Gilmore v. Royal Indemnity Company

• Decision Date: 21 January 1957
• Docket Number: No. 16182.,16182.
• Parties: L. B. GILMORE, Appellant, v. ROYAL INDEMNITY COMPANY, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

240 F.2d 101 (1956)

L. B. GILMORE, Appellant, v. ROYAL INDEMNITY COMPANY, Appellee.

No. 16182.

United States Court of Appeals Fifth Circuit.

December 21, 1956.

Rehearing Denied January 21, 1957.

C. Baxter Jones, Macon, Ga., A. C. Felton, III, John S. Averill, Jr., Montezuma, Ga., for appellant. Jones, Sparks, Benton & Cork, Macon, Ga., of counsel.

George C. Grant, T. Baldwin Martin, Macon, Ga., for appellee. Martin, Snow & Grant, Macon, Ga., of counsel.

Before HUTCHESON, Chief Judge, and BORAH and BROWN, Circuit Judges.

BORAH, Circuit Judge.

This is an appeal from a summary judgment entered against L. B. Gilmore in his suit against Royal Indemnity Company, the surety on a contractor's bond. On this appeal our sole function is to determine whether there was any genuine issue of material fact presented below, and, if not, whether the substantive law was correctly applied.

The bond upon which this suit is based was executed October 20, 1952, pursuant to the terms of a contract executed October 2, 1952, by the contractor, Frank Vincent, and the plaintiff. Under the terms of the latter document the contractor agreed to furnish all labor and material and to renovate and repair a certain hotel building in Montezuma, Georgia, for the sum of $12,500 to be paid as follows: "$6,000 to be advanced weekly as the work progresses and the remainder to be paid in full when all the work is complete." The contract also provides that prior to each payment the contractor should present to the owner "a statement in writing from all persons who have done work or furnished material in connection with said building up to that time that they have waived any lien or liens they may have therefor or said contractor has given to the owner a sworn statement that the agreed price or reasonable value of the work done or material furnished has been paid as provided by Code 67-2001." The contract among other things also requires that the contractor give a surety bond payable to the "owner" for the faithful performance¹ of the contract according to the specifications which are made part of the contract, and the surety bond by reference makes the contract of October 2, 1952, a part thereof, but it does not contain any provision with respect to notice of claims, or how or when claims shall be made, or to what office or agent.

Plaintiff's complaint, as amended, asserts two claims for relief, the first of which is a simple contract action in which the following allegations are made: that the contractor failed to carry out the terms of the contract of October 2, 1952; that on January 20, 1953, plaintiff notified defendant surety company of the breach and demanded that defendant complete the work or pay the indemnity provided in the bond; that the defendant failed and refused to comply with this amicable demand and as a consequence plaintiff was obliged to employ another contractor to complete the work at a cost in excess of the original contract price; and that by reason of the delay occasioned by the contractor's breach plaintiff suffered a loss of use and occupancy and a loss of income. The prayer was for judgment in the sum of $12,500, the face amount of the bond, plus interest from the date of amicable demand. The second claim for relief likewise sets forth the contractor's breach and amicable demand, and in addition alleges, in substance: that upon notice to defendant's duly constituted agent and representative Cruger C. Harrold on December 30, 1952, that the contractor's work was not satisfactory defendant assured plaintiff that it would not sanction or accept the contractor's defective workmanship; that three weeks thereafter defendant dismissed the contractor and informed plaintiff that defendant would provide another contractor without further delay and "would guarantee a satisfactory completion of the job;" that defendant then secured a bid or detailed estimate from another contractor, but notwithstanding the fact that defendant took over the contract and agreed to complete the same, defendant has failed and refused to do so. And, that by reason of the foregoing defendant is indebted to the plaintiff in the sum of $20,000 plus interest, the full amount of plaintiff's loss. Attached to the complaint and made a part thereof were the contract of October 2, 1952, the surety bond, and a Power of Attorney attached thereto in which defendant constituted Cruger C. Harrold as its agent to make, execute and deliver in its behalf as surety, certain specified types of bonds and undertakings² the penal sum of which was limited to $150,000. In this connection it should be noted that neither the bond nor the power of attorney contained a nonwaiver provision or any other express limitation on Harrold's authority.

