to recover retained percentages and for losses suffered in having to dispose of materials on hand at a disadvantage.
    
      
      The Reporters' statement of the case:
    The following are the facts of this case as found by the court:
    I. October 12, 1908, the claimant and the United States, through Capt. C. S. Riche, Corps of Engineers, United States Army, pursuant to an advertisement by the defendants and the bid of the claimant in response thereto, entered into a contract whereby, in conformity with the advertisement and specifications attached thereto and made a part of the petition herein, the claimant agreed, at the prices therein stated, aggregating $48,146.99, “to furnish all labor, appliances, and material, and to excavate channels for watercourses and construct foundations for abutments and piers for four aqueduct bridges along miles 31, 36, 44, and 51, western section Illinois and Mississippi Canal,” said work to be completed on or before September 28, 1904, which contract was approved by the Chief of Engineers October 30, 1903.
    The aqueduct bridges to be constructed were numbered 4, 5, 6, and 7, and were located on miles 31, 36, 44, and 51 of said canal, respectively.
    II. The claimant, owing to unfavorable weather, did not begin work under the contract until April 21, 1904, and up to September 24, 1904, had performed about 26 per cent of the entire work, when the contractor, being unable, by reason of an insufficient force, to complete the work within the contract period, without any fault on the part of the Government, applied for an extension of time to July 1, 1905, which extension was granted October 7, 1904, with the approval of the Chief of Engineers, with the express understanding that all increased cost to the United States by reason of such delay, to be determined by the engineer in charge, was to be deducted from payments due or to become due the contractor.
    III. Under the contract thus extended the claimant, with the like force, continued work until about December 31, 1904. Prior thereto, November 14, 1904, the contractor had been admonished by the engineer in charge, on the recommendation of his assistant, that any concrete work done in freezing weather would be done at its own risk, and that if such work should show injury when the next working season opened the same would have to be replaced at its own cost.
    The contractor continued to work, though at a disadvantage owing to unfavorable weather, until December 31, 1904, when, owing to still more severe weather and the admonition of the engineer in charge, as aforesaid, the contractor suspended work, of all which the engineer officer in charge was advised.
    Between the time of the extension of the contract, October 7 to December 31, 1904, the contractor did about 15 per cent of the entire work, or in all, under the contract, from the beginning of the work to the later date, about 41 per cent of the entire work, of which at aqueduct No. 5 the work was about half finished; at No. 6, a little less than half finished, while at No. 7 the work was practically completed. At No. 4, the most difficult of construction, no work whatever had been done, and this condition continued up to the date of the annulment of the contract, hereinafter referred to.
    IV. On February 18, 1905, while the work was suspended, as set forth in Finding V, the engineer in charge notified the contractor of the decision of the Government to procure the necessary appliances, material, and labor to construct aqueduct No. 4, on which no work had been done, charging the expense thereof to the contractor under paragraph 70 of the specifications, leaving, however, aqueducts Nos. 5, 6, and 7 in the hands of the contractor. On March 2, 1905, before any response had been received from the claimant to the communication of February 18, 1905, the engineer in charge sent to the contractor specifications of material which the Government proposed to purchase in doing the work at aqueduct No. 4, and giving the contractor an opportunity to suggest names of dealers from whom purchases of such material could be made, at the same time informing the contractor that no bid would be received from it, to all which the contractor on March 15, 1905, answered, denying the authority of the engineer in charge to take over the work as proposed, and, further, that nothing could be done until the season was further advanced, and at the same time notifying the engineer in charge that all materials necessary for the work under the contract had been purchased and would be on the ground with a sufficient force, of men to complete the work when the season was so that work could be proceeded with. Immediately upon receipt of that letter the engineer in charge recommended to the Chief of Engineers the annulment of the contract on the ground that the contractor would not be able to finish the work within the time stated in its application for extension (July 1, 1905); and on March 18, 1905, the Chief of Engineers authorized the annulment of the contract, which was done, of which action the contractor was notified.
    In the notice aforesaid to the claimant company it is in substance recited that the claimant knew others had the contract for the superstructure of the aqueducts for which the claimant had the contract for the foundation and that the work on the superstructure was delayed by reason of the delays of the claimant company, though such delay was, in the main, prior to the extension of said contract recited in Finding II and thereafter was necessitated by reason of unfavorable weather as set forth in Finding V.
    Upon the annulment of the contract the Government completed the unfinished work at a cost to it in excess of the contract price, and subsequently brought its action in the Circuit Court of the United States for the Northern District of Illinois against the claimant company and its surety, the National Surety Co., on the bond which had been given by them in the sum of $10,000 for the faithful performance of the contract so entered into by the claimant company with the Government, in which case a jury was waived, and without service of process on the claimant judgment was rendered October 31, 1911, against the National Surety Co. alone for the sum of $7,500 and the cost of suit. The cause as to the claimant company was continued for service, no further action therein being shown.
    
