United States v. Aetna Casualty & Surety Co.

• Decision Date: 29 June 1973
• Docket Number: No. 72-1422,72-1468.,72-1422
• Citation: 480 F.2d 1095
• Parties: UNITED STATES of America For and on Behalf of J. W. Smith & Co., Plaintiff-Appellant, v. AETNA CASUALTY & SURETY CO., and Wieman-Slechta Co., Defendants-Appellees. UNITED STATES of America For and on Behalf of J. W. Smith & Co., Plaintiff-Appellee, v. AETNA CASUALTY & SURETY CO., and Wieman-Slechta Co., Defendants-Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

480 F.2d 1095 (1973)

UNITED STATES of America For and on Behalf of J. W. Smith & Co., Plaintiff-Appellant, v. AETNA CASUALTY & SURETY CO., and Wieman-Slechta Co., Defendants-Appellees.

UNITED STATES of America For and on Behalf of J. W. Smith & Co., Plaintiff-Appellee, v. AETNA CASUALTY & SURETY CO., and Wieman-Slechta Co., Defendants-Appellants.

Nos. 72-1422, 72-1468.

United States Court of Appeals, Eighth Circuit.

Submitted May 14, 1973.

Decided June 29, 1973.

COPYRIGHT MATERIAL OMITTED

Warren S. Zwieback, Omaha, Neb., for J. W. Smith & Co.

Stephen A. Davis, Omaha, Neb., for Aetna Casualty.

James F. Kasher, Omaha, Neb., for Wieman-Slechta.

Before MATTHES, Chief Judge, and MEHAFFY and STEPHENSON, Circuit Judges.

MATTHES, Chief Judge.

J. W. Smith and Company (Smith), a mechanical subcontractor, instituted this suit under the Miller Act, 40 U.S.C. § 270a et seq., to recover from the prime contractor, Wieman-Slechta Company (Wieman-Slechta), and its surety, Aetna Casualty and Surety Company (Aetna), the sum of $23,618.89 allegedly due on a subcontract in connection with a federal construction project.

Two issues were tried to the court, the first being whether a letter, dated April 3, 1970, prepared by Wieman-Slechta and signed by Smith, reciting payment of $14,335.92 by Wieman-Slechta to Smith in full settlement of all accounts, coupled with Smith's subsequent negotiation of Wieman-Slechta's check in the same amount, constituted an accord and satisfaction of all accounts between Smith and Wieman-Slechta.

In resolving this question, the trial court found that the parties intended the letter to be a sham for the purpose of deceiving Aetna and as such was "of no effect in relation to the debt between Smith and Wieman-Slechta. . . ."

The second issue before the court was whether, by reason of the sham letter, a copy of which had been sent to Aetna by Wieman-Slechta, Smith was estopped from asserting its claim against Aetna. The court ruled that Smith was estopped.

Accordingly, judgment was entered in favor of Smith against Wieman-Slechta for $23,618.89, stipulated by the parties to be the amount in controversy, and in favor of Aetna.

Smith's appeal challenges the trial court's finding and judgment relieving Aetna of liability on the ground of estoppel.

Wieman-Slechta, by cross-appeal, urges that the trial court erred in not finding that the April 3 letter was an accord and satisfaction of all accounts between Wieman-Slechta and Smith, and in not finding that, in any event, Wieman-Slechta had partially paid the amount due. Specifically, Wieman-Slechta asserts that its indebtedness to Smith for the purposes of this case is $15,178.94 instead of $23,618.89.

Aetna, in its brief and at oral argument, defends the court's action relieving it from liability.

We affirm the judgment against Wieman-Slechta but reverse the judgment in favor of Aetna.

On September 1, 1969, Wieman-Slechta entered into a written contract with the federal government for the construction of an auto hobby shop at Offutt Air Force Base, near Omaha, Nebraska. As required by the Miller Act, Wieman-Slechta executed at the same time a payment bond with Aetna for the protection of all persons supplying labor and material to the project. A day later, Wieman-Slechta subcontracted with Smith for the performance of all mechanical work. By March 15, 1970, Smith had satisfactorily completed the work at a contract price, including extras, of $43,658.66. Wieman-Slechta and Smith had worked together under similar arrangements on previous projects, several of which were still in progress at the time of the auto hobby shop job. The accounts of the parties in relation to two of these previous projects were in spirited dispute. Although some progress payments had been made by Wieman-Slechta to Smith on the auto hobby shop job, in late March, 1970, Smith complained to a representative in Aetna's claims department that payments had become delinquent. In response, Aetna apparently warned Wieman-Slechta to bring its accounts up to date or Aetna would refuse to issue future bonds to the company.

