
    Robert J. Mahoney, Respondent, v. Oxford Realty Company, Appellants.
    
    First Department,
    July 13, 1909.
    Contract—delay caused "by preliminary work — extension . of time - building contract construed — when architect’s certificate of unreasonable delay conclusive — burden to show fraud — basis of recovery where action brought before completion of work by owner. •
    Where a contract for the construction of a building required the completion thereof at a certain date, but the commencement of the work was delayed because another contractor delayed the completion of the foundations, and thereafter the contractor was directed to proceed without" any further agreement, his time to perform was extended for" a period equal to the delay.
    Where a building contract provides that should the contractor neglect to supply, sufficient .skilled workmen or fail in any respect to prosecute the work with diligence, “such refusal, neglect.or failure being certified by the architects,” the owner shall he at liberty after notice to furnish the labor or materials and deduct the cost thereof from the moneys to become due the contractor, and that if “ the architects shall certify that such refusal, neglect or failure is sufficient ground for such action” the owner shall be at liberty to terminate the contract and complete the work, in which case, if the balance to be paid under the contract shall exceed the expense of the owner in finishing the work, the excess shallzbe paid to the contractor, but if the expense shall exceed the unpaid balance the contractor shall pay the difference, it must be deemed that the parties intended to make the certificate of the architects conclusive as to whether a sufficient number of men were employed and the work prosecuted with diligence, in the absence of such unreasonable and arbitrary acts by the architects as to indicate bad faith or fraud.
    Hence, where such contract was rescinded by the owner on the certification by his architects that the work was not being properly prosecuted, the contractor cannot recover from the owner in the absence of evidence indicating bad faith or fraud on the part of the architects.
    Where such contractor brings action before the work is completed by the owner he can only recover on the theory of a wrongful termination of his employment.
    Houghton, J., dissented.
    Appeal by the defendant, the Oxford Bealty Company, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 17th day of January, 1908, upon the verdict of a jury, and also from an order entered in said clerk’s office on the 24th day of January, 1908, denying the defendant’s motion for a new trial;
    
      Morgan J. O’Brien, for the appellant.
    
      M. Linn Bruce [Claude Gignoux and William J. Reid with him on the brief], for the respondent.
   Laughlin, J.:

This action is brought to recover damages for the breach of a contract made between the parties and reduced to writing and signed by them on the 26th day of October, 1903. The contract provided for the construction .by the plaintiff of an eleven-story hotel building on premises known as Nos. 70, 72 and 74 West Fifty-fifth street in the borough of Manhattan, New York, according to plans and specifications, for the gross sum of $46,000. It was provided that the work should be completed on June 1, 1904, and it was understood, although not staled in the agreement, that . the foundation would be ready for plaintiff to proceed about the middle of November, 1903. The contractor who was constructing the foundation disappointed the owner and the foundation was not ready for the performance of the Work by plaintiff until about the 3d day of May, 1904. Plaintiff neither refused to proceed . nor objected to this delay, and commenced, the work after May 1, 1904, on being notified so to do by the architect, without any further agreement or understanding. In these circumstances, the only effect of the delay was to extend the time of performance' for a period equal to the time plaintiff was ttyus delayed in Commencing the work and perhaps such additional time as might necessarily be required on.account of the postponement of the -commencement of the work. " The plaintiff alleges that he entered'upon the. performance of the work and continued the same with' due- diligence in all . respects as provided by the contract and. plans arid specifications, but that on the 11th day of October, 1904, the defendant'took pos- . session of the work and premises'and removed the plaintiff and his agents therefrom and terminated the contract and refused to permit the plaintiff to further perform- the same'. The plaintiff further alleges that the acts of the defendant in terminating the employment of the plaintiff and in taking possession of .the premises “ were in assumed complianeé and pretended conformity .with' the provisions and terms of article Y ” of the contract, but were actually in violation, thereof because he at no time refused or neglected to supply a sufficient number of.properly skilled workmen or materials of the proper quality, or to ■ prosecute "the work with promptness and diligence, or to perform any obligation resting upon him by virtue of the contract; and that the defendant failed to give the plaintiff the. three days’ written notice before terminating his employment and taking charge of the work, required by the contract, and no certificate was made by the architects as required by said article 5 of the contract. The' damages which the. plaintiff, according . to the.allegations of his complaint, .claims to have sustained and seeks to recover are the difference between the value of the work done on the contract, which is alleged to have been the sum of $40,137.56, and the amount paid on account of the contract work, which is alleged to have -been the sum of $30,0.42, and the loss of profits which the plaintiff would have made had he been permitted to fully . perform the contract, which he alleges would have- been the sum of $1,500, aggregating in all the sum of $11,595.56, for which, together with the interest thereon from the 11th day of October, 1904, he demands judgment. The plaintiff recovered a verdict for $10,309.78 damages, to which was added interest from October 11, 1904, making the verdict as finally recorded $12,217.78.

