· En gin eerin g con t ra c t s;, A Lecture to Civil En gin eerin g A Studen ts. BY J. ASLJ...
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Transcript of · En gin eerin g con t ra c t s;, A Lecture to Civil En gin eerin g A Studen ts. BY J. ASLJ...
E n g in eer in g co n t ra c t s ;
, A Lecture to Civil En gineerin g A
Studen ts .
BY J . ASLJWADDELL, D . Se, LL . D .,
YOUNG G ENTLEMEN
Some two years ago I deliyered‘
to the Senior Class of the-Ren sse1aer Polytechnic Institute a lecture on the subj ect of
‘SpeC1ficat 1 o n s and m it I touched but lightly on that of “Contracts,
” merely quoting from the standard form of contract ofmy firm certain clauses that were needed to make my disco ursecomplete . Engineering eo n tracts, however, are of such im
portance to the profession as to be worthy of a special lecture devoted to their discussion, an d this I purpose g ivin g y o u to-day .
Thefact that the subj ect is treated very thoroughly in severalstandard wo rks might at first thought lead one to believe that alecture on it is superfluo u s, but such is not the case, becausewhat I have to say is in a sense supplementary to that Which isfound 1 n the books . Moreover, by discussing it from t he strictlypractical point of view, an d thus making it more interestingthan a study of law books, Which; as you all know, are notorio usly d ry reading, I hope
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so to present the matter that it willappeal directly to engineering students .In one sense this lecture is a sequel to that on Specifica
tions,” and Wi ll be appreciated better by those Who have read
the 1atter ; n ever theless, I shall endeavor to make the treatmentof the new subj ect complete in itself and independent of thepreceding le .cture The general p1an , however, is the same forboth ;
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V iz ., a dissertation concerning the theory or science ofwriting followed by i llustrations taken from actual practice .
The dividing line between specificat io n s and contracts ismost d ifli cu lt to draw, for in any particular case two engineerswill rarely agree as to What clauses pertain properly to the specificatio n s and What to the contract, of Which the specificat io n s
form a part . Some engineers prefer to throw nearly everythinginto the specificat io n s and thus keep the size of the contractpro per as small as .po ssib1e, whi1e others make the latter veryextensive by including in it many clauses that are ordinarilyfound in the specificatio n s . Again, others make a practice o frepeating in the contract certain clauses that have already been-l
covered in the specificat io n s . In my opinion, the last mentionedmethod is open to criticism in that it is liable to result in conflict in g clauses ; nevertheless, it is quite possible that my praetice has not invariably been entirely free from this obj ectionablefeature—it is so hard to be always consistent ; and again, one
’smethods are a matter of development and are not created perfectat one essay.
Before proceeding to the direct treatment of my subj ect Ishall endeavor to make clear to you the method that I haveadopted for locating the dividing line between specificat io n s andcontracts . I say “endeavor” advisedly, for -I am not sure that Ican always give a satisfactory rule or reason for any particulardivision because absolute consistency is an attribute that, striveas one Will to attain it, lies ever j ust beyo nd reach .
My preference is to throw as much of the matter as poss ibleinto the specificat io n s and reduce the size of the contract properto a minimum, avoiding repetition of statement in the two part sof the work, but of necessity treating certain subj ects in bothparts, though from different points of V iew . There is no doubtabout the proper place for most of the topics or headings, but incertain cases there are plausible reasons for locating them ineither division . All clauses that relate to methods of construetion, qualities of materials, character and excellence of the work,rules limiting the functions and powers of the Contractor anddefin in g the authority of the Engineer, directions to bidders, andtranspor tation of men and materials unquestionably belong to thespecificatio n s but such clauses as those relative to adherence tospecificat io n s, alteration of plans, damages, extras, payments,responsibility for accidents, the spirit of the specificat io n s, strictness of inspection, liquidated damages, scope of the contract,and time o f
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completion might perhaps be properly inserted ineither division . My custom, however, is to include all of theseclauses and others of like character and scope in the specifica
tions .
Nine out of ten of the contracts that an en gmeer has toprepare are in connection With construction, and an intelligentspecialist soon learns how to prepare satisfactory specificat io n s
and contracts for all ordinary kinds of work ; but this style ofcontract is by no m
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eans the only type With Which an engineeris concerned, for he is sometimes called upon to draft agreements between promoters of enterprises and capitalists, between himself and promoters of enterprises, between twoen g 1 n eer s, between two contractors, or between a bond
company and a contractor . Some of these unusual typesare exceedingly d ifficu lt to draft properly, as, owing to theirvarying conditions, they cannot be systematized . It i s mainlywith them, therefore, that this lecture on contract writing is concerned ; because for construction in general i t i s practicable toevolve a form which,when cor rectly filled out,will apply to anyordinary case .
The importance of drafting contracts properly cannot wellbe overestimated . A n incorrectly drawn agreement is almostcertain to involve serious trouble and often pecuniary loss to aninnocent party ; hence it behooves engineers to study thoroughlyand fundamentally the science or art of contract writing .
Whether it be really a science or an art is a mooted point ;bat, in my opinion, the writing of proper specificat io n s and contracts is certainly worthy to be termed a science .
Before one can d raft a contract, he must have clearly inmind a full and well defin ed idea of all the conditions anddesider d ta, and he should epitomize these systematically beforebeginning to write . It is advisable to keep constantly in viewthe possibility that each party to the contract may be u n scrupu
lous and Wi lling to take every possible advantage of every weakness which the contra ct may contain and which will tend to hisown pro fit,
—honor and integrity to the contrary notw ithstanding .
Failure to do this will often result in some ambiguity that willcause rank injustice to one of the parties to the agreement . Itis d ifficu lt for an engineer to recognize this weakness of humann ature and to bear it steadily in mind when writing contracts ;because the train ing and the work of engineers tend to developin them to an eminent degree the principles of absolute honesty ;consequently, it comes hard 'fo r them to be forced to make a praotice of doubting the integrity of their business associates . Tomistrust the motives of one ’s fellow men is disagreeable but essen t ial, i f the writer of specificat io n s and contracts is to protecthimself or his clients from loss and fraud .
Concerning this matter I speak from sad experience, for inmy business career I have at times suffered severely from the illeffects of a too-trusting reliance upon the honorable intentionsof those with whom I have done business ; and, while this um
fortunate experience, I am happy to say, has not caused me tomistrust the goodness o f' human nature in general, it has taughtme the necessity for exercising the utmost caution in draw ingcontracts, so as not to put temptation in the way of either partyby inserting a single clause of which he could take advantage bycompelling the other party to do something that was not co n '
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templated when the agreement was made . Occasionally it happens that after a contract is executed, one of the parties fin ds
a flaw that wi ll give him an improper advantage and it is o nlya strictly j ust and upright man who will refuse to avail himselfof such a weakness in the document .The essential elements of any contract, according to Mr .
John Cassan Wait, the noted authority on“Engineering and
Architectural Jurisprudence,” are as fo lloWs :
“1 st . Two parties w ith capacity to contract .2n d . A lawful consideration : a something in exchange for
its legal equivalent, a qu id“. pr o qu o .
3rd . A lawful subj ect-matter, whether it be a promise, anact, or a material obj ect .
4th. Mutuality : a mutual assent, a mutual understanding,a meeting of the minds of the parties . ”
Without these four elements no contract is binding in law .
The essentials of a well drawn contract that comes Withinthe province of the engineer, however, are as follows ‘
l st . A proper and customary form .
2n d . A full and correct description of all parties to theagreement .
3rd . A thorough and complete preamble .
4th . A statement of when and under what conditions thecontract is to become operative .
5th . The limit, if any, for duration of contract .oth . A n exhaustive statement of what each party to the
contract binds himself, his executors, administrators, successors,or assigns to do
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o r to refrain from doing .
7th . A clearly defin ed enunciation of the cons ideration
which each party is to receive—this is the essential m iso n d ’
etre
of the instrument .8th . The fo recasting of all possible eventualities that would
materially affect the agreement, and a full statem ent of everything that 1 5 to be done in case of each eventuality .
9th . Penalties for failure to comply with the various termsof the agreement .
l oth . Provis ion for possible cancellation of contract .1 1 th . Provision for settlement of all business relations co y
ered by the contract or resulting therefrom in case of cancellation, taking into account all possible important even tualit iesf
1 2th . M ention of the place where the agreement is drawnor of the place where it is to be put in force, so as to show the
state under the laws of which the validity of the contract is tobe determined, should suit be necessary to enforce it .
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1 3th . Methods of payments, if any are to be made .14th . Provision for extra compensation and the limitations
connected therewith .
1 5th . Provision for possible changes in contract .l oth . Provision for transfer of the contract or for sub-let
1 7th . Pro v1 51 o n for settlement of disputes .1 8th. Provis ion for satisfactory and sufli cien t bond, if any
be needed .
1 9th . Provision for defense of lawsuits, i f such pr o v1 s1 o nbe necessary .
20th . Defin it io n of names used in contract such as Eu -f
g in eer,” “Company,
” “Contractor,” or “Trustee .
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2 1 5t . Dating of contract .22n d . Proper sign atures with the necessary seals, i f the
latter be required .
23rd . Witnesses to the signatures, or execution before a
notary public .
I shall now take up and d iscuss in the order of their enumerat io n each of these essentials to a properly drawn contract .
l st . The styles of opening clause for contracts are bothn umerous and varied, and it is d ifficu lt to say Which is the best .Each writer naturally will have one favorite style and will adhere to it whenever possible . M ine for many years has been asfollows : In order to make it more readable I shall fill out thespaces with some assumed names and a date . )MEMORANDUM OF AGREEMENT, made and signed
this eleventh day of February, 1 905, by and between the KansasCity Bridge and Terminal Railway Company, a corporation ofthe State of M issouri, the party of the first part, and sometimestermed in this agreement and in the specificat io n s the
“Company,
” and The Western Contracting Company, a corporationof the
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State of Kansas, the party of the second part, and sometimes termed in this agreement and in the specificat io n s the“Contractor .Wait recommends the two following forms of introduction :This Agreement, made and entered into this eleventh day
of February in the year of 1 905 by and between, etc ., etc .Articles of Agreement, made and entered into between The
Kansas City Bridge and Terminal Railway Company, a corporation, etc ., etc ., and The Western Contracting Company, a corpo rat io n , etc . , etc ., on this eleventh day of February, 1 905.
After the introductory clause comes the preamble, and immed iately after it I insert in capital letters
“NOW THIS AGREE
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MENT WITNESSETH, and follow w ith consecutively numbered clauses that embody all the terms and conditions o f the contract, then close with provision for the signatures and seals of theco ntracting parties and witnesses to these signatures .
2n d . In descr ibin g the .various parties to an agreement,
care should be taken to make the description full and convincingin order that there shall be no possible mistake concerning the
iden tity of each party . This is effected in the case of an individual by stating his occupation and place of residence, in the caseof a firm by naming it fully, ment ioning its place of business,an d describing the kind of partnership, an d in case of a company by giving its legal title and the name of the state or coun~try where it was incorporated . In case of a partnership it issometimes well to speci fy whether it is general or special inrespect to the work covered in the contract .While most contracts are drawn between but two parties, it
somet imes occurs that an agreem ent will involve three or evenmore . Such a contract is much more complicated and d ifficultto draft than one between two parties on l y .
