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Scaduto v. Orlando

January 12, 1965


Author: Anderson

Before FRIENDLY, KAUFMAN and ANDERSON, Circuit Judges.

ANDERSON, Circuit Judge.

The defendant, Anthony J. Orlando, a road builder, entered into a contract in April of 1955 with the Massachusetts Turnpike Authority to construct 4.89 miles of the Massachusetts Turnpike in the Towns of Brimfield and Warren. On July 15, 1955 in New York City, Orlando made a subcontract in writing with Scaduto Bros. Trucking, Inc. (Scaduto Bros.) under the terms of which, at certain rates per cubic yard, Scaduto Bros. agreed to excavate and remove an estimated 350,000 cubic yards of rock, ledge and boulders from the 4.89 mile section. This was a non-exclusive contract, for Orlando did some of the rock work himself, and he had made subcontracts with at least three others at various times to do portions of it.

Section 1 of the subcontract between Orlando and Scaduto Bros. required the latter "to furnish all labor, materials and equipment necessary" and it agreed "to perform all work as described in Section No. 2 hereof * * *." Section No. 2 stated the categories of work to be done in very general terms and specified the price per unit for each category*fn1 Section 1 also recited that the work to be done was "in connection with the construction of Contract No. 51-053 for Massachusetts Turnpike Authority" and went on to provide:

"This work is to be done in accordance with the Contract Documents and General Conditions of the Contract between the Contractor and Massachusetts Turnpike Authority, all of which Special Provisions, General Conditions, Drawings, Specifications, Amendments and Addenda signed by the parties thereto form part of a Contract between the Contractor and Massachusetts Turnpike Authority for the construction of the project mentioned above and hereby become a part of this Agreement."

It is the appellants, Orlando's, claim that this last quoted clause incorporated by reference all of the specifications of the prime contract having to do with excavating and removing rock*fn2 and with constructing embankments with rocks*fn3 The subcontract provided in Section 3 that the measurement of work completed by Scaduto Bros. should be computed on the basis of the quantity of work which the Massachusetts Turnpike Authority determined as having been performed by Orlando, which it agreed to accept as correct, less any portion of the work which Orlando himself had performed*fn4 Section 12 estimated the amount of the work and specified that the work was to be commenced by August 1, 1955 and completed by December 31, 1955*fn5

There were other provisions of the subcontract, which included the furnishing of a bond by Scaduto Bros., rights and powers of the prime contractor if claims were made or liens were filed by creditors of the subcontractor, or if there were a default by the subcontractor, as well as certain provisions which have no special bearing on the issues of the case.

Scaduto Bros. commenced work on the Massachusetts Turnpike about the middle of July, 1955. It was paid at the contract price each month pursuant to monthly estimates made up by representatives of itself, the Massachusetts Turnpike Authority and Orlando. The quantity of rock required to be excavated and removed greatly exceeded the forecast of 350,000 cubic yards so that by mutual consent of the parties the subcontract was continued beyond December 31, 1955 and Scaduto Bros. remained at work there until June, 1956. It was paid in full on the March estimate for work done through February 14, 1956. It is apparent that shortly after this date Scaduto Bros. experienced some difficulty in paying its bills. It had endeavored to save expense in connection with the Massachusetts Turnpike work by making an arrangement with a private owner of adjacent land to dump excavated rock on the owner's land and thus "waste" it rather than deliver it to an embankment site, perhaps two or three miles away.

The appellant, Orlando, concedes that he permitted Scaduto Bros. to waste rock in this fashion, but only on condition that it subject itself to a proportionate amount of the deduction which the Massachusetts Turnpike Authority would make in its payments to Orlando because of the rock not delivered to embankments. In late February and March of 1956 creditors of Scaduto Bros. were pressing it for payment and were making demands on Orlando for payment of Scaduto Bros.' obligations. Orlando paid some of these as advancements to Scaduto Bros. out of the April estimate and deducted about $34,000 for an alleged failure to take rock to embankment sites which Orlando claimed was the proportionate part of the $110,000 which the Massachusetts Turnpike Authority had withheld from him for incompleted embankments. On May 14th and 17th he sought to get an agreement from Scaduto Bros. to let him pay off the most pressing of Scaduto Bros.' creditors out of $75,000 which Orlando asserted was substantially all of the net amount due from him to Scaduto Bros. on the April and May estimates. Agreement on this proposal was never reached and the money was never used to pay any of Scaduto Bros.' creditors, but Orlando nevertheless continued to withhold it. This amount was in addition to the $34,000 retained in April.