Article 5 of the contract to which reference has been made provides as follows:

Art. V. Should the contractor at any time refuse or neglect to supply a sufficiency of properly skilled workmen, or of materials of the proper quality, or fail in any respect to prosecute the work with promptness and diligence, or fail in the performance of any of the agreements herein contained, such refusal, neglect or failure being certified by the architects, the ownér shall be at liberty, after three (3) days written notice to the contractor, to provide any such labor or materials, and to deduct the cost thereof from any money then due or thereafter to become due to the contractor under this contract; and if - the architects shall certify that such refusal, neglect or failure is sufficient ground for such action, the owner shall also be at liberty to terminate the employment of the contractor for the said work and to enter upon the premises and take possession, for the purpose of completing the work included under this contract, of all materials, tools and appliances thereon, and to employ any other person or persons to finish the work, and to provide the materials therefor; and in case of such discontinuance of the employment of the contractor he shall not he entitled to receive any further payment under this contract until the said work shall be wholly finished, at which time, if the unpaid balance of the amount to be paid under this contract shall exceed the expense incurred by the owner in finishing the work, such excess shall be paid by the owner to the contractor; but if such expense shall exceed such unpaid balance, the contractor shall pay the difference to the owner. The expense incurred by the owner as herein provided, either for furnishing materials or for finishing tbe work, and any damage incurred through such default, shall be audited and certified by the' architects, whose certificate thereof shall be conclusive upon the parties.”

The architects were Israels & Harder. On the 10th day of October, 1904, they made, executed and delivered to the defendant a certificate as follows:

“ In accordance with the provisions of Article 5 of your contract under date of October 26th, 1903, with Robert J. Mahoney, we hereby certify that said Robert J. Mahoney has failed to supply a sufficiency of properly skilled workmen and materials on. the work called for under the above contract, upon which he hás been ordered to proceed by repeated notices duly served upon him in .accordance with the contract, and you are now, therefore, warranted in ter minating the employment of said Robert J. Mahoney as the contractor for the work and materials mentioned in the contract, and yourself to enter upon the premises and take possession for the purpose of completing the work and to employ any other person or persons to finish the same and to provide the materials therefor.
“ Very truly yours,
“ ISRAELS & HARDER.”

On the following day the defendant caused a notice to be served on the plaintiff, reciting that the defendant having duly given the plaintiff the three days’ notice required by the contract, and that the architects having duly certified that the “ refusal and neglect and failure ” on the part of the plaintiff “ to supply a sufficiency of properly skilled workmen and to prosecute the work with promptness and diligence ” constitutéd sufficient ground for. the termination of the contract — the owner thereby terminated the contract and had entered upon the premises and taken possession thereof for the purpose of completing the work in accordance with the provisions of the contract. Prior to this time, and on the third day of the same month, the architects delivered to the defendant a certificate to the effect that the plaintiff had failed to shpply a sufficiency of properly-slcilled .workmen and materials on various parts of the work upon which he had been ordered by them to proceed, and particularly on the plastering, and they recommended that a formal letter, which they inclosed for the signature of the company, be sent to him giving him the three days’ notice provided for in said article 5 of the contract. Formal notice in accordance with the provisions of article 5 of the contract was thereafter and on the same day duly served on the plaintiff^ notifying him that on account of his failure to supply “a sufficiency of properly skilled workmen and materials ” on the plastering and other portions of the work, he was thereby given the three clays’ notice provided for in article 5 of the contract, and notified that unless the work specified was proceeded with within three days, “that is, by Octóbér 7th, 1904,” the defendant would have the work performed by others and charge the expense thereof to his account. A similar notice based on a like certifícate had been served on the plaintiff on the 27th day of August, 1904, upon which, however, defendant took no further action, although the work was not resumed and prosecuted as required.

