Hall v. Union Indemnity Co.

• Decision Date: 26 September 1932
• Docket Number: No. 9393.,9393.
• Citation: 61 F.2d 85
• Parties: HALL v. UNION INDEMNITY CO.
• Court: U.S. Court of Appeals — Eighth Circuit

61 F.2d 85 (1932)

HALL v. UNION INDEMNITY CO.

No. 9393.

Circuit Court of Appeals, Eighth Circuit.

August 20, 1932.

Rehearing Denied September 26, 1932.

Boyle G. Clark, of Columbia, Mo. (James E. Boggs, Nick T. Cave, and Paul M. Peterson, all of Columbia, Mo., on the brief), for appellant.

Clay C. Rogers, of Kansas City, Mo. (O. C. Mosman and Paul A. Buzard, both of Kansas City, Mo., on the brief), for appellee.

Before GARDNER, SANBORN, and BOOTH, Circuit Judges.

SANBORN, Circuit Judge.

Thomas C. Hall was plaintiff in the court below, and Union Indemnity Company was defendant. They will be so designated in this opinion.

The plaintiff entered into a contract in March, 1927, with the Moore & Morris Building Company, as contractor, for the construction of a theater building at Columbia, Mo. The contract price was $24,980. The defendant, which was licensed under the laws of Missouri, through its agent and attorney in fact, Edgar J. Stern, by a bond insured the faithful performance of this contract. The contractor defaulted, and the plaintiff, in order to complete the building and pay off mechanics' liens, was obliged to pay out some $13,000 more than the contract price. He demanded payment from the defendant, which denied liability on the ground that progress payments had been made by the plaintiff to the contractor otherwise than as authorized by the contract. The plaintiff sued the defendant for his damages and the penalty and attorneys' fees allowed by the statute for vexatious delay. The defendant set up in defense the failure of the plaintiff to comply with the contract in making payments to the contractor during the progress of the work. The plaintiff denied that there was any such failure, but alleged that if there was, the defendant was estopped to assert it.

The parties waived a jury and stipulated for a reference in conformity with the statutes of Missouri. The special master appointed by the court filed a very complete and fair report, stating his findings and conclusions and recommending a judgment for the defendant. Exceptions were taken, the court confirmed the report and ordered judgment for the defendant, and the plaintiff appealed.

As stated by the special master, there were two main issues in the case: (1) Did the plaintiff himself comply with the terms of the building contract, and, if not, did this breach of the contract release the surety? (2) If the plaintiff failed to comply with the terms of the building contract so as to release the surety, did the defendant waive the breach on the part of the plaintiff, and was it estopped to urge such breach?

Article IX of the contract provided: "Payments will be made on all contracts and sub-contracts at the end of each thirty days, upon invoices presented by the Contractor and approved by the Architects, in the sum of Eighty-five per cent (85%) of all materials delivered and paid for and work incorporated in the building."

The plans and specifications, which by reference are made a part of the contract, provided:

"Payments will be made on all contracts and subcontracts at the end of each thirty days upon estimates furnished by the superintendent or the engineer in charge, in the sum of Eighty-five per cent (85%) of all material delivered and paid for and work incorporated in the building.

"These estimates shall be based on the quantity prices as herein provided, and upon invoices presented by the contractor. The balance of fifteen per cent (15%) is to (be) paid when all the work is completed as provided by contract, these specifications, and the accompanying drawings."

The architects employed by the plaintiff, and who prepared the plans, specifications, and contract, were Boller Brothers.

The special master and the court determined that the language of the contract and the plans and specifications above set forth provided for two separate documents to be furnished before the owner was justified in making progress payments — an invoice by the contractor and a certificate or estimate by the architect — and found that no "invoices," as that term is commonly understood, were ever delivered by the contractor to the architect.

There is no dispute in the evidence as to what was done with respect to payments. The contractor presented to the architect, from time to time, statements of labor and material entitled "estimates," which were approved by the architect and presented to and paid by the plaintiff. They did not upon their face purport to be statements that the labor and material referred to had actually been incorporated in the building and had been paid for. The fact that they were called "estimates" would not be of any importance if they were in fact invoices, but there is nothing in the evidence to indicate that they were anything more than what they purported to be — a mere approximation in round figures by the contractor of the value of labor and material which might reasonably be thought to have been incorporated in the building during the progress of the work, but with little, if any, regard to what had actually been incorporated and paid for. Nowhere in the evidence are these statements referred to as anything else but "estimates."

