Transamerica Insurance Company v. Bloomfield, 18091.
| Decision Date | 30 September 1968 |
| Docket Number | No. 18091.,18091. |
| Citation | 401 F.2d 357 |
| Parties | TRANSAMERICA INSURANCE COMPANY, Plaintiff-Appellant, v. Harry BLOOMFIELD, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
James S. Gilliland, Memphis, Tenn., for plaintiff-appellant; Montedonico, Gilliland, Heiskell, Davis, Canale & Glankler, Memphis, Tenn., of counsel.
Olen C. Batchelor, Jr., Memphis, Tenn., for defendant-appellee; Holt, Batchelor, Taylor, Spicer & Hoffman, Memphis, Tenn., of counsel.
Before WEICK, Chief Judge, and O'SULLIVAN and CELEBREZZE, Circuit Judges.
Plaintiff has appealed from a judgment entered upon a directed verdict in favor of the defendant.
The action in the District Court was instituted by Transamerica Insurance Company, successor by merger to American Surety Company of New York, against the defendant, Harry Bloomfield, to recover $52,875.90 on an indemnity agreement which he executed on May 12, 1960, to indemnify and save harmless the surety on account of a labor and material payment bond which it furnished at his request in connection with a contract for the construction of seventy-four houses at Palo de Pan, Ponce, Puerto Rico.
Jurisdiction was based on diversity of citizenship.
The Contractors (principals on the bond) were two companies, Inter-American Builders, Inc. and Constructora de Ponce, Inc., engaged in the construction business in Puerto Rico.
The contract for construction of the houses had been entered into on March 18, 1960, between The Puerto Rico Teachers Association, a nonprofit corporation, and Constructora de Ponce, Inc. and Inter-American Builders, Inc. as joint adventurers, with principal office in Santurce, Puerto Rico. The contractors agreed to construct seventy-four houses for the Teachers Association, of which forty units, covered by FHA commitments, were to be completed not later than September 1, 1960, and the remaining thirty-four units by October 30, 1960.
The Teachers Association agreed to pay the contractors $539,945 in partial payments on the first and fifteenth of each month "on each house as follows: Payment Schedules In Accordance With Standard FHA Approved Payments."
The contractors agreed to furnish to the Teachers Association, upon receipt of notice to proceed, a performance bond in the amount of fifty per cent of the amount of the contract and a second bond for fifty per cent of the amount of the contract upon completion of one-half of the total project, or on July 15, 1960, whichever occurred first.
In order to induce the surety to execute the first bond for fifty per cent of the contract price, the contractors and their shareholders executed the indemnity agreement upon which this suit was brought1.
Paragraph 3 of the application for the bond described the work as follows:
Construction was started on the houses but the contractors did not furnish the second bond required to be furnished when one-half of the houses were built, or on July 15, 1960. The Teachers Association permitted the contractors to proceed with construction of all seventy-four houses, thereby waiving the requirement for the additional bond. No notice was given to the surety that the additional bond required by the contract had not been furnished.
Unpaid claims for labor and material furnished in the construction of the houses were filed with the surety and it employed an auditing and adjusting firm to investigate. On October 9, 1961 the surety wrote to Bloomfield, advising him that the claims aggregated $99,365, and made demand on him to place it with funds to meet all proper claims.
A number of suits on the claims for materials were filed in Puerto Rico against the contractors and the surety. In defense of the suits the surety was required to and did employ attorneys and an accountant. It litigated one of the claims for material, namely, Bonnin and Cia. It interposed the defense that its bond covered only the first thirty-seven houses built, and that claimant's evidence did not show on which of the houses the materials were furnished. The court rejected this defense and rendered judgment against the surety in the amount of $2,925.38. The surety paid the judgment.
Acting under the authority contained in the indemnity agreement, the surety effected settlement of the suit of Lausell Aluminum Jalousies for $3,800, which involved a claim of $7,195.50. It successfully defended the suit brought by Ponce Terazzo for $4,154.45, but in so doing incurred expense for attorney's and investigator's fees and costs. It resisted a wage claim of Salvator Natal with the Puerto Rican Department of Labor. Natal was night watchman for the project. The Department ordered the surety to pay him $562.10, and the surety complied. It compromised the suit of Garcia Commercial, Inc. for $37,641, which involved a claim in the amount of $41,871.77. This claim was compromised as part of a settlement involving the bond in question and bonds which the surety had furnished for the contractors in connection with other projects. The surety thus expended $41,941 in settlement of claims, $3,487.48 in payment of the judgment and order, and $7,447.42 for costs, fees and expenses, making total payments in the amount of $52,875.90, which it sought to recover from Bloomfield in the present case.
Bloomfield, in his answer, admitted the execution of the indemnity agreement, but denied that the contractors were indebted to claimants for labor and material in connection with construction of the thirty-seven houses, and denied that he was indebted to the surety in any sum whatsoever.
At the trial, Melville Hall, Bond Claim Manager of the surety, identified and there was received in evidence the contract with the Teachers Association, the application for the bond containing the indemnity agreement, the bond, invoices of claimants, statements of attorneys for legal fees, and cancelled checks in payment or settlement of the claims, judgment, fees, costs and expenses. The checks and records submitted in connection therewith identified the bond number. Letters to Bloomfield were also received in evidence.
Mr. Hall and Kurt Rock, of McClary Corporation, a firm of surety consultants employed to investigate the claims, testified as to the various problems with which the surety was confronted, and the settlement and payment of the claims.
Mr. Rock undertook to testify that he examined the books and records of the contractors in Puerto Rico in an effort to prove that they supported the claims which had been asserted by the claimants, but the District Court rejected such evidence on the ground that it was hearsay and not the best evidence. In this, we are of the opinion that the District Court erred. We think the evidence was admissible as an admission against interest of the contractors. The surety was not required to produce the books of its principals, the contractors. Bloomfield had testified that his company2 was a "dummy corporation" and it should be assumed that he was familiar with its books and could produce them himself if he so desired. Bloomfield was no stranger to the transaction. As owner of all the capital stock of his one-man corporation, he was beneficially interested in the construction contract. Furthermore, the contractors, or joint adventurers as they were described in the contract, were parties to the suits filed in Puerto Rico against the surety.
Rock also testified that he exhibited the invoices of the claimants to Elton Larkin, then acting as president of Constructora de Ponce, Inc., who was living in Puerto Rico at the time and was in charge of the company's affairs. He had signed the construction contract as president. Rock testified that Larkin said: "Offhand they the invoices look substantially all right," but added that he might want to look them over again.
Mr. Rock also detailed the settlement negotiations with Garcia Commercial, Inc., in which the problem of allocation of the claim to specific houses was discussed. Garcia contended that the contract with the Teachers Association called for a fifty per cent bond which did not relate to specific houses; that the payments made to Garcia in the course of construction were not earmarked; and that it had the right to apply the payments in any manner it saw fit.
Over the objection of plaintiff and on the theory that the contract was ambiguous, the court permitted Bloomfield to testify that he indemnified only the first thirty-seven houses...
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