Each party should be designated in the instrument by hisspecial number, as the party of the first part or the party of thesecond part and in addition it is well to give each another designation, such as Contractor,
” “Company,” “Owner,
” “Engineer,”
“Promoter, Board,” “City,
” “Incorporator,” or Trustee” in
order to avoid the use of to o many words throughout the document, as would be the case were he always referred to as theparty of the fir st
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o r second part . In order to make assurancedoubly sure it is well in some cases to defin e the terms “
Co n t rac
tor,” “Company,
” Engineer,” “Promoter,
” etc . , at the end aswell as at the beginn ing of the document . In any case these ex
plan ato ry clauses should be placed at the begin n ing or the endof
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the specificatio n s, because the latter are often used withoutthe contract being attached .
There is no strict ru le as to the order in which the severalparties shall be placed, but it is customary to make the one whopays the money the party of the first pa rt . In case of employerand employee the employer should come fir st . In other casesit is a go od rule to put the most important pa rty fir st and theothers as nearly as may be in the order of the impo rtan ce o f
their relation to the enterprise or obj ect matter of the agreement.There is a consideration of primary importance in contract
writing that is sometimes overlooked, viz . , whether the partiesto the agreement arel eg ally entitled to enter into cont ract . Fo r
instance, in the ca se of a company, the president or general
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manager, or perhaps either can sometimes legally contract inthe company’
s name, but sometimes he cannot, in which case, ifhaste be esen t ial, it would be proper to have him enter into ands ign the contract and afterwards have it formally approved ata meeting of the board of directors . A properly cer t ified copyof the board ’s approval should subsequen t 1y
~be attached to thecontract . Access to its charter and by -laws is generally n eces
sary to determine who has authority to enter into and sign co n
t racts ' for a company .
In contracting no corporation can exceed the limit o f,
its
powers as given by its charter . I f it attempts to do so , its actwill be u ltr a wires and without effect ; consequently it behoovesone in writing a contract w ith a corporation first to study wel lits charter, articles of incorporation, and by - laws .
Contracting with unincorporated organizations as parties,such as associations, clubs, societies, or congregations, is a precarious business nevertheless it often has to be done . In ordert o ensure the payment of money obligations by such parties asufficien t - sum sho u ld
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be depos ited in advance in the hands of ar eputable trustee with instructions to pay it to the proper partyor parties as soon as the obligations covered in the contract havebeen met . Otherwise, the other contracting party is liable tolose his entire consideration, because it is very difficu lt to holdlegally an organization that has no legal existence, even if all
the members thereof be individually liable . Here again I speakfrom sad experience, for at the outset of my consulting practiceI lost what I considered then a large fee by dealing with a comm ittee of public spirited citizens, who were not honest enoughto pay their j ust debts after the proposed enterprise had failed .
Even the law did not enable me to collect the bill, as my lawyersdid not present the case to the court in the proper manner .Again, any person under twenty-one years of age, termed 1 1 1
law an infant, who en ters into a contract, has the privilege ofrepudiating it after arriving at the age of maturity, in case thatit does n o t redound to his advantage ; consequently it behoovesthe writer of a contract to make sure in al l doubtful cases thatthe contracting parties are of age . In engineering contracts,however, this question is seldom likely to arise because veryyoung men are not often concerned in a prominent way withimportant enterprises .S imilarly, imbeciles, inebriates, and lunatics are in compe
tent,an d contracts mad e by them are legally voidab le at their o ption . While it i s highly improbable that either an imbecile or alunatic would ever be made a party to an engineering contract,
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it is not impossible that a man chronically addicted to the overuse of l iquor m 1ght be so concerned . Such a map. might pleadthat he was under the in fluen ce of drink when he signed the documen t and thu s po ssibly effect his release from its obligations,consequently the writer of an engineering contract should assurehimself of the temperate character or at least of the sober condition of the parties thereto .
A married woman in some states cannot contract, sue, or besued in her own name . While it is uncommo n for women to beengaged in enterprises involving engineering, it is by no meansimpossible, as I have learned from a hard lesson for in the caseof a contract for the engineering of a large
“and novel enterprise
that I entered into with a certain man, it transpired that he wasacting as agent for a married woman . Before our work wasfin ished the man died, and the woman gave u s notice in writingthat she would assume his share of the contract, and instructedus to fin ish our work . This we did, and she paid u s one-half ofour total fee ; but before the date specified in the contract forthe payment of the second half, the bottom dropped out of thescheme, and the lady then refused to make any further payment .She did not plead her married state as a ju stificat io n for her refusal ; but we knew what we might expect in a legal contest overthe question, consequently we entered the balance on the wrongside of our ledger in the “
Pr o fit and Loss” account .In
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case of war a contract entered into between parties whoare subj ects or citizens of the co n flict in g countries is illegal, andi f war be declared subsequent to the signing of the contract, itso bligations cannot be enforced by law until after the war hasceased . As engineers are often interested in proj ects in foreigncountries, this is a matter that needs to be borne in mind whenpreparing the contracts for such enterprises .When a contract is entered into by an agent, care should be
taken to make this relationship both clear and legal in the document by stating the name of the owner or corporation and following it With the words “acting by and through Mr . X, Agent,Attorney
,Engineer, Pres ident, or Treasurer (as the case may
be) , by virtue of the authority vested in him through power o fattorney of “the (here name the individual or company) datedthe day of 1 9 a copy of Which is hereto annexed,
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in some similar and equally expl icit manner . In th 1 s way thename of the real principal is made certain, the authority of theagent is preserved
,and the possible liability of the agent as the
principal is averted . It must be remembered that no claims o robligations against a principal are created by a contract enteredinto by an agent who acts without proper authority, unless the
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contract be afterwards co n firmed directly or indirectly by theprincipal .Much engineering work is being done and is to be done
in the future by contract with the United States Government.In
making such contracts it is important to notethat although theGovernment may enter suit on its contracts for their enforcement, it cannot,without its own consent, be sued for non-compliance therew 1 th . Instances arenot unknown of repudiation of contracts by governments . Fu r therm o re, public o fficers cannotbe held personally liable for contracts signed by them in theiro fficial capacity .
The names of the parties in the body of a contract shouldcorrespond exactly with the signatures and seals at the end
, fo r
a variation might prove fatal to the validity of the document .3rd . The preamble is a most important portion of any con
tract . It should explain fully all the whys and wherefores of
the agreement and its m iso n d ’
etre. A thorough explanation ofthese would often render clear the intent of a clause in the bodyof the instrument that is otherwise ambiguous .Once more I am speaking from sad experience, for in an
important but hurriedly prepared contract one of the clauseswas n o t drawn with sufficien t clearness, and, in consequence,one of the parties to the ag reement tried to take an unfair advantage of it . Had the preamble explained carefully and in detail the ultimate obj ect of ‘ the contract and the various stepsn ecessary for its accomplishment, the said party would not havebeen able to make the claim he did .
Yo u will be better able t o\ judge of the importance of the
preamble and to understand its scope after hearing read thespecimen contracts that are to conclude this lecture .
4th. Every contract should contain a statement of whenor under what conditions it is to become operative . The datemay be some particula r day of month and year or immediatelya fter,or some defin ite time subsequent to, some act or occurrence,such, for instance, as the g 1v1 n g of wr1 tten n o t l ce, or the depo s1 to t
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a certain amount of money in a certain place, or the com
pletio n of a certain piece of work or the arrival of a rai lroad ata certain point . Whatever the condition precedent
” may be,it should be made clear in the document beyond the peradventureof a doubt .
5th . Too often in contracts nothing i s said co n cermn gthe duration of the agreement or of how it is to be drawn to aclose . In some cases it would be impracticable thus to
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limit thelife of the contract ; but in others it is not only pract 1cable but
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also advisable, and sometimes it is imperative, especially wherea bond for proper completion of work is involved .
6th. The statement of what each party to the contr actbinds himself, his executors, administrators, sucesso rs. orassigns, as the case may be, ‘ to do or to refrain from doingshould be thorough and complete in every detail . The importanceof this is self-evident, nevertheless it is a point that is not alwaysgiven proper attention in contract writing .
In all contracts between corporations or between a corpo ration and an individual, the promises to perform should be madebinding upon the successors or assigns of each corporation, although it is probable that the law would enforce this even if thestipulation be omitted .
In contracts where an individual is a party to the agreementit is best to bind not only h imself but also his executors
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assigns, unless, perchance, the obligation be of such a nature asto be non-transferable, as for instance, the performance of personal duties or services of an expert nature or involving spec
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ialskill . Thus an engineer ’s services are not transferable, unlesssome special pro s isio n be made and agreed to by both partiesthat, in case of his death or inability for good an d sufficien t
reason to fin ish his work, his contract is to be assumed by someother engineer either named or to be determined afterwards inso me specific way . But the death of one member of a firm of en
g in eers will not cancel an agreement ; for as long as one of theoriginal members of the firm remains in charge the contract willhold . In other words, it would require the death or incapacityo f all the original members o f the firm to abrogate the contract,unless special provision to the contrary exist in the writtenagreement .Construction contracts are generally asmg n able, unless they
contain provision to the contrary .
7th . The consideration which each party to an agreemen tis to give and is to recieve should be clearly and fully stated inthe document, otherwise unsealed contracts are l iable to be held
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valueless and void in law . Moreover, the consideration mustbe real, substantial, and adequate . Some lawyers make a - praetice in many cases of specifying a consideration of one dollar,and they even try to pass that dollar around among the severalparties to the agreement by having each party make nominallythat payment to each of the other parties so as to show thateach receives a valuable ( i
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) consideration . In my opinion,such a practice is mere humbug and unworthy of adoption by
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any man pretending to scien tific attainments in h1 s profession, no
mlatter whether that profession be law or engineering . Itsadoption, it seems to me, is pr ima facie evidence of weakness inthe document and a confession by its writer that he has failedto make evident the true
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Consideration that each party is to re
celve and the real reason for each party ’s entering into the agreement .
There may be some excuse for passing the dollar in case ofa parent deeding property to his child, where the true consideration is love and affection ; bu t a dollar does not constitute areal consideration— it would be in sufficien t usually to pay the
cost of typewriting the document, hence its employment is afictio n and a farce .
8th . N0 portion of the work of contract writing requiresgreater experience and ability than the forecasting of all po ssible eventualities that would mater ially affect the agreementand the proper provision for what is to be done in the case ofeach eventuality . All contracts are more or less faulty in thisparticular, for it would require omniscience to forecast all futurehappenings ; nevertheless, in preparing an important contract oneshould endeavor to foresee and provide for all possibilities andprobabilities . The lawyer or engineer who makes a practiceof giving this important matter full consideration in every contract that he writes will soon fin d himself in deman d
_by capi
talists to aid them in making their investments and in co n sum
mating their enterprises . The succeeding examples of contract swill illustrate what I mean by the forecasting of eventualitiesand providing for them .
