Continental Bank & Trust Co. v. American Bonding Co.

• Decision Date: 13 October 1980
• Docket Number: No. 80-1127,80-1127
• Citation: 630 F.2d 606
• Parties: CONTINENTAL BANK & TRUST CO., as Trustee for the Lot Purchasers, and Calwood Leisure Assn., Inc., Donald L. Owens, Harold D. Barnhard, and Maurice Stack, Appellees, v. AMERICAN BONDING COMPANY, Appellant, v. Richard D. WALKER, John W. Markham, Systems Leisure Properties, Inc. and Camp Leisure Lakes, Inc., Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 606

630 F.2d 606

CONTINENTAL BANK & TRUST CO., as Trustee for the Lot

Purchasers, and Calwood Leisure Assn., Inc., Donald L. Owens, Harold D. Barnhard, and Maurice Stack, Appellees, v. AMERICAN BONDING COMPANY, Appellant, v. Richard D. WALKER, John W. Markham, Systems Leisure

Properties, Inc. and Camp Leisure Lakes, Inc., Appellees.

No. 80-1127.

United States Court of Appeals,

Eighth Circuit.

Submitted June 9, 1980.

Decided Sept. 10, 1980.

Rehearing and Rehearing En Banc Denied Oct. 13, 1980.

Charles B. Blackmar (argued), and Francis L. Kenney, Jr., St. Louis, Mo., on brief, for appellant.

John R. McFarland (argued), Coburn, Croft & Putzell, St. Louis, Mo., and Bruce H. Beckett (argued), Smith, Lewis & Rogers, Columbia, Mo., for appellees; Louis F. Bonacorsi, St. Louis, Mo., Robert C. Smith, Jr., Columbia, Mo., and D. Jeff Lance, St. Louis, Mo., on brief.

Before ROSS, Circuit Judge, GIBSON, Senior Circuit Judge, and HANSON, District Judge. ^*

ROSS, Circuit Judge.

This is the second appeal in an action brought by Continental Bank & Trust Company (Continental, the bank) for recovery from American Bonding Company (American, the surety) on five performance bonds totaling $661,000.00 for the noncompletion of bonded improvement projects by Systems Leisure Properties, Inc. (Systems, the principal).

The district court initially awarded Continental the full face amount of the bond. Continental Bank & Trust Co. v. Am. Bonding Co., 462 F.Supp. 123 (E.D.Mo. 1978). On appeal, this court affirmed the district court's finding that American was liable on the bonds but remanded for a redetermination of damages owed by the surety for the principal's default.

We disagreed with the district court's conclusion that damages be computed as of the date of trial and directed that the district court award damages as of the date of System's breach. As of that date, the district court was to determine the cost of completion of each of the bonded improvements individually, including in that computation the amount of unpaid mechanics' liens thereon. From that total the district court was directed to deduct "the amounts Systems would have been paid had it satisfactorily completed each of the improvements," the award of damages for each bond not to exceed the face amount of the bond issued for that particular improvement. Continental Bank & Trust Co. v. Am. Bonding Co., 605 F.2d 1049, 1057 (8th Cir. 1979).

On remand, the district court determined that Systems defaulted when the improvements should have been, but were not, completed: December 31, 1974, on the water system bond and December 31, 1975, on all other bonds. As of those dates of default, it computed damages by adding the cost of completion and liens, to the extent that figure did not exceed the face value of each bond. It also ordered prejudgment interest at a rate of six percent, costs and attorneys' fees. Accordingly, the district court awarded Continental $590,326.87, reflecting the cost of completion and unpaid mechanics' liens within the bonds' limits, to be augmented by six percent prejudgment interest and costs. The district court did not deduct from the award the amount Systems would have been paid had it finished the various projects.

American appeals from this judgment, challenging the district court's computation of damages, determination of the date of default by Systems, inclusion of mechanics' liens as damages, the allowance of prejudgment interest, and the award of attorneys' fees. We will deal with these issues below seriatim.

Appellant contends, inter alia, that the district court failed to follow the mandate of this court. We agree with appellant's assertion.

It is beyond cavil that

the decision on former appeal is the "law of the case" on a question presented in that former appeal, unless the evidence introduced at the subsequent trial is substantially different from that considered on the first appeal, and must be followed in all subsequent proceedings in such case in both district and appellate courts, unless that decision is clearly erroneous and works manifest injustice. * * * While this rule of practice is not a limit of power, it is nevertheless a salutary one, and should be departed from only after careful consideration on situations arising in specific cases.

Pyramid Life Ins. Co. v. Curry, 291 F.2d 411, 414 (8th Cir. 1961), quoting Chicago, St. P., M. & O. Ry. v. Kulp, 102 F.2d 352, 354 (8th Cir. 1939). (Otten v. Stonewall Insurance Co., 538 F.2d 210, 212 (8th Cir. 1976).)

