U.S. Fidelity & Guaranty Co. v. Zidell-Steinberg Co.

• Decision Date: 22 October 1935
• Citation: 151 Or. 538,50 P.2d 584
• Parties: UNITED STATES FIDELITY & GUARANTY CO. v. ZIDELL-STEINBERG CO. et al. [*]
• Court: Oregon Supreme Court

50 P.2d 584

151 Or. 538

UNITED STATES FIDELITY & GUARANTY CO. v. ZIDELL-STEINBERG CO. et al. ^[*]

Supreme Court of Oregon

October 22, 1935

In Banc.

Appeal from Circuit Court, Tillamook County; George R. Bagley Judge.

Suit by the United States Fidelity & Guaranty Company against Zidell-Steinberg Company, the Texas Company, H. J. Nelson and others, in which the State of Oregon, on the relation of Howard-Cooper Corporation, filed a cross-complaint. From the decree, the plaintiff, the Texas Company, H. J. Nelson, and the cross-complainant appeal.

Remanded with directions.

John W. Reynolds, of Portland (Reynolds, Flegel & Smith, of Portland, on the brief), for appellants.

W. K. Phillips, of Portland (L. J. Balbach and Sheppard & Phillips, all of Portland, on the brief), for cross-appellant United States Fidelity & Guaranty Co.

Allen H. McCurtain, of Portland (William L. Harrison, of Portland, on the brief), for cross-complainant.

W. C. Winslow, of Salem, for respondents.

KELLY Justice.

This is a suit to determine amount of plaintiff's liability upon a contractors' bond and to enjoin the prosecution of actions at law thereon by certain of the contractors' creditors. From a decree requiring certain defendants to refund payments made by plaintiff to them and ordering the alleged balance due on said bond to be distributed pro rata among the contractors' creditors, the plaintiff and the defendants, the Texas company, H. J. Nelson, and state of Oregon ex rel. Howard-Cooper Corporation, cross-complainant, appeal.

On December 27, 1932, the state of Oregon, acting by and through the state highway commission, entered into a contract with F. C. Feldschau and Art Feldschau, doing business as Feldschau & Son, who for brevity will be referred to as the contractors, by the terms of which contract the contractors were to furnish approximately 5,000 yards of crushed rock to surface a portion of the state highway system known as the Jack Horner Creek-Mohler section of the Oregon Coast Highway in Clatsop and Tillamook counties, said contract being designated as Oregon state highway contract No. 1455.

On January 3, 1933, the contractors and the plaintiff, the United States Fidelity & Guaranty Company, a corporation, executed a contractors' bond to secure the performance of said contract and the payment of laborers and materialmen as provided by statute in the penal sum of $5,475, being the amount estimated to complete the contract.

During the month of June, 1933, the contractors became financially embarrased and the work on the contract stopped. On or about July 4, 1933, further credit was refused them by certain of their creditors, among whom were the Texas Company and H. J. Nelson. This situation was made known to plaintiff by the contractors and by some of the creditors.

On July 13, 1933, the following letter was transmitted to H. J. Nelson and the Texas Company, to wit:

"July 13th, 1933.

"Mr. H. J. Nelson, The Texas Co., Tillamook, Oregon.

"Re Feldschau & Son account.

"Dear Sir: In connection with the above captioned account for gasoline and oil used on contract No. 1455, known as the Jack Horner Creek-Mohler Job, I wish to advise you that F. C. Feldschau & Son were bonded on this job by the United States Fidelity & Guaranty Company. The surety Company is responsible with the assured on this Job and all bills incurred under this Contract No. 1455 will be paid by either Feldschau & Son or by the Surety Company as soon as the job is done.

"Very truly yours

"United States Fidelity & Guaranty Company

"By __________,

"Victor L. White,

"Attorney-in-Fact.

"VLW: IJ

"Copy to Mr. Nason."

As to Mr. White's authority to write the foregoing letter for plaintiff, Mr. White testified that Mr. Nason, who was then the plaintiff's superintendent of claims, authorized him to write it; in fact, dictated the letter to Mr. White over the telephone. A carbon copy of the following letter was introduced by plaintiff:

"July 14, 1933

"Mr. Henry C. Hones, Supt., Surety Claim Department, Home Office.

"58288-12-322-32-F. C. Feldschau-

State of Oregon

"Local S-1534

"Our principal came in with our agent, Mr. White of Tillamook, and reported himself in trouble.

"The contract was for crushing some 5000 cubic yards of road surfacing material and delivering to stock piles.

