## Facts

- Spearin contracted with the United States (Navy Department) for a lump-sum price to build a dry dock at the Brooklyn Navy Yard according to government-prepared plans and specifications.
- The project required diverting and relocating a section of an existing six-foot brick sewer crossing the site before dry-dock excavation could proceed.
- The government’s specifications required Spearin to reconstruct the sewer section and dictated its dimensions, materials, and location.
- Spearin built the substituted sewer exactly as specified; the government accepted the work as satisfactory.
- About a year later, during heavy rainfall coinciding with high tide, water pressure caused the relocated six-foot sewer to break in several places, flooding the dry-dock excavation.
- Investigation found a downstream dam in a seven-foot sewer that diverted flow into the six-foot sewer and caused excessive pressure; the dam was not shown on sewer plans provided to Spearin.
- Government officials knew the area was low-lying and that overflows had occurred because of the dam, but those facts were not disclosed to Spearin.
- After the failure, Spearin refused to continue unless the government made the sewer system safe or assumed responsibility for future damage attributable to inadequate capacity, location, or design.
- The government insisted Spearin bore responsibility and annulled the contract.
- Spearin sued for the contract balance and damages for annulment; the Court of Claims awarded Spearin $141,180.86, and both parties appealed.

## Issues

1. Whether mandatory government plans and specifications carry an implied warranty that compliance will produce an adequate result for the intended purpose.
2. Whether general clauses requiring site inspection, plan checking, and contractor responsibility override that implied warranty and shift design-defect risk to the contractor.
3. Whether the contractor was obligated to proceed at its own risk after a failure attributable to defects or undisclosed conditions embedded in the government’s design, and whether the government could annul the contract for refusal to do so.
4. What damages are recoverable when the government wrongfully annuls a construction contract after breaching the implied warranty.

## Decision

- The Supreme Court affirmed the Court of Claims’ judgment for Spearin.
- The sewer-relocation work was an integral part of the dry-dock contract, not collateral.
- By prescribing the sewer’s character, dimensions, and location, the government impliedly warranted that the sewer, if built to specification, would be adequate.
- General inspection and responsibility clauses did not defeat the implied warranty arising from detailed, mandatory specifications.
- The implied warranty was not barred by the statutory writing requirement for Navy contracts or by the parol evidence rule because it arose by operation of law from the specified design requirement.
- After the government repudiated responsibility for the defective design condition, Spearin was not required to reconstruct and proceed at its peril; the government’s annulment constituted a breach.
- The government was liable for damages including proper expenditures (net of payments received) and the profit Spearin would have earned upon full performance.

## Legal Principles

- When an owner furnishes plans and specifications that the contractor must follow, the owner impliedly warrants that the design is sufficient for its intended purpose if followed.
- General clauses requiring site inspection or placing general performance responsibility on the contractor do not shift to the contractor the risk of design defects or undisclosed conditions integral to the furnished specifications.
- An implied warranty of design adequacy may arise as a matter of law and does not depend on an express contractual promise; recognizing it does not violate writing requirements or the parol evidence rule.
- Upon the owner’s breach of the implied warranty and repudiation of responsibility, the contractor may refuse to proceed at its own risk without being in default.
- Wrongful annulment following such a breach entitles the contractor to expectancy-type damages, including allowable costs incurred (less payments) and anticipated profit on the unperformed work.

## Conclusion

The Court held that when the government required strict compliance with its detailed sewer specifications, it implicitly warranted the adequacy of that design; broad inspection and responsibility clauses did not negate the warranty, and the government’s annulment after refusing to correct or assume responsibility for the defective condition was a breach supporting recovery of costs and lost profit.


United States v. Spearin, 248 U.S. 132 (1918)