Frank Horton & Company v. Cook Electric Company

• Decision Date: 07 March 1966
• Docket Number: 15019.,No. 14965,14965
• Citation: 356 F.2d 485
• Parties: FRANK HORTON & COMPANY, Inc., Plaintiff-Appellee, v. COOK ELECTRIC COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

356 F.2d 485 (1966)

FRANK HORTON & COMPANY, Inc., Plaintiff-Appellee, v. COOK ELECTRIC COMPANY, Defendant-Appellant.

Nos. 14965, 15019.

United States Court of Appeals Seventh Circuit.

January 27, 1966.

Rehearings Denied March 7, 1966.

Albert F. Manion, Thomas J. Johnson, Jr., Chicago, Ill., for appellant.

Patrick W. O'Brien, Chicago, Ill., George W. Hamman, Chicago, Ill., Mayer, Friedlich, Spiess, Tierney, Brown & Platt, Chicago, Ill., Spencer, Fane, Britt & Browne, Kansas City, Mo., of counsel, for appellee.

Before DUFFY, CASTLE, and SWYGERT, Circuit Judges.

(En Banc).

SWYGERT, Circuit Judge.

Cook Electric Company, a Delaware corporation with its principal place of business in Illinois, appeals from a judgment against it in the amount of $215,758.76, growing out of a breach of contract action brought in the district court under diversity jurisdiction by Frank Horton & Company, Inc., a Missouri corporation. The plaintiff has filed a cross-appeal with respect to an element of damages.

The case was tried by the court without a jury. The facts as found by the district judge require considerable elaboration.

Frank Horton is the key figure in this lawsuit, both as an individual proprietor and as the controlling stockholder of the corporation bearing his name. In 1938, Horton organized Frank Horton & Company, a proprietorship originally engaged in consulting engineering which later added telephone wire installation to its activities. About 1954 Horton's proprietorship began to engage in the installation of underground communication cable. A special cable plow was developed for that purpose, patented, and assigned to the proprietorship.

Cook Electric Company at all relevant times had a division located in the Washington, D. C. area, the Advanced Communications Engineering Division (ACE). Clarence K. Laubach was the general manager of ACE and a divisional vice president of Cook. James W. Olsen was the assistant general manager of ACE.

In November, 1959, Cook was preparing to bid on government contracts for the construction of communications systems at various Air Force missile sites, projects requiring the installation of many miles of underground cable. An ACE project engineer recommended that ACE consider Horton as a possible subcontractor for cable placement work. The engineer conducted a field examination of Horton's facilities in Lamar, Missouri, and reported that "the Horton organization" was capable of operating on a large scale. Horton thereafter met with Laubach and Olsen and at their request submitted bids for the cable-burying jobs at Forbes and Lowry Air Force bases. These bids were accepted and used by ACE, but Cook was unsuccessful in obtaining the prime contracts. During the discussion relating to the Forbes and Lowry projects, Horton informed Laubach and Olsen that he was in the process of forming a corporation to lay the cable at the missile sites should contracts be awarded.

Frank Horton & Company, Inc. was formed in February, 1960. The corporation had a stated capital of $1,000. Frank Horton became its president and owned ninety-six per cent of its stock. The corporation shared the same address with the proprietorship. It had no assets, its employees were former proprietorship employees, and it received all necessary funds through loans from Horton. In substance, the corporation was formed to do cable placement work on government projects through equipment -leasing from Frank Horton.

The liaison between Horton and ACE continued after the unsuccessful Forbes and Lowry construction bids. In June, 1960, Horton submitted subcontract bids for the missile site jobs at Lincoln (Nebraska), Larson (Washington), and Beale (California) Air Force bases. The bids were based in part upon estimates received from Horton employees who visited the job sites. The proposals submitted were personally prepared by Horton. They included lump sum figures for each base, followed by itemizations indicating the method used in their computation.

Horton delivered the bids, totaling $1,080,191.40 for the Lincoln, Larson, and Beale projects, to ACE in Washington, D. C. where he met Laubach and Olsen. He again informed them that he intended to have the corporation do the work, using his personnel and leasing his cable-burying equipment.¹ At one point Olsen remarked that "that method probably would have some tax advantage."

