Commercial Ins. Co. v. Hartwell Excavating Co.

Decision Date27 October 1965
Docket NumberNo. 9508,9508
Citation89 Idaho 531,407 P.2d 312
PartiesCOMMERCIAL INSURANCE CO., a corporation, Plaintiff-Appellant, v. HARTWELL EXCAVATING CO., Inc., a corporation, Defendant-Respondent.
CourtIdaho Supreme Court

Holden, Holden & Kidwell, Idaho Falls, for appellant.

Petersen, Moss & Olsen, Idaho Falls, for respondent.

KNUDSON, Justice.

Shortly prior to November 11, 1960, respondent, Hartwell Excavating Co., Inc., was seeking to establish a line of bonding credit in anticipation of bidding for a contract with the City of Idaho Falls (hereinafter referred to as 'City') to construct a public works project known as The West Side Sewer System (hereinafter referred to as 'Project'). During said period respondent, through its president, George A. Hartwell, contacted appellant through its agent, Kenneth J. Dehnert, and for the purpose of establishing such credit submitted to appellant respondent's financial statement.

Under date of November 11, 1960, respondent completed an application form furnished by appellant entitled 'Application for Contract Bond.' Some irregularity occurred regarding the name of the company to which the application was addressed; however, it is admitted that the application was made to and acted upon by appellant.

Pursuant to said application appellant, by and through its agent Dehnert, supplied to respondent a bid bond for the project. This bond together with respondent's bid was submitted to the City for consideration in awarding a contract relative to the construction of the project. Respondent was thereafter notified that it was the successful bidder and was requested to submit a performance bond together with an executed contract for the construction of the project. Respondent thereupon requested appellant, through its agent Dehnert, to provide the required performance bond.

At the request of appellant an abstract of the bids relative to the project was furnished by respondent. Upon learning that respondent's bid was substantially lower than the engineer's estimate and $43,658.76 below the next low bid, appellant proceeded to make further investigation concerning respondent and its bid. Thereafter appellant demanded as a condition to the issuance of the performance bond that respondent furnish additional collateral security in the amount of approximately $40,000.00. Respondent was unable to provide such security and consequently could not obtain a performance bond from appellant. Respondent's being unable to meet the requirement of furnishing a performance bond made it impossible for it to enter into the contract for the construction of the project.

Pursuant to demand made upon appellant by the city attorney, appellant paid to the City, pursuant to its obligation under the bid bond, the sum of $8,770.10. Appellant thereafter made demand upon respondent to indemnify appellant for the sum so paid to the City. Respondent denied liability therefor and appellant commenced this action seeking recovery of said amount against respondent allegedly under the indemnification provisions contained in the application. Trial was had before the court sitting without a jury. Judgment was entered denying recovery to appellant, from which judgment this appeal is taken.

Appellant has enumerated twenty-three assignments of error, the substantial portion of which may be grouped into three principal contentions as follows:

(1) The trial court erred in finding that custom or usage was applicable to the factual situation in this case.

(2) The court erred in finding that appellant's agent Dehnert had apparent authority to make representations to respondent and in concluding that appellant was estopped to deny its agent's apparent authority.

(3) The court erred in concluding that respondent was not obligated to reimburse appellant for payments made by appellant to the City.

In considering the first mentioned contention we find that in respondent's answer as an affirmative defense it is alleged:

'That at all times mentioned in the complaint there existed in the construction business in Idaho Falls, Idaho, and vicinity a well established and well understood custom and usage to the effect that if a surety executes a bid bond in favor of a principal and the principal is the successful bidder, that the surety will execute a performance bond on behalf of the principal for the performance of said contract, all as plaintiff well knew and understood.'

This allegation is sufficient to put in issue the practice of the business here involved as it existed in the area of Idaho Falls and vicinity. Appellant raises the issue as to whether the alleged usage or custom was shown to exist in the area alleged.

It is generally recognized that a custom or usage which may affect the rights of a party to a contract must be one that has existed for such length of time as to become generally known and practiced in the area in question or in reference to the particular trade or business with which it is connected. 55 Am.Jur., Usages and Customs, §§ 4-9.