      Y. From the close of work in December, 1904, until March 18, 1905, when the contract was annuled, no active work upon the foundations for the aqueducts was practicable, owing to unfavorable weather; and other than to care for the plant and arrange for materials no work was done during that period. The claimant had theretofore contracted for the materials and appliances necessary to complete the work, and had some material on hand, as set forth in the next succeeding finding, and had the contractor been permitted to proceed with the work the rest of the materials and appliances so purchased could have been delivered on the ground and the work completed within the extended period (July 1, 1905), though at a loss, or without any profit, owing to the lowness of the claimant’s bid, which was about 30 per cent less than the bid of each of two other persons for the same work.
    VI. At the time of the annulment of the contract the claimant company had on hand a large amount of materials for use in the work which the engineer in charge offered to take and use so far as same conformed to the specifications, thereby diminishing, under paragraph 4 of the contract, the cost of completing the work to the contractor on the theory of its liability therefor. The contractor refused to permit the engineer in charge to so use such materials, but offered to sell the same to the Government for cash, which the engineer in charge declined, on the ground that the claimant was a failing contractor.
    The material having been procured for the particular work was at the time and place of little value for anything else, and under the stress of such circumstances the claimant, after selling same to the best advantage, suffered a loss thereon of $4,690.91.
    VII. At the time of the annulment of the contract, March 18, 1905, the contractor had been paid for the work done by it the sum of $16,974.72., and the United States had retained and had in its possession, and still holds, $1,886.08 as retained percentages under paragraph 33 of the specifications, or in all for the work done $18,860.80, or a fraction less than 40 per cent of the contract price.
    
      VIII. At aqueduct No. 5 the level for the excavation was correctly given by the assistant engineer in charge, under paragraph 40 of the specifications, and the claimant excavated to that point. In driving the piles the earth swelled between the pile heads, and the claimant to complete that part of the work was required to excavate 500 yards of earth between the pile heads by hand at a cost to it of $1.50 per yard, or $750, which amount was reasonable if the claimant is entitled to recover therefor.
    IX. At aqueduct No. 5, 80.5 cubic yards of natural cement concrete were used under paragraph 58 of the specifications. In making this, 69.33 cubic yards of gravel and 22.75 cubic yards of crushed stone in lieu of pebbles were voluntarily used by the claimant, with the consent of the engineer in charge, in order to enable it to complete the work, and the same was paid for under the contract as natural cement concrete made with pebbles or gravel at $6.20 per cubic yard. If same should be paid for as natural cement concrete made with crushed stone at $6.50 per cubic yard, which was reasonable, there would be due the claimant the sum of $24.15.
    X. The cost of inspection chargeable to the claimant during that portion of the extended period from September 28 to December 31, 1906, when the claimant was engaged in work, was $332.36.
    XI. Upon the foregoing findings of fact the court finds' the ultimate facts, so far as they are questions of fact, that the annulment of the contract at the time and under the circumstances set forth herein was so capricious and erroneous as to imply bad faith on the part of the engineer officer in charge and, therefore, in violation of the claimant’s rights under the contract, to its damage, as found.
    XII. After the annulment of the contract the Government completed the unfinished work thereunder at a total cost to it, including $332.36 increased cost of inspection during the extended period, as provided in Finding II, of $45,386.83, or $12,201.87 in excess of the amount which the Government under the contract would have had to pay, exclusive of the retained percentages, had the contract work been completed by the claimant. In said amount of loss there is included expenditures for machinery of various kinds with which to do the work which, when completed, belonged to the Government, the value of which is not shown, nor is the value of the use thereof in completing the work shown.
    
      Mr. William B. King for the claimant. - Messrs. George A. and William B. King were on the brief.
    
      Mr. F. W. Gollins (with whom was Mr. Assistant Attorney General Thompson) for the defendants.
   Peelle, Ch. J.,

delivered the opinion of the court:

This action arises out of the annulment of a contract entered into by the claimant and the Government through Capt. C. S. Riche, Corps of Engineers, United States Army, whereby the claimant company agreed “ to furnish all labor, appliances, and material, and to excavate channels for watercourses and construct foundations for abutments and piers for four aqueduct bridges along miles 31, 36, 44, and 51, western section Illinois and Mississippi Canal,” the work to be completed by September 28, 1904, which contract was approved by the Chief of Engineers October 30, 1903; buc owing to unfavorable weather work thereunder was not commenced until April following, and from that date up to September 24, 1904, the claimant had performed only about 26 per cent of the entire work, and by reason thereof it asked for an extension of the contract to July 1, 1905, which was granted with the approval of the Chief of Engineers.

