Fidelity and Deposit Co. of Maryland v. Tom Murphy Const. Co., Inc.
| Decision Date | 30 April 1982 |
| Docket Number | No. 81-5089,81-5089 |
| Citation | 674 F.2d 880 |
| Parties | FIDELITY AND DEPOSIT COMPANY OF MARYLAND, Plaintiff-Appellee, v. TOM MURPHY CONSTRUCTION COMPANY, INC., Thomas P. Murphy, Jr., Cynthia Murphy, Dale D. Stringer and Sandra A. Stringer, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
Roger A. Bridges, Coral Gables, Fla., Greene & Cooper, Marc Cooper, Miami, Fla., for defendants-appellants.
Kimbrell, Hamann, Hennings, Womack, Carlson & Kriskern, Bruce Charles King, Miami, Fla., for plaintiff-appellee.
Appeal from the United States District Court for the Southern District of Florida.
Before VANCE, HATCHETT and ANDERSON, Circuit Judges.
This appeal, in a diversity action, requires application of Fla.Stat. § 725.01 to an indemnification contract which required written notice for termination. Finding genuine issues of fact to be litigated, we reverse and remand.
Tom Murphy and Dale Stringer were equal shareholders in Tom Murphy Construction Company, Inc. (Murphy Construction), a Florida corporation primarily engaged in the field of municipal construction. In order to successfully bid on public construction projects, a bid payment and performance bond was required to be submitted along with the bid. Bonding for Murphy Construction's bids was handled by Robert Benson, a licensed insurance agent employed by a local agency representing many large commercial line insurance companies, including Fidelity and Deposit Company of Maryland (F&D). Through Benson, bonding was arranged with F&D. 1
As part of the decision to provide bonding, F&D required Murphy and Stringer and their wives to execute an indemnity agreement holding F&D harmless from losses it might sustain should Murphy Construction default on obligations arising out of the bonded projects. According to Edmond B. Blondell, Jr., vice-president of F&D in charge of the Miami branch office, this was standard industry procedure. On July 11, 1975, the Stringers and the Murphys signed an "Agreement of Indemnity" as individual indemnitors. The agreement provided:
TERMINATION
Nineteenth: This Agreement may be terminated by the Contractor or Indemnitors upon twenty day's written notice sent by registered mail to the Surety at its home office at Fidelity Building, Charles and Lexington Streets, Baltimore, Maryland 21203, but any such notice of termination shall not operate to modify, bar, or discharge the Contractor or the Indemnitors as to the Bonds that may have been theretofore executed.
Twentieth: This Agreement may not be changed or modified orally. No change or modification shall be effective unless made by written endorsement executed to form a part hereof.
Dale Stringer claims that in August or September, 1975, he agreed to sell his interest in the company to Murphy and that by November of 1975, he no longer worked for Murphy Construction. 2 Furthermore, Stringer insists he orally notified Benson in October, 1975, of his leaving the company and that he and his wife no longer wanted to be listed or relied upon by F&D as indemnitors under the previously signed agreement. At that point, Stringer believed his obligations with respect to Murphy Construction were ended.
In October, 1978, F&D brought suit on the indemnity agreement against Murphy Construction, the Murphys, and the Stringers for losses F&D sustained on three projects bonded for Murphy Construction. The projects consisted of an addition to Coral Gables Senior High bonded on December 12, 1975, a subregional library project bonded on March 8, 1977, and a State Department of Transportation maintenance project bonded on March 21, 1977. The losses on these projects totalled $341,051.17.
Through discovery, the Stringers sought to substantiate their claim that the indemnity agreement had been terminated as to them by the oral notification to Benson. Benson testified on deposition that he knew of Stringer's departure from Murphy Construction as early as October 2, 1975. In a letter to Murphy dated October 2, 1975 Benson stressed the need for a new financial statement "particularly in light of your buying out Dale Stringer's interest in the Corporation." Benson further testified that he informed Blondell, F&D's vice-president in the Miami office, that Stringer was no longer with Murphy Construction. 3 Benson never stated, however, that the Stringers had requested him, orally or otherwise, to terminate the indemnity agreement.
