Opinion ID: 1676821
Heading Depth: 2
Heading Rank: 1

Heading: The Validity of the Bonds

Text: In spite of Acstar's position, during the course of this litigation, that the bonds were never in effect, Acstar now contends that the bonds were never rendered null and void, because, it says, Acstar and AMCI, after Acstar's alleged cancellation of the bonds, treated the bonds in all respects as if they were legal, binding, and in full force in effect. However, AMCI asserts, and the trial court agreed, that testimony taken from officials of Acstar indicated that the bonds had been canceled before acceptance, were never in force and effect, and were at all times null and void. This cause came before the trial court on cross motions for summary judgment. The defendant AMCI and the indemnitors, as third-party defendants, filed their motion for partial summary judgment against Acstar, and in support of that motion regarding the validity of the bonds, submitted testimony of two of Acstar's officers, Henry W. Nozko, Jr., its president, and Robert Frazer, its vice president. Nozko stated in his deposition: Q. ... My question is, what is your understanding of the position that Acstar Insurance Company has taken and takes today concerning the bonds that appear to have been issued? A. Our position is that the bonds are null and void. Q. And for what period of time has that been your position? A. Since their issuance. Q. Is it your testimony that Acstar, that any bonds issued by Acstar were never in force or effect? A. Correct. Nozko deposition, p. 24. The intention of the parties at the time of making [a] contract controls, not subsequent perceptions. Devlin v. Ingrum, 928 F.2d 1084, 1090 (11th Cir.1991). This Court stated in Lilley v. Gonzales, 417 So.2d 161, 163 (Ala.1982), that the law of contracts is premised upon objective rather than subjective manifestations of intent. Additionally, the Eleventh Circuit Court of Appeals has stated that it is well recognized in all areas of the law, that a subjective intent on the part of the actor will not alter the relationship or duties created by an otherwise objectively indicated intent. In re Lane, 742 F.2d 1311, 1316 (11th Cir. 1984). According to those legal principles, even though Acstar's president, Nozko, testified in his deposition that the bonds issued by Acstar on May 18, 1989, were null and void, his testimony as to validity was merely a contention and should not be conclusive on the issue of whether the bonds were valid. To determine whether the bonds were valid, the trial court should have analyzed the evidence before it, which showed Acstar's objective manifestations of intent to validate the bonds when it accepted AMCI's premium payment. A detailed analysis of the communications between AMCI, Acstar, and Harbert regarding the bonds establishes that, as of June 27, 1989, when Acstar accepted AMCI's premium payment, Acstar intended that the bonds issued on May 18, 1989, be valid. On April 25, 1989, Acstar wrote to AMCI, confirming an agreement between them that Acstar would issue two payment and performance bonds to Harbert on AMCI's behalf. That letter stated: It is our understanding that you will forward the contracts amounting to $3,100,000 and $850,000 and an irrevocable letter of credit in the amount of $250,000, plus executed indemnification agreement. Upon receipt, we will execute payment and performance bonds at the agreed rate of 2.4%. On April 26, 1989, the indemnitors executed an indemnity agreement with Acstar on AMCI's behalf, and on May 17, 1989, C & S Bank, on behalf of AMCI, established an irrevocable letter of credit in Acstar's favor. On May 18, 1989, Acstar issued the bonds to Harbert. On June 5, 1989, Harbert wrote AMCI a letter acknowledging receipt of the bonds, and stating: The bonding company Acstar is not on our list of acceptable companies. At this point, the bonds, as submitted, are not acceptable because we have no information to judge the capability of Acstar to support the liability the two bonds represent. AMCI forwarded a copy of this letter to Acstar on June 7, 1989, with a notation that any help you can give us is needed. Acstar responded the same day with a letter to AMCI providing three paragraphs of financial information. Acstar's letter stated: In view of the Harbert, June 5, 1989, letter and because you have not paid for the bonds as promised, we expect that you immediately return the original copies of the bonds for cancellation as they are null and void due to Harbert's rejection and due to your nonpayment of the premiums as agreed. Harbert, apparently unaware that Acstar had declared the bonds null and void, wrote to AMCI on June 13, 1989, stating, [A]fter receipt of the additional information on Acstar ... we have decided to accept the bonds.... Then, Acstar, apparently unaware that Harbert had accepted the bonds, wrote to Harbert on June 22, 1989, stating, Harbert's rejection of the bonds in its letter of June 5, 1989, ... rendered the bonds null and void. On June 26, 1989, AMCI wrote to Acstar as follows: Payment for the two bonds ... will be sent to your office tonight.... We have been given an acceptance by Harbert.... If you are not willing to accept our check, please give me a call. On June 27, 1989, Harbert wrote to Acstar and AMCI, stating: We have executed the bonds in hand and consider them in full force and effect. As promised, AMCI forwarded the premium payment to Acstar. Acstar accepted AMCI's premium payment, and from June 27, 1989, until this action was filed on June 27, 1990, Acstar never again asserted that the bonds issued on May 18, 1989, were null and void. During that time, all of the parties relied on the bonds as valid and enforceable. Acstar even stated in a letter dated October 9, 1989, to McGriff, Seibels & Williams, Inc., AMCI's insurance brokers, that AMCI was bonded by Acstar. The foregoing correspondence establishes that AMCI and Acstar had a valid agreement, confirmed in the letter Acstar wrote to AMCI on April 25, 1989, that Acstar would undertake the role of surety in a relationship between AMCI, Acstar, and Harbert. As of May 18, 1989, AMCI had partially performed its part of the agreement by securing a letter of credit and having the indemnitors execute an indemnity agreement on its behalf. Likewise, Acstar, in performing its part of the agreement, had issued the bonds. Impliedly, Acstar was obligated to give Harbert a good faith opportunity to accept Acstar as a bonding company. The fact that Acstar, in its letters to AMCI on June 5, 1989, and June 22, 1989, may have declared the bonds issued on May 18, 1989, null and void did not relieve Acstar of its obligation under the original agreement between Acstar and AMCI to undertake the role of surety. Acstar's behavior upon learning that Harbert had approved it as a bonding company evidences the fact that Acstar understood that, upon Harbert's approval, Acstar was obligated to issue the bonds on AMCI's behalf. In AMCI's letter to Acstar dated June 26, 1989, AMCI notified Acstar that Harbert had accepted Acstar as a bonding company and stated that payment for the bonds would be forthcoming unless Acstar objected. We conclude that AMCI's letter is prima facie evidence that on June 26, 1989, AMCI extended to Acstar an offer to validate the bonds issued on May 18, 1989, and, further, that Acstar, by its silent acceptance of AMCI's premium payment, accepted AMCI's offer to validate the outstanding bonds. Even though Nozko denied the validity of the bonds in his deposition testimony taken after Harbert commenced this action, Nozko's subjective contentions do not alter Acstar's objective manifestations of intent to create a suretyship by validating the outstanding bonds. AMCI presented no substantial evidence to rebut Acstar's showing that the bonds were valid. Based on the foregoing, we hold that the performance and payment bonds issued by Acstar on May 18, 1989, were valid, and, for that reason, the summary judgment for AMCI is due to be reversed.