New Amsterdam Casualty Co. v. US SHIPPING BOARD, ETC.

CourtUnited States Courts of Appeals. United States Court of Appeals (4th Circuit)
Citation16 F.2d 847
Docket NumberNo. 2519.,2519.
PartiesNEW AMSTERDAM CASUALTY CO. v. UNITED STATES SHIPPING BOARD EMERGENCY FLEET CORPORATION, to Use of UNITED STATES.
Decision Date11 January 1927

Walter L. Clark and Roszel C. Thomsen, both of Baltimore, Md. (Stewart & Pearre, of Baltimore, Md., on the brief), for plaintiff in error.

A. W. W. Woodcock, U. S. Atty., of Baltimore, Md. (Chauncey G. Parker, Gen. Counsel U. S. Shipping Board, of Washington, D. C., and Douglas H. Rose, 2d, Asst. U. S. Atty., of Baltimore, Md., on the brief), for defendant in error.

Before WADDILL and PARKER, Circuit Judges.

PARKER, Circuit Judge.

This is a writ of error to review proceeding in an action at law wherein judgment was rendered in favor of the plaintiff, United States Shipping Board Emergency Fleet Corporation, against the defendant, New Amsterdam Casualty Company, for the sum of $123,366.67. For convenience the parties will be referred to in accordance with the positions which they occupied in the District Court.

The suit was instituted against defendant to recover on a bond which it had executed to plaintiff, as surety for the American Shipbuilding Company, guaranteeing that that company would make payments for certain materials purchased from plaintiff in accordance with the terms of a written contract executed between the parties. The assignments of error present three points for our consideration: (1) Whether the court was correct in excluding parol testimony to the effect that it was not intended that payment should be made in accordance with the terms of the written contract, but that the contract was merely intended to evidence an advance payment by plaintiff on a claim of the American Shipbuilding Company; (2) whether defendant was released from liability on the bond by reason of failure of plaintiff to give notice of the default of the shipbuilding company; and (3) whether plaintiff was, in any event, entitled to judgment for anything in excess of $100,000, the penalty of the bond. For a proper understanding of these questions, a brief statement of the facts is necessary:

On November 19, 1919, plaintiff sold to the American Shipbuilding Company a quantity of shipbuilding material at Brunswick, Ga., for which that company agreed to pay the sum of $100,000. The contract was in writing and described the plaintiff as seller and the shipbuilding company as buyer. It gave a detailed description of the property sold, and contained among others the following provisions, which are the ones material to the questions here involved, viz.:

"Article II. — Payment.

"1. The buyer shall pay for all the material enumerated above the sum of one hundred thousand dollars ($100,000).

"2. Upon delivery and execution of this contract, there shall be no cash payment made by the buyer to the seller by reason of the cancellation agreement which is now pending before the district cancellations, claims and contract board, but he agrees to pay to the seller fifty thousand dollars ($50,000), six months from the date of this agreement, and fifty thousand dollars ($50,000), twelve months from the date of this agreement. Payment to be made without interest.

"Article III. — Bond.

"At the execution of this contract, the buyer shall deliver bond satisfactory to the seller for the sum of one hundred thousand dollars ($100,000), guaranteeing the faithful performance of this agreement.

"At the time of the payment of the last installment due on the purchase price of the said material the buyer agrees to notify the seller that the last payment is being made. Upon such notice being received from the buyer, the seller agrees within twenty-four hours from receipt of the said last payment to notify the bonding company selected under this clause of the fact that the full purchase price has been paid by the buyer.

"The buyer hereby agrees to make such payments as above stipulated and if said payments are not made, the seller will notify the bonding company in writing and they will make payment for the buyer within twenty-four hours receipt of said notice."

