Morley Const. Co. v. Maryland Casualty Co.

• Decision Date: 20 July 1936
• Docket Number: No. 10477.,10477.
• Citation: 84 F.2d 522
• Parties: MORLEY CONST. CO. et al. v. MARYLAND CASUALTY CO.
• Court: U.S. Court of Appeals — Eighth Circuit

84 F.2d 522 (1936)

MORLEY CONST. CO. et al. v. MARYLAND CASUALTY CO.

No. 10477.

Circuit Court of Appeals, Eighth Circuit.

June 22, 1936.

Rehearing Denied July 20, 1936.

Martin J. O'Donnell, of Kansas City, Mo. (William Buchholz, of Kansas City, Mo., on the brief), for appellants.

Spencer F. Harris, of Kansas City, Mo. (Paul G. Koontz, of Kansas City, Mo., on the brief), for appellee.

Before GARDNER, SANBORN, and BOOTH, Circuit Judges.

BOOTH, Circuit Judge.

This is a suit in equity brought by the Maryland Casualty Company against the Morley Construction Company and the Merchants Bank of Kansas City, Mo. Diverse citizenship is alleged and admitted.

It appears that plaintiff executed a surety bond for defendant Morley Construction Company in connection with a construction contract entered into between said Morley Construction Company and the United States. The bond, dated on or about July 28, 1932, was in the standard form of performance bonds.

The term "defendant" hereinafter used means the Morley Construction Company.

Plaintiff seeks by its complaint the following relief: (1) Exoneration by the defendant from payment of any bills for labor and materials furnished under said construction contract; (2) subrogation to defendant's claim against the United States by reason of certain payments alleged to have been made by plaintiff to creditors of the Morley Construction Company; (3) specific performance of a certain contract (Exhibit A) entered into between plaintiff and said defendant subsequent to the making of said bond.

As to Specific Performance of Exhibit A.

It appears that in carrying out the construction contract, the defendant, Morley Construction Company, became involved in financial difficulties, and an agreement (Exhibit A, set out in the margin¹) was entered into between it and the Maryland Casualty Company, whereby the Casualty Company agreed to advance to the Construction Company the sum of $5,000 to be placed in a joint account. The Casualty Company also agreed: "Fifth: The Maryland Casualty Company further agrees to place on deposit in said account to the credit of the Morley Construction Company moneys to pay off plasterers' claims which have not been paid by D. Giamberardino & Sons who employed said plasterers and also sufficient money to complete the Giamberardino plastering contract if the amount to be paid to complete said contract is deemed reasonable and satisfactory."

The Construction Company also agreed to place a certain amount in a joint account.

The Casualty Company did not fulfill all of the covenants assumed by it in the agreement. On cross-examination, the witness Herbert F. Morley, president of the Morley Construction Company, testified as follows:

"Q. I see where the petition states that they agreed to pay off plasterers' claims and also sufficient money to complete the plastering contract. Could you tell the Court the sum total of those two items, that is, the expense of this plastering contract, that is, those that had not been paid, and also sufficient to complete the plastering contract? What is the total of that, if you know? A. Well, they paid $10,700 and some odd dollars. They paid $5,000.00 and they paid $5,740.00 toward the completion of the plastering contract. * * *

"Demand was made on the Maryland by the witness for them to pay the plastering. The new subcontractor was the Hudson Plastering Corporation. The final bill for this plastering was $15,000 of which $7,500 was unpaid. When the witness requested Kelly to give him money to pay the first payment at the end of the first month's work by the Hudson Plastering Company, Kelly advised him to pay it out of the funds of the joint account.

"Q. Well, did he say anything as to whether he would or wouldn't carry out his contract ? A. Not at that time, no, sir.

"Q. Did he at any other time? A. Yes, sir.

"Q. What was it he said? A. Well, when the next month's payment came due, the first month's payment amounted to approximately $7,500 and request was made that the money be advanced and he advised that I pay it and take care of it out of the funds of the joint account. The next month's account came due and left a balance of $2,500 on the previous month, together with about $6,000 from the ensuing month, and he suggested that I take care of that out of the funds in the joint account, and there wasn't enough money available for that, so in order to keep the plastering contractor on the job and have him finish up, I did finally pay him $2,500 out of the joint account and whether at that time or within a few days after that, when I discussed it with him again, Mr. Kelly made the remark that the Maryland Casualty Company was not going to put any more money into that account or that job.

"(The witness made no further demand upon Kelly for payment)."