9th . The matter of penalties is one that has to be handledw ith gloves, for the law is very j ealous of its rights and prer o g at ives, and deems that it alone is authorized to specify andenforce a penalty,which it interprets as a punishment for failureto perform or comply with the terms of an agreement . On thisaccount it is better not to use the term “penalty” in any contract but to employ instead that of “l iquidated damages . ” Inmy practice I have a clause in construction specificat io n s thatreads
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as follows :“For each day of delay beyond the date set in the contract
for completing the entire work herein outlined, all in accordance with the plans, specificat io n s, and directions of the En
g in eer , the Company shall withhold permanently from the Contractor ’s total compensation the sum of
_ ;dollars andthe amount thus w ithheld shall not be considered as a penalty,but as liquidated damages, fixed and agreed to in advance by the
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contracting parties as a proper compensation to the Companyfor the loss caused it by such delay.
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Liquidated damages are but seldom enforced, owing mainlyto the characteristic good nature of engineers ; for they obj ectto taking advantage of a contractor who has worked faithfullybut has been unfortunate . Again, the fact that the sympathy o fj urors is generally with the working man and against corporations is a reason why disputes involving the retention of moneyto compensate for delays are generally settled out of court .
l 0th and 1 1 th . In most contracts for construction andin some other types of contract there is no need to provide for apossible abrogation of the agreement, because the completion ofthe work involved is a natural cancellation but in some othertypes, such, for instance, as partnership contracts that continuein defin itely , full detailed provision should be m ade for annulment at any time . Great care should be exercised to describefully how all current business matters are to be closed and whatcompensation is to be paid to the other party or parties by theparty who desires the said cancellation . To do this in a satisfacto ry manner will require business knowledge and abilityof the highest order.
1 2th . It is quite important in many'
contracts to state wherethe
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instrument was executed and where it is to be put in force,notwithstanding the fact that the residence of each party incase of individuals o r the state of organization in case of corporatio n s has been described in the introductory clause of the document . The laws governing a contract may be determined by theplace where the contract was made or by that in which it is performed . Wait treats this question very thoroughly on pages49 to 51 of his En g in eer in g an d A r chitectural Ju r ispru den ce.
1 3th . Methods of making payments under constructioncontracts are generally covered in the specificat io n s, where, inmy opinion , they properly belong, although I have on severaloccasion s been adversely criticized fo r not putting a paymentclause in the contract proper . In all other types of contractin which payments of mo ney are involved, full provision shouldbe arranged for the exact manner in which all payments, bothpartial and fin al, are to be made . This remark applies
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withspecial force to contracts invo lving engineering fees ; for inthese, if payments on acount are not arranged for, there is achance that the engineers will receive no compensation at alluntil after the completion o f their wo rk, an d this might be de~layed for an in defin ite period . Our usual practice is to ask onehalf of our fee upon the ’
complet io n of the plans and specifica
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t ions and the other half in monthly payments proportionate tothe amount of contract work done on the construction, so thatWhen the latter is fin ished We shall have been paid in full Wehave learned to provide also that we are to be compensated properly for all extra expense to us due to failure to complete thewo rk in the tin ie speC Ificd . I t has c o st u s m an y th o u san d s o f d o l
lars to learn this 1esso n ,co n sequen t ly the hint that I am giving youought to be valuable .
1 4th . In construction contracts the subj ect of extra payments also belongs in the specificat io n s, although in many casesit is covered in the contract
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proper . Our standard clause forthis item reads thus :
“No extras will be allowed, unless they be ordered in writing by the En g in een For extras so allowed the Contractorwill be paid the actual cost to him plus ten ( 1 0 ) per cent. for
pro fit . Satis factory vouchers will be required from the Contractor for all extra labor and materials .
1 5th. It 1 8 a wise precaution to pro vide for making changesin every important contract . om standard clause for this itemis as fol lows :
“No change or alteration shall be made in the terms orconditions of this ag reemen t
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witho u t the consent of both partieshereto in writ ing and no claim shall be made or considered forany extra work, unless the same shall be autho rized and directedin writing by theEngineer .
1 6th . In construction contracts there should always be a
clause to’
govern assigning the contract and sub-letting the
work . Our standard clause for this reads thus : The partyof the second part hereby agrees that it w ill not assign or sublet the work covered in this contract, or any portion of it, without the written consent of the party of the first part ; but willkeep the same within its control . ”
1 7th . In respect to provision for settlement of disputesengineers are somewhat at variance . Some think that the en
g in eer should be the sole arbiter, (but I do not believe that such
an arrangement is j ust, savoring, as it does, altogether toomuch of autocratic rule . I am a firm believer in arbitration forthe settlement of all disputes on important matters, and it hasfor many years been my custom to provide in all constructionco ntracts for such a method of settlement . Our standard clausefor this matter is as follows : “The decision of the Engineer shallcontrol as to the in terprat io n of drawings and specificat io n s during the execution of the work under them ; but i f either partyshall consider itself aggrieved by any decision, it may requirethe d isgu te to be fin ally and conclusively settled by the decision
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of three arbitrators, the fir st to be appointed by the party of thefirst part, the second by the party of the second par t , and thethird by the two arbitrators thu s chosen ;
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In case that the twofir st chosen fail to agree upon a third, the latter shall be appointed byBy the decision of these three arbitrators or that of a maj orityof them, both parties to this agreement shall be finally bound .
”
The person chosen to appoint the third arbitrato r should be someprominent o fficial such as the j udge of a certain co urt, themayor of a certain city, or the governor of a certain state .
It is seldom that an arbitration clause in a contract is utilized, because engineers as a rule are reasonable . Only once1 n my thirty years of practice has it been appealed to . The sub
':ect of dispute in that‘
case was some lumber very properly re
Jected by my inspector as un fit for use . Unfortunately, the re
sult of the arbitration was adverse to my decision, owing to' a
too friendly understanding between the o fficer s of the Companyand the Contractor .Notwithstanding the fact that the contract reads that By
the decision of these three arbit rators, or by that of a maj orityof them, both parties to this agreement shall be fin ally bound,the law has decided that the losing party has still a right to appeal to the courts consequently this clause of our form of contract is not binding . Although I have known this for years, Ihave made no change in the clause to r the reason that at leastnine contractors out of ten prefer arbitration to the delays, uncertainties
,and expense that are inseparable from legal litiga
tion,and I have never heard of a case in which the loser by ar
bit rat io n appealed to the courts . It would simplify matters ifimmediately after an arbitration is agreed upon, each party concerned were to give to the
”
other a bond guaranteeing that he willabide by the decision of the arbitrators .
1 8th .The bond question is a prominent feature of any co n
struction contract and occasionally is important in other typesof contract . My firm has fin ally come to the conclusion that agood Surety Company bond is the only kind that we shall eitherask for or accept in future, for no other kind is so satisfactoryto the Company or is obtained with so little d ifficu lty by theContractor
.All personal bonds are obtained by favor and they
are generally very unsatisfactory, for the solvency of the sureties is d ifficu lt to prove, and to enforce payment is sti ll mored ifficu lt .
Many years ago I had my first and last experiencewitha personal bond
.It was When building my residence that I ac
cepted from the contractor a j oint bond signed by three or four
persons, among them a good friend of mine . This bo nd was ac~cepted by my lawyers, nevertheless, later on when the contractorthrew up the work I found that the only responsible man on thepaper was my friend . As I could not press him, I waived thematter, and in consequence was materially out of pocket ;There is considerable humbug in connection with sureties to
agreements, for a slight change in contract, plans, or specifica
tions is often sufficien t to render the bond null an d vo id . If anyone doubt this statement, let him read what Wait says o n
‘
pages
1 3 to 1 7 of his En g in eer in g an d A rchitectu r al J u r ispr u den ce.
In my opinion, the only way to protect the Company is to insistupon having a bond that will permit of all necessary changes inplans and specificatio n s without releasing the surety, and evensuch a bond might be voided by the law ’s declaring it illegal because it departs from current practice .
There are some very strange things about the law . On twoor three occasions I have been provoked to make the statementthat “laws are made to protect rogues against honest men,
” andtruly it do es seem sometimes as if such were the case . Law andequity are two entirely differ ent things . The less that engineershave to do with the former and the more they employ the latter,the better it will be for all concerned .
In adjust ing disputes I am a firm believer in the principleof compromise, o r, to put it in more homely words, in that of“
g ive‘
an d take .
” It is nearly always practicable to bring twodisputing parties to terms by suggesting a reasonable comprom 1 se.
19th . If, according to a contract, the Contractor is to indemn ify the Company against all liability or damages on accountof accidents, it is only fair that the former should be given theprivilege of assuming the sole defense of all lawsuits arising fromsuch claims . Yo u Wi ll see later how our standard form of contract covers this point .
20th . Themanner of defin in g by special clauses names usedin the contract, such as
“Engineer,” “Company,
” etc ., will beseen later in the various appended examples of contracts .
l t . A contract can be dated either in the opening or inthe fin al clause, or in both . In the latter case it is better not torepeat the date, but to insert the sentence
“Dated the day,month,and year fir st herein written .
22n d . It is important that the signatures coincide exactlyw ith the names of the parties as given in the opening clause ofthe agreement, and that proper seals are attached when they areneeded . If a party to a contract be a corporation, its corporate
1 5
kind of seal will suffica scroll drawn aroundIn the latter case it is better to write in s mall letters theof the signer over the word “seal . ”
Let “me here call your attention to an important andmental difference between c ontracts with and without seals
.
former do not need to have a consideration mentioned in themin order to make them valid, while the latter do require suchmention . In former times there was far greater difference inthe importance of sealed and parole or unsealed ) contracts thanthere is to-day for then a sealed contract could not be m o difiedwithout
‘
taking'
many formal legal steps, while to-day it can bechanged quite readily by a short supplementary contract, provided there be a proper cons ideration mentioned therein for themaking of the change .
23rd . Where the party to a contract is a corporation, the
proper Witness to the Company ’s s ignature is the Secretary of theCompany,who should use its corporate seal for attesting the documen t, but in case the party is an individual any witness willsuffice.
The best possible witness to signatures is a properly authorized notary publ ic ; because if any doubt be expressed concerningthe authenticity of the said signatures, all that is necessary is toprove the notary
’s authority, which is a matter of public record,While for all other witnesses it is obligatory to search for theman d either produce them in person or prove that it is impracticable to do so on account of death or departure from the country ; and in this case it is generally required that there be bro ughtforward reliable parties who will swear that the witnesses
’ signatures are authentic .In the‘ hope that it may prove useful to you and to the read
ers of the pamphlet that later on w ill contain this lecture, I herewith reproduce the standard “
Fo rm for Contract of WaddellHedrick for appending to construction specificat io n s .
thisbetween the the partyof the first part, and sometimes termed in this agreement and mthe specificat io n s the
“Company,” and
the party of the,second part, and sometimes termed in this agree
ment and in the specificatio n s the“Contractor .
”
WHEREAS,
aged , destroyed, or lost from any cause, including, among other s,flood s,washouts, and fires, the Contractor shall repair or replacethe same at his own expense to the satisfaction of the Engineer .Seventh .
-In case the party of the fir st part, notw ithstandingthe failure of the party of the second part to complete its workw ithin the time specified, shall permit the said second party toproceed, and continue, and complete the same, as if such timehad not lapsed, such permission shall not be deemed a waiver inany respect, by the fir st party, of any forfeiture or liability fordamages arising from such non
-completion of said work withinthe time specified, and covered by the “Liquidated Damages”
clause of the specificat io n s ; but such liab ility shall continue infull force against the said second party, as if such permission hadnot been granted .
