Ætna Construction Co. v. United States

On the Proofs. The construction of a dam in the Ohio River is interrupted by high water and the work partially destroyed. The contracting parties enter into a new agreement which provides for the abrogation of preceding contracts, the defendants paying the contractor for all work done, and the agreement to constitute a full and final settlement of the whole controversy and relieve each froth any liability to the other on account of any contract or contract work. To this is added, “ Without prejudice to either party.” The suit is brought to recover profits which might have been made if the contractor had been allowed to complete the work. The defendants allege a mistake in the use of the clause, “ Without prejudice to either party ” and seek to re-form the contract By striking it out. I.Since the enactment of the Tucker Act, 3d March, 1SS7 (24 Stat. Xj., p. 505), this court has been clothed with equity power sufficient to decree the re-formation of the contract. II.Where both parties mutually agree upon the provisions of a contract, and reduce it to writing and execute the instrument in the belief that it expresses their agreement when in fact it contains language having a different legal effect from that agreed upon, it can be re-formed so as to conform to the intention of the parties. III. As a general rule a mistake of law is not a ground for relief; but when both parties are under a common mistake in the use of a term employed in the framing of a written contract, a court of equity will afford relief both as to the mistake, in law and in fact. IV. Where there is mutual mistake either of fact in the making of a contract or of law or fact in reducing it to writing, the party injured may have it reformed. A mistake in the contract itself, springing from ignorance of law is one thing, a mistake in the legal meaning attributable to words used to express the contract is another. The cases reviewed.

The Reporters’ statement of the case: The following are the facts of the case as found by the court: I. On July 6, 1901, a contract was made between the United States and the claimant and approved by the Acting Chief of Engineers on July 18, 1901, as set forth in Exhibit A to claimant’s petition. II. The advertisement and specifications attached to the contract and referred to therein are as set forth in Exhibit A to claimant’s petition. III. On May 3, 1902, a contract was executed between the United States and the claimant and approved by the Acting Chief of Engineers on May 8, 1902, as set forth in Exhibit B to claimant’s petition. IY. By direction of the engineer officer in charge, as authorized by paragraph 75 of the specifications, the 250-foot half section of the contract work adjoining the lock was first undertaken. The first step was the construction of a cofferdam within which to carry on the construction of the permanent work or dam proper. A large part of the cofferdam for this first half section of the work was constructed during the fall of 1901, but was almost wholly washed out and destroyed by high water in the river during the succeeding winter and spring, for which work so destroyed the claimant was paid, on account of its being decided that the Government was at least partially responsible for the conditions causing the destruction of the work. The contour of the river bed on the site of the work was greatly changed through scouring of the current of the river during said winter and spring, so as to require a cofferdam in part of greater and varying height and of greater width, thereby involving a greater and uncertain work and a greater cost per amount of linear foot for its construction. In consequence of this the supplemental contract of May 3, 1902, set forth in Finding III above, was entered into by the parties. By it the contract time for the completion of the entire work was extended from 250 working days to 310 working days and a higher price per linear foot for the cofferdam was provided. On August 24,1903, the claimant requested an extension of 120 fair working days in the contract time for the comple-iion of the contract. On August 31, 1903, the Government officers in charge directed the claimant not to commence the construction of the cofferdam for the remaining half section of the contract work. This action was taken by the Government officers for the following reasons: First, it had already been decided not to extend the claimant’s time for the completion of the contract but to relet the contract; second, the execution of this work under the contract and supplemental agreement with the claimant would be more expensive to the United States than to allow the claimant’s time to expire and then relet the contract; third, the construction of this cofferdam, or any material part of it, might have been some obstruction to navigation during the following winter and spring; fourth, only a part of the cofferdam could have been constructed before December 1, the end of the working season 1903, and this would have been in danger of destruction by high water during the succeeding winter and spring and might have resulted in further scouring of the river bed. In reply to the Government’s order of August 31, 1903, prohibiting the commencement of work on the cofferdam for the second section of the work, the claimant on the same day wrote the Government officers as follows: • “ Legionville, Pa., August 31st, 1903. “ Capt. Wm. L. Sibert, “ Corps of