The witness Kelly, an attorney employed in the office of the Casualty Company at Buffalo, N. Y., testified as follows: "In addition to the $10,700 the Maryland agreed to take care of the disputed plastering claims if the Veterans' Administration ruled that it was necessary to pay them. They were never paid because it was ruled that the Veterans' would stand on the receipts as given by the employees. The letter to the Veterans' Administration, Plaintiff's Exhibit 4, the witness thought had been dictated by B. D. Morley, and Mr. Cushwa. At the time, Herbert Morley and the witness discussed the payment of the plasterers' bills. There was an estimate coming due on the job and the witness said to Mr. Morley, `Are you going to pay that part on the plaster contract out of the estimate, just as we understood,' and Morley did so. That Morley did ask him to pay the Hudson claims and he told him to pay it out of the estimate coming due."

The court found as to this matter as follows:

"It was further stipulated in this written agreement that the Casualty Company, in addition to the $5,000 to be deposited by it in the joint account, would advance to the defendant and deposit in the said account a sufficient sum of money to pay off all plasterers' claims unpaid and a further sufficient sum of money to complete the plastering. * * *

"Pursuant to the agreement referred to in finding of fact No. 2, the Casualty Company and the Construction Company deposited $5,000 each in the joint account and the Casualty Company made a further deposit in the joint account of $5,700 but it did not deposit in the joint account a sufficient sum of money to complete the plastering contract."

As conclusions of law the court found: "Plaintiff is not entitled to a decree of specific performance of the agreement referred to in finding of fact No. 2. * * *"

We cannot agree with this conclusion of the trial court.

Acquiescence by defendant in a modification of the contract, Exhibit A, which modification was thereafter carried out, deprives the conduct of the plaintiff of any taint of inequity. Becker v. Becker, 250 Ill. 117, 95 N.E. 70, Ann.Cas.1912B, 275; Langley v. Devlin, 95 Wash. 171, 163 P. 395, 4 A.L.R. 32.

Such acquiescence, we think, was shown by the evidence in the case at bar.

We do not wish it to be thought that we are departing from the well-established rules regarding the granting of the remedy of specific performance. Such is not our intention.

This court, in Shubert v. Woodward, 167 F. 47, at page 54, has said: "The specific performance of a contract by a court of equity is not a matter of right. It rests in the discretion of the court, not in its arbitrary whimsical will, but in its sound judicial discretion informed and directed by the established principles, rules, and practice of equity jurisprudence. Hennessey v. Woolworth, 128 U.S. 438, 442, 9 S. Ct. 109, 32 L.Ed. 500. Nor are these principles and rules and this practice hard, fast, or without exception. They are rather advisory than mandatory, and the application of the rules and of their exceptions to each particular case as it arises is still intrusted to the conscience of the chancellor. Yet these principles and rules and this practice serve to inform the intellect and to enlighten the conscience, and by them the judicial discretion of the court must be guided."

In Town of Glenwood Springs v. Glenwood Light & Water Co., 202 F. 678, at page 684, L.R.A.1915C, 438, this court lays down the rule: "And courts of equity will not ordinarily compel the specific performance of a contract, either by decree or by an injunction against its violation, at the suit of a party who is guilty of a substantial breach of it." (Italics supplied.)

In Michigan Pipe Co. v. Fremont Ditch, Pipe Line & Reservoir Co. (C.C.A.8) 111 F. 284, 287, the court states the rule as follows: "A court of equity will leave to his remedy at law — will refuse to interfere to grant relief to — one who, in the matter or transaction concerning which he seeks its aid, has been wanting in good faith, honesty, or righteous dealing. While in a proper case it acts upon the conscience of a defendant, to compel him to do that which is just and right, it repels from its precincts remediless the complainant who has been guilty of bad faith, fraud, or any unconscionable act in the transaction which forms the basis of his suit." (Italics supplied.)

We think relief can be granted in the case at bar without doing violence to the foregoing rules.

The breach of the contract (Exhibit A) on the part of plaintiff, which defendant alleges precludes plaintiff from obtaining the remedy of specific performance, is the failure by plaintiff Casualty Company to deposit in the joint account agreed upon in said contract, Exhibit A, sufficient moneys to pay for completing the plastering contract. There was deposited in the joint account by plaintiff the sum of $10,700, but this was not sufficient to pay in full the amount due or to become due for plastering.

Defendant makes these allegations in its answer:

"Defendant admits that the plaintiff deposited in said account a total of Ten...