Industrial Development Bd. of Town of Section, Ala. v. Fuqua Industries, Inc.

• Decision Date: 24 November 1975
• Docket Number: No. 74-2336,74-2336
• Parties: The INDUSTRIAL DEVELOPMENT BOARD OF the TOWN OF SECTION, ALABAMA, et al., Plaintiffs-Appellants, v. FUQUA INDUSTRIES, INC., et al., Defendants-Appellees. The INDUSTRIAL DEVELOPMENT BOARD OF the CITY OF FORT PAYNE, ALABAMA, et al., Plaintiffs-Appellants, v. FUQUA INDUSTRIES, INC., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1226

523 F.2d 1226

The INDUSTRIAL DEVELOPMENT BOARD OF the TOWN OF SECTION, ALABAMA, et al., Plaintiffs-Appellants, v. FUQUA INDUSTRIES, INC., et al., Defendants-Appellees.

The INDUSTRIAL DEVELOPMENT BOARD OF the CITY OF FORT PAYNE, ALABAMA, et al., Plaintiffs-Appellants, v. FUQUA INDUSTRIES, INC., et al., Defendants-Appellees.

No. 74-2336.

United States Court of Appeals, Fifth Circuit.

Nov. 24, 1975.

Robert B. Donworth, Jr., Allen Poppleton, Birmingham, Ala., for plaintiffs-appellants.

John E. Grenier, Birmingham, Ala., for Fuqua, St. Paul, Marine Ins. & Varco.

S. R. Starnes, Birmingham, Ala., Flavius B. Freeman, Springfield, Mo., for Rock Steel & Dewitt-Newton.

Appeals from the United States District Court for the Northern District of Alabama.

Before WISDOM, SIMPSON and RONEY, Circuit Judges.

WISDOM, Circuit Judge:

In this diversity action the district court directed verdicts against two plaintiffs, The Industrial Development Boards of the Town of Section, Alabama, and the City of Fort Payne, Alabama (Boards), on four counts of a multi-count complaint and directed a verdict against one plaintiff, Phillips-Van Heusen Corporation (Van Heusen), on two counts of its complaint. One of Van Heusen's counts was submitted to the jury, which found for the defendant, Fuqua Industries, Inc. (Fuqua). We affirm the directed verdicts entered against the Boards, but we remand for a new trial most of Van Heusen's claims.

THE FACTS

Varco Steel, Inc. (Varco) agreed to construct for each Board a prefabricated factory building on land owned by the Boards. Each Board had leased the premises to Van Heusen at a rental calculated to liquidate the Board's debt on bond issues that raised the funds necessary for the construction projects. The alleged failure of Varco to construct these buildings in accordance with the contract plans and specifications generated the plaintiffs' suits.

In the late 1950's Van Heusen decided to change from the bar-joist structures it had been using for shirt factories to preengineered factories. Van Heusen chose Varco to construct the new type of building. Van Heusen was satisfied with the work on this plant and engaged Varco to build two others of the same type. The Van Heusen production schedule was then growing at a pace requiring a new plant to be constructed every year. As a consequence, in 1964 Van Heusen began negotiations with Varco for the construction of the two factories involved in this case. On March 9, 1965, Van Heusen and the Varco group (Varco and its subcontractors) reached a tentative agreement on the price of the two factories. ¹

The Boards had already signed lease agreements with Van Heusen. On March 29, 1965, the Boards and Varco entered into a contract for the construction of the preengineered buildings. The contract price was $450,386 for the Fort Payne structure and $248,889 for the Section structure. Fuqua, who became the successor to Varco's contractual obligations through various mergers, admits in its brief, and there was testimony supporting this admission, that the Boards "did not have a nickel in the buildings" and that "Van Heusen's only reason for using the (B)oards was the cheaper borrowing costs". When the construction of In 1970, Van Heusen employed a new architect, Morgan, to inspect the two factories. Because of the twisted condition of the purlins and various other alleged defects, Morgan requested Varco to furnish the calculations of the engineers showing the load bearing capacity of the steel structures in the two factories. Morgan's dissatisfaction with these calculations caused Van Heusen to engage other contractors to repair the buildings at a total cost of $513,191.86. To recover this sum, Van Heusen and the Boards sued Fuqua, two subcontractors (Rock Steel Building Co. & DeWitt Newton, Inc.), and the surety on Varco's contract (St. Paul Fire & Marine Insurance Company).

the Fort Payne building was more than one-half completed, Golden, an executive of Van Heusen, noticed that steel purlins ² in the structure appeared to be twisted. Concerned for the safety of the building, Golden and Howard, Chairman of the Fort Payne Board, sought assurances from Varco and its subcontractors that the steel was satisfactory for the purposes for which it was intended. Varco officials then wrote two letters ("certifications", Van Heusen characterizes them) assuring Van Heusen that the steel work in both factories was in good condition in all respects. Toward the end of 1965 the buildings were completed and accepted by the respective Boards, Van Heusen, and Van Heusen's architect, Holman.