Eighth—No change or alteration shall be made in the terms
or conditions of this agreement without the consent of bothparties hereto in writing ; and no claim shall be made or co n sidered for any extra work, unless the same shall be authorized anddirected in writing by the En gineer .Ninth .
—In the event , of any delay in completing the workembraced in this contract, the party of the second part shall beentitled to no extra compensation on account of such delay ; asit is hereby assumed that in submitting its tender it took itschances for the o ccu r ren ce
‘
o f such delay . If, however . in theopinion of the Engineer, the Contractor be delayed by any act ofthe Company to such an extent as to cause him serious hardship,such as a temporary cessation of the work, the Company shallallow the Contractor whatever compensation for such delay asmay appear to the Engineer to be just and equitable .
Tenth .
—The party of the second part hereby agrees that itwill not assign or sublet the work covered in this contract, orany portion of it , w ithout the written consent of the party of thefirst part ; but will keep the same within
'
its controlEleventh .
—The decision of the Eng ineer shall control as tothe interpretation of drawings and specificatio n s during the execu t io n of the work under them ; but i f either party shall con sideritself aggrieved by any decision, it may require the dispute to befin ally an d conclu sively settled by the decision of three arbitrators, the fir st to be appointed by the party of the fir st part thesecond by the party of the secon d part, and the third by the twoarbitrators thus chosen . In case that the two fir st chosen fail toagree upon a third, the latter shall be appointed by
By the decision of thesethree arbitrators or by that of a majority o f them, both partiesto this agreement shall be fin ally bo und .
1 8
Twelfth—As, according to the terms of the accompanyingspecificat io n s, which form a part of this contract, the party ofthe second part is to indemnify the party of the fir st part againstall liability or damages on account of accidents occasioned by theomission or negligence of itself, its agents, or its workmen during the continuance of this agreement, and against all claims forroyalties on patents ; it is hereby agreed that the party o f thesecond part shall be promptly and duly n o t ified in writing by theparty of the first part of the bringing of any such suit or suits,an d shall be given the privilege of assum ing the sole defensethereof . The party of the second part is to pay all judgmentsrecovered by reason of accidents or patents in -any suit or suitsagainst the party of the fir st part, including all legal costs, courtexpenses, and other like expenses .Thirteenth .
—The Contractor further agrees to g 1 y e to theCompany as surety—company bond, satisfactory to the party of thefirst part in the sum offor the faithful performance of this contract and the specifica
tions, and of all the terms and conditions therein contained, andfor the prompt payment for all materials and labor used in themanufacture and construction of the structures, and to protectand save harmless the Company from claims on patents andfrom all damages to persons or property, caused by the negligence or claim of negligence of the Contractor, his agents, servants, or employees in doin g the work, or in connection therewith,and from injury to or loss of materials paid for by the Companyeither partially or in full before the completion and acceptance ofthe construction or con structions .Fourteenth .
—The word “Engineer as used in this contractrefers to the Consulting Engineers of the
or their duly authorized representative .
IN WITNESS WHEREOF, the parties to this agreementhave h ereunto set their hands and seals .Dated the day,month and y ear
‘
fir st herein written .
WITNESSED BY
The ninth item of this form, as originally written withoutqualificat io n has been severely criticized on more than one occasion because of alleged unfairness . I refer to the clausewhieh reads In the event of an y delay in completing the work
1 9
embraced in this cont ract, the party of the second part shall beentitled to no extra compensation on account of such delay ; asit is hereby assumed that in submitting its tender it took itschances for the occurrence of such delay .
” I admit the onesidedness of this clause and that if it were enforced to the letterby a narrow-minded or unfair engineer, it might effect a hardship upon the Contractor nevertheless, as a matter of policy westill leave it in our construction contracts in order to preventcontractors from constantly making claims for extras on accountof trivial delays ; but, i f a delay were of such importance as tonecessitate a partial or total shutting down of the work, wewould certainly see that the Contractor is compensated for theextra expense to which he is put by stopping and re-starting construction, for in our dealings w ith contractors we aim always toact the part o f ‘”
j udge and not that of partisan of the Company .
Once in a while it becomes necessary for a Company to letwork on the basis of actual cost plus a percentage for pro fit , an din this case special care has to be taken to cover all possible deta ils and eventualities in order to protect the Company from ext o r t io n and needless expense . This manner of letting work isvery favorable to the Contractor, but is troublesome and expen
sive for the Engineer and rather risky for the Company . Undercertain conditions, however, it is the only way in which the workcan be let at any reasonable figu re, such conditions, for instance,as govern railroad or bridge construction in a tropical countrywhere fevers are prevalent and where the conditions affectingthe cost of construction are practically unknown . My firm hasacted as engineers on such work, and, consequently, we havelearned by experience how contracts therefor should be prepared .
The following is the type of contract that we would draft forsuch a case .
Let u s assume that there is a railroad being built in the
tierm calien teo f Mexico from Matamor as on the American border through or near Tampico and Vera Cruz to the border ofGuatemala, by an American Company organized in West Virginia under the name of the Mexican Gulf Coastline RailwayCompany, and that it desires to let to the Central Bridge Company of Kansas City,Missouri, the contract for building the substructures of all bridges and all the culverts on the line and forerecting all the superstructures, the metal for which is to be furn ished and delivered at the b r idge sites by the Company . Let u sassume also that the basis of the contract is that the Contractoris to be paid the actual cost to him of the entire work plus fifteen
( 1 5) per cent for pro fit .
Under such conditions we would prepare specificatio n s o f
20
our standard type, with possibly a few m o dificat io n s, and wouldattach them to the following contract :MEMORANDUM OF AGREEMENT, Made and Slgned
this fourteenth day of March, 1 905, by and between the MexicanGulf Coastline Railway Company, a corporation of the State ofWest Virginia,U . S . A ., an d havin g its principal business otheein New York City, N Y . , the party of the first part, an d sometimes termed in this agreement and in the specificat io n s the“Company,
” and the Central Bridge Company, a corporation ofthe State of Missouri,U .
‘
S . A ., and having headquarters at Kan
sas City,Mo ., the party of the second part, and som t imes termedin .this agreement and in the specificat io n s the Contractor .
”
WHEREAS, The party of the fir st part has already begunthe construction of its road at several points along its line,Whichstarts from the American border at Matamoras , Mexico, andparallels the Gulf coast, running near the cities of Tampico,Tuxpan, and Vera Cruz, and extending to the border of Guatemala, andWHEREAS, The party of the fir st part has already entered
into contract w ith certain American firm s for the manufacture ofthe metalwork for the superstructure of all the bridges requiredfor its entire line, andWHEREAS, The party of the first part desires to let to
some reliable American contractor the contract for building allthe bridge piers, abutments, and culverts and for erecting all thesuperstructures of bridges on the entire line of its road, andWHEREAS,The party of the second part makes a specialty
of building the substructures and superstructures of bridges, andhas had a wide experience in this line of construction,NOW THIS AGREEMENT WITNESSETH :
First . -The party of the second part, for and in consideration of certain payments to be made to it as hereinafter specified,will furnish all the materials for and construct complete all thebridge pier s,
‘
abu tmen ts, and culverts, will erect and paint all themetalwork for the superstructure, and will furnish and pu t inplace all the flo o r in g for the bridges of the entire line of the saidrailway, all in accordance with the specificat io n s, hereunto an
n exed and made a part hereof, and with the plans and directionsOf the Engineer .
Second .
—The party of the second part shall commence thework of construction as soon after the signing of the contract as
'
it is practicable to begin, starting at as many different po intsalong the line of the road as the Engineer may direct,an d shallpush the same to completion as rapidly as possible .
21
Third .—In consideration of the performance by the party
of the second part o i“
its covenants an d agreements, as hereinbefore set forth, the party of the first part hereby covenants andagrees, for itself, its successors, and assigns, to pay to the partyof the second part for the furnishing and completion of the entire work the actual cash cost thereof plus fifteen per cen tfor pro fit .In computing the cost of the work, there shall be included
all items of materials, labor, and transportation of men,materials,and plant to and fro, but no allowance wi ll be made for cost ofplant or deterioration of same, or for the t ime or personal expenses (other than railway and Pullman fares ) of the party ofthe second part, or for interest on money required to carry on thework . Accident insurance for employees, insurance against lossof materials or plant by fire or shipwreck, and all stamps for documen ts, and taxes of all kinds shall be considered items of leg it imate expense, and shall be allowed for by the Engineer in themonthly estimates, as shall also the cost of housing the workmen,but not their sustenance .
By the term“Plant is meant all machinery an d apparatus,
new or second hand, such as engines, dredges, diving apparatus,pile-drivers, w ire rope used for tackle, blocks, forges, rivetingapparatus, and blacksmith
’s tools that are of a permanent naturebut does not include such perishable materials as hemp rope, rubber hose,wheelbarrows, bolts, shovels, rubber boots, an d all othertools and apparatus of a tempo rary nature . The decision of theEngineer shall control as to what is and what is not “Plant,
”an d
his decision shall be fin al .
In respect to repairing plant and tools it is understood thatall minor repairs that are done by the blacksmith and other em
plo y ees of the Contractor are to be charged to the Company, asare also repairs during construction to the perishable parts o i
the plant and tools, such for instance, as the t imber for pile‘
drivers, the easily broken parts of riveti‘
ng machinery, and pipes .
for boring o u tfit ; but when the work of the Contractor is fi n
ished there Wi ll be no allowance made to him for the deterioratio n of his plant, nor will he be allowed to put it into thoroughrepair at the expense of the Company j ust before he completesthe entire construction . When this completion occurs all plantis to be the property of the Contractor, and all other apparatusof any value and all surplus materials are to be delivered to theCompany as per the directions of the latter . But the Companyreserves the right to purchase from the Contractor any of hisplant at its actual value where it was bought less a proper allow
22
ance for depreciation and the Engineer is to be the sole arbiterconcerning the actual value of such plant in case that the Company and the Contractor fail to agree thereon .
No sick or incapacitated em ployee shall be 1 n cluded on theContractor ’s pay-roll w ithout the written consent of the Eng ineer in each and every case .In respect to traveling expenses for employees, none shall be
paid for the j ourney to the work until after the employee hasbeen on the work for three (3 ) months ; and no return expensesshall be allowed unless the employ ee has been discharged on ac
count of no fault of his own, or until he has worked for the Company at least twelve ( 1 2 ) months . The traveling expenses al
lowed shall cover nothing bu t the railroad fare, except that inthe case of the Contractors and their regularly salaried employeessleeping car charges also shall be borne by the Company .
The men ’s t1me spent in traveling from the U. S. to theirwork is to be paid for in case they remain three (3 ) months o r
more continuously thereon otherwise there w ill be no allowancefor time spent in traveling . In no case will any workman beallowed compensation for the
utime spent in returning home . No
employee discharg ed for incompetency ,or misbehavior shall be
allowed any return traveling expenses .If during the progress of the work, 1 n the opinion of the
Eng ineer, its prosecution is being delay ed by reason of these restrictions concerning traveling expenses, the said restrictions maybem o dified or removed altogether by the mutual consent in writing of the two parties to this agreement, but in this manner only .
N0 material is to be paid fo r until after it is delivered at site,unless the Company shall have had it in its possession for overthirt y (30) days .
