Case Name: Cockrum Lumber Company v. W. H. Sterchi, et al.
Court: Tennessee Supreme Court
Jurisdiction: Tennessee
Decision Date: 1928-10-06
Citations: 157 Tenn. 440
Docket Number: 
Parties: Cockrum Lumber Company v. W. H. Sterchi, et al.
Judges: 
Reporter: Tennessee Reports
Volume: 157
Pages: 440–445

Head Matter:
Cockrum Lumber Company v. W. H. Sterchi, et al.
(Knoxville.
September Term, 1928.)
Opinion filed October 6, 1928.
W. R. Hendebson, for complainant.
J. Bailey Wray, for W. H. Sterchi.
H. T. Poobe, for R. S. Dysart.
Lindsay, Young & Young, for New York Indemnity Co.

Opinion:
Mr. Chief Justice Green
delivered the opinion of the Court.
The question presented in tins ease on the petition for certiorari to the Court of Appeals is the liability of the New York Indemnity Company'upon a builder's bond. There was a decree against the Indemnity Company in both of the lower Courts.
Sterchi entered into a contract with Roy S. Dysart whereby the latter" was to erect for .Sterchi a building in the City of Knoxville. In this contract it was provided that Dysart should execute bond conditioned for the 'faithful performance of said contract and for the due payment of all laborers and materialmen in the sum of nine thous- and ($9,000) dollars. A bond was procured by Dysart in said sum and of said tenor signed "R. S. D3sart, New York Indemnity Co. by attorney-in-fact W. II. Wilson" and tendered to Sterchi's architect. The architect testified that he examined the bond, and it appearing to have been properly executed and bearing the seal of the Indemnity Company he accepted it.
Dysart thereupon proceeded with the construction of the building and contracted a bill with the Cockrum Lumber Company amounting to twenty-seven hundred and fifty-six and 33/100 ($2756.33) dollars for materials used in the work. Dysart failed to pay for said material and the Cockrum Lumber. Company, after due notice to Sterchi, established its lien upon said building and brought suit against Sterchi to enforce the same. Sterchi answered this bill and by cross-bill brought the New York Indemnity Company into the case and sought a recovery against said Company upon said bond for the amount of the materialmen's claim.
The Indemnity Company answered the cross-bill and denied all knowledge of the bond. It denied that said bond was executed by its authority and denied liability thereupon. Ah stated before there was a decree against the Indemnity Company in the lower Courts.
Dvsart procured the bond, through another agent, from W. H. Wilson who signed the bond as attorney-in-fact. Wilson had an office in Knoxville and' was an agent of the Indemnity Company. According to his contract with Dysart, Sterchi paid the premium on this bond to Wilson. Wilson, however, defaulted, failed to report the execution of said bond to the Indemnity Company and the Indemnity Company received no part of said premium.
While Wilson was an agent of the Indemnity Company, the power of attorney issued to him only authorized him to execute bonds on behalf of the Company when said bonds were countersigned or approved by Robert S. Young or Sam E. Young, these two gentlemen being attorneys of the Indemnity Company at Knoxville. Neither of said attorneys knew anything of the execution of the bond by Wilson.
After the facts just stated were developed in taking proof, Sterchi amended his cross-bill so as to charge-that the Indemnity Company placed its agent Wilson "in such a situation that a person of ordinary prudence was justified in assuming that such agent was authorized to execute said bond," and further that the Indemnity Company was "estopped from denying said agent's authority to execute said bond." By order of the Chancellor .this amendment was treated as traversed by the Indemnity Company. The case has been presented with some elaboration. It is not necessary to discuss all the points made, for in our opinion the circumstance that this bond as issued and delivered to Sterchi's architect bore the seal of the Indemnity Company precludes that Company, upon the facts appearing', from contesting- its liability on said instrument.
Section 3213, Thompson's-Shannon's Code, which abolished the use of private seals upon written contracts expressly excepted seals of corporations.
The rule in this jurisdiction has been stated thus:
' ' The seal of a corporation to an instrument constitutes primal-fade evidence that it was planted there by the proper authority, and that the instrument is the act of the corporation." Levering & Carncross v. The Mayor, 26 Tenn. (7 Hump.), 553.
To the same effect see Darnell v. Dickens, 12 Tenn. (4 Yerg.), 7; Hopkins v. Gallatin Turnpike Co., 23 Tenn. (4 Hump.), 403; City of Memphis v. Adams et al., 56 Tenn. (9 Heisk.), 518. Such is the general rule. Thompson on Corporations (3 Ed.), section 2038.
Of course, the presumption just referred to is not conclusive. Sterchi's architect, however, had a right to assume when the bond was delivered to him bearing the seal of the Indemnity Company that the contract was executed by proper authority and that it was the act of the corporation. Upon this assumption the architect accepted the bond for Sterchi and Sterchi paid for the bond. The contractor was allowed to proceed with the work and the property of Sterchi became bound for the claims of materialmen. In the circumstance Sterchi was an innocent purchaser of the bond for value and upon familiar principles the Indemnity Company after Sterchi incurred liabilities on the faith of the bond, could not be permitted to question its responsibility upon the instrument.
There was nothing unusual, nothing to excite the suspicion of Sterchi or his architect, in the manner of the execution of the bond. Such, bonds are commonly executed by indemnity companies, located in eastern cities, through local attorneys-in-fact. It is furthermore conceded that Wilson was an agent of the surety upon this bond.
The circumstance that the bond was signed by W. H. Wilson ' ' attorneys-in-fact ' ' instead' of ' ' attorney-in-fact ' ' was not sufficient to put Sterchi on notice that there was anything wrong with its execution, or that another signature was required. W. H. Wilson was autographed. Attorneys-in-fact was typewritten.
In Levering & Carncross v. The Mayor, supra, the defense was that the contract upon which suit was brought against the City of Memphis was executed by two members only of a municipal committee composed of three members. It was insisted that the signature of all three members composing the committee was necessary to a binding contract and that the plaintiff should have taken notice of such fact. The Go art, however,- held that the contract being under seal must be regarded as the act of the corporation "without reference to the question of the authority of the committee," in the absence of proof to the contrary. In the case before us proof to the contrary could not be heard as against Sterchi after he incurred the liabilities mentioned, relying upon the protection of the bond.
For the reasons stated, without discussing other questions, the petition for the writ of certiorari is denied.