Omaha Public Power Dist. v. EMPLOYERS'FIRE INSURANCE CO.

• Decision Date: 19 February 1964
• Docket Number: No. 17413.,17413.
• Citation: 327 F.2d 912
• Parties: OMAHA PUBLIC POWER DISTRICT, a Corporation, Appellant, v. The EMPLOYERS' FIRE INSURANCE COMPANY, a Corporation, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

327 F.2d 912 (1964)

OMAHA PUBLIC POWER DISTRICT, a Corporation, Appellant, v. The EMPLOYERS' FIRE INSURANCE COMPANY, a Corporation, Appellee.

No. 17413.

United States Court of Appeals Eighth Circuit.

February 19, 1964.

Hird Stryker, Omaha, Neb., for appellant with Tracy J. Peycke, Omaha, Neb., on the brief.

G. L. DeLacy, Omaha, Neb., for appellee.

Before VAN OOSTERHOUT, MATTHES and MEHAFFY, Circuit Judges.

MEHAFFY, Circuit Judge.

Plaintiff brought an action in contract in federal district court for enforcement of a performance bond given by defendant as surety for a third party's principal obligation. Jurisdictional requirements of diversity of citizenship and controverted amount in excess of $10,000.00 were met. Plaintiff seeks review of the dismissal of its complaint on the merits by the trial court, sitting without a jury.

This appeal raises the sole question of interpretation of the underlying, principal obligation, and all facts pertinent thereto have been stipulated by the parties. Plaintiff, Omaha Public Power District, is a public utility company incorporated within the State of Nebraska. In May of 1958, the company desired to engage an independent contractor to dismantle and remove certain power lines situated in the City of Omaha in order to make way for their replacement. An intermediary put plaintiff in contract with one Charles W. Kirby, a demolition contractor doing business as Audio Products in Denver, Colorado. Following negotiations for the proposed job, plaintiff and Kirby executed a formal contract on June 30, 1958. In essence, the agreement's consideration provided that Kirby would purchase and remove some ten miles of power lines, paying plaintiff $2500.00 at or before commencement of the work for the rights to most of the salvaged materials.

Under the terms of this agreement, Kirby was also required to obtain a performance bond insuring the work's completion and certain liability insurance, as well as workmen's compensation insurance acceptable under the laws of Nebraska.¹ As proof of his procurement of the required insurance, Kirby further agreed:

"To submit to (plaintiff) a certified copy of these insurance policies, or a certificate of insurance, for inspection before commencing the work and this contract shall not become effective until such policies are in full force and effect." (Emphasis supplied)

During negotiation of the principal contract, Kirby had acquired on May 28, 1958 a performance bond from The Employers' Fire Insurance Company, a Massachusetts corporation and the named defendant in this action.² Pursuant also to his agreement, Kirby furnished plaintiff on July 8, 1958 a certificate of general liability insurance.

However, on July 21, 1958, plaintiff received correspondence from Kirby's attorneys informing them that their client had suffered extensive, financial loss resulting from an accident to an employee on another job. Plaintiff was further advised that Kirby, as a result thereof, was on the verge of bankruptcy and unable to raise the $2500.00 payment called for in their contract, maintain the general liability insurance, cancelled because of the accident, or purchase the yet unobtained workmen's compensation or automobile liability insurance.

Due to Kirby's announced inability to perform, plaintiff made written demand upon the defendant to undertake performance of Kirby's obligation by negotiation of a contract with another contractor from a furnished list of solicited bids. Defendant declined, whereupon plaintiff accepted the lowest bid of $18,500.00 and advised defendant reimbursement would be sought upon completion of the work in a suit for damages.³

Defendant submits that because the law of suretyship imposes no greater liability upon the surety than that of the principal obligor, enforcement of its performance bond is dependent upon the existence of an effective, underlying obligation, Niklaus v. Phoenix Indemnity Co., 166 Neb. 438, 89 N.W.2d 258 (1958), which in the instant case never ripened into a binding agreement. It is defendant's contention this principal contract contained a condition precedent to its existence which never occurred when the principal obligor failed to procure the requisite insurance. Conversely, plaintiff argues that the questioned provision was merely a condition to proceeding with the work, but not a condition to the existence of an enforceable binding contract.

The principal contract provided, and we concur, that the substantive law of Nebraska controlled its interpretation, 28 U.S.C.A. § 1652; Erie R. R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). An exhaustive research of Nebraska's jurisprudence, as well as that of its sister jurisdictions, has failed to uncover a case on all fours in which a contractual provision such as the one in controversy has been judicially construed. Therefore, logical interpretation of the words chosen in ascribing to them the parties' intended meaning coupled with analogical application of Nebraska contract law evincing the governing principles of construction are essential to disposing of the issues before this Court.

The law of Nebraska is consistent with the recognized definitions which hold that a condition precedent is either a condition which must be performed before a contract becomes binding upon the parties to it or must be fulfilled before a duty arises to perform the obligations of an already existing contract. O'Brien v. Fricke, 148 Neb. 369, 27 N.W.2d 403 (1947); Evans v. Platte Valley Public Power & Irr. Dist., 144 Neb. 368, 13 N.W.2d 401 (1944).

Nascence of the instant agreement occurred upon the parties' execution of the principal contract embodying their exchange of bilateral promises. On June 30, 1958, Kirby agreed to purchase for a fixed consideration certain power line equipment and thereafter remove same in return for the utility company's promise to relinquish title to him of some of the materials so removed. Contained within this contract were the provisions requiring Kirby to obtain certain insurance, specifically for his own protection, against various hazards likely to occur upon commencement of the work. The crucial paragraph immediately following the insurance provisions requires in part that Kirby furnish the utility company with proof of the insurance's procurement before commencing work. Had this been all the provisions demanded of Kirby, it is susceptible of interpretation that the parties intended Kirby's procurement of the insurance for his protection alone a condition subject of waiver and inessential to the duty of performance of the agreement's bilateral promises supported by otherwise valid consideration. However, this was not the case. This proviso was further qualified with the stipulation, "This contract shall not become effective until such policies are in full force...