Under the extended contract the claimant company continued to work up to December 31, 1904, during which time it performed about 15 per cent additional work, or in all under the contract 41 per cent, thereby earning $18,860.80 (a fraction less than 40 per cent of the contract price), which was paid, less 10 per cent deduction therefrom as stated in Finding YII. The contractor was admonished in November by the Chief of Engineers that any concrete work done in freezing weather would be at its own risk, and if found unstable in the spring would have to be done over at the contractor’s cost. The work continued, however, as before stated, until December 31, 1904, when, owing to the severity of the weather, work was suspended. Of ail the work done, aqueduct No. o was about half finished; at No. 6, a little less than half, while at No. 7 the work was practically completed. At No. 4, the most difficult of construction, no work whatever had been done up to the date of the annulment of the contract hereinafter referred to.

From the close of work December 31, 1904, until the annulment of the contract the condition of the weather was such that no work could be done, yet the engineer in charge notified the contractor February 18, 1905, that the Government had decided under paragraph 70 of the specifications to procure the necessary appliances, materials, and labor therefor, and to construct aqueduct No. 4, leaving the claimant to complete the other aqueducts, to which the contractor responded March 15, denying the officer’s authority so to do, and informing him that all the appliances and materials necessary to complete the work had been purchased and that same would be on the ground when the season opened and the work completed within the extended period. Immediately upon receipt of this information the officer abandoned the taking over of the work at aqueduct No. 4, and in lieu thereof, notwithstanding the weather conditions were the same, he recommended the annulment of the contract.

The findings show that had the contractor been permitted to proceed with the work the same would have been completed within the extended period, but at a loss owing to the lowness of its bid, which was about 30 per cent less than each of the bids of two other persons for the same work.

The claimant’s contention is that the annulment under the conditions stated was capricious and in violation of the contract, and therefore without warrant in law. With this contention we agree.

The provision of paragraph 4 of the contract, upon which the Government grounds its right to annul the same and charge to the contractor the cost of completing the work in excess of the price agreed to be paid to the contractor, reads as follows:

“4. If, in any event, the party of the second part shall delay or fail to commence with the delivery of the material or the performance of the work on the day specified herein, or shall, in the judgment of the engineer in charge, fail to prosecute faithfully and diligently the work in accordance with the specifications and requirements of this contract, then, in either case, the party of the first part, or his successor legally appointed, shall have power, with the sanction of the Chief of Engineers, to annul this contract by giving notice in writing to that effect to the party (or parties, or either of them) of the second part, and upon the giving of such notice all payments to the party or parties of the second part under this contract shall cease, and all money or reserved percentage due or to become due the said party or pai’ties of the second part by reason of this contract shall be retained by the party of the first part until the final completion and acceptance of the work herein stipulated to be done; and the United States shall have the right to recover from the party of the second part whatever sums may be expended by the party of the first part in completing the said contract in excess of the price herein stipulated to be paid the party of the.second part for completing the same, and also all costs of inspection and superintendence incurred by the said United States, in excess of those payable by the said United States during the period herein allowed for the completion of the contract by the party of the second part; and the party of the first part may deduct all the above-mentioned sums out of or from the money or reserved percentage retained as aforesaid; and upon the giving of the said notice the party of the first part shall be authorized to proceed to secure the performance of the work or delivery of the materials, by contract or otherwise, in accordance with law.”

By the terms of the contract the authority to annul the same depends, so far as material here, upon whether the contractor “in the judgment of the engineer officer in charge” failed “to prosecute faithfully and diligently the work” in accordance therewith.

The failure to complete the work within the original contract period, we have found, was in effect the fault of the contractor; but the contract having been extended, said failure, though the same might have been considered by the officer in determining whether a further extension of time should be granted, United States v. Gleason (175 U. S., 588, 606), could not be considered as a basis for the annulment of the contract, as all prior delinquencies in that respect were canceled when the contract was extended. True, as held in a long line of decisions both by the Supreme Court and this court, the decision of the engineer officer in charge, in the absence of fraud or such gross error as to imply bad faith, will control in matters.wherein he is required to exercise his judgment. Kihlbery v. United States (97 U. S., 398); Sweeny v. United States (109 U. S., 618).

Paragraph 70 of the specifications, under which the engineer officer first sought to take over the work at aqueduct No. 4, provides:

“ Should any contractor, not hindered by natural causes beyond his control, fail to maintain a sufficient Avorking force of men and appliances, or if it becomes evident that the work is not being prosecuted with proper diligence to complete it within the contract time, the engineer officer in charge shall have power to employ additional labor and appliances and to procure necessary material at such cost as he may deem necessary,” etc.

