First Nat. Bank of Aberdeen v. Indian Industries, Inc., 78-1758

• Decision Date: 06 June 1979
• Docket Number: No. 78-1758,78-1758
• Citation: 600 F.2d 702
• Parties: FIRST NATIONAL BANK OF ABERDEEN, Appellant, v. INDIAN INDUSTRIES, INC., Appellant, v. CHEYENNE RIVER HOUSING AUTHORITY, Appellee, and FIDELITY AND DEPOSIT CORPORATION OF MARYLAND, v. George Steven LONG, a/k/a Steve Long, and J. W. Cloer.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 702

600 F.2d 702

FIRST NATIONAL BANK OF ABERDEEN, Appellant, v. INDIAN INDUSTRIES, INC., Appellant, v. CHEYENNE RIVER HOUSING AUTHORITY, Appellee, and FIDELITY AND DEPOSIT CORPORATION OF MARYLAND, v. George Steven LONG, a/k/a Steve Long, and J. W. Cloer.

No. 78-1758.

United States Court of Appeals Eighth Circuit.

Submitted March 14, 1979.

Decided June 6, 1979.

George A. Bangs of Bangs, McCullen, Butler, Foye & Simmons, Rapid City, S. D., argued, for appellant; Joseph M. Butler, Rapid City, S. D., and Newell E. Krause of Lakeman & Krause, Mobridge, S. D., on brief.

Francis J. O'Toole of Fried, Frank, Harris, Shriver & Kampelman, Washington, D. C., (argued), Richard Schifter and Theodore C. Hirt, Washington, D. C., and Donald J. Coleman, Dupree, S. D., on brief, for appellee.

Before GIBSON, Chief Judge, and ROSS and McMILLIAN, Circuit Judges.

ROSS, Circuit Judge.

This is an appeal from a judgment ¹ in favor of the Cheyenne River Housing Authority (CRHA) against Indian Industries, Inc. (I.I.) on I.I.'s third-party complaint for breach of contract and on the housing authority's counterclaim. We affirm.

In 1961 the Cheyenne River Sioux Indian tribe chartered CRHA for the purpose of improving housing conditions, providing employment and alleviating the housing shortage on the Cheyenne River Sioux Reservation in South Dakota. In late 1970, the Department of Housing and Urban Development (HUD) appropriated $4,308,748.00 for the construction of 240 dwelling units to be inhabited by low-income families on the reservation.

Indian Industries, Inc., a construction company, was chartered in Montana in June 1971 by George Steven Long and two Montana attorneys after Mr. Long learned in April 1971 of HUD's appropriation for the Cheyenne River Reservation. ² Mr. Long submitted a proposal to complete the project on a "turnkey" basis, ³ and CRHA accepted I.I.'s bid.

The contract, signed July 8, 1971, required I.I. to begin construction within 10 days thereafter and to "prosecute such construction in a timely and deligent (sic) manner" to completion within 540 days after the contract date. I.I. agreed "to keep (CRHA) informed as to an estimated construction completion date, and all revisions which may develop with respect to this date."

Of the 240 units, 186 were to be located in 13 cluster sites, and 54 were to be constructed on scattered sites throughout the reservation. As I.I. prepared to begin work at a particular location, CRHA was to provide a lease for that site. The parties attached a construction schedule to the contract contemplating the order in which sites were to be completed. However, the record indicates that the housing authority was willing to permit construction on any sites selected by the contractor and did not intend to insist on completion in the particular sequence set forth in the schedule. As I.I. finished work at each site, CRHA was to accept the habitable units and pay for them in increments. The contractor was to hire local workers on the reservation and train them in the building trades. ⁴ Additional funds were to be provided for such training.

The district court found that I.I.'s undertaking was beset by difficulties from the start. The company began work late, lost or never obtained permanent financing, experienced shortages of equipment and supplies and made minimal progress on the job. By January 1972, the project was virtually at a standstill, and by the middle of February, all work ceased. During this period, the company's managerial personnel resigned, and eventually 32 liens were filed against the project.

In March 1972, the housing authority passed a resolution to require the contractors to "furnish definite written proof of their capability to continue the project in a timely and diligent manner to a successful completion by December 31, 1972," resolving that in the absence of such assurances, "it is recommended * * * that the Contract of Sale be terminated * * *."

Mr. Long responded for I.I. by a letter of March 14, 1972, in which he essentially blamed the housing authority and HUD for all of the problems his company had experienced on the project.