Engrs., U. S. A., Pittsburg, Pa. “Dear Sir: A few day ago we received directions from Mr. Martin to take no steps toward building that part of next cofferdam which lies within the present enclosure. “ While no explanation was given, we take it as equivalent to an order not to build a cofferdam, and presume that it is your intention not to have a cofferdam built this season. “We fully expected to be able to build the remainder of the coffer this fall, and at our present rate of progress we should get at it early in November, with, every prospect of finishing and protecting it before winter. If we are prevented from doing this work this fall our working season will have been cut down to only about three months. This would be a serious hardship to us and we wish to avoid it if possible. “If the interests of navigation make it imperative that the whole river be kept clear this winter, we see our only hope of getting in a longer season to be the building of the crib foundation dam, and we wish to urge its adoption for that reason. “We could easily build half of the remaining length of dam and make it secure before winter and leave the river clear, if ordered to build crib. “We wish respectfully to request that we be given an early decision on this question, so that our orders for material may be intelligently placed. “ Very respectfully, “.¿Etna Construction Co. “ W. W. Venable.” In answer to claimant’s application for an extension of time the following letter was received: “ Engineer Oeeice, U. S. Army, “Pittsburg, Pa., September 28, 1903. “¿Etna Construction Company, “ Wheeling, W. Va. “ Dear Sirs : Eeferring to your request of 24th ultimo for an extension of time on your contract with the United States for building 500 feet length of chanoine dam of navigable pass at Dam No. 4, Ohio River, I have to say that this office is willing to enter into supplemental articles of agreement providing for an extension of time sufficient to complete that section of the dam at present under way, including the removal of the present cofferdam, and the termination of the contract without prejudice to either party after the completion of said work. “ Please advise this office promptly whether you are willing to enter into supplemental contract to that effect or not. “ By direction and in the absence of Capt. Wm. L. Sibert. “ Very respectfully, “ Chas. Gulentz, Chief Clerk.” On November 10, 1903, the claimant completed the first half section of the permanent work, or dam proper, with the exception of the movable parts thereof, and commenced the removal of some of the timbers of the cofferdam; and on November 17, 1903, the claimant was directed to remove the cofferdam for this first half section of the work, by letter reading as follows: “As there is no eyidence of your getting the movable parts of that portion of the foundation of Dam No. 4 now completed into place, and as your contract time is now practically expired, navigation interests demand the removal of the existing cofferdam from the river channel. You are therefore directed to proceed at once and rémove all existing temporary structures from the river channel at said Dam No. 4, disposing of the material composing the structures in such manner as not to interfere with present or proposed navigation.” The claimant did not finish the first half section of his contract work by putting in the movable parts thereof; and though it continued on during the succeeding winter and spring in the removal of the cofferdam, it did not complete its removal until June 23, 1904. It does not appear that any protest or any demand or request to be permitted to begin work on the second section of the contract work was ever made by the claimant subsequent to the above letter of August 31,1903. V. The negotiations begun in August, 1903, looking either to a supplemental contract for a change in the plan of the remaining half section of the contract work on account of the change of the contour of the bed of the river, or to a supplemental contract abrogating the claimant’s prior contracts upon the completion of the first half section of the work then under way, including the removal of the cofferdam therefor, were continued through the fall and succeeding winter and spring and were the subject of many letters and interviews between the claimant and the Government officers, and in order to settle all questions in dispute between the Government and the contractor, including any and all claims for damages which either party might have or claim to have against the other up to that time growing-out of said contract, and with that distinct understanding between the parties, the supplemental abrogating contract of May 5, 1904, set forth as Exhibit C to claimant’s petition herein was entered into, but by the mutual mistake of the parties to said abrogating contract the words “without prejudice to either party” were inserted therein, the same having a direct opposite meaning from what was the intention of the parties that they should have at the time said abrogating contract was executed. In order to make said abrogating contract conform to the intention of the parties theretp at the time the same was executed, it is necessary that the same should be re-formed and modified by striking therefrom the words “ without prejudice to either party.” The Government has paid claimant for all the material as agreed to in said abrogating contract. VI. If the claimant had been permitted by the Government engineer, in the fall of 1903, to