As the claimant was at the time being hindered by natural causes from prosecuting the Avork it Avas therefore without fault; and, being without fault, the action of the engineer officer in seeking to take over the work as aforesaid was erroneous and unauthorized. The work being suspended by natural causes, the claimant was excused from diligent prosecution as well as from maintaining a sufficient working force. To have proceeded with the work at the time would have retarded it because of unfavorable weather, and the claimant had already been notified by the engineer officer that any defective work would have to be done over at its own cost when the next season’s work began.

This is not a case where unexpected difficulties and hardships were encountered in the performance of the contract, as in the cases cited and relied upon by the defendants. If mere hardships and difficulties had been encountered in the performance of the contract whereby the cost of the work had been increased above that estimated by the contractor Avhen making its bid, it would nevertheless be required to perform its contract. But that is not this case, as here the work Avas under suspension at the time the contract was annulled by reason of freezing Aveather and the admonition of the engineer in charge. It therefore follows that the question whether the contractor had failed to prosecute the work faithfully and diligently in accordance with the specifications and requirements of the extended contract had not arisen, and the annulment of the contract by the engineer in charge, based on an assumption that the contractor had so failed, was so capricious, unwarranted, and erroneous as to imply bad faith on his part, which worked a hardship upon and a loss to the contractor, who stood ready to comply with its contract and complete the same within the extended period, as the officer had been advised.

In the case of United States v. Barlow (184 U. S., 123), affirming this court (35 C. Cls., 514), it was held that, while the decision of the engineer in charge as to the quality of material was final when properly exercised, such decision could not be exercised in advance of the work so as to forestall his judgment of materials when actually furnished. Nor could the officer under the circumstances of this case assume that the contractor would thereafter fail to faithfully and diligently prosecute the work. Nothing had occurred during the extended period upon which such an assumption could be based. On the contrary, after the extension and admonition of the officer that work found unstable by reason of freezing weather would have to be done over, the contractor continued to work until December 31, 1904, before suspending. The suspension, therefore, was not only by reason of the severity of the weather, but by reason of the notice and admonition of the officer as well, of which he had been advised.

While the court must presume that the contractor in submitting its bid took into consideration the difficulties which it might, as a prudent man, expect to encounter in the performance of the undertaking, the contract itself makes provision for delay when “ hindered by natural causes beyond his control.” True, this provision is embodied in paragraph 70 of the specifications having to do with the employment by the engineer officer of additional labor and appliances to complete the work if the contractor is delayed for other than natural causes; but reading the contract as a whole, the contractor on account of weather unfavorable for such work, and especially in view of the notice and admonition of the engineer officer that unstable work would have to be done over, was in law excused for the delay.

It must therefore be held that the Government is liable to the claimant for the loss it sustained on account of the unwarranted, capricious, and erroneous acts and bad faith of the Engineer officer in charge.

While we hold the Government liable on the ground that but for the annulment of the contract the work could have been completed by the contractor within the extended period, still there can be no recovery for profits for the reason that the completion of the work would, as found, have been at a loss to the contractor and hence no profits.

The claimant, however, not being at fault, is entitled to recover the retained percentages, being the balance due for the work actually done. This item, as set forth in Finding VII, is therefore allowed.

The claimant is also entitled to recover for the loss suffered in having to dispose at a disadvantage without its fault of the materials on hand for the work Avhen the contract was annulled. That is to say, under the decision in United States v. Behan (110 U. S., 338) the claimant is entitled to recover for its outlay and expenses in procuring said materials less the amount for which it was compelled to sell the same under the circumstances set forth in Finding VI.

For the item of $750 for excavation between piles, set forth in Finding VIII, we must hold the claimant is not entitled to recover.

By paragraph 40 of the specifications the material, of whatever character, was to be “excavated and removed to the grades, slopes, and lines given by the Engineer officer in charge,” the same to be paid for as excavation. The findings show that the level given by the engineer in charge was correct, and therefore any excavation that had to be done between piles was within the contract, and therefore this item is disallowed.

On the item for $24.15 for crushed stone in lieu of gravel concrete, as set forth in Finding IN, we hold that the claimant is not entitled to recover, as the crushed stone was voluntarily furnished by the claimant with the consent of the Engineer officer in lieu of pebbles to enable it to do the work.

The item for inspection, however, during the extended period, as set forth in Finding X, we hold was properly chargeable against the claimant, as the extension of the contract in accordance therewith was upon the condition that all the increased cost to the United States during the delay should be deducted from any payments due or to become due the claimant, and as no part thereof appears to have been incurred subsequent to the annulment of the contract the defendants are entitled to recover the same on their counterclaim, which is ordered recouped against a like amount of the sum found in favor of the claimant, leaving due the claimant, for which judgment is ordered, the sum of $6,244.63.

The defendants’ counterclaim is otherwise dismissed.  