Medical attendance and medicine at site will be paid for bythe Company ; but no other medical or hospital expen ses will beallowed and the Company w ill bear all expenses connected withproviding boiled and filtered or condensed water for drinkingpurposes .The comm issariat department shall be considered as a thing
apart from this contract . The Contractor shall manage it at hisown expense, and shall charge enough for board to reimbursehimself for the entire outlay connected therewith and to providea
/
pro fit not exceeding fifteen ( 1 5) per cent . A t the same timethe Company shall insist that all employees be properly fed . TheCompany will make no charge for hauling comm issiar iat supplies for the Contractor over its own lines . In respect to theproper feeding of employees and a reasonable price for bo ard,
23
the Engineer shall be the sole arbiter in case that any disputear ise ; an d to this en d the Contractor
’s commissariat books shallalways be open to his inspection .
In order to keep the accounts straight, all payments made inMexico for labor and materials are to be in Mexican money, bu tthe Engineer’s monthly estimates are to be made in Americanmoney, the rate of exchange to be adopted in effecting the re
duction being that ruling in the City o f Mexico on the date o fthe Engineer ’s estimate .
All bills for materials pu rchasc 1 1 u t s ide of the Republic ofMexico, exceeding in amount hy e tho u san d dollars 000 .00)in gold, after being appr o ved by the En gineer, shall be sent direct ly to the Company for payment ; but the Contractor shall receive his fifteen ( 1 5) per cen t pr o ht upon them .
Tools and other supplies may be furnished the Contractorby the material departmen t o r the Company, in which case theGo n t racto r shall receive his fifteen ( 1 5) per cent pr o fit
'
o n thewholesale cost to the Company of any materials upon which
pro fit would be allowed, were they purchased elsewhere .The Contractor ’s books
‘
shall at all times be open to the 'n
spect io n of an expert accountant or accountants appointed by theCompany to investigate the accounts .The methods and times for payments shall be as described
in the accompanying specificat io n s, which form a part of thiscontract .
Fourth .
—The number of men to be sent from the U . S . , A .
to the work and their salaries or wages shall be subj ect to theapproval o f the Engineer, and he shall be sat isfied as to their fit
ness before they are engaged The number of men to be employed at each site shall also be subj ect to the Engineer ’
5 a'
p»
prc Jal . He may order that the number be increased if, in hisopin ion, there a re not enough, or that it be decreased, if it be to o
for economic working .
he Contractor shall purchase ‘plant and materials in ad
vance of they . r equirements, so as to have no idle men on ,the
work . In case that he fail to do so , the Engineer shall have theright to prevent the Company from loss of money because of suchfieg ligen ce, by making an equitable reduction in the monthly ,
paymen ts .The Engineer shall appro ve the purchase of all materials
o btained outside of the Republic of Mexico and all importan tpurchases of materials in same . The decision as to what pu rchases are important and what are not sha ll rest with the En
24
pied ’
by the structures and by the materials thereof during construction, free from cost, damage, or claim for damage of an ykind whatever .Seventh .
—No change or alteration shall be made in the
terms or conditions of this agreement without the written co n
sent of both parties hereto .
Eighth—The party of the second part hereby agrees that itwill not assign or sublet the work covered in this contract or anyportion of it, without the previous written Consent of the partyof the first part ; but w ill keep the same within its control . Itwi ll not be the policy of the Company to permit any sub-lettingby the Contractor, because its principal obj ect in letting this contract for cost plus a percentage for pro fit 1 5 to avail itself of thesaid Contractor ’s experience, constructive skill, and ability to
handle men and work .
Ninth .
—If the Engineer should fin d occasion to rej ect an din s1 st upon the removal and replacement of any portion of thecompleted or partially completed work, and if, in his opinio n,the Contractor is to blame for the defects, the cost of such re
moval and replacement is to be deducted by the Engineer fromthe Contractor ’s monthly estimates .Tenth .
—If during construction it appear to the Engineer thatthe Contractor is not making proper progress on account of insufficien t plant, labor, materials, supplies, or energy, the Company shall give the Contractor notice in writing that it is not satisfied with the progress that is being made, explain its conceptio nof the reasons for the delay, and suggest remedies therefor . Thenif, after the expiration of twenty (20) days, the Engineer reportsthat the Contractor has not taken the steps indicated by the Company as necessary for a satisfactory prosecution of the work o r
other steps which, in the opinion of the Engineer, will pro veequally effective, the Company shall have the right, after givingthe Contractor a further twenty (20 ) days
’ notice in writing, toundertake itself, e ither by administratio n, or by letting the co n
tract to other part ies, the completion of the said wo rk which isthus being neglected .
Under these circumstances the Company shall have the r ightto enter upon and take possession of the plant, tools, materials,and supplies of the said Contractor, or any part thereof and insuch case the Contractor shall be allowed a fair price for theuse of all plant returned, and compensation in full for any portion thereof used up or expended on the work.
This provision shall apply to the entire work involved in thecontract as well as to any portion of it ; which means in effect
26
that if, in the opinion of the Engineer, the Contractor does notmake a practice of prosecuting his work with due diligence, thoro ughn ess, or economy, the Company shall have the right to fin ishthe said work in the manner provided in this clause of the agreement.Eleventh .
—The decision of the Engineer shall control, etcetc . (This clause is taken without change from Waddell andHedrick’ s standard form previous ly quoted) .
Twelfth .—(This also is from our standard form and covers
the question of defense of lawsu its . )Thirteenth .
—Whenever the reserve of ten ( 1 0 ) per cent ofthe monthly estimates, provided for in the contract, amoun ts tofifty thousand dollars the Company shall pay tothe Contractor twenty-five thousand dollars on ac
count, so that at all times after the first quarter mill ion dollars ’
worth of construction is allowed for in the estimates, there shallbe a reserve in the Company ’s hands varying in amo unt betweentwenty-five thousand and fifty thousand dollars .
Fourteenth .
—The Contractor further agrees to give to theCompany a good and satis factory surety-company bond in thesum o f fifty thousand dollars gold for the faithfulperformance of this contract according to the specificat io n s, andfor the prompt payment for all material and labor used on thework, and to protect and save harmless the Company from alldamages to persons or property caused by the negligence, orclaim of negligence, of the Contractor, or his agents, servants, oremployees in doing the said work or in connection therew ith,the form of the said bond to be satisfactory to the Company . Incase though, on account of the construction being done in a foreig n country, there be experienced special d ifficu lty or expensein obtaining a satisfactory surety-company bond, the Con tractorshall deposit with some Trust Company of New York City, tobe named by the party of the first part, securities to the fullvalue of fifty thousand dollars as a guarantee instead of the aforesaid bond, which securities shall be satisfactoryto the party of the first part . Whatever surety be decided upon,it shall continue in full force during the existence of this contract ; and it shall not be waived or voided by any change in the
plan s,.
specificat io n s, or amount of work in volved, nor by anychange in the
'
co n t ract itself that, in the opinion of three arbitrators, (one appointed by the surety-company, one by the party ofthe first part, and the third by the two arbitrators thus chosen ) ,is not in equ ity
'
a good and sufficien t cause for the cancellationof the surety . All these conditions will have to be agreed to inadvan ce by the proposed surety company, or else its surety will
27
not be considered by the party of the first part ; and in case o f acash or equivalent guarantee, the party depositing the same Willhave to agree to the said condit io ns .
Fifteen th .
—In case of any arbitration, i f the two arbitratorsfirst chosen refuse or fail to decide upon a third, the latter shallbe appointed by the Mayor of New York City .
Sixteenth .
—The word “Engineer ’
as used in this contractrefers to the Consulting Engineers of the Mexican Gulf Coastline Railway Company or their duly authorized representatives .Seventeenth .
—Either party to this ag reement shall at anytime have the right to make this contract a public contract according to the laws of the Republic of Mexico .
Eighteenth .
—In case that at any time the Company decidesto discontinue either temporar ily or permanently the construct io nof its railroad or bridges, it shall have the right either to orderthe Contractor to ceaseoperations until further notice or t o can
cel the contract . In the first case the Company shall pay all theexpenses for closing down, storing, and taking care of the plant,and starting work again, also what, in the opinion of the Engineer, 1 s a proper allowance for interest on cost of plant while it isout of use, tog ether with fifteen ( 1 5) per cent on these amo untsfor pr o fit ; and in the second case the Contractor is to be paid infull for all work done and materials furnished up to the date o f
cessation besides the ent ire cost of transpo rting the men an d
plant back to Kansas City,U. S. A ., with the usual fifteen ( 1 5)per cent added for pro fit .IN WITNESS WHEREOF, the parties to th1 s agreemen t
have, in the City of New York, hereunto set their hands an dseals.
Dated the d ay ,m onth an d y ear fi r s t h erein written .
A ttest.
The Mexican Gu lf Coas tline RailwaySecreta ry o f th e Mem ca n G u lf Coas t Com pany .
line Railway CompanyP resid ent.
Secretary o f the Central B rid g e C om The Central B ridg e Com pany ,f
pany .
'Seal'
Yo u may have noticed that while this contract conta in s manyclauses that are not included 1 n the ordinarycontract, the latter has certain provis ionsformer, notably a clause for
“liquidated
28
for this omission is that under the assumed conditions it was impossible to set any dates for the completion of the various structures or of the entire work
’
involved, hence no penalty could bedemanded .
I desire to call y our attention to a feature of this method ofletting work on a percentage basis that is, perhaps, foreign tothe subj ect of the lecture, viz . , the unusually large amount oflabor that it involves for the engineers, who, in addition to theirordinary duties, have practically to assume the functions of adm in ist rato rs . For this reason their fees on such work should begreater than on ordinary contract construction .
As it is my intention to send to each of you later a copy ofthis lecture, I am going to ask that you study the preceding contract carefully and check it aga ln st the list of requirements thatI have given for scien tific contract-writing, in order to seewhether anything of importance has been omitted and how thoroughlythe document has been prepared . This suggestion will applyalso
,
to all the succeeding examples of contracts . Such a studywill do far more to teach you how to prepare proper contractsthan would the listening to twenty lectures . Yo u could, i f youso desire, carry the study still further by assumin g all the conditions precedent for some other type of contract, then preparethe document so as to embody in it all the principles and important features that I am advocating . On account of your in ex
perien ce in the business features of engineering, your productions would naturally be somewhat c rude . but the ben efit to yourselves from the prepa
‘
r t io n of such essays would be very great,especially if you were to submit them for criticism to some goo dlegal authority .
Contracts lo o kin g to the development of large enterprisesare not uncommon, but the attendant conditions are generallyrather vague and uncertain hence the drafting of a proper agreement between the various part ies concerned is quite a diflicu ltmatter .
Let u s assume that there is a proj ect on foot to build in Colorado a large dam across Lonetree Gulch for the double purposeof ir rigating the lands below the site and of developing electric power to be transmitted to Denver ; and that a companynamed the Lonetree Gu lch Development Company has been dulyorganized -under the laws of the State of Colorado by JohnSmith an d Arthur Jones, real estate brokers of Denver, for thepurpose of consummating the en terprise . Let u s assume also
that thesemen in doing the preliminary work necessary to securethe charter, after spending four thousand dollars
29
have exhausted all of their resources, and that, in o rder to brin gthe proj ect into proper shape to present to fin an ciers, considerable expensive engineering work is essential . On this accountthey have gone to Wallace and Henderson, Consulting Engineersof Kansas City, Mo . , who make a specialty of engineering largeenterprises, and requested their assistance . These engineers havecalled in Green and Rob inson, electrical engineers, also of Kansas City, Davidson and Osgood,masonry contractors of Chicago,and Holman and Curtis, grading contractors, of Denver ; toshare with them the expense of doing all the preliminary work,which they estimate will cost six thousand dollars in actual cashwith no allowance for personal engineerin g services .
