Opinion ID: 346670
Heading Depth: 1
Heading Rank: 1

Heading: Performance Bond

Text: 9 The salient question at trial was the reasonableness of the time taken by Weathersby to procure a bond. Several different sub-questions must be faced before the larger issue of whether this question was correctly answered can be resolved. (A) A determination must be made of the date from which the time taken by Weathersby is to be measured. No clear evidence exists as to the date Weathersby himself learned of the necessity of a bond. However, if the providing of a performance bond was an enforceable provision of the March 6 contract, then Weathersby is bound by the contractual terms regardless of his actual knowledge. If George or Strong was acting as Weathersby's agent, then the agent's knowledge of and agreement to the performance bond requirement binds the principal from the date the agent acquired such knowledge. (B) As Weathersby did not succeed in presenting to Gore a document that could formally be called a performance bond until May 14, a decision must be made whether this is to be taken as the concluding date in the period used to gauge Weathersby's timeliness, or whether the providing of a letter of credit on April 26 or a letter from Strong guaranteeing payment on March 9 constitutes performance of any contract requirement of a bond. (C) It must also be determined whether the jury was properly instructed on the intertwined facts and legal questions presented and whether any failure to instruct was properly preserved.
10 Weathersby and Gore never communicated directly about contract terms. George and Strong were intermediaries throughout the process of reaching an agreement, and eventually a disagreement. Whether either was an agent for Weathersby for purposes of making the contract sued upon here is of crucial importance in deciding the reasonableness of the time taken by Weathersby in tendering a bond. 11 At the outset we note that Gore's demand that the buyer furnish a performance bond was clearly understood by George and Strong. Gore's initial reluctance to enter into a forward contract was founded on his reluctance to expose himself to a financial loss such as that occasioned by the previous crop purchaser's refusal to honor his contract. This reluctance resulted in an agreement by Gore, George and Strong that a bond requirement would be part of the contract. Gore and Strong testified without contradiction that Gore insisted on a performance bond from the time he first agreed to consider making a forward contract on his cotton in February 1973. The critical contractual language appears as a typed addition to a printed form contract, and it reads: Mutual Bonds will be furnished if required. Required. The ambiguity created by this strikeover and retyping of the same word capitalized necessitates an examination of the negotiations surrounding the contract. 12 Strong, though initially testifying that he was uncertain when the bond requirement was made, also stated that he suggested to Gore that he seek to procure a bond from the Kyle Chandler Insurance Company in West Point, Mississippi. Gore's first inquiries of Chandler occurred the day the contract was signed, thereby placing this discussion at or before that date. Strong indicated that he did not believe many farmers could succeed in acquiring a bond in the amount of $25,000, despite the fact that when the contract was signed George told Strong Gore would have no difficulty. Strong stated his belief in Gore's potential inability to acquire a bond was the only reason he, Strong, did not immediately inform Weathersby that he must procure a bond. No witness ever suggested that this requirement did not exist. Strong referred as did Gore and George to Gore's repeated and unchallenged inquiries throughout March and April concerning whether Weathersby had procured a bond. Therefore, we find there is no question of Strong's and George's knowledge on March 6 that mutual bonds were required. The firm benchmarks are that George, Strong and Gore were fully aware of the necessity that Weathersby procure a $25,000 performance bond at least on the date the contract was signed, March 6. 3 If either George or Strong was Weathersby's agent, there would be no need to determine when Weathersby personally received notice of the bond requirement. 13 Proof of agency does not depend upon a written agreement. Partee v. Pepple, 197 Miss. 486, 20 So.2d 73 (1945). In the absence of express written terms creating the relationship, the existence of an agency is a fact question. Engle Acoustic & Tile, Inc. v. Grenfell, 223 So.2d 613 (Miss.1969). Here the question is answered by the uncontradicted proof. 14 George was a cotton ginner and farm supplier who frequently assisted farmers in their crop sales. He had assisted Gore in this regard for approximately ten years preceding the contract here at issue. Strong initially contacted George for purposes of discovering whether area farmers might be interested in contracting their cotton, and thereafter George contacted Gore. Strong mailed the contract to George for Gore's signature. George was not compensated for his services. If anything, George's efforts were more an assistance to Gore than agency for Weathersby, but the resolution is unclear. Therefore, George's status forms no part of the basis for our decision in this case. 15 On the other hand, Strong's position as Weathersby's agent was well demonstrated. He initiated the discussions with George. Strong asked in February 1973 if George knew of any cotton farmers who wanted to contract their crop. After several discussions George told Strong of Gore's willingness to sell but only if Strong's buyer would provide a performance bond. After receiving word of Gore's position, Strong told Weathersby he had a farmer willing to sell 500 acres of cotton. Weathersby, after some deliberation, told Strong he would accept the offer. Strong notified George before the contract was signed that Weathersby would be the purchaser of the cotton. Weathersby knew he might be required to provide a performance bond. Strong presigned the contract, which named Weathersby as buyer and Gore as seller, as agent only and mailed it to George. George then procured Gore's signature. These facts clearly indicate that Strong acted as Weathersby's agent in making this contract. 