Crane Co. v. James McHugh Sons, Inc.

108 F.2d 55, 1939 U.S. App. LEXIS 2502

• Court: Court of Appeals for the Tenth Circuit
• Decided: November 6, 1939
• Docket: No. 1819
• Status: Published

Opinions

PHILLIPS, Circuit Judge.

James McHugh Sons, Inc.,¹ entered into a contract with the United States for the construction of eighteen apartments at Fort Sill, Oklahoma, for $612,000.

On January 8, 1934, McHugh, as principal, and the New Amsterdam Casualty Company, Hartford Accident and Indemnity Company, The Fidelity and Casualty Company of New York, and the United States Fidelity and Guaranty Company,² as sureties, executed a bond to the United States conditioned for the faithful performance of the contract and the prompt payment to all persons supplying labor and material in the prosecution of the work provided for in the contract.

H. W. Thompson, doing business as H. W. Thompson Heating & Engineering Company,³ submitted a bid to McHugh for furnishing all materials and performing all labor in the installation of the plumbing, gas, and heating equipment in the apartments for the sum of $94,000.⁴ McHugh advised Thompson that the bid would be accepted if he could furnish a proper surety bond.

Crane Company⁵ had its principal office at Chicago, Illinois, and maintained a branch office at Oklahoma City, Oklahoma. It had a copy of the plans and had suggested to Thompson that he submit a bid, had quoted him prices, and assisted him in preparing and submitting his bid. Thompson experienced difficulty in securing the bond and took the matter up with Legg, manager of the branch office of Crane at Oklahoma City. Thompson advised Legg that he could secure the bond if Crane would furnish the materials and look to Thompson alone for payment therefor. Legg suggested to Thompson that they go to Chicago and take the matter up with Crane’s head office in that city. Whereupon, Legg and Thompson went to Chicago. They conferred with various surety companies and Legg conferred with the officers of Crane. Thereafter, the Guaranty Company agreed to write the bond on condition that Crane waive any claim under the bond for materials furnished to Thompson. On December 7, 1933, Legg, purporting to act as the agent of Crane, executed the waiver to the Guaranty Company. Thereafter, the Guaranty Company executed Thompson’s bond in the principal sum of $97,700, the bid in the meantime having been increased to that amount by a supplemental bid.

The subcontract was entered into between McHugh and Thompson. Under it McHugh was to pay Thompson on or about the fifteenth of each month, 90 per cent of the value of the work completed during the preceding month as estimated and approved by the constructing quartermaster, and the remaining 10 per cent upon final completion and acceptance of the work by the constructing quartermaster, such payments to be made only upon presentation of formal waivers of liens, together with an affidavit that all payments had been made for all labor and materials. The subcontract expressly provided that McHugh had the right to retain at any time out of moneys due Thompson a sum sufficient to pay all persons wbo had performed labor or furnished materials for work included in the contract and that such sums might be retained until satisfactory evidence was furnished to McHugh that all such claims had been fully satisfied.

Thompson entered into the performance of the subcontract. On February 24, 1934, McHugh wrote a letter to Thompson reading in part as follows:

“We are enclosing our check No. 7293 in the amount of $10,630.00 as a payment on your January estimate. * * * We were compelled to withhold your payment until we received your waiver from the Oklahoma Office of Crane Company.

“The release of Crane Company dated February IS does not meet with our approval, as the form used is a waiver of lien used on private enterprises, * * * It is our request, therefore, that you again contact the Crane Company office and have them prepare a reléase as follows:

“We, the Crane Company of 705 West Main Street, Oklahoma City, Oklahoma, will hold the H. W. Thompson Heating & Engineering Company of Stillwater, Oklahoma, duly responsible for the payment of all plumbing and heating material furnished on the 18 Four Family Apartments now being erected at Fort Sill Oklahoma. Further, in the event the H. W. Thompson Heating & Engineering Company default in the payment of their account to us, we will not hold James McHugh Sons, Inc., General Contractors, of 6449 South Park Avenue, Chicago, 111., responsible for the payment of our account. This release embodies all the materials to be furnished by us in connection with this contract.

“The above form of release must be signed by a duly authorized representative of the Crane Company * * * Would request you to send us this release at the earliest possible date, obliging * * * ”

On March 1, 1934, Legg prepared a release in the exact language of that requested by McHugh in its letter of February 24, 1934, signed it “Crane Co., by C. L. Legg, Manager,” and forwarded it to McHugh at its Chicago office.