The original promoters have agreed to deliver to the engineering and contracting firm s eighty (80) per cent of their entireholdings in the enterprise, in compensation for the engineeringwork necessary to prepare a presentation of thescheme so thoroughly drawn that it w ill receive due consideration from capitalist s . The two contracting firm s have agreed to subscribe sixthousand dollars each to the general fund . The twoengineering firm s are to receive three thousand dollars00 ) each as compensation in full for their cash outlay, and are todevote their time and attention to the preliminary work continu o u sly till its completion .
It is understood that the Lonetree Gulch Development Company has organized and has held sufficien t meetings to enable itto secure from the State o f Colorado the charter for constructing the dam, irrigation system, and power plant, but that nostock has been issued, only enough having been subscribed forto qualify the board of directors . The
,
promoters value theircharter and the recorded results of the work that they have doneat fifteen thousand dollars but are willing to d ispose of eighty (80) per cent of their entire holdings for a preliminary cash payment of four thousand dollars an d
eight thousand dollars to be paid to them by the twocontracting firm s and the two engineering firm s j ointly immed iately after the enterprise is fin an ced and compensation for theirpast and future work is assured .
It is understood also that, as the Lonetree Gulch Development Company ’s charter will expire in about six (6) months,the original promoters are to have its privileges extended by theState Legislature for another three years, and that this must bedone before the fir st payment of four thousand dollars 000 .00)o n account will be made by the purchaser s .
3 0
The eighty (80 ) per cent of their holdings that the promoters sell is to be divided equally among the four buyers, so thateach engineering company, each contracting company, and theoriginal promoting compan y
‘
shall hold twenty (20 ) per cent ofthe capital stock when it is distributed, which will be after thepreliminary engineering work is done and before the fin an ciers
are approached .
After pay ing the promoters four thousand dollars00) on account and the engineers six thousand dollarsto re imburse them for their cash expenditures, there will be lefttwo thousand dollars out of the twelve thousanddollars subscribed by the two contractors . Thisbalance is to be held by the Consulting Engineers to defray traveling and other expenses incident to the fin an cin g of the pro jectafter the preliminary engineering work and estimates are completed .
It is further understood that the bargain made'
with the
fin an cier s is to be conditioned on Wallace and Henderson beingretained as principal engineers o f the enterprise, with Green andRobinson as consulting electrical engineers, and that the totalcompensation for engineering is to be not less than five (5) percent of the entire cost of the work, including right-o f—way an d
all other expenses connected with the consummation of the ehterpr ise and completion of the construction, which fee is to bedivided between the two firm s in the ratio of the contract pricesof the portions of the construction under their respective jurisdictions . It is also conditioned on the understanding that thecontract for the masonry dam and for the construction requiredfor power development and transmission is to be given to Davidson and Osgood, and that for the irrigation works and any othe rconstruction that there may be to Holman and Curtis, at schedule rates determined by the Consulting En gineers on the basis o festimated actual cost plus twenty (20 ) per cent for pr o fit .It “is understood that in dealing with the fin an ciers, the latte1
will demand a large portion of the capital stock, an d that the exact amount thereof which they are to receive w ill be settled bymutual agreement between the fin an cier s on one side an d the
hy e interested parties on the other, and that the decision of a ma
j o r ity of the five in respect to this an d all other matters in cont ro versy shall govern . After the am oun t o f stock to be reliu
qu ished is determined, each o f the hy e equal holders of the entirestock shall relinquish the percen tage of his holdings that has beenagreed upon .
0
Under the preced in g: circumstances and co n d it l o n s the fol
3 1
lowing is the draft of con tract that I would make to defin e andsecure the interests of all con cerned and to prevent, i f possible,the fin an cier s from taking m o re of the cream of the enterprisethan the amoun t to which they a re justly entitled .
MEMORANDUM OF’ AGREEMENT, Made and signedthis twentieth day of March, 1 905, by and between John Smithand Arthur Jon es, the party of the fir st part and sometimestermed herein the “Incorporators, real estate brokers of Denver,Colo ., and sole own ers of the stock in the Lonetree Gulch DeveIOpmen t Company, a corporation of the State of Coloradoand the firm of Wallace and Henderson , Consulting Engineers,of Kansas City,Mo ., the party of the second part, and sometimestermed herein the “Con su ltin g En g in eers an d the firm of Greenand Robinson, electrical engineer s, of Kansas City, Mo . , theparty of the third part ,an d sometim es termed herein the
“Elect r ical Engineers ; an d the firm o f Davidson and Osgood, maso n ry contracto rs, of Chicago, Ill . , the party of the fourth part,and sometimes termed herein the “Masonry Contractors ; andthe firm of Holman an d Cu rtis, gradin g contractors, of Denver,Colo the party of the fifth par t, and som etimes termed hereihthe “Grading Contractors .The four firm s, viz . , Wallace an d Henderson, Green and
Robinson, Davidson an d Osgoo d, and Holman and Curtis, re
spect ively the secon d, third fo u rth, an d fifth parties to this agreement, are sometimes heremafter termed the “Purchasers,
” thefive parties to the co n tract are hereinafter sometimes termed collectively the
“Syndicate,”
an d the fin an cier s who will later berequested to subscribe the money fo r the construction will betermed for conven ience the “
Bankers .
”
WHEREAS,The party of the first part as incorporators andsole stock—own ers of the Lonetree Gulch Development Companyhas obtain ed from the State of Colorado a charter permitting itto build a dam across Lo netree Gulch
'
at a point to be selected byits engineers fo r the purpose of irr ig ating certain lands and develo pin g an d transmitting power, an d
WHEREAS, The par ty'
o f the fir st part has spent in cashsome four thousan d dollars on preliminary surveysand borings, andWHEREAS, The party of the fir st part recognizes the fact
that, in order so to present its pro ject to capital ists as to inducethem to subscribe fo r the bo n ds of the Company, it is necessaryto do considerable expensive eng in eer ing work and to preparefrom the results of it prel iminary plans, specificatio n s, estimatesof cost, estimates of revenue, an d other papers ; and has in con
32
neering work required for putting the proj ect in proper condition to present to capitalists ; including surveys for the darn ,i rrigating ditches, and transmission line for power ; borings forthe foundations of the dam ; plans and specificat io n s for the dam,
i rrigation system, and power development and transmission ; 3complete detailed estimate of cost of the entire enterprise, including right-o f-way, land, construction, vmachin ery , legal fees, ad
ministration, and engineering ; a complete and detailed estimateof probable earnings and an exhaustive and
~'
well drafted pro spectus .
C . To do their best (with the aid of the Incorporators )to fin an ce the proj ect and to secure bonuses and other aid fromthe U. S . and State Governments and from individuals whowould be directly ben efited by the consummation of the enterprise and thus by the united efforts of the entire Syndicateto secure the necessary money to build the said dam, irrigationsystem, and power plant .
Third .—The parties of the second and third parts, in co n
sideration of certain remuneration hereinafter .mentioned, hereby agree to do at their own expense all of the before-mentionedpreliminary engineering work, includ ing the making of all surveys, borings, plans, and estimates, and the preparation of theprospectus and to give to the said work their undivided attention and the full ben efit of their experience and professionalskill . They also agree to fin ish in the shortest practicable t imeconsistent with thoroughness the entire work previously de
scribed .
Fourth .
—The parties of the fourth and fifth parts herebyagree to deposit in the hands of the party of the second part sixthousand dollars each so as to form a working capital of twelve thousand dollars which capital w illhereinafter be termed the
“Purchasers ’ Fund .
” This fund isto be utilized in making the first payment of four thousand dollars on account to the Incorporators, paying for thepreliminary engineering work, and presenting the fully preparedproj ect to the Bankers .F1 fth -The parties of the second and third parts are to be
paid o u t of the Purchasers ’ Fund the sum of six thousand do llars 000 . to be divided equally between them as compensation for their cash outlay in connection with the preliminar
y
engineering work described previously ; and this amount is t obe paid to them as soon as they deliver to the Syndicate the complete papers for submission to the Bankers .Sixth .
—As soon as the preliminary engineering work Is
34
fin ished and the various papers depending upon it are prepared,a copy of each of the said papers shall be delivered to each member of the Syndicate, and within ten ( 1 0) days from the dateo f such delivery the Incorporators shall issue ‘
an d distribute tothe Purchasers their eighty (80) per cent of the capital stocko f the Lonetree Gulch Development Company . The amount ofs tock thus delivered to the Purchasers shall immediately be dist ributed equally among the four firm s of which the said Purchasers are composed .
Seventh .—The two thousand dollars remaining
in the Purchasers ’ Fund after the Promoters and the Engineersa re paid is to be used in presenting the proj ect to the Bankersa n d in case that it be in sufficien t for the purpose, each member ofthe Syndicate W il l be required to contribute to the said fundfrom time to time a certain small sum of money to be determinedby the Consulting Engineers as requisite for the purpose .Eighth—When the Syndicate is making its bargain with
the Bankers for—the development of the proj ect, it will be mecessary to turn over to them a portion of
“the capital stock of theCompany, which portion the Syndicate will naturally strive tomake as small as possible . Each of the five parties to this agreem ent shall turn over to the said Bankers the portion of his totalstock agreed upon, thus leaving the said five members equalo wners of the balance of the said capital stock.
This entire balance of stock is to be deposited with a Trustee, selected by a majority vote of the five members of the Synd icate, to be held by him until the completion of the entire construction of the dam, i rrigation system, and p ower plant . Should,however, as hereinafter provided for, any member of the Synd icate be expelled by a majority vote of that body, the Trusteeshall transfer on his books, as directed by the Syndicate, thes tock of the said expelled member . As soon as the said co n stru c
t ion has been completed and the aco u n ts of the Syndicate haveb een fin ally settled, but not before, the Trustee shall deliver tot he owners thereof the stock standing in their names on theb ooks .In case of any disagreement between the members of the Syn
d icate concerning the proportion of the total stock to be relin
q u ished to the Bankers or concerning any . other matter not spec ially covered herein, a maj ority vote of the said members of theSyndicate shall rule, and there shall be no appeal from any form a'decision of the maj ority of the said Syndicate .
Ninth .
—When the Syndicate makes its bargain with theB ankers, its members shall stand firm for the following basis of
35
agreement, and no m o d ificat io n whatsoever shall be made in theterms thereof without the unanimous consent in writing of allfive members of the said Syndicate .
A . The party of the second part is to be retained to dothe entire engineering work in connection
,with the designing
and construction of the dam and irrigation system .
B . The party of the third part is to be retained to do theentire engineering work in connection with the designing andconstruction of the power plant and the power transmissionline .