Neither of the Boards had expended any money for the repair of the factories. Indeed, Van Heusen signed an agreement with each of the Boards in which Van Heusen agreed to make the repairs it felt were necessary, and to indemnify the Boards for any costs resulting from the repairs or any legal action Van Heusen intended to prosecute against the contracting parties.

In this appeal we concern ourselves with four counts. (1) Count II was based directly on the March 29, 1965, contract. (2) Count III was based on the surety's contract. (3) Count IV was based on the two letters ("certifications") that Van Heusen received from Varco. This count rests on the theory that these certifications constitute warranties, which relieve Van Heusen's original architect of the responsibility for designing the steel. (4) Count V sounds in fraud and deceit. The plaintiff contends that at the time Varco entered into the contract with the Boards it had no intention of complying with the contract specifications.

The directed verdict against the Boards on Counts II and III were entered because the Boards had failed to adduce any evidence showing that they had been damaged by the alleged failure of the defendants to complete the contract according to specifications.

The directed verdict against the Boards and Van Heusen on Count IV was entered apparently because the district court felt that there was no evidence that the certifications had been given for any consideration and because it did not appear to the district court that the certifications gave the plaintiffs any rights which they did not have under the main contract. The directed verdicts against the Boards and Van Heusen on Count V were entered because the district court found no evidence of any fraudulent intention on the part of the defendants and because the claims had expired under the statute of limitations.

The only issue that went to the jury with which this appeal is concerned ³ was whether Van Heusen, as a third-party beneficiary to the March 29 contract between the Boards and Varco, had suffered any damages as a result of the failure of the defendants to comply with

contract provisions. On this appeal, Van Heusen contends that the trial court erred in requiring, as a condition to recovery, that the jury find that Van Heusen was a third-party beneficiary under the March 29 contract. Van Heusen argues that, by virtue of its agreements indemnifying the Boards for any expenses related to this matter and for its payment of the full cost of repair, it was subrogated to the Board's position with respect to the defendants. In the alternative, Van Heusen contends that it has standing to sue on the ground that it is the assignee of the Board's causes of action against the defendants, and that simply as the lessee of the factories it has standing to sue. The appellants further contend that even if no damages were proved by the Boards, their right to proceed for nominal damages was erroneously limited by the directed verdicts against them on Counts II and III. Van Heusen asserts that its position was jeopardized when the Boards were removed from the case. The Boards and Van Heusen contend that the directed verdicts on Count IV were erroneous, because consideration is unnecessary under the relevant law and because the certificates indicate that Varco was assuming or had assumed responsibilities with respect to the design of the factories that, according to the original contract, were to be fulfilled by Van Heusen's architect, Holman. Finally, the Boards and Van Heusen argue that there was sufficient evidence of fraudulent intention and of concealment of the fraud to send Count V to the jury.

THE BOARDS

In view of Van Heusen's having put the factories in an acceptable condition, the Boards suffered no monetary loss from the defendants' alleged faulty construction of the two factories. Since the Boards spent nothing for the repair work, they cannot recover damages against these defendants based upon the cost of repairing the structures.

The Boards' contention that they were entitled to a judgment awarding them nominal damages, if in fact a contract to which they were a party had been breached, does not persuade us to reverse the directed verdict. To be sure, Alabama courts have often remarked that a party to a contract that has been breached may be awarded nominal damages. See, e. g., Treadwell v. Tillis, 1896, 108 Ala. 262, 18 So. 886; Gooden v. Moses, 1893, 99 Ala. 230, 13 So. 765, 767. But the Alabama courts have been equally clear that the failure to award nominal damages cannot be the basis of a reversal unless the plaintiff, along with the recovery of nominal damages, would be awarded the costs of litigation from the losing defendant. See Coker v. Louisville & N. R. Co., 1944, 245 Ala. 545, 18 So.2d 84; Blackburn v. Alabama Great Southern R. Co., 1905, 143 Ala. 346, 39 So. 345, 346; New Orleans, M. & T.R.R. v. Southern & Atlantic Tel. Co., 1875, 53 Ala. 211, 221-22. The court in Blackburn observed that "nominal damages are not compensatory, and the refusal to award them deprives the party entitled to them of no property right." 39 So. at 346. Van Heusen has indemnified the Boards for all expenses of litigation. There is, therefore, no interest which could be vindicated by the award of nominal damages in favor of the Boards. ⁴ We...