McHugh mailed a copy of its letter of February 24, 1934, to Crane at its Chicago office and on re'ceipt of the release of March 1, 1934, executed by Legg, forwarded a letter to Crane at its Chicago office enclosing a copy of such release. Crane did not advise McHugh that Legg was unauthorized to execute the release, or otherwise object thereto until it filed its petition of intervention in the instant case.

Thompson completed the performance of the sub-contract. McHugh paid him the amount due on the monthly estimates and the final estimate in reliance upon the release of March 1, 1934, and out of such funds Thompson made monthly payments to Crane for materials furnished, during the months of February and September, 1934, inclusive, aggregating $45,130.47.

The United States on relation of J. B. Klein Iron & Foundry Company brought this suit against McHugh and its sureties on the bond of January 8, 1934. Crane filed an intervening petition therein, asserted a balance due from Thompson of $28,697.06, and sought recovery thereof from McHugh, Thompson, and the sureties on the bond of January 8, 1934. McHugh and the sureties pleaded the release of March 1, 1934. Thompson denied any indebtedness to Crane and asserted that he and Crane were coadventurers in the carrying 'out of the sub-contract.

The trial court held that the letter of March 1, 1934, released McHugh from any liability to Crane for materials furnished and discharged McHugh’s sureties and entered judgment on the intervening petition in favor of McHugh and its sureties. Crane has appealed.

Crane asserts that Legg was without authority to execute the waiver to the Guaranty Company. Crane here seeks recovery upon the bond given by McHugh and its sureties and not upon the bond given by Thompson and the Guaranty Company. Whether Legg had authority to sign the waiver to ,the Guaranty Company is not here material. However, Legg had been connected with Crane for 35 years and for 18 years had been employed at its Oklahoma City branch. After the Guaranty Company demanded the waiver as a condition to writing the bond, Legg went to the office of C. R. Crane, vice president of Crane, for the purpose of taking up the matter of executing the waiver. When he came out of Mr. Crane’s office Legg said to Thompson, “We got everything all fixed.” Thereupon, he went to the office of the Guaranty Company and executed the waiver. Under all the circumstances, it is a fair "inference that he was authorized so to do. But, as stated above, whether he was 'so authorized is not here material. The fact of the execution of the waiver is material only in that it explains why McHugh demanded a release from Crane before making payments, to Thompson.

Crane asserts that Legg was without authority to execute the release of March 1, 1934. Legg was manager of the Oklahoma City branch. His duties embraced the ordering of merchandise, its sale, the collection of accounts, the care and upkeep of the real and personal property at the branch, and the conservation of Crane’s assets of whatever nature under his control. The first release from Crane referred to in McHugh’s letter to Thompson of February 24, 1934, was on a mimeographed standard form, a supply of which Crane kept at its Oklahoma City branch office. The fact that these blank releases were kept at that office clearly indicates that some person there was authorized to execute a release and it is a fair assumption such authority was lodged in Legg as manager of the branch office. We are of the opinion that Legg acted within his apparent authority in executing the release.⁶

Furthermore, any lack of authority on the part of Legg in the first instance to execute the release of March 1, 1934, was ratified by Crane. Copy of the letter demanding the release and a copy of the release after it was executed by Legg were promptly mailed by McHugh to Crane at its Chicago office. Crane did not advise McHugh that Legg was unauthorized to execute the release or otherwise object thereto until it filed its petition of intervention herein.

Silence under circumstances when, according to the ordinary experience and habits of men, one would naturally speak if he did not consent, is evidence from which assent may be inferred.⁷

One who, with knowledge of the material facts concerning an act done by one assuming to act as his agent without authority, voluntarily accepts the benefits flowing thereform, thereby ratifies the act and makes it his own as though he had authorized it from the beginning.⁸

Knowledge requisite to ratification need not embrace every detail of the transaction. It is sufficient if the purported principal has knowledge of all the material facts. ⁹

Here, McHugh, because of the waiver executed by Legg to the Guaranty Company, was without protection under Thompson’s bond for materials furnished by Crane. In order to protect itself,- it was necessary for McHugh to have a release from Crane, or require Thompson to furnish evidence of full payment to Crane for materials furnished before making payments to Thompson. It had a right under the subcontract to demand such evidence. To facilitate payments to Thompson, and in turn to Crane, it requested the release. Crane’s Chicago office was promptly notified by McHugh of the execution of the release by Legg. On the faith of the release, McHugh made payments to Thompson, out of which Thompson in turn made substantial payments to Crane. From the time the release was executed until the contract had been completed and all the payments had been made, Crane remained silent. Under the circumstances, its silence is evidence from which its assent to the action of Legg in executing the release may be inferred.