The work was commenced by the plaintiff under the contract on the 3d day of May, 1904. On the 18th day of July, 1904, the plaintiff, after doing part of the plastering, sub-contracted the plastering work to one Colleran, who commenced the work of plastering on that day or the day after, and continued it at intervals until the 6th day of August, 1904,' when a lockout was declared by the employers’ association. With respect to strikes and lockouts the contract provided as follows: “ Should the contractor be delayed in the prosecution or completion of the work by the act, neglect or default of the owner, of the architects, or of any other contractor employed by the owner upon the work, or by any dam,age caused by fire, lightning, earthquake, cyclone or other casualty for which the contractor is not responsible, or by strikes or lockouts caused by acts of employees, then the time herein fixed for the completion of the work shall be extended for a period equivalent to the time lost by reason of any'or all the causes aforesaid.” Plaintiff was a member of the employers’ association, which took the action which resulted in the union plasterers having to leave the work, and thereafter he was only able to employ a few less competent plasterers, and' their work was somewhat impeded by the men who had been locked out. It does not appear that the employees were responsible for the lockout, nor was it shown that any claim was made in writing to the architects for consideration on account of the lockout as provided in the contract, and, therefore, this clause of the contract does not aid the plaintiff. The architects, according to testimony introduced by defendant, had had occasion to complain of delay on the part of the plaintiff in doing the plastering from time to time, commencing with the twelfth day of July, but plaintiff testified that he received no complaint other than those in writing to which reference has been made. Ro plastering was done between the 8th day of August, 1904, and the 8th day of September, 1904. On September eighth, ninth and tenth, three plasterers worked; on the thirteenth-, four; on the fifteenth, two; on the sixteenth, six; on the seventeenth, four; on the nineteenth, three; on the twenty-fourth, two; on the twenty-sixth, three'; on the twenty-seventh, six; on the twenty-eighth,six; on the twenty-ninth, four; on the thirtieth, four; on October first, eight; and on no other day until October 7, 1904, did any plasterers work on the building. On- October seventh, five plasterers resumed work; on the eighth, six; on the tenth, five; and on the eleventh, before the termination of the contract, nine.

On the twenty-first of September the architects directed plaintiff to -withdraw the “few” plasterers he had on the work in order to expedite the work, by permitting the construction of the. electrical work by the electrician with the construction of the remaining partitions. The defendant gave evidence tending to show that, after terminating the employment of. the plaintiff-and taking charge of the work itself, it completed the same at the reasonable cost of $15,249.87, which was duly certified by the architects as required by said-article 5 of the contract, and it concedes.its liability to the plaintiff "for $850.91, owing to its obligation' to account to hi in for the difference between the cost,of completion and the amount unpaid on-the contract at -the time of its termination. The plaintiff has recovered upon the theory of his complaint. The case was tried upon the theory that, without showing either fraud or bad faith upon the part of the architects, the plaintiff was at liberty to. ask the court and jury to disregard the action of" the architects in' determining that lie did not proceed, with the work with due diligence and did not furnish a sufficient number of men to insure the completion of the work within the time, specified by the contract, and to decide' those, questions de novo and award him- damages if. they reached a different determination on those questions of fact:

The learned counsel for the respondent contends that, although . .-the architects and the defendant acted in good faith in making the certificates and in terminating the employment of the plaintiff, still the question is open to review de novo as to whether the contractor did refuse or neglect • to supply a sufficient number of properly skilled workmen or'materials of proper quality,-or did fail in any respect to prosecute the work with promptness and diligence, or did fail in the performance of any of his obligations under the contract. Mo case is cited in this or any other jurisdiction which is decisive of the question. At the outset it is important to bear in mind that the construction for which the plaintiff contends would render the provisions of article 5 of the contract of practically no value, to the owner but of great advantage to the contractor. Without such a provision, where the contractor requires the work to be performed with such diligence as to insure its completion within the time, specified, the owner might at any time exclude the contractor from the premises and finish the work himself, and in that event,'if he should be able to establish that the contractor was guilty of a breach of the contract in that he was not proceeding either with respect to the number of men employed or otherwise to insure completion on time, he would defeat a recovery by the contractor for any balance unpaid on the contract, and he might counterclaim for any damages sustained ; and should he be benefited by having the work cost less, he would be under no obligation to account to the contractor for the difference between the balance unpaid on the contract and the cost to the owner to complete the work. This provision, if construed as it has been on the trial of this action, is in effect a trap for the owner and gives the contractor an advantage which he would not ordinarily have without such a provision. According to the construction for which the respondent contends, he practically runs no risk in failing to perform his contract. He may employ one man, where it is manifest that it would require twenty to complete the work as required by the contract, and rest on the assurance that the owner must submit to his unreasonable conduct; or, if it become unbearable, all that the owner may do, at most, is to take charge of the work, which will leave the contractor in a position to contend in the first instance that he is entitled to damages on account of the wrongful termination of his contract, which would be the balance unpaid on the-contract less the amount it would have cost the contractor to have completed the.work; and if he fail in that, the owner must account to him for the difference between the balance unpaid on the contract at the time of his discharge and the cost to the owner of completing the work, which would give him in effect profits practically the same as if he had completed the work, himself, for-he would not be bound- by the amount which the owner had expended in completing the work unless the expenditures were made in good faith and in the exercise of reasonable care. (Watts v. Board of Education, 9 App. Div. 143.)

