Paul Hardeman, Inc. v. United States Fidelity & Guar. Co.

486 P.2d 726
CourtSupreme Court of Oklahoma
DecidedJune 14, 1971
Docket42642
StatusPublished

This text of 486 P.2d 726 (Paul Hardeman, Inc. v. United States Fidelity & Guar. Co.) is published on Counsel Stack Legal Research, covering Supreme Court of Oklahoma primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Paul Hardeman, Inc. v. United States Fidelity & Guar. Co., 486 P.2d 726 (Okla. 1971).

Opinion

486 P.2d 726 (1971)

PAUL HARDEMAN, INC., Plaintiff in Error,
v.
UNITED STATES FIDELITY & GUARANTY COMPANY, Defendant in Error.

No. 42642.

Supreme Court of Oklahoma.

May 25, 1971.
As Corrected June 14, 1971.
Rehearing Denied July 20, 1971.

Arnold M. Schwartz, Los Angeles, Cal. and Bonds, Matthews & Mason, Muskogee, for plaintiff in error.

Sanders & McElroy, Tulsa, and Andrew Wilcoxen, Muskogee, for defendant in error.

*727 WILLIAMS, Justice:

United States Fidelity and Guaranty Company, defendant in error herein, filed suit in the trial court pursuant to this State's declaratory judgment act, 12 O.S. 1961, § 1651 et seq., seeking a determination that Paul Hardeman, Inc., plaintiff in error, had breached a contract entered into by Hardeman and Dearborn Machinery Movers Company, Inc. and as a result of this breach had become indebted to U.S.F. & G. for certain sums expended in an attempt to perform the contract.

The contract in question was executed in January, 1962. It covered certain work to be performed on the powerhouse at the Eufaula Dam Project, Porum, Oklahoma. Hardeman previously had contracted with the U.S. Army, Corps of Engineers, to construct the powerhouse and by the contract involved in this controversy subcontracted a portion of the work to Dearborn. U.S.F. & G., as surety, with Dearborn as principal and Hardeman as obligee, executed and delivered a performance bond and a labor and material payment bond covering the Hardeman-Dearborn contract.

Hardeman and Dearborn began work on the powerhouse in May, 1962. On August 16, 1962, in the midst of the construction work, a petition seeking the reorganization of Dearborn under Chapter X of the Bankruptcy Act, 11 U.S.C. § 501 et seq., was filed in the United States District Court for the Eastern District of Michigan. One week after the reorganization petition was filed, U.S.F. & G. sent Hardeman the following telegram:

"RE: DEARBORN MACHINERY MOVERS BOND # XX-XXX-XX CONTRACT DA 34-066 CIVEG 62-1308 PROJECT NO. MU 3429 BECAUSE OF PETITION FILED IN BANKRUPTCY COURT BY DMM THE SURETY U.S.F. & G. REQUESTS THAT ALL FURTHER PAYMENTS BE HELD BY YOU OR SENT TO U.S.F. & G. 415 GRISWOLD DETROIT 26 MICH. ANY PAYMENTS NOT SO HELD OR DIRECTED WILL BE AT YOUR OWN PERIL. LETTER FOLLOWS."

*728 At the time of the receipt of this telegram, Hardeman had received (in July) but had not yet paid an invoice for work performed by Dearborn. Pursuant to further communications between Hardeman and U.S.F. & G., Hardeman, on September 6, 1962, paid to U.S.F. & G. the amount due Dearborn on the July invoice. At the time of these communications concerning the July invoice, the following letters, in applicable part, were exchanged:

From U.S.F. & G. to Hardeman, dated September 4, 1962 ____

* * * * * *
"Please be advised that the United States Fidelity Company, in exchange for your making certain requested advances to the payroll account of Dearborn Machinery Movers Company, Inc., agrees to hold your company harmless from any action that might be taken against you because of these advances at our request.
"Also, it is expressly understood that any advances made at our request to continue this job until such time as an agreement can be worked out between the United States Fidelity and Guaranty Company and the Trustees for Dearborn Machinery Movers Company, Inc. will not be considered to be a waiver of any rights that the Paul Hardeman, Inc. has under our Bond No. 35283-12-372-62, covering performance in the amount of $270,000.00 and labor and material in the amount of $270,000.00."

From Hardeman to U.S.F. & G. dated September 6, 1962 —

"* * * Until further notice from you, or other event to the contrary, payments to be disbursed under our Subcontract with your principal will be forwarded directly to you and you will make such disbursements therefrom as you deem proper.
"This procedure is not to be in waiver of any of our rights under the bond you have posted on behalf of * * * [Dearborn and U.S.F. & G. agrees unequivocally to hold Hardeman] harmless from any claim, liability and expense arising from the release of monies to United States Fidelity and Guaranty Company under this procedure.
"We have received your telegram confirming this procedure and accordingly we transmit to you our check No. 66562 in the amount of $15,478.83, payable to your order and as full and final payment of Dearborn Machinery Movers Company, Inc.'s Invoice No. 88281."

Section 116(1) of Chapter X, Bankruptcy Act, 11 U.S.C. § 516(1), provides that upon the approval of a reorganization petition, a judge may permit the rejection of executory contracts of the debtor. Pursuant to this authority, the U.S. District Court, in the reorganization proceedings, entered its order approving the rejection and abandonment of the Hardeman-Dearborn contract. In this order, the Court noted that U.S.F. & G. was present in court and was prepared to take over the contract pursuant to its rights as surety upon the bonds.

Under the terms of the performance bond issued by U.S.F. & G., if Hardeman assumed responsibility for the completion of the subcontract, surety would reimburse Hardeman for all reasonable completion costs expended above the original subcontract price not to exceed the face amount of such bond. If the surety itself assumed responsibility for the completion of the subcontract, it would receive from Hardeman the original contract price due less amounts previously paid Dearborn.

In October, 1962, U.S.F. & G. sent an employee in its Oklahoma City office, Edgar W. Adams, to inspect the powerhouse project at Porum. The purpose of this inspection, Adams testified, was to determine whether U.S.F. & G. would continue work with the Dearborn employees or would retain another contractor to complete the work. Adams stated he informed representatives of Hardeman that U.S.F. & G. recognized its liability on the bond and would finance the completion of the subcontract. Although Dearborn's work *729 force thereafter was continued on the project, Adams further testified that they remained employees of Dearborn, the project was not taken over by U.S.F. & G. at any time, and the project continued to be supervised by Dearborn's office in Detroit.

In addition to an invoice received prior to the rejection of the contract, Hardeman received invoices in September and October. All of these invoices were on the letterhead of Dearborn. After the alleged termination of the contract in November, 1962, the invoices sent Hardeman were on the letterhead of U.S.F. & G. Apparently, on no occasion in the time interval between the rejection of the contract by the Trustee of Dearborn and the alleged termination of the contract did U.S.F. & G. make a request or demand that Hardeman pay to them the amounts due under the invoices Hardeman had received from Dearborn.

On November 13, 1962, Hardeman informed U.S.F. & G. that E.J.

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Bluebook (online)
486 P.2d 726, Counsel Stack Legal Research, https://law.counselstack.com/opinion/paul-hardeman-inc-v-united-states-fidelity-guar-co-okla-1971.