16 There are additional corroborations. Weathersby admitted that Strong was his agent for purposes of receiving payment for the cotton. Weathersby never undertook to communicate with Gore; rather, all of his contacts with Gore, before and after execution, were made through Strong. Strong testified he did not inform Weathersby each time some correspondence came from Gore but apparently made an independent determination of the necessity of informing Weathersby. A second contract was signed contemporaneously with the original Gore-Strong contract. It also was dated March 6 but was signed by Weathersby and by Strong as agent only. Named as parties were several farmers (including Gore) as sellers and Weathersby as the purchaser. This contract listed the acreage of the farmers involved and provided that the cotton output from their lands would be sold to Weathersby. Gore did not sign this latter document. It contained a mutual bond proviso but not as amended in the Gore-Strong contract. The record does not show that Gore authorized or even anticipated that this latter instrument would be executed. The testimony that Strong was to receive a half-cent per pound commission, together with the provision in the Weathersby-Strong contract for payment of a half-cent more per pound than was provided for in the Gore-Strong contract, demonstrates that Strong's commission was to be paid by Weathersby. 17 During his testimony Strong emphasized that he was not a cotton buyer but only a cotton seller. He admits initiating this transaction, yet contends he was only a middleman who found farmers willing to contract their crop and then purchasers desiring to enter such contracts. The contracts entered imposed no obligations on Strong and their terms did not refer to him. He did not buy and then resell. The use of two separate contracts, each stating the purchaser was Weathersby and each listing Gore as at least one of the sellers, results in some ambiguity. Since the price term in one contract included Strong's half-cent commission and in the other did not, the contracts created inconsistent obligations. The potential legal inconsistencies of the situation do not affect our conclusion that the contract, signed by Gore and Strong, bound Weathersby to purchase the cotton from Gore's acreage and to provide a performance bond. 18 We conclude that Strong had the apparent if not the actual authority to contract with Gore and to bind him to the requirement of mutual performance bonds. The parameters of the apparent authority doctrine in Mississippi law were set out in Union Compress & Warehouse Company v. Mabus, 217 So.2d 23, 27 (1968) quoting from Steen v. Andrews, 223 Miss. 694, 697-98, 78 So.2d 881, 883 (1955): 19 The power of an agent to bind his principal is not limited to the authority actually conferred upon the agent, but the principal is bound if the conduct of the principal is such that persons of reasonable prudence, ordinarily familiar with business practices, dealing with the agent might rightfully believe the agent to have the power he assumes to have. The agent's authority as to those with whom he deals is what it reasonably appears to be. So far as third persons are concerned, the apparent powers of an agent are his real powers. 2 C.J.S., Agency, §§ 95, 96. This rule is based upon the doctrine of estoppel. A principal having clothed his agent with the semblance of authority, will not be permitted, after others have been led to act in reliance of the appearances thus produced, to deny, to the prejudice of such others, what he has theretofore tacitly affirmed as to the agent's powers. 2 C.J.S., Agency, § 96(c). There are three essential elements to apparent authority: (1) Acts or conduct of the principal, (2) reliance thereon by a third person, and (3) a change of position by the third person to his detriment. All must concur to create such authority. 2 C.J.S. Agency § 96(e). 20 As stated in Steen v. Andrews, supra, the apparent powers of an agent are his real powers. Mississippi law is also clear that the doctrine of apparent authority has no application unless an agency relationship exists, explicitly or implicitly. XYOQUIP, Inc. v. Mims, 413 F.Supp. 962 (N.D.Miss.1976). 