Morgan v. U.S. Fidelity & Guaranty Co., 44074

• Decision Date: 07 November 1966
• Docket Number: No. 44074,44074
• Citation: 191 So.2d 917
• Parties: E. E. MORGAN, Morgan Investments, Inc. and 3100 Corporation v. UNITED STATES FIDELITY AND GUARANTY COMPANY.
• Court: Mississippi Supreme Court

Page 917

191 So.2d 917

E. E. MORGAN, Morgan Investments, Inc. and 3100 Corporation v. UNITED STATES FIDELITY AND GUARANTY COMPANY.

No. 44074.

Supreme Court of Mississippi.

Nov. 7, 1966.

Suggestion of Error Overruled Dec. 5, 1966.

Cox, Dunn & Clark, Jackson, for appellants.

Butler, Snow, O'Mara, Stevens & Cannada, Roger C. Landrum, Jackson, Snow, Covington, Temple & Watts, Meridian, for appellee.

INZER, Justice.

This is an appeal by E. E. Morgan, Morgan Investments, Incorporated and 3100 Corporation from a final decree of the Chancery Court of the First Judicial District of Hinds County, wherein appellee, United States Fidelity and Guaranty Company, was awarded money judgments and other relief.

The main basis for the suit instituted by United States Fidelity and Guaranty Company (hereinafter called Guaranty Company) against appellants (hereinafter referred to as Morgan), and many other defendants including R. W. Hyde, Jr. and six corporations owned or controlled by Hyde, was certain agreements of indemnity contained in bond applications executed by Morgan and Hyde in favor of Guaranty Company. The bill of complaint alleged that Hyde and Morgan were partners engaged in certain features of Hyde's contracting business, that Guaranty Company had executed payment and performance bonds totaling several million dollars for and on behalf of Morgan and Hyde, and that Guaranty Company had sustained losses on these bonds. The bill as amended prayed for injunctive relief, specific performance, marshaling of assets, a money judgment or decree for its losses on the bonds, insurance premiums on certain insurance policies, and attorney's fees.

Appellants answered and denied that a partnership ever was activated between Morgan and Hyde. The signatures on the bond applications were admitted, but the validity of the bond applications was denied, both on the ground of constructive fraud or fraud in law and the ground of lack of consideration. Appellants denied that Guaranty Company was entitled to any relief against them. In the alternative, they averred that if any liability existed, it was secondary to the liability that Guaranty Company assumed without appellants' indemnification. As a further alternative, appellants averred that such liability was pro rata only and should be apportioned equitably. No issue as to the amount of Guaranty Company's losses was raised.

Hyde also answered and denied that the partnership ever was activated. Hyde admitted liability, but raised certain issues as to the amounts claimed.

After a lengthy hearing, the chancellor found that there was no fraud, and that Morgan and Hyde were partners and as such executed the bond applications on the bid contracts. He found also that under the terms of the indemnifying agreement Morgan was liable for attorney's fees. He found that Guaranty Company was entitled to recover the full amount sued for from Hyde and Morgan.

The decree awarded a money judgment in favor of Guaranty Company against Morgan for the sum of $2,642,568.35, plus the sum of $201,393.76 for insurance premiums. The decree awarded also a joint and several judgment against each appellant corporation in the sum of $377,124.99. The liability of Hyde and the corporations under his control was fixed, and a money judgment was awarded against them for an amount in excess of the judgment against Morgan. The attorney's fees were fixed at $125,000, and a judgment was awarded against Morgan for that amount. The decree awarded certain other relief not necessary to detail here.

The primary contention of Morgan is that the chancellor was in error in finding that there was no fraud on the part of Guaranty Company. In fact, it is argued that the chancellor's opinion reflects that he completely misconceived Morgan's defense of fraud in law. We do not so construe the chancellor's opinion. Inasmuch as the chancellor determined the factual issues in favor of Guaranty Company, we must consider the evidence in the light most favorable to Guaranty Company.

