Lexington Housing Authority v. Continental Casualty Co.

• Decision Date: 08 November 1962
• Docket Number: Civ. A. No. 1256.
• Citation: 210 F. Supp. 732
• Court: U.S. District Court — Western District of Tennessee
• Parties: LEXINGTON HOUSING AUTHORITY, Plaintiff, v. CONTINENTAL CASUALTY COMPANY, Defendant.

210 F. Supp. 732

LEXINGTON HOUSING AUTHORITY, Plaintiff, v. CONTINENTAL CASUALTY COMPANY, Defendant.

Civ. A. No. 1256.

United States District Court W. D. Tennessee, E. D.

November 8, 1962.

Charlie Walker, Joe C. Davis, Lexington, Tenn., for plaintiff.

Spragins, Menzies, & Spragins, Jackson, Tenn., Alex McLennan, Atlanta, Ga., for defendant.

BAILEY BROWN, District Judge.

This action was tried by the Court sitting without a jury, and this memorandum decision is being prepared and filed in lieu of findings of fact and conclusions of law.

Prior to July 21, 1959, plaintiff, Lexington Housing Authority, a Tennessee corporation, entered into an agreement with the Public Housing Administration (hereafter called PHA) to borrow a sum of money for the purpose of constructing a low rent housing development in Lexington, Tennessee.

Plaintiff then published an invitation to bid in various newspapers, reserving therein the right to reject all bids but providing that no bid submitted could be withdrawn within thirty days after the opening of the bids on July 21, 1959.

Pursuant to this invitation, A. B. Newton & Company (hereafter called A. B. Newton) of Atlanta, Georgia, submitted a low bid of $597,743. This bid likewise provided that plaintiff could reject all bids but that the bid could not be withdrawn for thirty days following the opening. It also provided that acceptance of the bid must be in writing. Defendant, Continental Casualty Company, an Illinois corporation, executed as surety the required bid bond in an amount equal to 5% of the bid, or $29,887.15. The bid bond, in general, conditioned defendant's liability on A. B. Newton's breach of its obligations contained in the bid.

After the bid opening on July 21, 1959, and the determination that A. B. Newton was low bidder, the Commissioners and Executive Director of plaintiff, together with a representative of A. B. Newton, and others convened at the office of plaintiff and an oral motion was passed by the Commissioners conditionally accepting A. B. Newton's bid, subject to approval by PHA. The minutes reflecting this conditional acceptance were put in writing the next day, but no written acceptance, conditional or unconditional, was given to A. B. Newton.

The bid was only conditionally accepted by plaintiff, subject to approval by the PHA, because it was necessary, under the loan agreement plaintiff had, that the PHA approve the amount of the bid and also approve negotiated unit prices for certain classes of work not specifically covered by the bid.

The Executive Director testified that immediately after the oral motion of conditional acceptance was passed, he called the PHA in Atlanta and obtained approval of unconditional acceptance of the bid from a person who represented herself to be the secretary of the official who had authority to give such approval. There is no evidence that this secretary had authority to give such approval, particularly when the unit prices had not yet been negotiated, and the Court therefore finds that approval of the PHA was not thereby obtained even if the secretary purported to approve.

On July 22, 1959, the next day after the bid opening, A. B. Newton wired plaintiff that, because of an error made in preparing its bid, it was withdrawing its bid and cancelling its bid bond. A. B. Newton had no reasonable excuse for making the error, if in fact it made one, and plaintiff had no knowledge of the error at the time the bid was opened and conditionally accepted.

On July 27, 1959, representatives of plaintiff and A. B. Newton met in the offices of the PHA at Atlanta. Plaintiff was there advised that A. B. Newton stood on its withdrawal of the bid but that it would not be necessary for plaintiff, to preserve any rights it might have, to prepare and formally tender a written contract for the construction of the housing development as was required under the terms of the bid.

Thereafter plaintiff let this contract to the second low bidder for a consideration of $649,000 and filed suit against defendant on the bid bond for damages in the Chancery Court of Henderson County, Tennessee. Defendant then removed the action to this court.

This court has jurisdiction of this action because there is diversity of citizenship and the amount involved exceeds $10,000 exclusive of interest and costs. It also has jurisdiction of the defendant; defendant initially attacked the validity of the service of process but waived this defense at the trial.

It appears that plaintiff lost the bond on which it sued prior to filing suit, and defendant, in its amended answer, demanded proof that it actually executed the bond in question. The Court finds, as heretofore indicated, that defendant did execute the bond and in the form of the exhibit attached to its original answer.

Defendant's real defense to this action is based on these propositions: first, that defendant could not be liable as surety on the bond unless A. B. Newton, the principal, is...