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Fattore Co. v. Metropolitan Sewerage Commission of

December 15, 1971


Swygert, Chief Judge, Castle, Senior Circuit Judge, and Fairchild, Circuit Judge.

Author: Castle

CASTLE, Senior Circuit Judge.

This diversity action was brought by the plaintiff-appellant, Fattore Company, Inc., a construction contractor to recover additional compensation for work done on a sewer construction contract awarded plaintiff by the defendant-appellee, Metropolitan Sewerage Commission of the County of Milwaukee. The issue of liability was separated from the issue of damages and tried to the court without a jury. The District Court filed a memorandum decision, 324 F. Supp. 354, incorporating its findings of fact and conclusions of law, and entered judgment in favor of the defendant dismissing plaintiff's action on the merits and awarding costs to the defendant. The plaintiff appealed.

The contract involved was for the construction of approximately 6,600 lineal feet of 12 foot diameter monolithic sewer approximately 100 feet below ground level. Plaintiff's complaint seeks recovery of additional costs incurred in the performance of the contract. It alleges that these costs were incurred because the ground conditions encountered in the tunneling materially differed from the conditions shown by test borings furnished to bidders by the defendant. The complaint predicates a right to such recovery on a "changed conditions" clause of the contract, and also on the independent grounds of misrepresentation and breach of warranty. Defendant's answer, inter alia, denies the applicability of the "changed conditions" clause and interposes an affirmative defense based on alleged acceptance of "final payment" by the plaintiff. Defendant asserts that under a provision of the contract such acceptance operated as a release barring the plaintiff's claim.

From our review of the record, considered from the aspect of the respective contentions advanced on appeal by each of the parties, we are satisfied that the District Court's findings of fact and conclusions of law, insofar as they bear upon and reject both misrepresentation and breach of warranty as independent grounds for recovery by the plaintiff, are, respectively, neither clearly erroneous nor the result of the application of incorrect legal criteria.*fn1 We therefore turn to an examination and consideration of the court's findings and conclusions as they relate to the court's ultimate holdings that the "changed conditions" clause of the contract affords no basis for recovery by the plaintiff and that, in any event, an acceptance of "final payment" by plaintiff bars suit on its claim. As a preface to such examination and consideration the pertinent facts disclosed by the record are summarized as follows.

Prior to the bidding, the plaintiff and other bidders were furnished with copies of the proposed contract documents, including a "Plan and Profile" which indicated among other things, the route of the sewer, the depth of the work, the logs of seven test borings taken at 1,000 foot intervals at points offset varying distances from the actual planned location of the sewer, and the locations of the points at which the test borings were made. The reason the test borings were offset from the line of the sewer was so that the holes would not intersect or be too close to the actual tunnel so as to alleviate the risk of blowouts in the event the contractor had to pressurize the tunnel with compressed air during the work -- a common practice to assist in keeping water out. The "Instructions to Bidders", one of the contract documents, recited that the defendant had made test borings to determine the character of the ground "likely to be encountered", that such information was available to the bidders, but that the defendant "did not guarantee that . . . the character of the ground is uniform between borings" and its engineers anticipated that "there will be variations in the character of the ground between the test borings. It was further stated that each bidder was expected to ascertain the character of the soil through which the work was to be done.

The defendant's test borings disclosed clay, coarse sand and gravel to be the character of the soil down to the 100 foot underground level -- the floor of the proposed sewer tunnel. In reliance on the borings furnished by the defendant, the plaintiff's bid was predicated on the use of the shield method of tunneling and the utilization of deep wells for any necessary dewatering. However, the actual underground conditions encountered in the performance of the work differed materially from those indicated by the defendant's test borings. Solid rock and mixed face were encountered at the sewer grade throughout the first 496 feet of the tunnel. Therefore, the shield method of tunneling and constructing the concrete sewer had to be abandoned, and once abandoned, it is impossible to again begin using the shield when conditions permit. The plaintiff was unable to use the shield and as a result the tunneling costs were substantially increased. In addition, the presence of silt and fine sand, as well as bedrock at or immediately below the sewer grade, frustrated the use of deep wells and dewatering costs increased. The attention of defendant's Engineer was immediately called to the conditions encountered, and a request for additional compensation made, before the work proceeded.

Paragraph 20 of Section I of the contract's General Conditions provides:

"20 Changed Conditions. Should the Contractor encounter, or the Sewerage Commission discover during the progress of the work, subsurface and (or) latent conditions at the site materially differing from those shown on the drawings or indicated in the specifications, the attention of the Engineer shall be called immediately to such conditions before they are disturbed. The Engineer shall thereupon promptly investigate the conditions, and if he finds that they materially differ from those shown on the drawings, or indicated in the specifications, he shall at once make such changes in the drawings and (or) specifications as he may find necessary and any increase or decrease of cost and (or) difference in time resulting from such changes shall be adjusted as provided in Paragraph 19 of this contract."

Paragraph 19, to which Para. 20 makes reference, authorizes the defendant's Engineer to at any time make changes in the contract specifications by written order, and provides that if such changes cause an increase or decrease in the amount due under the contract "an equitable adjustment shall be made and the contract shall be modified in writing accordingly".

Work on the tunneling commenced May 11, 1961. After encountering the underground conditions which materially differed from those disclosed by the test borings, the plaintiff on May 17, 1961 and again on June 13, 1961 made written requests to the defendant's Chief Engineer for a price adjustment because of the increased costs of doing the work. When work on the contract was completed and the job accepted by the defendant in January of 1964, no action had yet been taken on the plaintiff's request for an adjustment.

The contract required periodic monthly payments on the basis of duly certified approved estimates of the work performed during the preceding calendar month by the contractor less a percentage of the amount of the estimate (10% when the amount of the estimate is $100,000 or more)*fn2 to be retained by the defendant until final completion and acceptance of the work covered by the contract. Article 7 of the contract provides that the acceptance by the contractor of the final payment by the owner "shall be and shall operate as a release to" the defendant "from all claims and liabilities to the contractor for anything done or furnished for, or relating to the work, or for any act, neglect, fault or default of the owner or of any person relating to or affecting the work".

On February 25, 1964, prior to the payment for work done following the preceding monthly estimate (Estimate No. 37) and payment, plaintiff made a request by letter to the defendant that the retained percentage on the contract being withheld by the defendant be reduced in amount to $10,000 and advised that:

"Payment by the Sewerage Commission pursuant to the foregoing request and acceptance of such payment by Fattore Company Inc. is not to be construed as acceptance of final payment under the provisions of Article 7 of the ...

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