Indiana University v. Indiana Bonding & Sur. Co.

• Citation: 416 N.E.2d 1275
• Decision Date: 24 February 1981
• Docket Number: No. 2-1276A459,2-1276A459
• Court: Indiana Appellate Court
• Parties: INDIANA UNIVERSITY, Appellant (Plaintiff Below), v. INDIANA BONDING & SURETY COMPANY, Appellee (Defendant Below).

Page 1275

416 N.E.2d 1275

INDIANA UNIVERSITY, Appellant (Plaintiff Below), v. INDIANA BONDING & SURETY COMPANY, Appellee (Defendant Below).

No. 2-1276A459.

Court of Appeals of Indiana, Second District.

Feb. 24, 1981.

Alan H. Lobley, Charles E. Greer, Ice, Miller, Donadio & Ryan, Indianapolis, for appellant.

Robert C. Hagemier, Hagemier, Allen & Smith, Indianapolis, for appellee.

MILLER, Judge.

Indiana university (the University) brought this action against the Indiana Bonding & Surety Co. (Indiana Bonding) to enforce the provisions of two performance bonds executed by Indiana Bonding on behalf of Indiana Vendors, Inc. (Vendors). The University had granted Vendors two franchise contracts to place vending machines in buildings on the Bloomington and Indianapolis campuses. Vendors fell behind in its monthly commissions due the University on both contracts and ultimately was declared bankrupt. The University's claim in Bankruptcy Court against Vendors for the past due commissions was allowed in full. After a bench trial of the action appealed herein, the judge denied recovery on the Bloomington performance bond; however, he found a total liability, including pre-judgment interest, of $19,022.05 on the Indianapolis bond.

The University appeals the rulings on both bonds claiming it was entitled to recover on the Bloomington bond and, further, that an improper measure of damages was applied to the Indianapolis bond.

We affirm.

Specifically, the University claims five issues are before us:

With respect to the Bloomington bond:

(1) Was the evidence sufficient to support the trial court's finding that the agreement of the University and Vendors to extend the time of payment of past due commissions beyond the termination date of the original contract without notice to Indiana Bonding constituted a "new contract" which discharged Indiana Bonding from its obligation under the bond?

(2) Did the delay stemming from the University's failure to comply strictly with the default notice requirement in the performance bond sufficiently prejudice Indiana Bonding so as to discharge it from the bond?

(3) Was the University's obligation to provide notice of default by Vendors waived either by Indiana Bonding's failure immediately to deny any liability or by Indiana Bonding's insistence that the University first pursue its bankruptcy claim before Indiana Bonding would discuss its obligation under the bond?

With respect to the Indianapolis bond:

(4) Was the allowance of the University's claim in bankruptcy res judicata precluding relitigation of the amount of Vendors's liability or, in the alternative, was Indiana Bonding estopped to challenge the amount of Vendors's liability due to Indiana Bonding's insistence that the University first pursue its bankruptcy claim?

(5) Was the award of damages supported by sufficient evidence?

BLOOMINGTON BOND

A. The Evidence Was Sufficient To Support The Trial Court's Finding That The Time Extension Agreement Was A New Contract Which Discharged Indiana Bonding From Its Obligation.

At trial, pursuant to the University's request for special findings of fact under Ind.Rules of Procedure, Trial Rule 52, the judge entered the following findings of fact with respect to the Bloomington Bond:

"1. The Plaintiff entered into a contract with Indiana Vendors, Inc., for the latter to supply vending services to the Bloomington Campus, which contract was to become effective August 15, 1966.

2. The defendant issued a performance bond in the initial amount of One Hundred Thousand Dollars ($100,000), which bond became effective August 15, 1966, and for which a continuation certificate was issued annually until August 15, 1969.

3. That on August 4, 1970 a continuation certificate was issued on said bond covering the contract of August 15, 1966, reducing the penalty thereon to the amount of Sixty Thousand Dollars ($60,000), to become effective August 15, 1970.

4. Beginning in December, 1969, Indiana Vendors, Inc. was continually in default of its contract with the Plaintiff, due to the failure of Indiana Vendors Inc. to render payments as required by its contract with the Plaintiff; no payments being made for the periods ending after January, 1970, losses thereunder being incurred on a monthly basis.

5. Without notice to the Defendant, Plaintiff entered into a new contract with Indiana Vendors, Inc., which contract was entered into on August 21, 1970, the terms of which were to become effective August 15, 1970, and which contract provided for the payment of past due monies, with interest, for an extended period of time.