Crane contends that the release of March 1, 1934, was without consideration. A detriment incurred by the promisee or a benefit received by the promisor at the request of the promisor is a sufficient consideration to support a promise.¹⁰ If there is a detriment to the promisee, there need not be a benefit to the promisor. The consideration may move to a third person, as . for example, forbearance to exercise a right against a third person at the request of the promisor. ¹¹

Under the subcontract McHugh had the legal right to withhold payments until Thompson furnished formal waivers of liens, together with an affidavit that all payments for labor and material had been made, and to retain out of the moneys at any time due to Thompson, a sum sufficient to pay the persons who had performed labor or furnished materials in the carrying out of the subcontract. On furnishing of the release, McHugh waived these legal rights and made payments to Thompson without insisting upon them. This clearly was a detriment to McHugh for the benefit of Thompson, a third person. Furthermore, out of the moneys paid by McHugh to Thompson, $45,-130.47 was paid over by Thompson to Crane. These payments were made in reliance on the release and constituted a benefit to Crane. It follows that the release was supported by a sufficient consideration. See Pittsburgh Plate Glass Co. v. Art Centre Apartments, Inc., 253 Mich. 501, 235 N.W. 234, 235; Home Supply Co., Inc. v. Ostrom, 164 Minn. 99, 204 N.W. 647.

Counsel for Crane assert that the release was lacking in requisite certainty, and is indefinite and equivocal. We see no force to this contention. It is a primary rule in the construction of releases that the intention of the parties must govern. That intention is to be arrived at by the rules which govern in the construction of other contracts.¹² By the bond of January 8, 1934, McHugh was expressly bound to make payment promptly to all persons supplying materials in the prosecution of the work. The release of March 1, 1934, expressly stated that Crane would hold Thompson responsible for the payment of all materials furnished by it under the contract, and that Crane would not hold McHugh responsible for the payment therefor. This, we think, clearly and unmistakably manifested an intention to look solely to Thompson for payment for the materials and to release McHugh of any liability under the bond.

Section 9630, O.S.1931, 15 Okl.St.Ann. § 377, in part reads as follows:

“A surety is exonerated:

“First. In like manner with a guarantor. “Second. To the extent to which he is prejudiced by any act of the creditor which would naturally prove injurious to the remedies of the surety or inconsistent with his rights, or which lessens his security; * * *"

Section 9617, O.S.1931, 15 Okl.St.Ann. § 338, in part reads as follows:

“A guarantor is exonerated, except so far as he may be indemnified by the principal, if by any act of the creditor, without the consent of the guarantor, the original obligation of the principal is altered in any respect, or the remedies or rights of the creditor against the principal, in respect thereto, in any way impaired or suspended.”

The burden was on the surety companies to prove the release of McHugh. They met that burden. While two jurisdictions hold to the contrary,¹³ the great weight of authority is that the burden of showing assent to the release on the part of the surety companies was on Crane.¹⁴ That the release of McHugh by Crane resulted in injury to the surety companies cannot be doubted. James McHugh testified that but for the release, payments would not have been made to Thompson without a showing by him that the materials furnished by Crane had been paid for. Furthermore, but for the release, on payment of Crane’s claim the surety companies would be subrogated to Crane’s claim against McHugh. ¹⁵

It follows that both McHugh and the surety companies were discharged from liability to Crane.

The judgment is affirmed.

1 Hereinafter referred to as McHugh.

2 Hereinafter referred to as the Guaranty Company.

3 Hereinafter referred to as Thompson.

4 The bid was later increased to $97,-700.

5 Hereinafter referred to as Crane.

6 See Braniff v. McPherren, 177 Okl. 292, 58 P.2d 871; Weil-McLain Co. v. Maryland Casualty Co., 217 Wis. 126, 258 N.W. 175.