Cook received the Lincoln, Larson, and Beale prime contracts in August, 1960, using Horton's bids in its own proposals. Olsen promptly assured Horton that he would be awarded the subcontracts. Subsequently, Horton received a letter from Olsen dated September 9, 1960, and addressed to "The Frank Horton Company * * * Attention: Mr. Frank Horton, President." The letter stated in part:

This Letter of Intent is issued in anticipation of the execution of a definitive construction contract for cable placement and materials between the Cook Electric Company, represented by * * * ACE and the Frank Horton Company pursuant to which the Contractor shall furnish certain construction services and materials as may be required, in accordance with previously accepted fixed price offers by ACE * * * relative to the missile intercommunication systems for the Larson, Lincoln and Beale complexes. * * *

* * * * * *

It is contemplated that our contract with your Firm will be executed within 60 days. However, in order to meet the requirements of the time schedule, it is recognized that the necessary equipment readying and subsequent movement thereof to Site locations be taken at this time to insure prompt delivery of the cable construction services and materials in the amounts shown.

* * * * * *

Union labor will be required on the job, and the Contractor will be required to guarantee such work with the International Brotherhood of Electrical Workers at both International and Local levels.

* * * * * *

In accepting this Letter of Intent, it is understood that the Contractor is bound by the same terms and provisions governing ACE under Contract AF 30 (635) — 19218.

* * * * * *

Please indicate your acceptance of the above terms by reply letter. Good luck — it is nice to get going.

Horton indicated his acceptance of the letter of intent on September 13. His letter was written on the stationery of Frank Horton & Company, Inc., the first time such stationery had been used in communications between the parties. The letter was initialled by Horton on behalf of the corporation. It noted that preparation for the work had begun and that men and equipment were moving to the Beale and Larson sites.

Horton visited Laubach and Olsen at the ACE offices in Washington on September 19. There he was given a letter, signed by Laubach as "Vice President, Cook Electric Company," reading in part:

Your letter proposal dated 25 July 1960 for work involved in placement of buried and submarine cables on the Missile projects has been evaluated and is acceptable by Cook Electric Company subject to the following:

1. Your fixed price for performance of this work remains unchanged. We understand that the fixed prices for each project is: Lincoln, $521,146.20; Larson, $232,690.00; and Beale, $326,355.20.

* * * * * *

The Cook Electric Company has used your price proposal in its preparation of the Larson, Lincoln and Beale Projects. We hereby wish to inform you that we shall contract with you according to the terms of this Letter Amendment to our Letter of Intent referenced above.

It has been a pleasure working with you. Your efforts and expenditures of time and money in the preparation of your proposal is deemed to be good and sufficient consideration to support the statements contained herein.

Horton returned to his office in Missouri, where on September 23 he received a telegram from Laubach reciting the necessity of "firm local union agreements in writing * * * by 29 September * * * to meet USAF requirements by October 1." Horton, of course, was aware of the necessity of both international and local union agreements, and had already discussed the terms of a proposed agreement with a vice president of the International Brotherhood of Electrical Workers. He was not aware, however, of the urgency of such agreements.

Horton immediately set out in a frantic, nationwide quest to satisfy this obligation. While in Washington, D. C. in an effort to contact the president of the IBEW, he explained his predicament to Laubach. Laubach told him to "get the agreements as quickly as you can." Horton then visited the west coast and spoke to local union officials. On October 5, he called Olsen from Texas, where he had just obtained the final draft of the international agreement.² Olsen commented that "it looks like you'll make it," and added that a telegram had been sent to Horton's office in Missouri on the previous day giving Horton ten days in which to secure the union agreements. The telegram, which had been prepared by Washington counsel for Cook, was addressed to "Mr. Frank Horton, Frank H. Horton & Company, Inc." and read in part:

You are hereby notified that Frank Horton & Company, Inc. is in default under its agreement with Advanced Communications (ACE) Division of Cook Electric Company as evidenced by a Letter of Intent dated September 9, 1960, as amended by Letter of Amendment dated September 19, 1960, and an acceptance dated September 13, 1960; since such company has not furnished firm local union agreements as requested by telegram of September 22, 1960. Unless within ten days from the date hereof Frank Horton & Co., Inc. can perform under such agreement by guaranteeing union work with IBE W at both international and local levels, which guarantee shall be evidenced by it securing, producing and delivering to ACE firm written local union agreements for the Beale, Larson and Lincoln areas within such time, any and all agreements between Frank Horton & Company, Inc. and ACE shall be determined. * * *

Horton received the signature of the IBEW...