Brown v. Maryland Casualty Company

442 S.W.2d 187, 246 Ark. 1074, 1969 Ark. LEXIS 1347

• Court: Supreme Court of Arkansas
• Decided: May 26, 1969
• Docket: 5-4723
• Status: Published

Opinions

John A. Fogleman, Justice.

The Housing Authority of Pike County, Arkansas, contracted with Plez Lewis & Son, Inc., for the construction of a housing project according to plans and specifications prepared by architect Stanley Brown. After Plez Lewis defaulted, the housing authority called upon Maryland Casualty Company, surety on the contractor’s performance bond, to complete the contract. Maryland contracted with Con-Ark Builders, Lie., to complete the construction in accordance with the original plans. Apparently, it was contemplated that a change would b.e made in the plans and specifications as to foundations, because mention of this was made in the contract between Maryland and Con-Ark. After Con-Ark. took over, “Change Order Gf-2” was added requiring the installation of 124 piles, a minimum of ten feet in length or a total of 1,240 lineal feet. Con-Ark’s proposal to Maryland had contained an item of $6,500 for this work plus $4.75 per foot in excess of 1,240 feet. Con-Ark subcontracted this work to Piling & Repairs, Inc., for $5,084 plus $3.85 for each additional lineal foot. After the piling work started,' R. W. Laird, the architect’s representative on the job site, instructed Piling & Repairs’ workmen to drill the pilings deeper than the originally specified ten feet. Accordingly, this resulted in an additional 1,268 lineal feet of drilling over the original specification of 1,240 lineal feet.

Piling & Repairs, who had been paid by Con-Ark for a portion of the overrun, brought suit against Con-Ark for the balance due on the overrun. Con-Ark admitted the overrun and cross-complained against Maryland Casualty Company on Lhe premise that should Con-Ark be liable to Piling & Repairs, Con-Ark should have judgment against Maryland. Maryland then cross-claimed against the housing authority and Stanley Brown and R. W. Laird seeking judgment against them, jointly and severally, for any amount for which it was held liable.

At the trial it was stipulated that Stanley Brown was the housing authority’s agent and that Laird was Brown’s agent.

The trial court entered judgment for Piling & Repairs against Con-Ark as prayed, for Con-Ark against Maryland Casualty Company as prayed, and for Maryland against the housing authority, Stanley Brown and R. W. Laird, jointly and severally, for anything Maryland might be required to pay to satisfy the judgment in favor of Con-Ark. Brown and Laird filed notice of appeal. Con-Ark gave notice of appeal from the judgment in favor of Piling & Repairs. The appeal by the housing authority was designated as a cross-appeal in the sense used in Ark. Stat. Ann. § 27-2106 (Repl. 1962), Brown v. Maryland Casualty Co., 245 Ark. 70, 431 S.W. 2d 258. Maryland also appealed.

Maryland contends that it is not liable to Con-Ark unless and until it is paid for the extra work by the housing authority and its architect. tinder the terms of the contract between Con-Ark and Maryland allowance of the amount to be paid by the owner was a condition precedent to payment from Maryland to Con-Ark. The pertinent contract portions are as follows:

“7. Maryland agrees to pay the Contractor, as full compensation for all liability assumed hereunder, the sum of $109,500.00, subject to additions and deductions residting from change orders or extras issued by the Owner, to be paid as follows:— a. The sum of $101,729.83, being the balance of the Contract price remaining under tlie said Contract between Lewis and the Owner, out of the estimate and retained percentages to be received by Maryland from the Owner periodically, as provided for in the Contract, between Lewis and the Owner, for work performed by the Contractor, and to be paid to the Contractor within five (5) days after receipt thereof by Maryland, such payment to be in like amounts as Maryland receives from the Owner.

b. The additional sum of $7,770.17 * * *

c. Within five (5) days after receipt by Maryland from the owner of any payment to it for extra work ordered, including but not limited to contemplated change in foundations, on or after the effective date of this AGREEMENT and performed by the Contractor, Maryland mil make payment of an amount equal to the amount received by Maryland from the Owner for the aforesaid extra toork.

