Smith, Hinchman & Grylls Associates, Inc. v. Wayne County Board of Road Commissioners

229 N.W.2d 338, 59 Mich. App. 117, 1975 Mich. App. LEXIS 1322

• Court: Michigan Court of Appeals
• Decided: February 25, 1975
• Docket: Docket 19485
• Status: Published

Opinions

Peterson, J.

In 1961, the parties entered into a contract whereby plaintiff was to perform architectural and engineering services for defendant in connection with additions and improvements to Detroit Metropolitan Wayne County Airport. Those services were rendered over a period of years and, at its completion, following defendant’s audit of plaintiff’s books, there was a balance due and owing plaintiff of $47,369.19, for which sum plaintiff sued.

Defendant’s refusal to pay the acknowledged balance was based on its claim that there had been a misinterpretation of the contract and that plaintiff’s billings had been excessive by $105,366.83. Defendant accordingly counterclaimed for this amount, i.e., seeking a net recovery from plaintiff of $58,327.64.¹ Defendant’s claim dealt with that part of the contract relating a portion of plaintiff’s fees to its actual payroll cost. Defendant contended that since plaintiff did not pay its salaried supervisory employees for overtime, plaintiff’s fee computation including overtime hours for such employees was erroneous. This was the only issue of consequence as trial commenced.

During trial, plaintiff’s proofs indicated that while its supervisory employees were not paid overtime, they were given a $5 supper allowance when working overtime and received bonuses in the computation of which overtime was a factor. At this point the trial judge suggested a compromise by which plaintiff would be reimbursed for such expenditures. As a result, a stipulation was worked out by which (a) the acknowledged claim of plaintiff for $47,369.19 was confirmed; (b) the overcharge of $105,366.83 was agreed upon; but (c) plaintiff was to recover an amount for meal allowances and bonuses attributable to the project. The stipulation established a formula for that purpose and also provided for a multiplication factor of 1.92 so that plaintiff would not only recover its pro rata costs of such meal allowances and bonuses attributable to the project, but would also recover 90% in excess thereof.

We have no doubt that both parties viewed the stipulation, as the trial judge did, namely, as a compromise of defendant’s counterclaim by which plaintiff would recover and defendant would pay some part thereof. In fact, after plaintiff’s records had been reviewed and the various factors computed, the application of the stipulated formula thereto produced a figure of $123,914.19, exceeding the countercomplaint by $18,547.36. Defendant promptly repudiated the settlement, asserting misrepresentation in the negotiations and mistake in facts assumed as a basis therefor. The trial judge declined to enter judgment for plaintiff, set aside the settlement stipulation and scheduled the matter for trial before another judge, who held for defendant and entered judgment in its favor for the excess of the countercomplaint over plaintiff’s claim.

Plaintiff appeals, claiming that there was a binding settlement agreement and that it is entitled to judgment thereon; i.e., for its undisputed billing of $47,369.19, plus the $18,547.36 by which the computation resulting from the settlement formula exceeded the countercomplaint. It also claims that the judge who thereafter heard the matter erred in various ways. In view of our conclusions regarding the settlement agreement, it is unnecessary to consider the latter claims.

The bench opinion of the original trial judge in setting aside the settlement agreement is pertinent. He specifically noted that the negotiating parties were competent, experienced and honest. He also noted that the compromise related solely to defendant’s counterclaim, there being no dispute that defendant owed plaintiff the $47,369.19 for which it sued, and said:

"Should the Court, under these circumstances, enter a judgment pursuant to the settlement agreement openly reached in court, where both parties are represented by talented attorneys, who presumably know what they are doing?

"I cannot, in good conscience, take the view of the plaintiff that I ought to thrust upon the County a judgment that to my mind is unconscionable, that is beyond what I had dreamed about when I talked about settlement to the parties.

"I find, on the face of it, that the settlement agreement, although stated on the record in the language that appears in the record, is not one that was so thoroughly understood by the parties themselves and in their relationship to it that it would be conscionable for the Court to impose this judgment on the County.”

Nowhere does he find any misrepresentation by plaintiff or mistake of fact.

We construe this opinion to hold that, because neither party realized that the formula adopted would produce a balance in plaintiff’s favor exceeding defendant’s counterclaim, it would be unconscionable to enter judgment thereon. We concur that judgment should not have been entered for the amount resulting from the settlement formula, but find that it was error to set aside the settlement stipulation.

"Settlements of disputed matters and compromises of unsettled claims are favored by the law, and it will be presumed that parties consult their own interests in making them. Usually they will not be interfered with in the absence of fraud or mutual mistake. * * * Nor will such settlement be set aside because one of the parties did not understand it or its legal effect.” (Citations omitted.) Booth Fisheries Co v Alpena Circuit Judge, 170 Mich 611, 615-616; 135 NW 1063 (1912).

The trial judge specifically declined to find the misrepresentations claimed by defendant, and found no mistake of fact. The stipulation presented to the court was prepared by defendant’s counsel, and defendant willingly went beyond the trial judge’s cost-recovery suggestion by agreeing to the formula providing for reimbursement of 190% of those costs. There was no basis for setting aside the stipulation. See Olshove v Pere Marquette R Co, 245 Mich 369; 222 NW 771 (1929); 15 Am Jur 2d, Compromise and Settlement, § 21, p 956.

But that is not to say that plaintiff is entitled to a judgment for the amount by which the sum produced by the settlement agreement exceeded defendant’s counterclaim. Again it must be noted that, while the stipulation spoke in terms of (a) plaintiff taking judgment for its undisputed claim of $47,369.19, (b) defendant taking judgment for its counterclaim of $105,366.83, and (c) plaintiff taking judgment for the sum produced by the settlement formula, the only issue being compromised was the counterclaim. The formula was not designed to reduce an unliquidated claim to certainty — had that been the case, the result would have been conclusive. Rather, it was designed to give the plaintiff some recovery against defendant’s counterclaim as a means of resolving the legal uncertainty as to which of two interpretations was to be given the language of the contract. Considering the circumstances of the dispute, we have no doubt that this was the intention of the parties.

"A compromise is a contract, and its construction is governed by the legal principles applicable to contracts generally. It is subject to judicial interpretation in the light of the language used and the circumstances surrounding its making. Even if it is not a technical release, it may operate as such.

"In construing and determining the effects of a valid compromise and settlement, the court’s primary object is to effectuate the intention of the parties.” 15 Am Jur 2d, Compromise and Settlement, § 20, p 954.

Accordingly, to construe the compromise stipulation as we find the parties to have intended it, it must be read to provide recovery for the plaintiff of the sum produced by the stipulated formula, but not to exceed the amount of defendant’s counterclaim.

Judgment shall accordingly be entered for plaintiff in the amount of $47,369.19, plus costs.

Allen, J., concurred.

1 While these amounts are stipulated, there is a suspicion of error, $47,369.19 deducted from $105,366.83 being $57,997.64 most of the time.

2 1.9 was the "cost plus” factor of the contract itself, as amended.