It is not necessary to attempt accurately to define the word "invoice." It is not contended that it is synonymous with "estimate." An invoice calls for a statement of fact, while an estimate calls for an opinion or approximation. Under the terms of this contract, we think that it was intended that before the architect should issue a certificate or estimate calling for a payment, he should have before him at least a statement from the contractor that he had incorporated in this building the items of labor and material of the quantity and value referred to in the statement, and that they had been paid for. So far as the plaintiff was concerned, he, or his architect, might well have insisted that the contractor present detailed invoices for labor and material paid for and incorporated to the architect before making payments, but the defendant is in a position to insist only upon the minimum requirements. It is suggested, however, that the construction placed upon the contract by the parties themselves should lead us to the conclusion that what was done constituted a substantial compliance with its terms. If there was doubt as to whether the contract called for estimates or invoices, there would be merit in this contention; but there is no doubt. The word "invoices" excluded "estimates," and the failure of the plaintiff and the architect to require the contractor to comply with the terms of the contract with respect to payments cannot in any way bind the surety.

This court would not be justified in disturbing the finding of the special master, concurred in by the court below, that, in making payments during the progress of the work, the architect and the plaintiff did not comply with the provisions of the contract; that substantial amounts to which the contractor was not entitled had been paid; and that the noncompliance with the contract was in this regard prejudicial to the defendant.

We are also in accord with the conclusion of the special master that the failure to observe these provisions with respect to payments had the effect of releasing the surety unless the surety is estopped to assert such failure. It is settled that such provisions in a contract are as much for the protection of the surety as of the owner. U. S. Fidelity & Guaranty Co. v. U. S., 191 U. S. 416, 425, 24 S. Ct. 142, 48 L. Ed. 242; Prairie State Nat. Bank v. United States, 164 U. S. 227, 17 S. Ct. 142, 41 L. Ed. 412; Equitable Surety Co. v. Board of Commissioners, 231 F. 33 (C. C. A. 5th); Shelton v. American Surety Co. of N. Y., 131 F. 210 (C. C. A. 3d).

The risk assumed by the defendant must be measured by the terms of the contract, the faithful performance of which it guaranteed. Presumably, at least, the compensation of a surety is proportionate to the risk assumed. The defendant had a right to rely upon the carrying out of the terms of the contract with respect to payments. The waiver by the plaintiff of provisions which materially increased the hazard, by permitting the contractor to receive funds to which he was not entitled, as the work progressed, would be the equivalent of substituting a different risk than the one insured against. It is quite apparent that to guarantee the performance of a contract where progress payments are adequately safeguarded is a less hazardous risk than to guarantee the performance of a contract where there are no safeguards.

It is suggested that, under the terms of the contract, the architect is not the agent of the plaintiff; that the plaintiff was justified in making the payments as he did; and that the surety is in no position to complain. We think there is no merit in this contention. It is not a case where the architect negligently performed his duty in complying with the contract and presented to the plaintiff an inaccurate certificate or estimate, but a case where the architect waived a provision of the contract which was for the plaintiff's benefit and that of the surety, and modified the contract accordingly. The architect had no power to change or modify the terms of the contract without the consent of the surety so as to bind it, and, in failing to insist upon a complete performance by the contractor of the conditions relative to payment, he must be deemed to be the agent of the plaintiff, who employed him and placed him in charge of the work. The approval by the architect of the contractor's estimates did not prevent the defendant from claiming a breach of the contract, since the contract did not provide that the architect's determination should be final. Mercantile Trust Co. v. Hensey, 205 U. S. 298, 307, 27 S. Ct. 535, 538, 51 L. Ed. 811, 10 Ann. Cas. 572; United States v. Hurley, 182 F. 776 (C. C. A. 8th); United States v. A. Bentley & Sons Co., 293 F. 229, 245 (D. C. S....