d. Within five (5) days after the Owner notified Maryland in writing that the Contract has been completed and accepted and the Owner has paid the final estimate and retained percentage to Maryland, then Maryland will pay to the Contractor the balance due under this AGREEMENT, if any. It is distinctly understood and agreed by the parties hereto that the payments provided for hereunder are to be made only after Maryland receives from the Owner the estimate payments, payments for extras and changes, and retainages to be paid to Maryland by the Owner and Lewis. It is further understood- and agreed that the payments shall, in no event, exceed the sum of $109,500.00, subject to any additions or deductions provided, for hereunder. . Any change or increase in the amount of this AGREEMENT hereinafter provided for shall he paid to the Contractor only in such amount as is allotved therefor by the Owner, anything in this AGREEMENT to the contrary notwithstanding.

It is understood that the payments provided for as above are to be made only after Maryland receives from the Owner the estimate payments, the payments for extras and changes, and retainages to be paid Maryland by the Owner under the terms of its Contract with Lewis, provided, however, that should the Owner withhold any estimate payment, payment for extras, or retainage for a period of twenty (20) days beyond the time it would normally be paid because of any reason not the fault of the Contractor, then Maryland shall nevertheless make payment to the Contractor for any such estimate, extra, or retainage earned by the Contractor and without awaiting payment from the Owner, as provided for in subparagraphs a, b, and c; provided further, however, that should the Owner withhold any payment herein referred to for a period of twenty (20) days beyond the time it would normally be paid, for reasons not the fault of the Contractor, then Maryland shall have the right to cancel this AGREEMENT upon notice to the Contractor. In the event of such cancellation, the Contractor shall be entitled to payment from Maryland for all amounts earned by the Contractor, including retain-age under this AGREEMENT, up to the date of cancellation.” (Emphasis ours.)

It is obvious that all parties knew that this was an undertaking to complete a job on which the original contractor had defaulted. Con-Ark was Maryland’s subcontractor for the completion of the work. There is no reason -why the parties could not contract for this work on any terms they agreed upon. There is no reason wl\y the terms of the contract which both parties agreed to should not be enforced.

In Blair v. United States, 147 F. 2d 840 (8th Cir. 1945), there was a contract between a contractor and a subcontractor which contained provision's very similar to those in this case. A fixed completion date in the contract between the government and Blair, the general contractor, had been extended. By a later supplemental contract, this date was advanced to the original one, upon agreement of the government to reimburse Blair for additional costs resulting from the reduction of time on the basis of expenditures approved by the government’s contracting officer. Blair notified his subcontractors that they were committed to the original completion date, <£ 'with additional compensation as approved by the Government being granted you where applicable, in accordance with Article II of attached Supplemental Agreement. ’ ” In reversing a judgment in favor of the subcontractor, the court said:

"* * * The above, quoted letter discloses not a promise, by Blair to pay, but that additional compensation as approved by the government would be granted where applicable. This implied a promise that Blair would turn over funds if and when realized by allowance and payment by the government. As such payment has not been received by him and no claim is made that he has not diligently attempted to make collection, and it affirmatively appears that he has done so, defendant should not be held liable contrary to the terms of his agreement. * * * (Citations omitted.) We conclude that plaintiffs were not entitled to recover on account of the speed-up agreement though they may be entitled to such recovery dependent upon whether or not defendant Blair received additional compensation from the government on account of the adjustment in the date of the completion of the work under his contract.”

The rule stated there is applicable to this situation. There is no escape from the conclusion that, as to changes adding to the contract price, the liability was not ad-solute but conditional. While some of the clauses of the contract might be construed as only fixing a time for payment of an absolute liability, the provision of Section 7 d that any change or increase be paid to Con-Ark “only in such amount as allowed therefor Irg the Owner, anything in this AGREEMENT to the contrary notwithstanding” can only create a liability conditional upon approval of the change by the owner.