6. The Plaintiff's first notice to defendant of default of Indiana Vendors, Inc., occurred by way of Plaintiff's letter to Defendant, dated December 16, 1970, such notice coming one year from the date when such notice was due.

7. During the period August 21, 1970 through December 16, 1970, Plaintiff accepted payments from Indiana Vendors, Inc. pursuant to the terms of their contract of August 21, 1970.

8. That Defendant notified Plaintiff of Plaintiff's failure to comply with the ten (10) day notice provision of the bond, prior to Plaintiff's filing of proof of claim in the bankruptcy of Indiana Vendors, Inc."

Based upon the above findings the court concluded as a matter of law that the University was not entitled to any recovery under the bond.

The first specific issue which this Court considers is derived from the second paragraph of its Motion to Correct Errors which reads:

"2. The court's finding no. 5 (that the University and Vendors entered into a new contract extending Vendors time to pay the past due commissions) is not sustained by sufficient evidence in that there is no evidence that plaintiff entered into a new contract with Indiana Vendors, Inc. But the only evidence is an agreement to extend the time in which amounts that were due were to be paid."

The applicable test in reviewing this sufficiency challenge is whether there is any probative evidence to support the trial court's finding of fact. Indianapolis Power & Light Co. v. Barnard, (1978) Ind.App., 371 N.E.2d 408; In re Marriage of Miles, (1977) Ind.App., 362 N.E.2d 171. (Petit. to Tranf. pending.)

A review of the facts relevant to our determination in this regard reveals the following:

On August 4, 1966 the University and Vendors entered into a contract granting Vendors the exclusive franchise for all the vending operations on the Bloomington campus and, in return, the University was to receive a percentage commission on all vending sales. The contract became effective August 15, 1966, with an expiration date of August 14, 1971. Pursuant to requirements of the contract, Vendors sought a performance bond from Indiana Bonding. ¹

Vendors fell behind in its payments from the outset of the contractual period. Initially their payments were only a few days late. However, by November, 1969 their monthly payments to the University were falling behind by longer periods of time. ² Apparently, Vendors felt it was losing money on the Bloomington contract because early in the spring of 1970 it requested a general price increase. The University rejected this request and by mutual agreement they terminated the contract effective August 15, 1970 (one year before the expiration date). On June 26, 1970 Indiana Bonding was notified of the contract termination and advised to cancel the performance bond on the Bloomington contract as of August 15, 1970. During this period Indiana Bonding was not given any notice of Vendors's delinquencies including its total failure to make payments due for the final seven months of the contract term.

Representatives of the University and Vendors met on July 27, 1970 to discuss methods of collecting the unpaid commissions estimated at $60,000. By a letter dated July 30, 1970, sent by John L. Carmichael, president of Vendors, to R.M. Priest, Director of Purchasing and Stores at Indiana University, Vendors proposed a plan to pay the accrued commissions by immediately forwarding a check for $5,000 and paying the balance by $5,000 monthly payments. In return Vendors would be allowed to accelerate payments when possible. Additionally, Vendors would furnish the University a bond equal to the total commission due. In closing this letter Mr. Carmichael stated his awareness that, as consideration for extending the time of payment, "a reasonable interest charge would no doubt be justified (and) the rate asked would conform to (the) current University policies in such matters." Mr. Priest responded, in a letter dated August 21, 1970, that the University would agree to an extension of time with the following conditions:

1. The rate of 71/2% per annum would be paid on an amount of $60,000 which was the largest portion of the monies then due.

2. On the amount of $58,320.91, then due through June 20, 1970, would be added the balance of commissions due to August 15, 1970 which was the end of the contract period.

3. The first $5,000 payment plus any amount over $60,000 would be made to Mr. Priest's office on September 1, 1970.

4. A payment of $5,000 would be made on the first day of each month until the complete amount of past due commissions was paid.

5. Vendors would have the privilege of accelerating payment when desired.

Mr. Carmichael accepted the counteroffer by endorsing the letter with his signature.

Indiana Bonding, still unaware of any default or of the new terms agreed to by the University Vendors, issued, on Vendors's request, a continuation certificate on the original performance bond with the penal amount reduced from $100,000 to $60,000.

Returning to the legal question before us, we observe that the parties do not disagree with the settled rule that either a "new" contract or a binding change in the old to which Indiana Bonding did not consent would have discharged Indiana Bonding. Thus it was stated in Lutz v. Frick Co., (1962), 242 Ind. 599, 602, 181 N.E.2d 14, 16:

"There can...