The foundation for the introduction of evidence of usage or custom is a showing of a series of acts of a similar character performed at different times. Ames Mercantile Co. v. Kimball S.S. Co., D.C.N.D.Cal.1903, 125 F. 332. Evidence of a habit of doing a thing in the course of business is, if clearly shown as a definite course of action, admissible as indicating that, on a particular occasion, the thing was done as usual. Roberts Distributing Co. v. Kaye-Halbert Corp., 126 Cal.App.2d 664, 272 P.2d 886; 31 A C.J.S. Evidence § 180, p. 457. In the case of Romero v. H. A. Lott, Inc., 70 N.M. 40, 369 P.2d 777, the court had under consideration an issue as to whether the handrail on a platform was a safety device in general use in the building construction industry and stated:

'We have held that custom or usage is a matter of fact and not of opinion. * * * but, that proof of the fact may be established either by testimony of specific uses, * * * or by evidence of general practice of contractors, * * *.'

In the instant case respondent called Mr. Arrington, a resident of Idaho Falls, who had been engaged in the general contracting business for twenty-eight years, doing work in Montana, Wyoming, Utah and Idaho. He testified that a custom existed in the Idaho Falls area in this type of business relative to the issuance of performance bonds by a bonding company when the contractor to whom the bonding company has issued a bid bond, is successful in being offered the contract bid on; essentially the custom is, to paraphrase the testimony, that you arrange for a performance bond at the time you apply for a line of credit and if you are awarded the contract you get the performance bond, the bid bond being incidental to the situation. He further testified that:

'Q Now Mr. Arrington, in your experience what is the custom if a bid bond has been issued relative to the following through with a performance bond?

'A In our experience, over 28 years, the performance bond has been forthcoming immediately for every job that a bid bond has been issued.'

The witness Harold Shydler, a resident of Idaho Falls, engaged in the general contracting business most of his life, and in Idaho about twelve years, testified that he knew of such a custom and that within his experience 'I have never known of any occasion within my own experience where a bid bond has been issued to a contractor and the bonding company has then refused to issue a performance bond, other than in this specific case.'

A witness, Mr. Metcalf, testified that he was a resident of Idaho Falls, engaged in conducting a general insurance agency in that area for approximately eight years; that he solicits bids and performance bonds for the United States Fidelity & Guaranty Company; that he knew of a like custom and that 'in my experience the custom is that if a contractor is successful and is awarded the bid, the company will issue the performance bond.'

Mr. Larter, a resident of Idaho Falls, engaged in insurance, bonds, and real estate business, which included the writing of contract bonds for public works contracts, testified that he knew of such a custom, and further stated:

'A From my own experience, I have never written a bid bond until it was understood with the company that they were going to write the performance bond. I have never had that--it's never come up in 26 and one-half years; I never had any problem on it.

'Q Do you know of a situation, from your own experience, where a bid bond has been written and the company has refused to write a performance bond?

'A No, I do not, neither from my own experience nor have I heard of it other than this particular case; however, it may have happened. But in this particular area I have never known of it ever occurring before. It's certainly never happened, as far as I am concerned, in my own bonding business.'

One I. E. Catherman, an employee of appellant company, was called by respondent for cross-examination. In describing his duties as an employee of appellant in this state, he stated: 'Well, I'm the Branch Manager of the Boise office; I'm the State Agent, Special Agent, Inspector, appraiser; practically all activities of the company in the State with the exception of adjusting.' This witness testified as follows:

'Q Do you know of any situations in the State of Idaho where your company has written a bid bond and has failed to follow through with a performance bond to the successful bidder?

'A No.'

Mr. Dehnert, appellant's agent who supplied the bid bond here involved, when being interrogated relative to a statement made to Mr. Hartwell relative to a performance bond, stated:

'A Well, I would say it was an answer I have given quite a few times before, that if the company will issue a bid bond the chances are they will issue the performance bond. Or, more often my answer would be they would not issue the bid bond unless they would * * *...

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