Wyoming Construction Co. v. Western Casualty & S. Co., 5991.

• Decision Date: 24 February 1960
• Docket Number: No. 5991.,5991.
• Citation: 275 F.2d 97
• Parties: WYOMING CONSTRUCTION COMPANY, a Wyoming corporation; and Monolith Portland Midwest Company, a corporation, Appellants, v. WESTERN CASUALTY AND SURETY COMPANY, a corporation; Forgey Construction Company, a Wyoming corporation; and Orrin B. Forgey, Russell Forgey, Chas. S. Chapin and W. J. McNamara, individually and as co-partners doing business as Forgey Brothers, Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

275 F.2d 97 (1960)

WYOMING CONSTRUCTION COMPANY, a Wyoming corporation; and Monolith Portland Midwest Company, a corporation, Appellants, v. WESTERN CASUALTY AND SURETY COMPANY, a corporation; Forgey Construction Company, a Wyoming corporation; and Orrin B. Forgey, Russell Forgey, Chas. S. Chapin and W. J. McNamara, individually and as co-partners doing business as Forgey Brothers, Appellees.

No. 5991.

United States Court of Appeals Tenth Circuit.

January 26, 1960.

Rehearing Denied February 24, 1960.

COPYRIGHT MATERIAL OMITTED

Norman Elliott and Joseph Enright, Los Angeles (Loomis, Lazear & Wilson, Cheyenne, Wyo., Corthell & King, Laramie, Wyo., and Enright & Elliott, Los Angeles, Cal., were with them on the brief), for appellants.

William H. Brown and Edward E. Murane, Casper, Wyo. (Brown, Healy, Drew, Apostolos & Barton; Murane, Bostwick & McDaniel, and Donald E. Chapin, Casper, Wyo., were with them on the brief), for appellees.

Before BRATTON, LEWIS and BREITENSTEIN, Circuit Judges.

BREITENSTEIN, Circuit Judge.

Appellee-plaintiff, The Western Casualty and Surety Company, a compensated surety on a construction contract performance bond, brought this action for indemnity to recover its costs in completing the contract after default by its principal.

The United States, acting through the Bureau of Reclamation, Department of the Interior, contracted with S. J. Groves & Sons Company for the construction of the Big Sandy Dam and Dike in western Wyoming. Groves subcontracted the earth embankment and riprap on the dam to Forgey Construction Company which, in turn, subcontracted the riprap work to Wyoming Construction Company. Western was the surety on the performance bond given by Wyoming to Forgey. Wyoming failed to complete and performance was taken over by Western. During the period involved, Wyoming became a wholly-owned subsidiary of appellant Monolith Portland Midwest Company. The jury verdict, in favor of Western and against Wyoming and Monolith, was for $74,677.33 to which the court added $25,701.45 as interest and entered judgment for $100,378.78.¹ This appeal is from that judgment.

Wyoming contends that Western is not entitled to indemnity because an antecedent default of Forgey relieved Wyoming of its obligation to perform and such default and its effect were known to Western. All pertinent contracts required completion of performance by November 29, 1951. The riprap work of Wyoming had to follow the placing of embankment by Forgey but could advantageously proceed as the embankment rose in height. On the contract termination date Forgey had placed more than 90% of the embankment materials and Wyoming had placed less than 10% of the riprap. The breach by Forgey, upon which Wyoming relies, is the failure of Forgey to complete the embankment by November 29, 1951.

The issue as to whether Wyoming was excused from performance because of the alleged breach by Forgey was submitted to the jury under adequate instructions and the jury by its verdict adverse to Wyoming on all issues necessarily found that the conduct of Forgey did not excuse Wyoming. Substantial evidence in the record sustains such conclusion.

There were four principal stages in the riprap operation covered by the Forgey-Wyoming subcontract.² The material had to be quarried at a site about 26 miles from the dam, crushed to the right size, hauled by truck to the dam, and placed on the dam. Wyoming delayed in carrying out preparatory work such as building an access road and opening the quarry with the result that it did not start placing riprap until about the end of August 1951, when the embankment was more than 60% complete. An employee of Wyoming testified that at no time after Wyoming began operations in August was there unavailable an area for the placement of riprap. The inability of Wyoming to put on riprap as fast as the dam went up was due to inadequate crushing and loading equipment and to the lack of trucks for hauling.