C . The compensation of the engineers for the work thatthey do after the proj ect has been fin an ced shall not be lessthan five (5) per cent . of the entire cost of the enterprise (barring, of course, the cost of the engineering itself ) ; and theyshall divide the total fee between
‘
them in the proportion thatthe contract cost of the work done under each one ’s chargebears to the total contract cost of the entire work .
D . The party of the fourth part is to be given the contract for building the dam, power plant, and transmiss ion lineat schedule rates fig u red by the Consulting Engineers on thebasis of actual cash cost plus twenty (20) per cent . for pro fit .
E . The party of the fifth part is to be given the contractfor constructing the irrigation system and any other construetion there may be besides that herein mentioned, at schedulerates fig u red by the Consulting Engineers on the basis o f actualcash cost plus twenty (20) per cent . for pro fit .
F. In case that either the Bankers or the Contractors failto approve the Consulting Engineers ’ fig u res for the scheduleprices, the dispute is to be settled by arbitration, one arbitratorbeing appointed by each of the two disputants and the third bythe two thus chosen . In case that the said two fail to agree upo na third arbitrator, the latter is to be appointed by the Governorof the State o f Colorado . By the decision of a majority of thesethree arbitrators the said schedule rates are to be fin ally determined .
G . In case that the Bankers decide that the construction1 5 to be done by some other organization than the LonetreeGulch Development Company, the members of the Syndicate areto receive free of charge the samepercentages of stock in thenew o rgan 1 zat 1 o n as it was agreed upon that they were to retainfin ally in the original company .
Tenth .—The entire agreement is based upon the assumpt ion
that the Leg 1 slatu re o f the State of Colorado will grant to theLonetree Gulch Development Company, its successors or as
36
signs, an extension of time of three (3 ) years for starting workupon the construction and the same amount for the completionthereof . If the said extension of time be refused by the Legis'latu re, this agreement is to become null and void .
Eleventh .
—If in the future it be found necessary to obtainfrom the Colorado Legislature any further extension or extensions of time for either starting or fin ishin g the construction,or for both, the Purchasers and the Incorporators hereby agreeto use their best united efforts to secure such extension or extensions and any expense incurred in obtaining such extensionor extensions shall be borne equally by the five parties to thisagreement .
Twelfth .
—The obligations and ben efits of this agreement areto be binding upon and to accrue to not only the various partiesto this agreement but also their executors, administrators, successo rs, or assigns, as the case may be.
Thirteenth .
—This agreement shall continue in existence eitheruntil the entire proj ect is consummated, or until the charter ofthe Company lapses because of failure to have it extended .
Fourteenth .
—In case that the Syndicate and the Bankerscome to terms and the construction proceeds, the parties of thesecond and third parts hereby agree to devote to the engineeringwork their full time and best attention,and to g ive t o it the ben efitof their experience and skill ; and the parties of the fourth andfifth parts hereby agree to do all the contracting work in a thorough and Workmanlike manner and in strict accordance with theplans, specificat io n s, and instructions of the engineers all forthe purpose of ensuring that the entire construction shall befir st-class in every particular and a credit to everybody concerned in its designing and building .
Fifteenth .
—All the members of the Syndicate hereby pledgethemselves that they will in all cases try to act in harmony andto do all they can to develop the proj ect and accomplish theaims for which the Syndicate was formed and which this document expounds .
S ixteenth—In ca se that any party of the Syndicate fails tokeep the agreements into which it has entered in this document,it shall be given written notice by a maj ority of the said Synd icate to -the efiect that it is not acting in a manner which willredound to the best interests of the Syndicate, and that if it doesnot modify satisfacto rily to the Syndicate its obj ectionable ac
tions within twenty (20) days, it will be expelled from the saidSyndicate .In this case the S y ndicate will choose a successor and will sell
37
to him for as large a sum of money as possible the entire holdingsof the expelled party, including the stock deposited in the Trustee ’s hands, if any be then so deposited, and will deliver to thesaid expelled party the said sum of money, less the amount required to settle the expelled party’s indebtedness to the Sy n d icate as a body and to its individual members, and to square allaccounts of the said expelled party in connection with its workthat is covered in this agreement . If the price at which the saidstock is to be sold be unsat isfactory to the expelled party, the latter shall have the
‘
privilege of trying for the space of thirty(30) days to obtain a better price and if the said expelled partysecure a better price, the Syndicate shall either buy the stockat that price or allow the expelled party to sell it .
Seventeenth .
—No change or alteration shall be made in theterms or conditions of this agreement w ithout the consent of allfive 5) parties hereto ‘
in writing .
Eighteenth . The parties to this agreement hereby agree thatthey will neither sub-let any of the work herein described norsell any portion of their interests without the consent of all five( 5) parties hereto in writing .
IN WITNESS WHEREOF, the parties to this agreementhave hereunto set t heir hands and seals at the City of Denver,Colo . Dated the day, month, and year first herein written .
Witnessed by( Seal )(Seal )( Seal )(Seal )(Seal )
The preceding contract is a very complicated d o cumen t,‘
po s
sibly as complicated as any of you are ever likely to be requiredto draft . It has been written with care and has been checkedby competent authority, hence it ought to serve well as a mo delfo r
'
d raftin g agreements between several parties .
The next type of contract that I shall present is one betweenthe promoters of an enterprise and capitalists whose aid theyare seeking to fin an ce it .
Let u s assume that the same firm o f en gineers, Wa1~
lace and Henderson o f Kansas City,Mo ., has developed the pro
ject for building a toll bridge over the Arkansas River and anelectric railway between the cities of Van Buren and FortSmith, and has formed in Arkansas a company named the VanBuren and Fort Smith Bridge and Railway Company to buildthe proposed line and structure ; also that it -has obtained a
charter from the U . 8 . Government for bridging the river andfranchises from the two cities for the construction of the electricrailway ; also that all steps thus far have been taken in a perfectly legal manner, and that the Company
’s books and recordsare in proper
,shape . Only enough stock has been subscribed toqualify the directors, and theentire stock is thus far controlledby the firm of engineers .It is assumed also that these engineers have taken the proj ect
to a firm of brokers, Raymond and Effin gham of Philadel phia,who are themselves capitalists, but who are not strong enoughfin an cially to underwrite the entire issue of bonds, the amountof cash required for the enterprise being in the neighborhood ofeight hundred thousand dollarsUnder these conditions the contract that I would draft is as
follows :MEMORANDUM OF AGREEMENT,
by and between A . J . Wallace and G . I . Henderson, ConsultingEnginers, both of Kansas City, M issouri, and co -partners doingbusiness under the firm name o f Wallace and Henderson, theparty of the fir st part, and sometimes hereinafter termed the“Promoters,
”an d P . J . Raymond and S. L . Effin gham, both of
Philadelphia, Penn sylvania, co -partners doing business underthe firm name of Raymond and Effin gham, the party of the second part, and sometimes hereinafter termed the
“Brokers . ”
WHEREAS, The said Wallace and Henderson have prepared complete in every essential particular a proj ect for building an electric railway between Van Buren and Fort Smith inthe State of Arkansas, with a toll bridge fo r vehicular and electric railway t raffic to cross the Arkansas River on the line of thesaid railway, and have organized in the State of Arkansas acompany for building the said railway and bridge, and have takenthe said proj ect to the said Raymond and Effin gham to fin an ce
w ith a result ing mutual ben efit to both parties, now, t herefore,THIS AGREEMENT WITNESSETH :
First .—Th'incorporated name of the Company for buildingthe electric railway and bridge is the Van Buren and Fort SmithBridge and Railway Company, and the entire stock thereof isnow owned and controlled by the party of the first part .Second .
—The party of the first part hereby agrees to placein the hands
(o f the party of the second part, and in its hands
only, the fin an cin g of its proj ect to build the said electric railway and bridge .
Third .
—The party of the second part hereby agrees to useits best efforts to effect the underwriting of the bonds of the
39
said Company, and in every way to endeavor to fin an ce theproj ect w ith the least possible delay .
Fourth .
—The parties hereto hereby agree to divide equallybetween them all pro fits resulting from the disposal of the Com
pan y’
s securities .Fifth.
-The duration of this contract shall be six (6 ) monthsfrom the date of its signature, but its life may be extended bythe consent of both parties hereto in writing .
‘Sixth .
—The amount of bonds to be sold for developing theproj ect shall be one million dollars, and the Broker s in disposingof them are to Obtain as high a price as po ssible,. un der nocircumstances parting with them for less than eighty-five (85)cents on the dollar .Seventh .
—In dealing with the bankers and underwriters,the Brokers are to keep as low as possible the percentage of thecapital stock of the Company that is given with the bonds andunder no circumstances shall the amount so given, hy po thecated, or pledged be so large as to cause the control of theenterprise to pass out o f the hands of the parties of the first
and second parts .Whatever stock is left over after the arrangement with thebankers and underwriters is consummated is to be divided equallybetween the two pa rties to this agreement .In case that the Bro kers in makin g the sale of the bo nds hn dit necessary to part w ith more than forty (40) per cent . o f thecapital stock, they shall not fin ally agree to do so until aft erthey have received in writing the assent of the Promoters tothe proposed arrangement .Eighth .
—It is not contemplated that either Wallace and Henderso n or Raymond and Efi‘in gham will be underwriters for thebonds, but either of them may subscribe, if they so desire, andthey shall receive with the bonds they buy the pro po rtion ofstock set apart to g o to the underwrit ers, the same as if theywere in no other way connected with the proj ect, and in addiation to and entirely apart from any pro fits to bedivided underthis agreement .N inth .
—The Brokers hereby agree that in an y fin an cial arrangement entered into by them they will see that there is provision made by which the party of the fir st part shall be retainedas engineers of the Company to design and supervise the construction of the railway and bridg e with full control over. allmatters of an engineering character, and that they shall receivein compensation for their services and for those of their assistants a gross fee of not less than five (5) per cent . o f the grand
40
and during the last three (3 ) years has been his Principal Assistan t Engineer, andWHEREAS, The parties to this agreement have concluded
that it will be mutually ben eficial to enter into a partnership toprosecute the business of civil engineering in the special linesof hydraulic and sanitary work,
NOW THIS AGREEMENT WITNESSETHFirst —The name and designation of the firm shall be Clem
ents and Strange, Consulting Engineers .Second .
—The agreement . shall be Operative on and atte lJanuary 1 , 1 905.
Third .—The party of the second part shall in any event re
ceive fifteen hundred dollars per annum i. e., i f hisshare of the net pro fits for any year be less than that amount,the difference between his said share and the said amount shallbe paid to him out of the total pro fits of the firm for the year,o r, failing these, by the party of the first part .
Fourth .
—The share of the net pro fits of the party of thesecond part shall be as follows :
Up to j an . 1 , 1 908, twenty-five (25) per cent ., from thenun ti l Jan . 1 , 1 9 1 1 , thirty (30 ) per cent . from then until Jan .
1 , 1 9 14, thirty-five (35) per cent ., from then unti l Jan . 1 , 1 9 1 7,forty (40) per cent , and after the latter date forty-five (45)per cent .Fifth .
—The net pro fits for any year shall be fig u re
subtracting from the gross receipts for the said year the entirebusiness expenses fo r the year, such as those incurred in doingo ffice work, field work, traveling, and advertising, but the aforesaid guaranteed amount of fifteen hundred dollarsper annum shall not be considered as a part of the o flice expenses .Sixth .