Quoted in Houghton v. McDonnell Douglas Corp., 627 F.2d 858 (8th Cir. 1980).

In directing the district court's determination of damages, we specifically directed that the district court

determine the date of Systems' breach, the cost to complete each of the bonded improvements as of that date, plus the amount of unpaid mechanics' liens thereon. It should deduct from that total the amounts Systems would have been paid had it satisfactorily completed each of the improvements.

Continental Bank & Trust Co. v. Am. Bonding Co., supra, 605 F.2d at 1057. (Emphasis supplied.)

Summarizing these directives, the district court stated that it was to

determine the date of the breach of each of the bonds, each of which was a separate undertaking, and the full amount of the completion cost on the date of the breach plus the unpaid mechanic's liens on each project covered by each bond, and from such amount must be deducted any amounts which would have been paid by the bank to Systems Leisure Properties, Inc. (Systems), on completion of the project.

Continental Bank & Trust Co. v. Am. Bonding Co., No. 75-1095-C(C), Mem. Op. at 2-3, (E.D. Mo., filed Jan. 3, 1980). (Emphasis supplied.)

Ostensibly, the district court read our opinion to pertain to deductions based only on any contract amount owed Systems by Continental. ¹

Nowhere in our opinion is the deduction of contract damages so circumscribed. Nor was any new or substantially different evidence introduced mandating the district court's action in so circumscribing the deduction of damages. Such an alteration of the mandate of this court was wholly unwarranted. As this court noted, the proper measure of damages reflects the obligee's right to compensation by way of damages to put it in the position it would have occupied if the "(principal) had faithfully fulfilled its contract * * *." Continental Bank & Trust Co. v. Am. Bonding Co., supra, 605 F.2d at 1057, quoting Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. D & L Construction Co., 353 F.2d 169, 176 (8th Cir. 1965), cert. denied, 384 U.S. 941, 86 S.Ct. 1462, 16 L.Ed.2d 539 (1966).

Premiums paid on the bonds obviously reflected the risk borne by the surety as premised on the estimated costs of completion as set forth in the construction agreements which were incorporated in the bonds. It would be manifestly unfair to now hold the contract price wholly irrelevant to a determination of damages and to force the surety to pay for the entire cost of finishing the contract without any reimbursement of the amount due to be paid by the owner to Systems. If the surety had finished the projects it certainly would have been entitled to the remaining amount due under the contracts. The trial court and Continental seem to be making the erroneous assumption that Systems was not to be paid by anyone even if the projects had been completed pursuant to contract.

There is no question that the contract price was sufficiently ascertainable to enable the district court to compute the damages making "a corresponding adjustment in (the cost of completion) for the price which would have been paid to Systems for the remaining work." Continental Bank & Trust Co. v. Am. Bonding Co., supra, 605 F.2d at 1057. Once Camp Leisure Lake permitted Systems to begin performing the contract, any indefiniteness as to the contract price became definite. ² Indeed, our previous opinion noted the rule of law that "indefiniteness can be cured by the subsequent conduct of the parties, and as in this case, once an indefinite promise has been partly or wholly performed, the contract becomes sufficiently clear and binding upon all parties." Continental Bank & Trust Co. v. Am. Bonding Co., supra, 605 F.2d at 1054 (citations omitted). Thus, any indefiniteness of the contract was cured by Camp Leisure Lake's part-performance in making initial payments to Systems for its work toward completion of construction of the improvements.

Since our opinion does not limit the deduction of the contract price to those sums owed by Continental, as erroneously interpreted by the district court, but merely requires the deduction of the contract price from the sum of the cost of completion and of the amount of unpaid mechanics' liens on each of the bonded improvements as of the date of default, the district court must, after an evidentiary hearing, reduce the damages accordingly by deducting the unpaid portion of the contract price established by each of the five construction agreements for the bonded improvements as hereinafter set forth.

These directions for determining damages are in accord with our previous directions to the district court. In Continental Bank & Trust Co. v. Am. Bonding Co., supra, 605 F.2d at 1057, we relied on Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. D & L Construction Co., supra, 353 F.2d at 176 for our damages formula.

In Nat'l Union the surety refused to complete the bonded work upon the principal's default. Upon completion of the work, the obligee was held entitled to recover from the surety "compensation by way of damages to put it in the position it would have occupied if the (principal) had faithfully fulfilled its contract * * *." Id. To that end, the court in Nat'l Union directed the district court on remand to "determine the full amount of allowable completion costs and deduct therefrom the unpaid amount of the subcontract price and allow the difference to the extent that such net figure...