At the same time, the defendant, as surety, executed the bond sued on, in the sum of $100,000, the condition thereof being as follows:

"Whereas, the said principal and Fleet Corporation entered into a written contract, bearing even date herewith, whereby the said principal purchases certain material, for the sum of one hundred thousand ($100,000) dollars, from said Fleet Corporation, which contract is hereby referred to and made a part hereof; and

"Whereas, said material is being delivered to the said principal upon condition that said principal shall pay the sum of fifty thousand ($50,000) dollars, on or before the expiration of six months from date hereof, and the further sum of fifty thousand ($50,000) dollars, on or before the expiration of one year from date hereof:

"Now, therefore, the condition of this obligation is such that if the said principal shall in compliance with the terms of aforesaid contract, pay unto the said Fleet Corporation the sum of fifty thousand ($50,000) dollars, on or before the expiration of six months from the date hereof, and an additional sum of fifty thousand ($50,000) dollars, on or before the expiration of one year from date hereof, unless the time for making either or both payments is extended by the Fleet Corporation, and shall indemnify, hold and save harmless the said Fleet Corporation from and against any and all loss, costs and expense, arising by reason of the principal failing to make said payments, then this obligation shall be null and void, otherwise, to be and remain in full force and effect.

"Provided, however, and this obligation is executed upon the following express conditions:

* * * * * * * * * * *

"Third: That all notices to the surety shall be sent by registered mail to the home office thereof, at Baltimore, Maryland."

The bond purported to have been issued for a premium of $1,000 and bore canceled revenue stamps to the amount of $10. The shipbuilding company failed to make the payments provided in the contract, and on November 10, 1921, was duly adjudged bankrupt. On April 29, 1922, demand was made upon the defendant under the bond, and, payment being refused by it, action was begun April 26, 1923.

Prior to the sale of the material to the shipbuilding company, it had been engaged in constructing ships for the government, first at a contract price, and later under a cost plus agreement. This agreement was canceled as of March 25, 1919, and claims were filed with the Cancellation Claims and Contract Board by the shipbuilding company aggregating $960,913.46, which were pending at the time of the purchase of the material by the company on November 19, 1919. It is alleged in one of the pleas of defendant that suit was filed in the Court of Claims by the trustee in bankruptcy of the shipbuilding company on May 23, 1923, to recover on these claims, and it is asserted in the brief of plaintiff, although we do not deem it material in passing upon the questions involved here, that judgment was entered by the Court of Claims on June 22, 1925, denying the claims and adjudging that the company was indebted to the United States, on a balance of the accounts, in the sum of $706,908.

In the course of the trial of this case in the District Court, defendant offered to prove by the district supply and sales manager of the Fleet Corporation, who executed the sales contract in its behalf, that, prior to the execution of the contract and bond sued on, the Southern District Cancellation Claims and Contract Board of the Fleet Corporation had calculated that the amount due the shipbuilding company was $584,823.14; that, as representing plaintiff, he offered to turn over the material in question to the shipbuilding company as a credit or advancement upon the amount which the plaintiff owed the shipbuilding company; that it was understood by himself and the representative of the company that the agreed valuation of $100,000 was not to be paid by the company, but that said amount was to be credited or considered as an advancement upon the amount due by plaintiff to the company; that he revamped a form of contract in use by plaintiff, and, in order to give some expression to the understanding that this was to be an advancement, drew it so as not to require a cash payment or the payment of interest; that the form of contract used called for a bond, and he did not know how to omit this provision, but that it was not the intention of the parties that the agreement should be anything more than a paper transaction, which would have the ultimate effect of giving the shipbuilding company an advancement of $100,000 on account of its claim against plaintiff. Defendant also offered to prove substantially the same facts by the vice president and general manager of the shipbuilding company. All of this testimony was excluded, and exceptions to its exclusion form the basis of the first and principal point urged by defendant.

We think there can be no question but that the testimony offered was properly excluded. It falls clearly within the inhibition of the rule that parol testimony shall not be received to add to, alter, or deny the terms of a valid written instrument. The contract expressly provided that the shipbuilding company should pay $100,000 for the material, $50,000 of which should be paid 6 months and $50,000 12 months from date. The bond recited the purchase of the material and that it was being delivered on condition that the shipbuilding company should pay $50,000 6 months and $50,000 12 months from date, and guaranteed that it would make these payments in accordance with the contract. The testimony offered was to the effect that there was no contract to pay for the material at all and that the bond was not intended to guarantee the payment. A clearer case of contradicting written instruments could not well be imagined. As said by Prof....

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