—A n accurate set of books shall be kept, from whichcan readily be computed the net pro fits for the year, and acash settlement shall be,
made at the‘
beginning of each yearfor the preceding year .Seventh—If any completed p1 ece of work be unpaid for at
the end of the year, it shall be assumed as paid for in makingthe settlement ; but the party of the second part shall not r'
ceive h is share of the delayed payment until after the said payment is made .
Eighth .
—A t any tim e after Jan . 1 , 1 9 14, the party ofsecond part shall have the privilege of purchasing the balan ca half interest in the business by paying to the party of thefir st part in cash o n e of the following sums, according to the
42
date of the establishment of the equal partnership .
In 1 9 14.
In 1 9 1 5.
In 1 9 1 6 .
In 1 9 1 7 .
In 1 9 1 8 .
In 1 9 1 9 .
After 1 9 1 9The payment of anyone of the preceding amounts shall n o t
only entitle the party of the second part to a half interest in allfuture business, but shall also make him a half owner of allo ffice fifitu res, library, instruments, patents, records, and field
apparatus that may be owned by the party of the first part atthe time of t he formation ofthe equal partnersh ip, it being u n
dersto o d that all apparatus, books, etc ., etc ., purchased for thefirm before the establishment of the equal partnership shall bethe personal property of the party of the fir st part, or simply anaddition to his present othee property, notwithstanding the factthat they have been paid for o u t of the funds of the firm .
N inth .
—All r oyalties from patents owned by the party ofthe first part on Jan . 1 ,
‘
1 905, shall be thrown into the gross
pr o fits of the business ., Tenth .
—If in the futur e any j oint patent is taken out, itshall be the property of the o ffice, and any royalty or other gaintherefrom shall be thrown into the gross receipts of the o ffice.
In case of a dissolution of partnership at any time, the futureinterest in all such joint patents shall be arranged accordingto the basis of division of o ffice pro fits governing at the time ofthe said dissolution, and both parties shall afterwards have theright to use such patents for their own professional work withoutaccounting ; but in case of royalty thereon by other parties, theamount of said royalty shall be divided between the two partiesto this, agreement accord ing to the basis of divis ion herein provided for .Eleventh .
—Neither party to this agreement shall take outfor himself any patent for anything connected directly or ihdirectly with the work of the othee without first obtaining fromthe other party written permission to do so ; but a written re
fu sal or a verbal refusal in the presence of witnesses to enterinto a proposed . j oint patent shall be considered an equivalentto giving such written permission .
Twelfth .
-If the parties to this agreement write a j ointbook for publication, the pro fits on same shall be cons idered apart of the o ffice receipts, and shall be divided accordingly ; and
43
any technical book written by either party shall be treated inlike manner as long as the partnership continues . In case of adissolution of partnership, each party shall, for the future, owno utright any books published in his own name ; also the percentage of interest in all j oint books that is the basis of divisiono f o ffice pr o fits governing at the time of the said dissolution .
The party of the second part, however, shall be entitled tono pecuniary interest in any books written by the party of thefirst part prior to Jan . 1 , 1 905, even though future additionsthereto be made . O n the other hand, no expense connected w ithsuch solely individual books shall be considered a part of theo ffice expenses .
Thirteenth .—Whenever the contemplated future equal part
n ership is consummated, the pro fits on all contracts for work entered into before the date of the equal partnership shall be d ividedaccording to the terms of this agreement, and shall not be considered as pertaining to the said equal partnership .
Fourteenth—In the event of the death of the party of thefirst part before the formation of the contemplated equal partnership, the party of the second part shall have the privilege ofpurchasing the good will of the business, together with all of theo ffice fixtu res, library, records, instruments, and other propertyconnected with the business, except as hereinafter stated, bypaying to the estate of the party of the first part the sum ofthree thousand dollars in cash or in an equivalentthat will be satisfactory to the executors of the said estate .It is understood that this sum does not cover any patents,
either individual or j oint, but that the estate of the party ofthe first part shall have a half interest in all royalties therefrom,
unless after the death of the party of the fir st part, the partyof the second part purchases from the estate the said patents o rshares in patents . And the party of the second part at the sett lemen t of the o ffice affairs, after the
‘death of the party of thefir st part, shall have the privilege of purchasing all of the saidpatents at a price to be agreed upon between the said secondparty and the said executors ; and if an agreement as to theirvalue cannot be otherwise arrived at, the price shall be sett ledby arbitration, the party of the second part appointing one arbitrator, the executors another, and the two thus chosen, the third .
In case of failure of the two arbitrators first chosen to determineupon a third, the latter shall be appointed by the Mayor of St .Louis . By the decision of the majority of these three arbit rato r s both the party of the second part and the executors shallbe fin ally bound .
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In case, however, the party of the second part elects notto purchase the said patents, he shall have the u se of the j ointpatents by special agreement in each case with the executors,but the latter shall have full control of all of Clement’s individualpatents .In case of the death of the party of the first part, either be
fore or after the formation of the contemplated equal partnership, the party of the second part shall fin ish all work on allcontracts A then uncompleted, and shall pay over to the estate ofthe said first party the latter ’s full share of all net pro fits thereo h , as computed by the rate of division governing at the date ofhis death .
Fifteen th .—In case of the death of the party of the second
part prior to that of the party o f the first part, the estate of theformer shall receive the same percentage of net pro fits from allun fin ished work as would have been his under the terms of thiscontract at the time of his death . And the party of the first
part shall have the use of all j oint patents held by the firm, butthe estate of the party of the second part shall be entitled to thesame percen tage of royalties accruing from the use of the saidj oint patents as the party of the second part would at the timeof his death have been entitled to under the terms of this contract .Provided that the party of the first part shall have the pr 1 y 1
lege of purchasing from the Strange estate the interest in allj oint patents held by the party of the . second part at the timeof his death, according to the arrangement previously outlinedfor the case of the death of the party of the first part .Sixteenth .
—Until the contemplated future equal partnershipbe entered into, the policy and management of all business af
fairs shall rest entirely with the party of the first part, but theparty of the seco nd part shall be consulted, as in the past .Seventeenth .
—Should either party to this agreement at anytime desire to cancel the same he shall give in writing to theother party twelve ( 1 2 ) months notice of his intention to do so ;
and, in case of failure so to notify, he shall, at the date of severing his connection with the business, pay to the said otherparty in cash the sum of one thousand dollarswhich amount shall not be considered as a penalty but as liquidated damages ( for loss to the said other party ) herein agreedupon by the contracting parties .Eighteenth—In case of a dissolution of partnership with
twelve ( 1 2 ) months’ notice, all work connected with contracts
entered into before the giving of notice of dissolution shall be
45
completed, if possible ; and the pro fits thereon shall be dividedaccording to the terms of this contract . All new work takendur ing these twelve ( 1 2 ) months shall belong to the party whois to continue the business and shall be done at his expen se,the other party being concerned w ith it in no manner whatsoever. If at the end of twelve ( 1 2 ) months there still be anyold work uncompleted, the party who continues the businessof the o ffice shall fin ish it and shall give to the other party afterthe fin al settlement therefor i s made his proper share of thenet pro fits thereon . It is understood that, unless otherwiseagreed upon, the party of the fir st part shall b e the one to carryon the business in case of a d isso lution of partnership .
Nineteenth .
—But in case of dissolution of partnershipWithout the twelve ( 1 2 ) months
’~notice, there shall be made animmediate settlement of the affairs of the firm, by which theparty leaving shall be paid by the other party in either cash ornotes a fair allowance for his interest in all u n fin ished contracts . If the two parties cannot agree upon the terms of thesettlement, the matter shall be fixed by arbitration in a mannersimilar to that hereinbefore described .
Twentieth .
—No change or alteration shall be made in theterms or conditions of this agreement without the consent ofboth parties hereto in writing .
Twenty—first —The parties to this agreement hereby agree‘that they will at all times do all that lies in their power tofurther and increase the business of the firm, and to establish forit a world—W ide reputation for doing thorough, honest, scien t ific,economic, and skilful work .
IN WITNESS WHERE®F,The parties to this agreementhave hereunto set their hands in the City of St . Louis, Mothis tenth day of December, 1 904.
Witnessed by
In concluding this lecture there are a few general mattersof importance to which I desire to call your attention, especiallyas they are often ignored in the preparation of contracts .
No erasure with a knife, rubber, or other similar in st rument should be made in any legal do cument, but if a mistakehas occurred, it should,
be lined out in the case of handwritingand crossed out with a close repetition of the letter x in the
case of typewriting . Corrections like these must evidently havebeen made while the document was being transcribed and before
it was signed, while in case of an erasure no one can say whatwas originally written, or that the correction was not made afterthe signing of the document . As a matter of precaution, it is advisable to have each signer of a contract initial on the margino f the page on which it occurs each correction that the document contains . This will show conclusively that all the interestedparties concurred in making the changes . However, if a draftof an agreement contain many such corrections, it is better tohave
‘
it recopied before obtaining the signatures .Theoretically every contract should be written o n a single
page, for otherwise what is there to prevent a dishonest personfrom removing all the pages except the last and replacing themW ith similar pages containing matter prepared in his own interests ? Some people meet this objection by pasting together ino n e continuous piece all the sheets of the document and markingin red ink on the j oined parts
,a waved line that passes alter
h ately from one sheet to the other . Others take the precautiont o have all the parties to the agreement initial each page of thebound sheets . The manifolding of typewritten documents is afairly goo d means for preventing the making of fraudulentchanges in such papers but in case that all the copies but onea re destroyed, this check would become inoperative .
C ontracts executed on Sunday are illegal . They may beagreed upon and drafted on Sunday, but to be valid they mustbe dated and signed on some other day of the week .
It is always advisable to let a contract “
get cold” before sign
in g it, i. e., it should be set aside for at least one night and reado ver carefully the next day by all the parties in order that eachmay make sure that the document expresses exactly in everyparticular w hat has been agreed upon verbally, and that thereis no clause in it prej udicial to his interests . By giving the minda rest one is often able to comprehend a document more clearlya n d thus save himself or his clients future trouble or pecuniaryl oss .
After an engineer has prepared ,a contract and has addeda l l the fin ishin g touches to it, he should submit the draft beforei t is signed to a competent lawyer for his comment . This is bett er than letting the lawyer draw it in the first place, for I cont end that a competent engineer can draft an engineering cont ract better than any lawyer ; nevertheless an independent checkis necessary for any important document, and who so compet ent to check a legal paper as an attorney'
When I started to write this address it was my intention toconclude it with a short summary of the Law of Contracts, but
47
its dimensions are already far in excess of those I originallyco ntemplated, and perhaps also, some . o f you may be thinking,i nexcess of the legitimate limits of a lecture to long suffering eh
g in eer in g students ; consequently I shall instead advise you tostudy the subj ect carefully in such standard works as those ofWait, John son, and Parsons . I trust that listening to this ad ;dress and . studying it later after it is printed Will lead you better
,
to comprehend an d to appreciate the dicta of legal authorities onthe subj ect of Engineering Contracts .Finally, I des ire to call your attention to the fact that I
have by no means endeavored to cover in this add ress the entireground of thi s important subj ect, but only to show you its praetical features and how you may prepare yourselves by hard study
expert in the preparation of leg al-engineering do cuments .
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