Charles Weitz's Sons v. U.S. Fidelity & Guaranty Co.

• Decision Date: 08 May 1928
• Docket Number: 38296
• Citation: 219 N.W. 411,206 Iowa 1025
• Parties: CHARLES WEITZ' SONS, Appellee and Appellant, v. UNITED STATES FIDELITY & GUARANTY COMPANY, Appellee and Appellant, et al., Appellee
• Court: Iowa Supreme Court

219 N.W. 411

206 Iowa 1025

CHARLES WEITZ' SONS, Appellee and Appellant, v. UNITED STATES FIDELITY & GUARANTY COMPANY, Appellee and Appellant, et al., Appellee

No. 38296

Supreme Court of Iowa, Des Moines

May 8, 1928

REHEARING DENIED OCTOBER 26, 1928.

Appeal from Polk District Court.--LESIER L. THOMPSON, Judge.

Suit to recover an amount alleged to be due on a surety bond. A counterclaim was filed for money alleged to be due for services performed by defendant's assignor. The court found the defendant liable on the bond for the full amount claimed, and established the counterclaim, and rendered judgment for plaintiff for the difference between said amounts. Charles Weitz' Sons and the United States Fidelity & Guaranty Company both appeal.--Affirmed on both appeals.

Affirmed.

Parrish Cohen, Guthrie, Watters & Halloran and O. M. Brockett, for Charles Weitz' Sons, appellant.

Stewart & Hextell and Miller, Kelly, Shuttleworth & McManus, for United States Fidelity & Guaranty Company, appellant.

Havner Flick & Powers, for Pyramid Portland Cement Company of Iowa, appellee.

FAVILLE, J. STEVENS, C. J., and EVANS, KINDIG, and WAGNER, JJ., concur.

OPINION

FAVILLE, J.

Charles Weitz' Sons is a copartnership engaged in the business of contracting and building. The Pyramid Portland Cement Company is a corporation engaged in the manufacture of Portland cement. The United States Fidelity & Guaranty Company is a surety company. On February 1, 1923, Weitz' Sons and the Pyramid Portland Cement Company entered into a written agreement, by which Weitz' Sons undertook to build certain storage bins for said cement company. The contract was in the form of a letter written by Weitz' Sons to the Pyramid Portland Cement Company, which was accepted by it in writing. The letter contains the following:

"It is our understanding that you desire that we construct the storage bins in accordance with drawings submitted, and accept extended payments in lieu of cash, such payments to be made by the delivery of Portland cement to us at a future date.

"We have not the available funds with which to carry on the work, and we do not care to ask for financial assistance from our bank for the reason that we will require a large amount of credit later on when road work begins. We offer, however, this proposal, but we are not urging approval.

"Assuming that the contract represents a sum of approximately $ 60,000, of this sum you should arrange with the Iowa Trust and Savings Bank for a full line of credit to us and which we understand is $ 20,000, as to the additional credit we will seek other sources. The arrangement with the bank or banks should be, that the money be loaned to us at intervals of the first and fifteenth of the month during the progress of the work, and in accordance with invoices for the material and labor in place or in storage during the construction period; our notes to mature in four months, with interest as may be elected by the banks and with renewal privileges for the unpaid portion of the obligation and until the obligation of delivering cement to us is performed. It is assumed that within four months you will manufacture cement, and it shall be understood that option be given us to issue orders for cement deliveries at any time following the date of manufacture, and which you guarantee will be within thirty days after the storage bins are completed. Our orders for cement will be uniformily distributed during a period of two years following thirty days after completion of the storage bins. Payments for cement to be made direct to you and all checks to be indorsed by you to the order of the Iowa Trust and Savings Bank or other banks as may be directed, the bank to make credit notation on our note or notes, and acknowledge receipt of same to us. * * * We would require that you furnish bond guaranteeing either the delivery of cement as agreed upon, or, in case you should be unable to make delivery that you will make cash payment equal to the value of the cement ordered.

"It is also understood that the price of cement on orders given to you by us in payment of this operation will be ten cents less per barrel than the dealers base price for Des Moines, or for shipments within the state at the time of shipment, the terms of payment to be as usual on all cement contracts."