21 The uncontradicted evidence in this record establishes that Strong was clothed with far more than a mere semblance of authority. Weathersby agreed through Strong to buy Gore's cotton before the contracts were entered on March 6. Before the contract was made, Strong informed George and Gore that Weathersby would be the purchaser. All negotiations for the contract were by Strong. Weathersby authorized Strong to presign the contract as agent only and then mail it to Gore with only Gore's signature necessary before the contract became binding. After execution, Weathersby continued to deal with Gore exclusively through Strong. Gore relied to his detriment on the mutual bond requirement in the agreement entered on March 6, undertaking the effort to procure and incurring the expense of obtaining his own performance bond and then eschewing any other attempt to contract for the sale of his cotton. The evidence conclusively establishes that Strong was an agent and had the apparent if not the actual authority to accede to Gore's requirement of mutual performance bonds and to make this provision a part of the contract. See generally, Stevenson-Whisenhunt Corp. v. Holeman, 341 So.2d 657 (Miss.1977). 22 Moreover, Weathersby's suit upon this contract arguably renders the agency question superfluous. Since Weathersby affirmatively states that the contract is valid, as indeed he must in order to attempt to hold Gore to its terms, he cannot deny that the person who cast its terms did not have his authorization to contract. The only issue that would remain would be whether the mutual performance bond requirement was actually a part of the contract. This is not an agency question but one of interpretation of an ambiguous section of the contract: Mutual performance bonds will be furnished if required. Required. We have already interpreted this provision to mean that mutual performance bonds were required. 23 The facts in this case establish that Weathersby did enlist Strong as his contracting agent for the half-cent a pound commission. Weathersby employed Strong in a capacity similar to the seller's agent in Hohenberg Brothers Co. v. Killebrew, 505 F.2d 643 (5th Cir. 1974). There a Mississippi cotton farmer delivered a signed cotton sales contract to his admitted agent, permitting the agent thereby to contract with any buyer seasonably accepting the terms of the presigned agreement. The court held that the agent could legally bind the principal without the need for further affirmative action by the principal. Id. at 645. Cf. Manget Brothers, Inc. v. Bank of Greenwood, Mississippi, 381 F.2d 91 (5th Cir. 1967). Since Strong had actual or apparent authority to act for Weathersby, the commencement of the reasonable period of time for Weathersby's action in furnishing the required performance bond must be measured from the date Strong knew the obligation was imposed, which was the date the contract was executed, March 6, 1973. 4
24 Strong offered personally to guarantee Gore that Weathersby would fulfill his contract. When Gore rejected this form of security, he acted within his contractual rights. The usual concept of a performance bond is that a financial institution will make a formal written underwriting covering the risk involved. The proof does not show that Gore had any basis for believing that Strong's personal guarantee was of any different quality than Weathersby's personal obligation. In the absence of proof that the parties intended a unique form of performance bond or that a subsequent modification of the original contract was agreed to, Strong's offer of his personal guarantee to Gore was not compliance. 25 Weathersby argues that even if the bond was required, there was no indication of the type of such security the contract demanded; therefore, the $25,000 letter of credit was sufficient to meet his part of the requirement of mutual performance bonds. The letter of credit itself belies this argument in its statement: This letter of Credit is to be held by Y. B. Gore until performance bond is received. This demonstrates that Weathersby knew the letter of credit was merely a temporary substitute for a $25,000 performance bond. Gore argues that even if a letter of credit would not be per se insufficient, this particular letter of credit was inadequate. Indeed, at oral argument Gore's attorney stated a letter of credit would have been acceptable had it not contained an expiration date of July 1, 1973, a date months in advance of any cotton harvest. What Gore sought in contracting for a bond of $25,000 was to prevent the previous year's financial fiasco of having contracted in the spring to sell his crop at a certain price and then having the purchaser renege at harvest time after the price had fallen below that in the contract. The period of a potential breach by a purchaser was the time the cotton was to be picked. All parties were agreed at trial that for any cotton to be picked by July 1 in northern Mississippi would have been incredible. The security provided by the letter of credit therefore would not have prevented loss to Gore if the purchaser refused to pay the contract price at harvest. 26 Gore's broad right to collect on the letter of credit by presenting to the Union Planters National Bank a statement signed by Y. B. Gore that the amount drawn under this Letter of Credit is the amount due under the terms of contract between buyer and seller, was without substantial meaning. If prior to July 1 Weathersby had failed to post the required bond, Gore's remedy would have been to demand adequate assurances of due performance or to cancel the contract. Miss.Code Ann. § 75-2-609 (1973). There would have been no amount due under the contract. Unless Weathersby had committed some anticipatory breach of contract, a difficult thing to perceive in the case of a forward contract purchaser, there would be no circumstance under which Gore would have been justified in believing he was as secured by this letter of credit as his contract with Weathersby required.