On the other hand, I.I.'s partner, Cheyenne River General Contractors, responded on March 17, 1972, as follows:

Indian Industries, the venture partner that was given complete control and responsibility has demonstrated that it has neither financing capacity or construction ability. Nor does it have the ability to work with other Indian minority group companies. Contractors was left out of almost all construction decisions made by Indian Industries. While Contractors and local Indian laborers waited for further instructions and plans, Indian Industries has postponed meetings, and failed to communicate.

Indian Industries also operates in the shadow of an investigation of some of its officers and employees who were involved in the serious financial setback discovered in the housing project on the Fort Belknap Reservation.

Cheyenne River General Contractors cannot speak for Indian Industries' ability to complete the Project by December, 1972.

Then on April 12, 1972, CRHA issued the following notice to I.I., cancelling the contract:

This is to notify you that the Cheyenne River Housing Authority herewith exercises their right to rescind the contract dated the 8th day of July, 1971, by and between said Indian Industries, Inc., and Cheyenne River Housing Authority as Purchasers * * *. This notice of rescission is herewith served on you because of your substantial and fundamental non-performance of the contract terms such as to defeat the object of said contract and because of your apparent failure to diligently and timely proceed with said contract; and for the further reason that you failed to comply with the provisions of said Housing Authority's Resolution of March 1, 1972.

I.

The district court found that the evidence established I.I.'s inability to perform its contract obligations and that the housing authority was therefore justified in terminating the agreement before the completion date.

I.I. contends on appeal that even if the evidence indicated that it could not have completed construction on time, the company might eventually have substantially performed its obligations. I.I. relies on Brady v. Oliver, 125 Tenn. 595, 616, 147 S.W. 1135, 1140 (1911) for the general rule that ordinarily time is not of the essence in construction contracts and that "where the contractor fails to perform his work within the specified time he is liable in damages only for the delay."

However, I.I. has not answered CRHA's argument that termination was justified not because of the contractor's delay but because of the virtual certainty that I.I. would never be able to perform its contract obligations. CRHA urges that this case presents the unusual circumstance referred to in Brady v. Oliver, supra, in which prospective breach and failure of consideration have been conclusively established in advance of the completion date because the contractor has disabled himself from performing:

The disability must be so complete as to place it beyond the power of the defaulting party to perform his obligations in every material respect, so that, if the things contracted for are done in the best way the disabled party can do them, the contract, so performed, will be essentially another and different thing. It must exist at the time of the renunciation as a legally accomplished fact, and not as a mere potentiality. Therefore it must clearly appear, not only that defendant could not do the work within the time, but that his failure in respect of this matter would be so material as to make his performance essentially different from his promise.

Id. at 1140 (emphasis added). See also, Restatement of Contracts § 280(1) and Comment A to section 280:

MANIFESTATION BY ONE PARTY OF INABILITY TO PERFORM OR OF

INTENTION NOT TO PERFORM.

(1) Where there are promises for an agreed exchange, if one promisor manifests to the other that he cannot * * * substantially perform his promise, * * * the other party is justified in changing his position, and if he makes a material change of position he is discharged from the duty of performing his promise.

Comment on Subsection (1):

A. The rule stated in Subsection (1) is an illustration of the principle that prospective failure of consideration is as good ground for excusing performance of a promise as actual failure of consideration. Where there has been actual non-performance, however, failure is certain, while when non-performance is prospective degrees of probability enter into the case. So far as concerns a discharge of a promisor because it is probable that the return promise will not be performed, it makes no difference whether the prospective failure is due to inability or wilful purpose, provided that it is certain that the failure is going to take place. ⁵

The district court relied on the following evidence of I.I.'s inability to perform. I.I.'s first general manager and construction superintendent left in August 1971 because he had not been paid. James F. Stone became general manager in August. However, the project was without a construction superintendent until Ray Mudge assumed that position on September 16, 1971. Mr. Stone testified that apart from "token" construction in August, the project was initially delayed for "60 days, due to lack of funding * * * from the contract start time until Mr. Mudge arrived on the job." Ray Mudge testified that when he arrived in September, he found no equipment with which to begin work; "(w)e had a few shovels and a backhoe that almost worked. That was about it." Mr. Mudge attributed I.I.'s subsequent lack of progress to a constantly inadequate supply of equipment, materials and personnel.

In January 1972, both Mr. Mudge and Mr. Stone resigned, leaving the project without management and supervision. Mr. Mudge left because "the project had come to a standstill."...