Pursuant to this contract, the surety company executed the bond in suit, in the penal sum of $ 60,000, conditioned upon performance of the contract by the Cement Company. After the storage bins were constructed, the Cement Company furnished certain cement to Weitz' Sons under the contract, and later defaulted; and this action is to recover upon the bond for the balance due upon the contract. Without specifying the allegations of the answer and amendments thereto, in a general way the defenses of the Surety Company are that the contract between Weitz' Sons and the Cement Company was altered, without the knowledge or consent of the Surety Company; that orders for deliveries were not made by Weitz' Sons in accordance with the contract; that there were false representations made by Weitz' Sons inducing the execution of the contract, in respect to the cost of the construction of the storage bins; and that a larger credit should be given the Cement Company for payments claimed to have been made.

Certain matters are conceded, or fully established by the evidence. It is undisputed that the total cost of the construction of the storage bins was $ 89,850.38. It also appears that the Cement Company furnished to Weitz' Sons 4,210 barrels of cement, under the contract, and are entitled to credit for $ 9,986.86 therefor. Work was commenced under the contract on February 25, 1923, and the job was completed September 1, 1923. The Cement Company filled certain orders given it for cement by Weitz' Sons under the contract until in April, 1924. In February, 1924, the Cement Company advised Weitz' Sons that it could not fill certain of the orders for cement that had been given under the contract. The Surety Company was also advised of this default on the part of the Cement Company. In March, 1924, Weitz' Sons gave the Cement Company a general order to deliver 600 barrels of cement per week until December 1, 1924. The Cement Company advised Weitz' Sons that it could not comply with this order, and the Surety Company was notified of this default. On or about May 1, 1924, a contract was entered into between the Century Lumber Company and the Pyramid Portland Cement Company with regard to the sale of cement to the Century Lumber Company. This contract is known in the record as Exhibit HH, and a material part thereof is as follows:

"The party of the first part agrees to sell and deliver to the party of the second part such cement as may be ordered by it, at the current dealers' market price prevailing at the time same is ordered, with the customary discount plus an additional discount of ten cents (10c) per barrel, party of the second part to make payment therefor, as follows:

"One and 60/100 ($ 1.60) per barrel, plus forty cents (40c) per barrel for sacks, to be paid party of the first part within ten (10) days from the date of invoice; the balance of the purchase price, after deducting the freight, is to be paid by party of the second part to Chas. Weitz' Sons to apply on the indebtedness owing by party of the first part to Chas. Weitz' Sons.

"The party of the first part will reimburse the party of the second part for all sacks returned, at the rate of ten cents (10c) per sack, either by paying therefor in cash, or, at the option of second party, by crediting the amount thereof on cement subsequently ordered."

Under this contract, the Cement Company furnished 38,268 barrels of cement to the Century Lumber Company between May 26, 1924, and August 28, 1925. Of this amount Weitz' Sons obtained from the Century Lumber Company, and used, 33,605 barrels, and Weitz' Sons credited the Cement Company upon its indebtedness under the original contract with the sum of $ 15,933.08.

I. We first consider the contract Exhibit HH and its effect upon the rights of the parties. The partnership Charles Weitz' Sons is composed of Charles W. Weitz, Fred W. Weitz, and Edward Weitz. The Century Lumber Company is a corporation having a capital stock of $ 150,000. Three shares of the stock of said corporation, of the par value of $ 100 each are owned by two sons of the said Charles W. Weitz. The remainder of the stock of said corporation, being of a par value of $ 149,700, or 99.8 per cent of the entire capital, is owned by the three partners who compose the firm of Charles Weitz' Sons. These three partners are also the directors of the Century Lumber Company. The copartnership and the Century Lumber Company have offices in the same building. The question at this point is whether or not there is such identity of parties as that the contract Exhibit HH between the Century Lumber Company and the Cement Company should be held to be in fact a contract between Charles Weitz' Sons and the Cement Company; and if so, whether or not it amounted to an alteration of the original contract between Weitz' Sons and the Cement Company. The Surety Company invokes the rule that equity looks to the substance, rather than the form, and will disregard the latter in arriving at the ultimate truth, in order to effectuate justice. The plenary power of a court of equity in this regard is well established, and is most frequently invoked where a question of fraud is involved. In this case there is no claim of fraud or bad faith, except as it may possibly be inferred from the record. It does not appear that the fact that the contract Exhibit HH was executed, was made known to the Surety Company prior to the commencement of...