Language contained in Mascioni v. I. B. Miller, Inc., 261 N.Y. 1, 184 N.E. 473 (1933) is pertinent. In that case, the contractor agreed to pay a subcontractor 55 cents per cubic foot for erection of concrete walls. The promise to pay contained the proviso “Payments to be made as received by the Owner.” The court reversed a holding by the appellate division that this provision merely fixed the time of payment and did not create a condition precedent. That court said:

“A provision for the payment of an obligation upon the happening of an event does not become absolute until the happening of the event. Whether the defendant’s express promise to pay is construed as a promise to pay ‘if’ payment is made by the owner or ‘when’ such payment is made, ‘the result must be the same; since, if the event does not befall, or a time coincident with the happening of the event does not arrive, in neither case may performance be exacted.’ * * *

True, a debt with consequent obligation to pay may exist aside from any express promise to pay. Then a condition annexed to an express promise to pay the debt may render the promise to pay conditional without making the debt subject to the same condition. ‘It must be admitted, however, that a condition annexed to a promise to pay a debt will commonly, upon the true construction of the instrument in which it is contained, extend, to the debt itself. There is a difference also between a promise to pay a debt on a certain condition, and a proviso that the debt shall be payable only upon a certain condition; for the latter necessarily renders the debt itself conditional. ’ Langd'ell, Summary of the Law of Contracts, § 36. In this case, if there were no express promise to pay a stipulated price for stipulated work, such a promise would be implied. There is, however, an express promise to pay moneys ‘as received from the Owner,’ and the event upon which that promise would ripen into an absolute, immediate obligation has not occurred. From the express promise to pay upon the happening of an event, an inference may be drawn that the parties did not intend or impliedly agree that payment should be made even if the event does not occur.

In many cases, nevertheless, an inference that an express promise to pay a debt on a certain condition excludes an implication that the debt shall be paid, even though performance of the condition is impossible, would defeat the intention of the parties. The tests approved by the Law Institute in its Restatement of the Law of Contracts, § 295, are whether ‘ (a) a debt for performance rendered has already arisen and the condition relates only to the time when the. debt is to be discharged, or (b) existence of the condition is no material part of the exchange for the promiser’s performance, and the discharge of the promiser will operate as a forfeiture.’ In either case ‘impossibility that would discharge the duty to perform a promise excuses the performance of a condition.’

Here on its face the contract provides for a promise to perform in exchange for a promise to pay as payments are ‘received from the Owner.’ Performance by the plaintiff would inure directly to flie benefit of tbe defendant, because the defendant had a contract with the owner to perform tbe ■work for a stipulated price. Tbe defendant would not profit by the plaintiffs’ performance unless the owner paid the stipulated price. That was the defendant’s risk, but the defendant’s promise to pay the plaintiffs for stipulated work on condition that payment was received by the defendant shifted that risk to the plaintiffs, if tbe condition was a material part of the exchange of plaintiffs’ promise to perform for defendant’s promise to pay.”

The principle is succinctly stated in 17 Am. Jur. 2d, Contracts, § 339:

“There is a difference between a promise to pajr a debt on a certain condition, and a provision that the debt shall be payable only upon a certain condition, for the latter necessarily renders tbe debt itself conditional. Although a condition annexed to an express promise to pay a debt may render the promise to pay conditional without making the debt subject to the same condition, a condition annexed to a promise to. pay will commonly be construed to extend to the debt itself.”

It has been recognized and applied by this court as illustrated by the following language from Jacks v. Phillips County, 25 Ark. 64:

“The proposal made by Jacks to the county court, and which was accepted, was, that Jacks was to receive for his services one-half of the money collected off of the lands which he might ascertain to have been omitted in the late assessment of the county taxes; and this right to compensation depended upon the performance of his contract, by ascertaining the omitted lands and bringing them upon the assessor’s list, and that money had been received in payment of taxes on the lands so ascertained and assessed. Then, and not until then, would he have a right to claim of the county one-lialf of the money collected; because his contract was conditional, and his right to compensation depended upon his performance of his contract, and the collection of the money. ’ ’

The above stated principle is applicable to this case. Consequently the judgment against Maryland is reversed.

Inasmuch as the judgments in favor of Maryland and against Brown, Laird and the housing authority were made dependent upon the amount which was paid by Maryland on the judgment in favor of Con-Ark, those judgments must be reversed also, in spite of the fact that we could dismiss the appeal of the housing authority or affirm the judgment against it because of its failure to file a brief on cross-appeal. See Rule 10; Dunham v. Phillips, 154 Ark. 87, 241 S.W. 361; Day v. Langley, 202 Ark. 775, 152 S.W. 2d 308. These judgments were void as conditional judgments in any event. Bank of Commerce v. Goolsby, 129 Ark. 416, 196 S.W. 803; See also Brotherhood of Locomotive Firemen and Engineers v. Simmons, 190 Ark. 480, 79 S.W. 2d 419.