begin and prosecute work on the construction of the cofferdam for the second section of the work, it would have been able to construct that part of the cofferdam consisting of the 180 feet of it which would have come within the first and existing section of the cofferdam, upon which work alone the claimant might have made a profit. It appears that while there would have been a material profit to the claimant in the cofferdam construction alone, there would have been a corresponding loss in the construction of the permanent work or dam proper. Claimant company sustained no loss of profits by reason of its not having completed the entire contract work. The claimant was engaged in carrying out an existing contract. The Government wished to get rid of the contract. It seemed probable to the engineer in charge that the claimant would not finish the work within the contract term, and he had determined not to extend the term. Then while the claimant was actively at work he ordered the claimant to suspend all work, except to finish the part which had then been begun. While work was thus suspended, a contract was drawn by the Government officers, proposing to the claimant exactly what the Government wished to effect its intention. The particular words now objected to “without prejudice to either party,” not only appear in every draft of the contract submitted by the Engineer officer in charge, but they were put in by order of the Chief of Engineers. They were proposed to the claimant in the very first official letter on the subject. This was submitted to the claimant, who declined to sign it without a change in the phraseology. The Government officer refused any change and insisted upon the signature to the contract exactly as originally drawn. The claimant then signed it. In suing upon this contract, the claimant is met by the objection that the contract which the Government insisted upon its signing, and from which no word of variation was allowed, gives it more rights than the Government officer meant that it should have. Having secured everything which he asked, the Government officer is now complaining that he did not ask enough. Having refused to the claimant a word in the contract, he now objects that the form of words, forced by him upon the claimant, was not stringent enough. The re-formation of a contract by a court of equity is an uncommon proceeding and forms an almost unique exception to one of the most strongly settled rules of law, namely, that a party affixing his signature to a contract in writing is bound by it and can not show a variation by parole. There are many reasons why this relief can not be invoked here. Defendants’ counsel asserts with, much assurance that a mutual mistake occurred. This position requires analysis. ' Maj. Sibert, who signed the contract, intended undoubtedly to put the words “ without prejudice ” in it, for, as we have seen, he was ordered to do this by his superior officer. He proposed it at the beginning of the negotiations and rigidly insisted on it. The claimant objected to the insertion of these words, but finally yielded, and signed the contract with full knowledge that the words were in it. Neither party made a mistake as to the contents of the contract signed. It contained exactly what both expected and knew to be in it. The case is therefore entirely different from Ilearne v. Equitable Ins. Go. (20 Wall., 494), where the policy omitted a provision contained in the- prior negotiations; or Snell v. Ins Go. (98 U. S., 85), where a policy of insurance was issued in the name of a single member of a firm although it had been agreed that it should be issued to all the partners; or Thompson v. Phenix Ins. Go. (136 U. S., 287), where the policy failed to run to the benefit of the successors in office of a receiver although such was the agreement; or in Trenton Terra Gotta Go. v. Clay Shingle Go. (80 Fed. Hep., 46), where a provision was inserted in the draft of the contract entirely at variance with the prior negotiations of the parties. Nor is there in the pending case the element which existed in most of those that an agreement had been made, complete in all respects, by the parties and an error was made in reducing such agreement to writing. Whatever mistake occurred here was solely in regard to the meaning of the words which the Government forced upon the claimant in this contract. This is a mistake, not of fact, but purely of law. But the Supreme Court has stated (Snell v. Ins. Go., 98 U. S., 92) “the general and salutary rule that a mere mistake of law stripped of all other circumstances constitutes no ground for the re-formation of written contracts.” The celebrated case of Hunt v. Bousmaniere (1 Peters, 1) is there cited. It appears there that the owner of a vessel wished to borrow money upon the security of the vessel and offered a mortgage, a bill of sale, or any other form of security desired; that at a conference between the borrower’s attorney and the parties various forms of security were discussed, and that it was agreed, in order to give the most complete security upon the vessel itself, with other advantages, that an irrevocable power of attorney should be given. The Supreme Court having held in a prior decision of the same case (8 Wheaton, 174) that the power of attorney was revoked by the death of the grantor, the contention was made that there should be a re-form of the contract to effect the intention of the parties to secure the debt upon the vessel. This