In its responsive pleadings, the defendant admitted the contract of October 2, 1952, between plaintiff and the contractor, the execution and delivery of the surety bond, and specifically denied that Harrold had authority, as agent, to accept liability or to make any waiver in its behalf; and denied, or for want of sufficient information neither admitted nor denied, all other allegations of the complaint. Further, and by way of defense with respect to the first claim for relief, it was alleged that the bond was unenforceable because plaintiff had violated its conditions, the most important of which was that plaintiff had advanced payments to the contractor without obtaining from him a statement in writing from all persons who had done work or furnished material, waiving any lien, or a sworn statement that the agreed price or reasonable value of the work done or material furnished had been paid. As to the second cause of action, defendant alleged that it failed to state a claim upon which relief could be granted, and that it attempted to impose a liability on defendant not called for under the terms of the bond.

Before the case was set for hearing, defendant, in conformity with Rule 56 of the Federal Rules of Civil Procedure, 28 U.S.C.A., moved the court for summary judgment in its favor on two principal grounds: (1) that Harrold was never authorized to take over and complete the contract, inasmuch as he was a special agent whose authority was restricted to writing bonds and the limitation on his authority which was expressed in the Power of Attorney was or should have been known by the plaintiff;³ and that if Harrold made such an agreement, which was denied, such agreement was not authorized and has never been ratified or approved by the defendant; and (2) that plaintiff deviated from the original contract by advancing to the contractor, prior to December 13, 1952, the sum of $8,300 without obtaining the statements required by the contract, and that this breach, as a matter of law, released defendant as surety on the bond. Attached to this motion were the affidavits of Henry L. Young, Assistant Regional Manager of the defendant surety company; Cruger C. Harrold; Harry A. Thornton, the contractor alleged by plaintiff to have submitted a bid or detailed specifications to Harrold during the negotiations between plaintiff and Harrold; James A. Haggerty, Field Representative for the surety company; and J. C. Ford, Claims Attorney in the defendant's Atlanta office. To this motion, counsel for plaintiff filed a nonverified response, unaccompanied by an affidavit, in which certain facts were admitted, but in the main the various statements contained in the affidavits submitted by defendant were denied and contradicted in detail. At the hearing which was had on the motion, there were presented to and considered by the court, all of the aforementioned pleadings together with the depositions of plaintiff and one R. E. Thomas, and certain exhibits which were not in affidavit form.

The question thus presented on the motion for summary judgment was whether the surety was released from liability on the bond by plaintiff's breach of its conditions, and if so, whether the surety has waived or is estopped from asserting that breach as a defense. We take it that appellant does not seriously contend that his breach of the aforementioned conditions of the bond did not release the surety. Indeed, the authorities which he cites, such as Hartford Accident & Indemnity Co. v. Mauney, 66 Ga.App. 403, 17 S.E.2d 885; Lowndes Alliance Warehouse Co. v. Greene, 17 Ga.App. 542, 87 S.E. 826, and Little Rock Furniture Co. v. Jones & Co., 13 Ga.App. 502, 79 S.E. 375, convincingly show that this is so. To the same effect are Mauney v. Hartford Accident & Indemnity Co., 68 Ga.App. 515, 23 S.E. 2d 490, and Blackburn v. Morel, 13 Ga. App. 516, 79 S.E. 492, 493. In the latter case the Court of Appeals of Georgia, speaking through Judge Russell, declared: "* * * the liability of a surety is stricti juris, and cannot be extended, and a surety is relieved by any act which tends to increase his risk; and whether in fact there is an increase of his risk or not, there is a breach of the contract."

Coming now to the question of waiver, it is conceded by appellant in brief, and rightly so, that Harrold did not have actual authority to take over and complete the contract and thereby to waive appellant's breach of the conditions of the bond. But this is not conclusive of the issue for under Georgia law a principal is bound to the extent of the apparent authority which he has conferred upon his agent and not by the actual or express authority when that differs from the apparent authority, Turner Bros. v. Clarke, 143 Ga. 44, 84 S.E. 116. And in Georgia as elsewhere when a principal by his acts or conduct makes it appear to a person of reasonable prudence and good faith that such agent has authority to perform a particular act, and a third person deals with the agent upon that assumption, the principal is estopped as against such third person from denying the agent's authority. Commercial Credit Corp. v. Noles, 85 Ga.App. 309, 69 S.E.2d 309.

Our next inquiry is whether or not...