Blondell stated in his deposition that once an indemnitor notified F&D that he no longer wished to be bound by an indemnity agreement, F&D would not rely on his financial status for possible liability on bonds issued for future projects. 4 He could not say for certain when he first learned of Stringer's leaving Murphy Construction, but his recollection of conversations with Murphy and correspondence from Benson would put the date in late 1975 or early 1976.
On the day scheduled for a jury trial, counsel for F&D presented to the district court a motion in limine seeking to define and limit the issues to be litigated. In particular, this motion sought to preliminarily exclude defensive testimony regarding the termination of the business relationship between Stringer and Murphy, defensive testimony regarding the alleged oral termination of the indemnity agreement by the Stringers, and the constructive notice to F&D of the alleged oral termination and defensive testimony regarding F&D's nonreliance on the Stringers for further indemnification. F&D argued that the agreement of indemnity precluded termination by any means other than written notice and evidence of an oral termination was irrelevant.
The district court granted the motion subject to the Stringer's proffer of evidence tending to show modification of or changes made to the terms of the indemnity agreement. If given the opportunity to do so, counsel for the Stringers stated he would present evidence to the jury indicating that (1) the Stringers signed the indemnity agreement shortly before Dale Stringer sold his interest in Murphy Construction to Murphy; (2) F&D had admitted that Benson was its agent; (3) Stringer approached Benson in the offices of Murphy Construction in approximately October of 1975, and knowing him to be the agent of F&D, informed him that he was leaving the company; (4) Stringer told Benson that he would no longer be liable for performance bonds issued in the future on Murphy Construction's behalf by F&D (5) Benson informed Stringer that he would take care of the situation so that there would be no liability; (6) Stringer never received a copy of the indemnity agreement; (7) Stringer relied upon Benson's statements to him that he would have no future liability on future payment and performance bonds; (8) no bond written while Stringer was an indemnitor caused a loss to F&D (9) from the time Stringer notified Benson, F& D did not at any time thereafter request from Stringer updated financial statements, or institute any other action normally undertaken had F&D considered Stringer to still be liable as an indemnitor; and (10) the bonds sued upon were issued by F&D with full knowledge Stringer was no longer involved with Murphy Construction and had previously given notice that he would not be bound as an indemnitor after October of 1975.
Counsel for the Stringers also proffered that by June of 1976, F&D determined that Murphy Construction had reached the outside limits of its bonding capacity and only because Murphy Construction entered into a joint venture with the E.C. Ernst Construction Company was further bonding permitted. The testimony of Blondell was proffered to show that in the event Benson notified him that Stringer no longer wished to be relied upon as an indemnitor, F&D would not look to the Stringers in the future for any indemnification.
Despite this tender of proof, the district court adhered to its earlier ruling that the indemnification agreement controlled the legal issues involved and termination by any means other than those specified in the agreement were prohibited. The ruling stated:
That all prior negotiations are merged into that instrument, and that the tender of proof as to subsequent events does not produce any evidence of subsequent events sufficient to constitute a modification of the terms of the written indemnity agreement, and therefore that the Stringers are liable on the terms of that agreement for the bond claims now in litigation.
Liability having been established, F&D proceeded with its case on the issue of damages by calling the claims attorney for F&D's Miami office to testify on the validity of the losses in question. A final judgment of $383,840.98 was entered against the Stringers. 5 This appeal involving the Stringers and F& D followed.
As the basis for reversing the district court judgment, the Stringers assert that timely acceptance of their offer to indemnify F&D was not demonstrated, and, even if it were timely accepted and therefore became a binding contract, it could be terminated at any time by an oral agreement notwithstanding the clause in the indemnity agreement requiring notice of termination to be in writing. Our task, then, in construing Florida law is to decide whether an indemnification contract required to be in writing by Fla.Stat. § 725.01 6 to be enforceable can be terminated by an oral agreement, despite a provision in the contract which requires written notice to the surety in order to properly terminate.
The Stringers initially argue that F&D is not entitled to indemnification because no evidence as to the timely acceptance of the indemnification agreement by F&D was presented at trial. Although the copy of the "Agreement of Indemnity" attached to F&D's complaint and signed by the Stringers and Murphys was not signed by a representative of F&D, the company later filed a copy of the original agreement which contained the signature of an F&D...
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