"His prices were:

For 1/2 " minus"85¢ per cu. yd. } In Bunkers

For 3/4 " minus"80¢ per cu. yd. }

10¢ per yard"mile for hauling

"He has been fiddling along getting out his rock at the rate of some 10 yards an hour. He has out some 3000 yards. His equipment is all rented except 4 old trucks that he owns and with which he is doing the hauling. The rock is hard and breaks out of the quarry in large pieces and so has to be worked over by again blasting or by hand work. The job is an emergency relief job and requires hand labor getting the rock into the crusher.

"It is obvious from his small out-put, the small-sized material the nature of the rock, and the hand-labor requirement that his price is ridiculously low.

                The contract price was .. $5,475.00
                   Extras .................. 400.00  $5,975.00
                                        -----------
                He has had estimates amounting to     2,066.00
                                                     ---------
                   Balance to earn                   $3,809.00
                

"He now has outstanding bills against the job amounting to approximately $5500. He estimates his cost to complete at $1500. This makes a charge of $7,000 with $3800 to earn, a deficit of $3,200. It will run higher, first, because we never at this stage have all the bills, and, second, because his estimate for completion is too low. It has cost him some $2.50 a yard so far, and yet he thinks he can get out the remaining 2000 yards for 75¢. He can't, although it shouldn't cost as much as the former, because he now has a good part of the rock blasted down.

"He had not cashed the last estimate of $1056, so we had him turn it over to Mr. White who will pay labor and keep the job going. (This amount is deducted from the outstanding bills.)

"He should be done in 20 to 25 days. Then we will have the mess to clean up.

"I suggest a reserve of $4,000.

"I have not been able to ascertain anything definite on salvaging possibilities. He has another crushing plant, four trucks referred to above, and has listed some real-estate, which I understand is in his wife's name.

"The present necessity was to get the job started again-he had shut down the last of June-thus get the State off our backs, and get the job completed without having to let the State take it over or take it over ourselves. With only 2000 yards to make it is too small to re-let except at excessive cost. We have accomplished this. He started up yesterday after White had paid some of the men, and assured the gasoline dealer that his bill would ultimately be paid.

"I have got to go over on the I. L. Young job (H. O. claim 194633) next week and after I get back I will go over as soon as necessary and check this one out. But, except for possibly better salvaging prospects than I know now, I doubt if it will show up much different.

"Supt. of Claims

"RBN:ET"

Mr. White was asked the following question: "Q. Now, did you undertake in behalf of the U.S. F. & G. to guarantee payment of other accounts to persons furnishing materials to this job in consideration of them continuing delivery of materials?"

His answer was as follows: "A. I don't like the word 'guarantee' in there, because I merely passed on to these creditors what information had been given me by Mr. Nason in that the account would be paid, and I so informed creditors." We quote further from Mr. White's testimony:

"Q. (By Mr. Flegel) Mr. Nason told you to do that? A. Yes.

"Q. Why did he tell you to do that? A. In order to continue the operation, I presume.

"Q. Did he say that that was the reason? A. Yes.

"Q. Did you advise them that that was the reason? A. Yes.

"Q. To what different persons did you convey this information at Nason's request? A. Mr. Nelson and Mr. Miller of the Sunset Garage, Shell Oil Company. ***

"Q. Was there any condition or restriction to this arrangement that you made with these various materialmen? A. Yes.

"Q. What was the restriction or condition, Mr. White? A. That nothing be furnished except something was necessary on the job.

"Q. Who was to okay it? A. I was.

"Q. By whose direction? A. Mr. Nason's

"Q. Did you so inform these various people that you mention? A. Yes."

Defendant Nelson testified that prior to June 1st (1933) he owned and operated a service station in Tillamook; that some of the goods for the contract in suit were sold from the service station and other goods from the bulk plant on the job; that the sales from the service station were mostly for transportation of the employees to the job and were for Nelson's personal account; and that the sales from the bulk plant were for the Texas Company.

Mr. Nelson also testified that either on the 8th or 10th of July (1933) he had a conference with Mr. Nason, wherein Nason said, "I will take the matter right up and we will look in to see that you get your money." Nelson also testified that Nason said that he wished Nelson to continue to deliver as the job had to be completed and that payment for future deliveries would be taken care of either by Feldschau or the bonding company. Nelson also testified that following that conversation deliveries were made. While at one point in his testimony he said that he was willing to deliver on the strength of the contractor's bond alone, upon further questioning he said: "Naturally, we wouldn't sell him unless the job was bonded and also Mr. Nason's promise to pay."

Mr Nelson also testified that he experienced difficulty in...