Anthony P. Miller, Inc. v. Needham

• Citation: 122 F.2d 710
• Decision Date: 02 October 1941
• Docket Number: No. 7627.,7627.
• Parties: ANTHONY P. MILLER, Inc., v. NEEDHAM et al.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

122 F.2d 710 (1941)

ANTHONY P. MILLER, Inc., v. NEEDHAM et al.

No. 7627.

Circuit Court of Appeals, Third Circuit.

June 17, 1941.

Rehearing Denied October 2, 1941.

Edward H. Cushman, of Philadelphia, Pa., for appellant.

Lewis M. Stevens, of Philadelphia, Pa., for appellee.

Before MARIS, JONES, and GOODRICH, Circuit Judges.

GOODRICH, Circuit Judge.

This is an action by a general contractor against the surety company which furnished the bonds for a subcontractor's performance, to recover damages sustained by the plaintiff by reason of the subcontractor's inefficiency and his failure to complete the work and pay materialmen. The defences raised by the surety in the court below were: (1) Fraud on the part of the subcontractor which was participated in by the plaintiff¹ in procuring the bonds and (2) over-payments by the contractor to the subcontractor. The learned trial judge dismissed the complaint. He refused to make the finding of fraud contended for by the defendant, although he did not find that there was not fraud. The defendant-appellee, in this court, strenuously urges the circumstances tending to prove fraud upon our attention. We shall not review the testimony. Rule 52(a) of the Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c, provides: "* * * Findings of fact shall not be set aside unless clearly erroneous * * *." We find no such clear error in the fact finding of the court below.

Plaintiff, Miller, had a contract with the United States Government for the construction of buildings in the Westfield Acres Housing Project in New Jersey. The contracts for heating, plumbing and outside steam distribution were let to Needham by subcontracts executed September 3, 1936. Needham's bonds to Miller, with the bonding company as surety for the performance by Needham, were executed September 22, 1936. Needham abandoned the contracts on December 24, 1937.

The contracts between Miller and Needham provided for monthly progress payments of 85% of the value of the work done during the preceding month. It is found, as a fact, that the plaintiff overpaid Needham from the beginning of the job until the latter suspended performance. The overpayment as of December 24, 1937 was found to be $46,681.92, plus a sum sufficient to complete Needham's incompleted contracts. The full amount of this overpayment represented an invasion of what should have been the retained percentage amount.

If the case stopped there we should have the often litigated situation of the creditor who overpays the debtor on a building contract and the problem of the effect of such overpayment upon the surety. In two-state transactions presenting questions of conflict of laws, it is now clear that a federal court, in making the appropriate rules of reference to the law of other states, must follow the conflict of laws decisions of the state in which it sits. Klaxon Co. v. Stentor Electric Mfg. Co., Inc., 61 S.Ct. 1020, 85 L.Ed. 1477, 1941; Griffin v. McCoach, 61 S.Ct. 1023, 85 L.Ed. 1481, 1941. In this case for instance, the court below and this court as well, adopts such rules of reference to the law of other states as a Pennsylvania court makes, subject, of course, to the governing effect of the Federal Rules of Civil Procedure in procedural matters.

But before we reach the point of determining what law applies to the effect upon the surety of overpayment by the creditor (Miller), we must consider an argument raised by the plaintiff, which, if sustained, materially changes the whole problem. Defendant bonding company is an Indiana corporation. Its business in eastern Pennsylvania is secured through Howard Hager & Co., Inc. of Philadelphia.² Hager, it appears, had written bonds before for the subcontractor, Needham. Upon the occasion of this application he called upon Miller and said he (Hager) would provide Needham with the necessary bonds for the latter's part of this project if Miller would agree to accept trade acceptances from Needham as had been done before on a prior job. This Miller agreed to do. It was these trade acceptances which accelerated the payments by Miller to Needham.

The plaintiff contends that this arrangement binds the bonding company. The argument, as we understand it, goes something like this: (1) That Hager was the general agent of the defendant company; (2) that a general agent may bind his principal by making contracts on his behalf notwithstanding limitations put upon the agent's authority by the principal; (3) that this arrangement, made on behalf of the defendant by its general agent, Hager, bound the defendant notwithstanding that the payments were not made in accordance with the terms of the written contract.

The trial judge did not make a formal finding that Hager was the general agent for the bonding company for eastern Pennsylvania at the time of the transaction in question, although requested to do so. In his opinion, however, he states that "Hager was the defendant's general agent". Plaintiff here, as in the court below, calls attention to the activity of the Hager firm on behalf of the bonding company over a period of years, to the compensation paid by the company which was claimed to be that paid to a general agent, to his appointment of subagents and to his designation as general agent in an insurance directory and on letterheads.

Two questions of Pennsylvania law are presented relevant to this problem. The first is, what law is referred to in determining the scope of Hager's authority. This is a conflict of laws question, obviously, and the authority in Pennsylvania follows the general rule to the effect that the reference is to the law of the place where the agent acts on the principal's behalf.³ Hager was a Pennsylvania agent by the terms of his appointment, his office was in Philadelphia and an examination of the entire record fails to disclose any evidence that the bonds in question were executed and delivered at any other place than that which is the most natural place under the circumstances, Philadelphia. The law of Pennsylvania therefore governs the scope of Hager's authority. Likewise the law of Pennsylvania must govern the effect to be given to an alleged consent by Hager, subsequent to the execution of the bonds and the beginning of the work by Needham, to the use of the trade acceptances to finance Needham. This consent, if given, was likewise given at Hager's office in Philadelphia.

This leads, then, to the second question of Pennsylvania law: the authority of a general agent.

The distinction between a general agent and a special agent, in Pennsylvania and elsewhere, seems to turn on continuity of service rather than the breadth of the agent's powers.⁴ The conclusion, then, that Hager may be regarded as a general agent for the bonding company does not take one far in the real question in the case. As such agent did he have power to agree to an alteration of the provisions of the contracts upon which the bonding company was surety? The general rule, which is followed in Pennsylvania, with regard to what the general agent may do to bind his principal is stated in § 161 of the Restatement of Agency: "A general agent for a disclosed or partially disclosed principal subjects his principal to liability for acts done on his account which usually accompany or are incidental to transactions which he is authorized to conduct if, although they are forbidden by the principal, the other party reasonably believes that the agent is authorized to do them and has no notice that the agent is not so authorized."⁵ That Hager was expressly limited by instructions from the bonding company from making changes in the contracts is clear.⁶ There is no evidence that this...