Wé are of opinion that this provision of the contract was intended by the parties to make the certificate of the architects conclusive on this question in the absence of evidence from which an inference might fairly be drawn that their action was fraudulent or so unreasonable and arbitrary as to indicate bad faith or fraud. Of course, where architects grant or refuse a certificate on an ' erroneous construction of a contract as to the duty devolving upon the contractor, even though this may be a question of fact, as, for instance, the question of substantial performance arising-on nncontroverted evidence, the action speaks for itself, and if the certificate be withheld when it should have been granted, the courts hold that it is sufficient that, the- certificate was unreasonably withheld, for even in the case of substantial performance such certificate does not prevent deductions which should be made for slight variations and omissions which- do not bar a recovery on the theory of substantial performance. (MacKnight F. S. Co. v. Mayor, 160 N. Y. 72, 86; Smith v. Mayor, 12 App. Div. 391; Crouch v. Gutmann, 134 N. Y. 45, 54; Nolan v. Whitney, 88 id. 648; Thomas v. Stewart, 132 id. 580.) So, too,, when the refusal is not based on failure to perform. (Bowery Nat. Bank v. Mayor, 63 N. Y. 336.)

Where, ho.wever, the certificate is refused in good faith because in the opinion of the architect in the exercise of his judgment on a question delegated to him under the contract, as in this case, in deciding whether the number of men employed was sufficient and whether the contractor was proceeding with such diligence as to insure the completion of the building within the period specified of within a reasonable period, then I think the rule applicable to certificates stipulated to be final, which is that they are only impeach-able for fraud or bad faith should apply here, although there is no express'stipulation as to the effect of the certificates on these points. (Sweet v. Morrison, 116 N. Y. 19, 31-34; Smith v. Mayor, 12 App.. Div. 391; Snyder v. City of New York, 74 id. 421, 428; Becker v. Woarms, 72 id. 196 ; Woarms v. Becker, 84 id. 491; Jones v. City of New York, 32 Misc. Rep. 214; affd., 60 App. Div. 161; Sewer Comrs. v. Sullivan, 11 id. 472, 477; affd., 162 N. Y. 594; Del Genovese v. Third Ave. R. R. Co., 13 App. Div. 412.)

The evidence was sufficient to justify the determination of the architect, even though the court or jury might have decided the questions differently.

In the case at bar no weight appears to have been given to the certificates of the architects, either as bearing on the termination of the contract or with respect to the cost of completing the work, although on the latter point the contract expressly provides that they shall be conclusive. The learned counsel for the appellant duly requested the court to instruct the jury that the proceedings under article 5 of the contract having been• regular the defendant rightfully terminated • plaintiff’s right to prosecute the work; that the certificate of the architects on these questions was conclusive unless it be shown that they acted in bad faith or maliciously or corruptly, and'that it justified the termination of the employment of the plaintiff, and further that there was no evidence that they ' did act in bad faith or maliciously or corruptly. These requests were refused; and an exception to the rulings was duly taken. We are of ojfinion that the appellant was entitled to these instructions. Some of the rulings indicate that the court was of opinion that the termination of the contract was not in issue, but it was put in issue by the pleading, evidence and requests to charge and was not expressly withdrawn, and since the action' was commenced, • long before the work was completed by the owner, the plaintiff could only recover on the theory of a wrongful termination of his employment, for nothing was then due on any other theory.

It follows that the judgment and order should be reversed and a new trial granted, with costs to the appellant to abide the event.

Ingraham, McLaughlin and Clarke, JJ., concurred; Houghton, J., dissented.

Judgment and order reversed, new trial ordered, costs to appellant to abide event. .  