Orlando, both before and after the discussion concerning the assignment of $75,000 to pay Scaduto Bros.' creditors, also justified retaining any sums earned by Scaduto Bros. on the alternative ground that such creditors were making claims directly against him, Orlando, as the prime contractor, and that under Section 4 of the subcontract he had the right to retain enough to indemnify him self against these claims*fn6 Orlando therefore withheld from Scaduto Bros. all sums it had earned and continued to do so with the May estimate. Scaduto Bros. began taking equipment off of the job and discontinued all its work there by June 11, 1956. Meanwhile, thirteen suits by Scaduto Bros.' creditors were brought against Orlando although all were eventually dismissed.

Scaduto Bros. petitioned for reorganization under Chapter 11 of the Bankruptcy Act; and the appellee, Joseph Scaduto, a guarantor on the performance bond of Scaduto Bros., was assigned the claim of the trustee in bankruptcy against Orlando. Joseph Scaduto brought the present action in two counts: the first alleged breach by Orlando of the subcontract in failing to pay for the work performed, and the second alleged that Joseph Scaduto, as the principal investor in Scaduto Bros. Trucking, Inc., suffered the loss of his investment and became liable for the corporation's debts because of Orlando's breach of the subcontract. Orlando counterclaimed for the cost of completing the unfinished work covered by the contract and for his expenses, including attorney's fees.

The court below held that the specifications of the prime contract never became a part of the subcontract; that Scaduto Bros. was not required to do grading or embankment work but was obligated only to excavate rock and haul it away under the direction of Orlando's engineer; that it performed the work required of it and was owed $174,978.11 with interest of $73,013.40. It also held that Orlando had no right to retain as indemnity, pursuant to Section 4 of the subcontract, any amount due because of claims of Scaduto Bros.' creditors against Orlando either directly or by way of the prime contractor's bond. The counterclaim was dismissed.

The evidence in the case was sharply conflicting and the findings of the trial court would ordinarily stand, but the court's finding in this case that the plans and specifications of the defendant's master or prime contract with the Massachusetts Turnpike Authority were not included and made a part of the subcontract between defendant and Scaduto Bros. cannot be sustained. Apparently this finding is based upon the facts that neither Scaduto Bros.' attorney nor Orlando's attorney, at the meeting of the parties where the subcontract was entered into, saw the related plans and specifications of the prime contract, and that Orlando said at the time that the plans and specifications were the concern of the prime contractor. In effect, the court held that there was no meeting of the minds regarding this provision in the contract and that therefore it must be excised. But this is not, and the parties have not claimed that it is, an equitable action seeking reformation of a contract because the contract itself or certain provisions in it were entered into through fraud, accident or mistake. 3 Corbin, Contracts, § 540 (1961); 5 Williston, Contracts, § 1548 and § 1549 (1937). The clause of the subcontract which incorporated the prime contract's specifications, relating to rock excavation and removal, was clear and unambiguous. There was no reason to admit parol evidence to change its terms, nor was there any evidence by way of practical construction by acts of the parties which tended to show an agreed exclusion of the incorporation by reference clause. Portsmouth Baseball Corporation v. Frick, 278 F.2d 395, 400 (2d Cir. 1960).3 Corbin, Contracts, § 573 (1960); 4 Williston, Contracts, § 631 (3rd ed. 1961); Restatement, Contracts, § 237. The subcontract was signed by Philip Scaduto, as president of Scaduto Bros. Trucking Inc., and, absent evidence to the contrary, he presumably knew that the clause was in the agreement. Moreover, it was necessary for an understanding of the subcontract to refer to the plans and specifications because, standing alone, the subcontract did not reveal where the job was located, what materials were to be removed, the manner in which a cut was to be made, and other essential details. For example, the specifications were needed to define and explain certain terms in the subcontract which without them would have been meaningless, such as "Class A Rock Excavation" and "Class B Trench Rock."

In concluding that the subcontract incorporated by reference certain plans and specifications of the prime contract, we limit those incorporated to those which relate to drilling, blasting, excavating and removal of rock and any earth excavation incidental to those activities. The specifications of the prime contract which relate to these are A2.12 and A2.32. The appellant argues that all specifications in the prime contract concerning rock and its uses in the construction of the highway became incorporated in the subcontract, and that it was therefore part of Scaduto Bros.' duty to construct embankments. We do not think the agreement can be so construed. The incorporated specifications are only for the purpose of explaining, detailing and clarifying the work, and the way it should be done. The plans and specifications cannot be construed to add items or kinds of work not mentioned in Section 2 of the subcontract. Section 1 provides that "this work is to be done in accordance with * * *" the specifications of the prime contract relating to it, i.e., it says how the work shall be done but does not enlarge the kind or nature of the work. Reading into the description of "work" in the subcontract a duty to build embankments goes way beyond the bounds of definition and ...

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