27 By May 14 an otherwise proper performance bond of $25,000 was provided by Weathersby. Before that time Gore had given notice that the contract was cancelled due to what he perceived as Weathersby's breach. Since no time was stated in the written contract within which the bond was to be provided, Miss.Code Ann. § 75-2-309 (1973) would apply and require that the bond be furnished within a reasonable time. What constitutes a reasonable time is a question of fact to be determined from all the evidence. The jury found that Weathersby had provided adequate security within a reasonable time. However, the jury was not instructed that the time commencing their measure of whether Weathersby acted with reasonable promptness was at the latest March 6, the time that Strong definitely understood the need for a performance bond. Moreover, they were not instructed that the letter of credit could not be considered adequate security. 28 The guidance given to the jury for weighing the evidence was basically the interrogatory: 29 Do you find from a preponderance of the evidence that plaintiff, that is, Mr. Weathersby, failed to substantially comply with the contract for the benefit of defendant and to secure the faithful performance of his contract within a reasonable time after having received notice that such security was required? 30 The jury was not told that they should consider notice given to Strong as Weathersby's agent as constituting notice to Weathersby. An instruction was requested by Gore that Strong was Weathersby's agent as a matter of law but this was rejected. 5 Therefore no guidance was offered to the jury on this crucial issue. Since Strong was Weathersby's agent, the instruction requested should have been submitted. Though Gore's request that the instruction be submitted was oral and never reduced to writing in accordance with Fed. R.C.P. 51, such deficiency does not bar review of a requested instruction since the court was clearly informed of the point involved. Dunn v. United States, 318 F.2d 89, 93 (5th Cir. 1963); 9 C. Wright & A. Miller, Federal Practice & Procedure § 2552 (1971); see generally, Celanese Corp. of America v. Vandalia Warehouse Corp., 424 F.2d 1176, 1181 (7th Cir. 1970); Marshall v. Isthmian Lines, Inc., 334 F.2d 131, 137 n. 13 (5th Cir. 1964). Gore further insisted that the jury should be asked whether Weathersby provided a bond within a reasonable time; the interrogatory given used the term security instead of bond and was objected to by Gore on this ground. Again, the court was adequately informed that Gore insisted that the letter of credit was insufficient. However, the question of reasonable time is a jury question requiring relitigation unless it was established as a matter of law by the evidence. 31 Section 75-2-309(1) of the Mississippi Code states The time for shipment or delivery or any other action under a contract if not provided in this chapter or agreed upon shall be a reasonable time. According to Comment 6 to Uniform Commercial Code § 2-309, 32 Parties to a contract are not required in giving reasonable notification to fix, at peril of breach, a time which is in fact reasonable in the unforeseeable judgment of a later trier of fact. Effective communication of a proposed time limit calls for a response, so that failure to reply will make out acquiescence. Where objection is made, however, or if the demand is merely for information as to when goods will be delivered or will be ordered out, demand for assurances on the ground of insecurity may be made under this Article pending further negotiations. Only when a party insists on undue delay or on rejection of the other party's reasonable proposal is there a question of flat breach under the present section. 33 No reported cases in Mississippi or any other state applying this comment have discovered. However, as stated in J. White & R. Summers, Uniform Commercial Code § 4 at 11 (1972) (footnote omitted), The Official Comments appended to each section of the 1962 official text of the code are by far the most useful aids to interpretation and construction. 34 The desire to form a body of commercial law common to all states was expressed by the Mississippi legislature when it adopted the section of the Code stating that the underlying purposes of and policies of this code are . . . to make uniform the law among the various jurisdictions. Miss.Code Ann. § 75-1-102(2)(c) (1973). Karl Lwewellyn has urged following the guidance of the comments as a principal method of insuring this uniformity. J. White & R. Summers, supra at 11. Moreover, the principle behind comment 6 to § 2-309 has seen express adoption in another section of the Code. Under § 75-2-207, an acceptance of an offer is valid even though additional or different terms are stated in the offer. Between merchants, these terms become part of the contract unless the offer expressly limited acceptance to the initial terms, the new terms are materially different from the original ones, or notification of the objection is sent in a timely manner. In the context of comment 6 to UCC § 2-309, the application of the required-response policy here is reasonable as the terms suggested do not alter previously established ones but instead make certain what was previously ambiguous. If the receiving party does not believe the new term is reasonable he can reject it. 35 We hold that if the Mississippi courts were faced with the issue of adopting comment 6 to UCC § 2-309 they would do so. The comment itself states that effective communication is necessary. This includes requirements both that an actual communication of the time limit be made to the other party or his agent, and that the notification be given sufficiently in advance of the deadline specified to permit the party to respond. The time suggested was not too short to permit a response. Weathersby was validly informed through Strong that he must provide a performance bond within two weeks. To avoid this deadline's becoming a fixed part of the contract, Weathersby had to object. 36 That Weathersby did object is evident from his response to the deadline. During the two-week period Weathersby procured a letter of credit and mailed it to Gore. Notification accompanied the letter of credit that a bond was being prepared and would be made available to Gore later. Though the words are not explicit, they clearly indicate Weathersby was not acquiescing in the time limit proposed. An attempt was made partially to fulfill the demands made by Gore, and in conjunction Weathersby implied that complete performance could not occur within the period established. However, because the requirement and response communications do not answer the fact question of whether Weathersby met the bond requirement within a reasonable time, a new trial is necessary on this issue. If the time within which Weathersby acted was not reasonable, then Gore properly cancelled the contract on May 3.