7 Wolfe v. Texas Company, 10 Cir., 83 F.2d 425, 430, 431; Ellis v. Simmons, 5 Cir., 11 F.2d 596, 597; Philadelphia, W. & B. R. Co. v. Cowell, 28 Pa. 329, 70 Am.Dec. 128; Heyn v. O’Hagen, 60 Mich. 150, 26 N.W. 861, 863; Renland v. First Nat. Bank of Grass Range, 90 Mont. 424, 4 P.2d 488; Ankeny v. Young Bros., 52 Wash. 235, 100 P. 736, 738, 739; Restatement of the Law of Agency, § 94; Mechem on Agency, 2d Ed., Vol. 1, § 453; O.S.1931, § 9434, 15 Okl. St.Ann. § 75.

8 Wolfe v. Texas Company, supra; Whitcomb v. Oller, 41 Okl. 331, 137 P. 709, 710; Chicago, R. I. & P. Ry. Co. v. Newburn, 39 Okl. 704, 136 P. 174, 176; United States F. & G. Co. v. Shirk, 20 Okl. 576, 95 P. 218, 220; Pittsburgh, C. & St. L. R. Co. v. Keokuk & H. Bridge Co., 131 U.S. 371, 381, 9 S.Ct. 770, 33 L.Ed. 157.

9 Wolfe v. Texas Company, supra; Amazon Fire Ins. Co. v. Bond, 65 Okl. 224, 365 P. 414, 418; Thorp Oil & Specialty Co. v. Home Oil Refg. Co., 79 Okl. 225, 192 P. 573, 574; Guaranty Trust Co. of N. Y. v. Koehler, 8 Cir., 195 F. 669, 682; Bloomfield v. Charter Oak Bank, 121 U.S. 121, 135, 7 S.Ct. 865, 30 L.Ed. 923; Owings v. Hull, 9 Pet. 607, 629, 9 L.Ed. 246; Mechem on Agency, 2d Ed., Vol. 1, § 395.

10 Williston on Contracts, Rev.Ed., Vol. 1, § 102; Petroleum Befraetionating Corp. v. Kendrick Oil Company, 10 Cir., 65 F.2d 997; Kemp v. National Bank of Republic, 4 Cir., 109 F. 48, 52; Eastman Land & Inv. Co. v. Long-Bell Lumber Co., 30 Okl. 555, 120 P. 276; Riddle v. Hudson, 68 .Okl. 172, 172 P. 921.

11 Williston on Contracts, Rev.Ed., Vol. 1, § 113; Bestatement of the Law of Contracts, § 75(2); Biddle v. Hudson, People’s State Bank v. Smith, 120 Neb. 29, 231 N.W. 141, 143; Exum v. Lynch, 188 N.C. 392, 125 S.E. 15, 17, 18; Cardoza v. Pereira, 53 R.I. 460, 167 A. 532; Mack v. Mack, 87 Neb. 819, 128 N.W. 527, 528, 31 L.R.A.,N.S., 441; Faulkner v. Gilbert, 57 Neb. 544, 77 N.W. 1072.

12 In re Atwater, 2 Cir., 266 F. 278, 281; In re Russell, 2 Cir., 176 F. 253, 257; Black v. Martin, 88 Mont. 256, 292 P. 577, 581; Adams Express Co. v. Beckwith, 100 Ohio.St. 348, 126 N.E. 300, 302; O.S.1931, §§ 9459, 9460, 9461, 9462, 9463, 9467, 15 Okl.St.Ann. §§ 151-155, 159.

13 See Guderian v. Leland, 61 Minn. 67, 63 N.W. 175; Washington Slate Co. v. Burdick, 60 Minn. 270, 62 N.W. 285; State v. Mannig, 55 Mo. 142.

14 Van Hoesen v. Gelfen, 103 N.J.Eq. 234, 143 A. 137, 139, affirmed 110 N.J. Eq. 69, 158 A. 343; Alexander v. Bosworth, 26 Cal.App. 589, 147 P. 607, 608; Tuohy v. Woods, 122 Cal. 665, 55 P. 683, 684; Stowell v. Goodenow, 31 Me. 538, 540; Hamilton v. Republic Casualty Co., 102 W.Va. 32, 135 S.E. 259, 262; Hanks v. Gerbracht, 75 Hun 181, 26 N.Y.S. 1097, 1098, 1099. See, also, Yount v. Bank of Commerce, 172 Okl. 65, 44 P.2d 874; Everett v. United States, 6 Port.,Ala., 166, 30 Am.Dec. 584.

15 See Wisconsin Electric Sales Co. v. Fidelity & Deposit Co., 191 Wis. 645, 211 N.W. 670, 672; Weil-McLain Co. v. Maryland Casualty Co., 217 Wis. 126, 258 N.W. 175, 177.