The testimony of Wheeler, the president of Wyoming until June 1952, was that in September 1951 he, as the responsible executive of that company, decided that it would be impossible to complete by the contract date and that it would be necessary to work through the winter. The record shows that no failure of Forgey to complete the preliminary work hindered or delayed Wyoming and that Wyoming made no effort to keep up with the progress of Forgey. These facts, coupled with extensions of the termination date obtained with the assistance and acquiescence of Wyoming, require the conclusion that no default of Forgey relieved Wyoming of its duty to perform. The situation in which Wyoming found itself was the result of its own acts.

Wyoming next urges that the extensions of the date for completion of performance were material alterations of the contract which discharged the surety. In support of this contention it points out that construction work in western Wyoming is more costly in winter periods because of severe weather conditions and that the contract contemplated the work would be completed before the winter season.

The contracts involved all provided for an extension of the performance date.³ Chapin, an officer of Forgey, testified that prior to the execution of the Forgey-Wyoming contract he and Wheeler discussed the possibility "that this job would go into the winter or the following spring." As early as September 1951 Wheeler refused to commit more of the Wyoming equipment to the job because he then realized that winter work would be required. The matter of extension of performance time was discussed in correspondence between the Bureau, Groves, Forgey, Wyoming, and Western as Wyoming's surety. There is no evidence that any party, except the Bureau, was opposed to any extensions. The Bureau granted extensions, the last until July 17, 1952.

The failure to perform on time did not terminate the contract.⁴ We are not concerned at this point with possible rights to damages for delay but with the issue of whether the extensions relieved the surety of liability. Western was a compensated surety. It knew from its own investigations that the job would not be completed on the contract termination date. As Wyoming had but 9.9% of its work done on the termination date it was to the advantage of both Wyoming and Western to have the date extended. Neither was harmed thereby.⁵ Whatever additional costs there might have been to Wyoming were the result of Wyoming's conduct in failing to keep apace with Forgey.

This is not an action by an obligee to collect from a surety. Rather, it is an action by a surety which has performed in the place of its principal and which seeks to collect from its principal under a written contract of indemnity. That contract authorized the surety "to consent, from time to time, to any extensions, modifications, changes or alterations of, or additions to, said contract, * * *." While no formal written consent was executed, the conduct of Western is consistent only with consent to the extensions.

The equities of the situation cry out against Wyoming. By starting late and using inadequate equipment it failed to keep abreast with the progress of Forgey. It led all parties to believe that by winter work it would catch up with Forgey and complete the riprap promptly after the completion of the embankment. It did not object to the extensions but instead aided in their procurement. It failed to do the job it had contracted to do. Now, after the work has been completed by its surety and the surety seeks indemnity, Wyoming asserts that the situation which resulted from its wrong relieves it of liability to its surety. Such argument does not commend itself to the court. A party may not take advantage of its own wrong.⁶

The other claimed material alterations of the Forgey-Wyoming contract relate to the advance by Forgey to Wyoming of part of the purchase price of a crusher and numerous advances on a yardage basis to pay lease truckers. These advances were made by Forgey because of the financial condition of Wyoming. They were credited against payments to Wyoming when those payments became due. Granting that in some circumstances an advance payment may be a material alteration of a contract,⁷ such is not the case here and even if it were, Western knew of the payments and did not object to them. As the acts of Western were consistent only with a disposition to continue the suretyship relation, it waived whatever right it might have had to take advantage of the changes in payment.⁸ The advances were to the benefit of Wyoming. That company may not now hide behind its own acts and use the consequences thereof to avoid liability under the indemnity agreement.

Wyoming further says that Western breached its duty to act in good faith. We have no doubt that a surety must act in good faith in its dealings with its principal.⁹ In the situation here, Wyoming knew the facts at least as well as its surety. The legal rights and obligations arising from those facts were known to both. There is no evidence of misrepresentation, concealment, overreaching, or undue persuasion on the part of Western. To the contrary, Western acted with candor and patience and gave Wyoming every opportunity to perform its contract.

Only one facet of the bad-faith charge merits comment. Wyoming says that Western acquiesced in Forgey's notice of default and did not assert the antecedent breach and material alteration defenses which were available. A sufficient answer is that such defenses, for reasons heretofore stated, were not available to either the principal, Wyoming, or to the surety, Western. Each, by its actions, had lost its right to assert those defenses, if either or both ever had such right. Be that as it may, the conditions existing at the time of the Forgey default notice and demand show that if there was any bad faith it was on the part of Wyoming, not on the part of Western.

As of May 31, 1952, Forgey was 99% complete and...