Hiern v. St. Paul-Mercury Indemnity Company

• Decision Date: 23 February 1959
• Docket Number: No. 17141.,17141.
• Citation: 262 F.2d 526
• Parties: Livingston S. HIERN, Appellant, v. ST. PAUL-MERCURY INDEMNITY COMPANY, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

262 F.2d 526 (1959)

Livingston S. HIERN, Appellant, v. ST. PAUL-MERCURY INDEMNITY COMPANY, Appellee.

No. 17141.

United States Court of Appeals Fifth Circuit.

January 13, 1959.

Rehearing Denied February 23, 1959.

Andrew P. Carter, New Orleans, La., for appellant.

Carl J. Schumacher, Jr., Allen R. Fontenot, New Orleans, La., for St. Paul-Mercury Indemnity Co., appellee. Lemle & Kelleher, New Orleans, La., of counsel.

Before RIVES, TUTTLE and BROWN, Circuit Judges.

TUTTLE, Circuit Judge.

This is an appeal from an order of the United States District Court for the Eastern District of Louisiana granting the plaintiff's motion for summary judgment in a suit on a contract of indemnity.

Plaintiff, appellee here, contracted as surety for appellant and appellant's co-venturer, one Waterman, in connection with certain realty development contracts. Appellant and his co-venturer executed general contracts of indemnity under the terms of which he and Waterman bound themselves jointly and severally to indemnify appellee against any and all liability or expense which appellee should sustain in consequence of having executed and issued the surety agreements.

Subsequently appellee became liable for and paid $65,528.44, under the surety bonds. Thereafter, on November 28, 1955, appellant and appellee entered into a contract settling appellant's liability as indemnitor. The contract recited that under the indemnity agreements Hiern had become jointly and severally obligated with Chapman to indemnify appellee in the amount of $65,528.44, and it provided that appellant would discharge his liability by paying one-half of that amount in eighty-two monthly installments, but if he failed to pay three consecutive installments he would be obligated to pay the entire sum of $65,528.44.

He failed to pay any of the installments and appellee sued on the contract for the full amount. Appellant failed to answer the complaint and a default judgment was entered against him. Later, however, he successfully moved to have the default judgment set aside. After he filed an answer to the complaint appellee moved for and was granted a summary judgment for $65,528.44, subject to credits thereon for any amounts paid to appellee by appellant or by Waterman.

Appellant attacks the summary judgment on the ground that his answer raised issues of fact which demanded a trial. Appellee contends, on the other hand, that these allegations did no more than raise issues of law, namely affirmative defenses to appellee's suit. Moreover, appellee contends, these defenses are insufficient in law.

The allegations in question were to the effect that sometime before the second contract was signed appellant informed appellee that Waterman was wrongfully diverting to his personal use a considerable amount of the construction payments due under the contracts on which appellee was surety; that appellee responded that it was taking action to prevent this, but that it actually did not do so; that both before and at the time of the making of the second contract on November 28, 1955, appellee assured appellant that it had done and would do all it could do to recover the money and assets misappropriated by Waterman; that appellant relied upon these representations and was induced by them to sign the contract with appellees; and that these representations were false.

Appellant contends that appellee's allegedly false representations relieved him of his liability under the original indemnity agreements. If this is correct, and we hold that it is for reasons hereafter stated, then they constituted material misrepresentations of fact which vitiate the second contract, inasmuch as that contract was expressly entered into on the assumption that Hiern's liability under the original agreements was still subsisting, and this premise was based in part on appellee's misrepresentations.

It therefore follows that appellant should have a chance to prove the truth of these allegations. There is no question as to the admissibility of evidence of these representations despite the fact that there is no mention of them in the written contract. The applicable law in this case is that of Louisiana, and that law is that evidence of misrepresentation which induced the formation of a contract is not excluded by the parol evidence rule. Overby v. Beach, 1951, 220 La. 77, 55 So.2d 873, 880.

If the contract of November 28, 1955, is thus proven unenforceable and the parties are relegated to their rights and duties under the indemnity agreements, appellee must again meet appellant's claim that by virtue of its misrepresentations and its failure to pursue the misappropriated assets, when appellant has the right to rely on its doing so, appellee increased appellant's risk and liability as indemnitor and is thus barred from its rights under the contracts of indemnity.

Appellee maintains that its failure to pursue these assets did not discharge appellant's liability because no duty to take such action was imposed on appellee either by the terms of the agreement or by the general law of indemnity. Citing Fidelity & Deposit Co. of Maryland v. O'Bryan, 1918, 180 Ky. 277, 202 S.W. 645, L.R.A.1918E, 574, appellee asserts that it was the business of appellant to resort to such action if he desired to protect himself. However, the very...