On April 3, 1970, Mr. Wieman of Wieman-Slechta called J. W. Smith to his offices and presented to him the letter in controversy reciting payment of $14,335.92 by Wieman-Slechta to Smith in full settlement of all accounts. Mr. Smith signed the letter and thereupon Wieman handed Smith a check, dated April 8, 1970, for the same amount.

On April 6, not yet having cashed the post-dated check, Smith mailed a letter to Wieman-Slechta acknowledging receipt of the letter of April 3 "with protest" and restating the accounts between the parties to show a balance due Smith on all accounts of approximately $70,000. Thereafter, Smith negotiated the post-dated check.

The parties stipulated that a copy of the letter of April 3 was forwarded to an authorized agent and attorney in fact for Aetna by Wieman-Slechta who forwarded the letter without comment to Aetna where it was placed in the auto hobby shop job file. Neither Smith nor Wieman-Slechta forwarded a copy of the April 6 letter of protest to Aetna.

Several times in early July, Smith spoke by telephone with Aetna representative Bill Lee and requested payment of approximately $24,000 from Aetna on the bond for work performed by Smith on the auto hobby shop job. In reply, Mr. Lee apparently referred to the copy of the letter of April 3 contained in the surety's file showing a full settlement of accounts. Mr. Lee suggested that Smith proceed against Wieman-Slechta.

On July 30, 1970, Wieman-Slechta sent Smith a letter directing the proper application of previous payments and incidentally setting forth the status of the accounts between the parties. The letter showed a balance of $24,018.89 due Smith on the auto hobby shop job. Shortly thereafter, to no avail, Mr. Smith again called Mr. Lee of Aetna and read him the contents of the July 30 letter. Mr. Smith also informed Lee of the April 6 letter of protest.

Between the dates of April 8 and September 14, 1970, Wieman-Slechta was paid $26,083.51 by the federal government pursuant to the prime contract.

ACCORD AND SATISFACTION

Accord and satisfaction has been defined as a discharge of an existing indebtedness by the rendering of some performance different from that which was claimed as due and the acceptance of such substituted performance by the claimant in full satisfaction of his claim. Ruehle v. Ruehle, 161 Neb. 691, 74 N.W.2d 689 (1956); 6 Corbin, Contracts § 1276, p. 115 (1962). Part payment of an unliquidated and disputed debt may effectively operate as a discharge by accord and satisfaction if the parties so agree. Slade v. Swedeburg Elevator Co., 39 Neb. 600, 58 N.W. 191 (1894). Indeed, "the key element of accord and satisfaction is the intention of the parties, which as a rule presents a question of fact." Black v. Denver United States National Bank, 362 F.2d 38, 41 (9th Cir.), cert. denied, 385 U.S. 990, 87 S.Ct. 596, 17 L.Ed.2d 451 (1966).

If, as found by the trial court, the letter of April 3 was a sham, Wieman-Slechta's efforts to enforce the letter as an accord and satisfaction are in vain. For it is settled and sound law that when two parties execute a written instrument purporting to be a contract when in fact it is not, the purpose being to deceive a third person, the instrument is unenforceable by either of the immediate parties. Nice Ball Bearing Co. v. Bearing Jobbers, 205 F.2d 841 (7th Cir.), cert. denied, 346 U.S. 911, 74 S.Ct. 242, 98 L.Ed. 408 (1953); Coffman v. Malone, 98 Neb. 819, 154 N.W. 726 (1915); 6A Corbin, Contracts § 1473, p. 607 (1962). Nor, in such cases, is the parole evidence rule applicable since the document was not in fact an agreed integration of a real bargain. Coffman v. Malone, supra, 154 N.W. at 727.

The record before us contains substantial evidence supporting the trial court's finding that the April 3 letter was a sham and...