The facts are as follows. Hyde had been in the construction business since 1947. Over the years he had engaged in the general contracting business and had performed numerous large construction jobs. Sometimes he contracted as an individual, and at other times he contracted through various corporations under his control. E. E. Morgan also was an experienced contractor who had large financial resources and was experienced in financing other transactions. By the middle of the year 1957 Hyde had expanded his operations to the point that he did not have the necessary financing to obtain bonds for more and larger contracts that he desired to bid on. In his operations he was performing two types of contract jobs. They were bid jobs, obtained as a result of competitive bidding, and negotiated jobs, on which the contract price was negotiated between the owner and the contractor without competitive bidding. Since Hyde had reached the point that he did not have financing to enable him to secure bonds to further expand his business, he worked out an arrangement with Morgan, whom he had known for many years and who had large financial resources, to join with him in order that he might further expand his business. This agreement was reduced to writing as articles of partnership in the early part of May 1958, the effective date being January 1, 1958. This partnership agreement covered bid jobs. A separate agreement was entered into relative to the negotiated jobs. Under this agreement Morgan was to receive two and one-half per cent commissions for signing the application for the bonds as indemnitor or guarantor. The facts leading up to these agreements are those upon which Morgan contends the fraud in law arose. They will be discussed later in this opinion.

A copy of these agreements was furnished to Guaranty Company, and thereafter Hyde and Morgan had no difficulty in getting Guaranty Company to write the contract bonds. The bonds were issued in the name of Hyde or corporations controlled by him. Morgan signed the applications for bid job bonds individually and as copartner, and where the jobs were negotiated, he signed the applications as indemnitor. Under this arrangement Hyde and Morgan obtained numerous construction contracts involving many millions of dollars.

On March 21, 1960, Morgan and Hyde entered into an agreement terminating the partnership as to future jobs. This agreement recited that on January 1, 1958, they had created the partnership and that it had served its usefulness, and that they desired to terminate the partnership and settle their affairs. The agreement listed the jobs then in progress, and Hyde agreed to assume liability for the obligations of the partnership, including any bond liability of Morgan. In the accounting between Morgan and Hyde after the dissolution of these two agreements, Morgan received in excess of $500,000 in cash and $316,000 in notes executed by Hyde in his favor.

In 1961 Hyde started having serious financial trouble, arising at least in part from the large construction contract known as the Keystone Dam Project in Oklahoma. Hyde notified Morgan and Guaranty Company of his difficulty. Conferences were had relative to the situation between Morgan, Hyde and the representatives of Guaranty Company. Guaranty Company took the position that it would not provide funds for the contract as long as there was a solvent principal in the bond, that principal being Morgan. Morgan then assisted Hyde on the Keystone job, after he had secured from Hyde other security.

Hyde became so short of working capital that many bills for labor and materials on various other jobs were unpaid. These claims were reduced to judgments rendered against Guaranty Company, and Guaranty Company paid them after notice to Hyde and Morgan. The amounts paid up to the time of trial of this case were the basis of the judgment against Morgan and Hyde. There were still other claims pending which had not been reduced to judgment at the time of the trial.

Determining whether the chancellor was in error in failing to find that the evidence established fraud in law on the part of Guaranty Company requires us to detail to some extent the evidence on this point. There are three principal actors insofar as this scene is concerned. They are Morgan, Hyde, and Lyle Bates, a representative and agent of Guaranty Company. Bates was a surety underwriter and a vice president of F. W. Williams Corporation, the general agent for Guaranty Company in Mississippi. Bates had known and dealt with Hyde since the time he went into the contracting business. He had also known and dealt with Morgan when he was active in the contracting business.

Morgan testified that prior to March 19, 1958, he had not discussed with Hyde any business arrangements whereby he would assist Morgan in securing larger contracts. Morgan said that on the above date Bates secured an appointment for Bates and Hyde to come to his office to see him, and that about one-thirty in the afternoon Hyde and Bates came to his office. On this occasion Bates told him that he, Bates, wanted Morgan to assist Hyde with additional bond credits over and above a ten million dollar line of credit Hyde had with his company. Bates explained to him that Hyde operated in two different categories. One was ordinary bid propositions where he bid in competition with other companies. The other was negotiated gas contracts, and on these he set his own price, resulting in his making a world of money in this field. Morgan said he told Bates that he did not know anything about Hyde's business. Bates replied that Hyde had been most successful in all his operations, that he had a good organization with plenty of equipment, and he only wanted Morgan to sign a simple indemnity agreement on the negotiated jobs, but wanted him to cosign the bid jobs. He said his company had just made Hyde's bond on a $2,000,000 negotiated gas job in Mobile,...