intention was fully established, but the Supreme Court held that the ultimate form which the agreement of the parties took must prevail over their general intentions, and that, though both were mistaken as to the effect of what they did, their rights must be determined by the written instrument finally executed. The court states the principle involved as follows (1 Peters, 15) : “The question, then, is, Ought the court to grant the relief which is asked for upon the ground of mistake arising from any ignorance of law? We hold the general rule to he that a mistake of this character is not a ground for reforming a deed founded on such mistake; and whatever exceptions there may be to this rule, they are not only few in number, but they will be found to have something peculiar in their characters.” Again (p. 17) : “ But we mean to say that where the parties, upon deliberation and advice, reject one species of security and agree to select another, under a misapprehension of the law as to the nature of the security so selected, a court of equity will not, on the ground of such misapprehension and the insufficiency of such security, in consequence of a subsequent event not foreseen, perhaps, or thought of, direct a new security of a different character to be given or decree that to be done which the parties supposed would have been effected by the instrument which was finally agreed upon. “ The agreement has been fully executed, and the only complaint is that the agreement itself was founded upon a misapprehension of the law, and the prayer is to be relieved against the consequences of such mistake.” The case presents a striking analogy to the present case-. In both cases it is conceded that the parties knew exactly what went into the instrument; in both cases it is asserted that the instrument accomplished a purpose not intended by the parties. The Supreme Court decided in the earlier case that the written instrument was final, and this court should follow the rule of that decision. It has been repeatedly declared by this court that a contract requiring the approval of the Chief of Engineers is no contract until so approved. While such agreements uniformly declare the Engineer officer whose name is affixed to them to be acting in behalf of the United States, the final act of the United States is not taken until his superior officer evidences his approval. (Monroe v. United States, 184 U. S., 524; MeLauglüin v. United States, 37 C. Cls., 186.) It is true that the contract of May 5,1904, contains no provision that it is not to be in force until approved by the Chief of Engineers, but it was made bjr the explicit authority of the Chief of Engineers and was approved by him. Therefore he was the representative of the United States in making the contract, and the Engineer officer was acting under his orders and on his behalf. The question of mistake by the parties must therefore be settled by inquiry whether the Chief of Engineers misunderstood the meaning of the words used. It appears by the evidence that the Chief of Engineers directed the Engineer officer in charge to provide in the proposed supplemental contract that it should be “.without prejudice to either party.” There is not a word to show that the Chief of Engineers misunderstood the meaning of these words. There is nothing to indicate that it was not his intention to deal fairly and justly with the claimant, and to allow it to recover all losses caused by the suspension of the work ordered by the Engineer officer. If the Engineer officer in charge did not understand the meaning of these words, it is impossible to- charge any such want of understanding upon the Chief of Engineers, by whose order they were inserted a.nd who was the responsible officer making the contract. The form of words here adopted and now complained of was proposed by the Government. The claimant did not suggest them, nor did it, by false representations of their meaning, secure the Government’s consent to them. Thus there is no element of deception or misleading of the Government into accepting particular words. There is no equity against the claimant or in favor of the Government which can lead to special interposition in order to relieve the Government from an unexpected liability. The only ground asserted for relief is that the claimant and the local Engineer officer alike misunderstood the legal effect of words forced upon the claimant by the Engineer officer. The established principle that words in a contract are to be taken more strongly against the party drawing the contract (Garrison v. United States, 7 Wall., 688; Simpson'-v. United States, 172 U. S., 372) ; Chambers v. United States, 24 C. Cls., 392) goes further than the claimant’s contention here. This case only asks for a decision that a party drawing a contract can not have it re-formed upon finding out that the words are less advantageous to him than he supposed. The Government admits that it was guilty of negligence in not understanding the terms of the contract which it required claimant to sign. Story (Eq. Jur., 13 Ed., p. 226) says: “ Courts of equity do not sit for the purpose of relieving parties under ordinary circumstances who refuse to exercise a reasonable diligence or discretion.” It was the duty, of the officer here to know the meaning of the words which he required the claimant to sign. He can not force these words upon the claimant and then plead his ignorance of their meaning as a ground for having them stricken out.