It is necessary that we consider the appeal by Brown and Laird, because, on a retrial, they might be held liable to Maryland for any amounts for which Maryland could not recover from housing authority because of any actions taken by them without authority from the principal. Under the evidence hereinafter set out and the finding of the trial court thereon, Laird could not be liable to Maryland. Its cross-complaint against him is dismissed.

The trial court found that Laird was Stanley Brown’s agent, that Stanley Brown was the housing authority’s agent, and that the agents had either the actual or apparent authority of the housing authority to require the additional piling, in spite of evidence that Laird had exceeded Ms authority. The trial court found that the actions of Laird had been ratified by Brown. There is substantial evidence to support this finding in the testimony of AY. S. Little, field engineer for Brown. Lillie stated that before the drilling was more than one-half completed he discovered that the drilling was beyond the depth specified in the change order. He reported this fact to Brown but did not stop the work. There was testimony by Kennedy, the construction superintendent for Con-Ark, that Air. Little also took part in ioiling him whether or not the holes drilled for piling were deep enough. It was Kennedy’s recollection that Little, came on the job about May 13¹ and remained for two or three days. He testified that Little was telling him to go to refusal during that time. Kennedy stated that Little was aware of the additional depth to which these drillings were being made. The authorities consistently hold that where an agent is duly constituted, names his principal, contracts in the principal’s name, and does not exceed his authority, the principal is responsible on the contract and not the agent. Neely v. State, 60 Ark. 66, 28 S.W. 800; Dale & Banks v. Donaldson Lbr. Co., 48 Ark. 188, 2 S.W. 703; McCarroll Agency Inc. v. Protectory For Boys, 197 Ark. 534, 124 S.W. 2d 816; Ormsby v. Kendall, 2 Ark. 338; Ogletree v. Smith, 176 Ark. 597, 600, 601, 3 S.W. 2d 683; Meier v. Hart, 143 Ark. 539, 541, 542, 220 S.W. 819; Ferguson v. McMahon, 52 Ark. 433, 12 S.W. 1070. A principal, knowing of the acts of his agent, or of facts putting him on notice thereof, who fails to object cannot be heard to deny the agency but will be held to have acquiesced in and ratified his acts. St. Louis-San Francisco Railway Co. v. Lee Wilson Co., 212 Ark. 474, 206 S.W. 2d 175; American Mortgage Co. v. Williams, 103 Ark. 484, 145 S.W. 234.

The authority of an architect as the owner’s agent is limited. He may not direct that the work be done in any manner other than set out in the plans and specifications, except as lie has been given authority to do so in the contract. Incorporated Town of Bono v. Universal Tank & Iron Works, 239 Ark. 924, 395 S.W. 2d 330. Since there is no evidence in the record to show Brown’s actual or apparent authority to bind housing authority or to show that the housing authority knew of Brown’s or Laird’s actions, we are unable to say whether Brown or Housing Authority, or either of them, is liable to Maryland. Housing Authority liability to Maryland is dependent. upon its contract with Maryland and its contract with the original contractor or upon the extent of (he architect’s actual or apparent authority. Since the record is deficient in these respects, we remand Maryland’s cross-complaint against Brown and the housing authority for a new trial.

The appeal by Con-Ark from the judgment against it in favor of Piling & Repairs is-without merit. There is nothing to indicate that the compensation of Piling & .Repairs depended upon recovery by Con-Ark from Maryland. The contract provided for a fixed compensation. The only contingency was the depth of the drilling for the piling for which Piling & Repairs was to be paid ‡3.85 for each additional foot. There was evidence that the President of Con-Ark approved the additional drilling by Piling & Repairs anct assured them of payment for the additional footing. That judgment is affirmed.

Remanded for further proceedings consistent with this opinion.

Hoot, J., not participating. George Rose Smith and Byrd, JJ., dissent.

1 Testimony indicated that drilling started May 10 and was completed on May 19.