Court Opinion

ID: 9452145
Source: CourtListenerOpinion
Date Created: 2023-08-04 17:31:20.957174+00
Date Added: 2024-06-11T17:33:05.217628
License: Public Domain

TAMM, Circuit Judge
(dissenting):
I regret that I am unable to join my brethren in their disposition of this case and must therefore respectfully dissent. My disagreement with the majority stems from its determination of the estoppel issue. I believe that, since this *536case is to be remanded in any event, we should also allow for inquiry into the question of whether the contractor used the bond to (in effect) defraud the appellees and, if he did, whether the appellant, because of its relation to the contractor and its negligent business practices, should be estopped to deny its liability on such bond. I believe the record in its present state strongly suggests that the contractor did use the bond to defraud these appellees; however, since the record is not entirely clear on this point, I would remand for additional evidence to clear up the confusion. If the evidence on remand demonstrates that the contractor did use the bond in such a manner, then the District Court should consider the question of whether appellant, through its negligent business practices, assisted the contractor in his fraud and whether appellant should therefore be estopped to deny liability.
In treating the estoppel issue, the majority focuses on the conduct of the appellees, and, although it finds the evidence on the point admittedly confused, it finds the appellees’ “readiness to rely” on the contractor as determinative of the estoppel question. It seems to me that this sort of analysis is putting the cart before the horse. The question is: Were the appellees so “ready to rely” on the contractor because appellant gave the contractor an ambiguous bond which allowed him to induce such reliance from the appellees ? I would suggest that the focus be shifted from the conduct of the appellees to the conduct of the contractor. The evidence of record on this point strongly suggests to me that he used the bond as a lever to induce the churchmen to go ahead with the project and that he was able to do so because of his close connection with appellant and because of appellant’s failure to police his actions. Before discussing the evidence on this point, I think this case needs to be put into perspective.
The appellees wanted to add a Sunday School addition to their church. They contacted an architect recommended by one of the parishioners; bids were submitted, and three contractors submitted acceptable bids. Northeastern Construction Company was chosen for the job, however, primarily because its president, Mr. Basay, represented that he could assist the church in acquiring financing for the building. This was an important consideration to the church, because their assets on hand fell far short of the approximately $50,000 needed for the job.
Even before any financing arrangements had been made, Basay presented the churchmen with the construction contract. After reviewing the contract, one of the parishioners who was a lawyer recommended that, because such a large sum of money was involved, they should get a completion bond. Thereafter the churchmen conveyed the fact to the contractor that they wanted a completion bond for their “protection,” and the contractor assured them that he would obtain such a bond. After the contract and Addenda No. 1 and No. 2 had been executed, the contractor and the churchmen visited several lending institutions, but were unable to obtain financing. At this point the contractor suggested that he would personally assist them in financing the project. To this end, Addendum No. 3 was executed, which appellees and the contractor believed only to extend to the financing aspects of the project. The contractor then began work and, after a short time, discontinued until the churchmen would pay him more than $5,000 for purported “extras,” many of which were subsequently found to be nonexistent. He never returned to the job and this suit was instituted.
Focusing on the contractor for the moment, this picture emerges: it is apparent from the record that this contractor was a marginal operator who created a $57,000-plus financing scheme out of thin air, with little or no risk to himself (for which he received a “finder’s fee” of $1,250 over and above the *537contract price);1 it is further apparent that the work he actually did was “wholly inadequate not of workmanlike quality, and not readily adaptable to correction.” The architect who recommended the contractor admitted at trial that the work was “untidy, sloppy, and improperly done.” Examination ox the construction site after the contractor left the job proved that he had failed to put in some of the footers called for by the plans, that he had provided for only one toilet in the basement when the plans called for two, and that instead of building four new walls as called for by the plans, he used one preexisting wall which was not underpinned and which was found by other contractors to be absolutely worthless as a supporting wall. The District Court concluded on this point that, if the work were to go forward from the point where Basay left off, the better course would be to raze major portions and, in effect, “start from scratch.”
Given the thoroughly demonstrated unreliability (if not downright dishonesty) of the contractor, I think it necessary for this court to give particularly close scrutiny to his activities at the time of the signing of Addendum No. 3 vis-a-vis the churchmen and the bond. I think that the record supports an inference that the contractor misrepresented to the churchmen that Addendum No. 3 was covered by the bond and that there was no reason for them to contact the bonding company.
In the first place, the contractor testified and the District Court found that the contractor did not believe himself that the addition of Addendum No. 3 changed the contract. He testified:
“This copy, Addendum No. 3, I never gave to the bonding company because, you see, as far as I was concerned at that time, the Addendum No. 3 was the provision of the loan, mostly the provision of the loan to the church people to make the job possible, but we were not changing anything as far as the work was to be done or the contract price.” (Emphasis added.)
The understanding of the churchmen with respect to Addendum No. 3, as expressed by one of the two churchmen who testified, comports with the explanation given by contractor Basay. The churchman testified:
(Cross-examination)
“Q. Now directing your attention, Mr. Baylous, to the second paragraph of this document [Addendum No. 3] which states, ‘This addendum is to supersede all arrangements, contracts, and addenda written previously.’ I believe you testified that you were familiar with that language?
A. That is right.
Q. What did you take it to mean?
A. I took it to mean that this — like when these papers were drawn up here, that this here explained the whole thing in detail and *538that that has taken care of all of this in detail. I think that is what we take it to mean.
Q. You mean that this would replace all that had gone on before?
A. Not replace it, bring it up all this to detail, how the payments were supposed to be stipulated, how the money was to be put and so forth and so on.” (Emphasis added.)
Further, it is apparent from the record that the contractor was “running the whole show” with respect to the explanation to the churchmen of the documents involved in the case. It was the contractor who drafted and explained the contract to the churchmen, and he did likewise with the addenda. As one churchman testified: “Mr. Basay explained this whole document to us and explained what he would expect of us.”
Given the contractor's expressed belief that he didn’t think Addendum No. 3 changed the relations between the parties, the churchmen’s understanding to this effect, the dominant position of the contractor throughout, and his demonstrated dishonesty, it is not unreasonable to assume that he exploited his position and his possession of the bond to either confuse or deliberately mislead the churchmen with respect to the effect of the bond. The District Court specifically found that
“the understanding of the church [was] that the bond offered total protection to it under any and all circumstances.” (Emphasis added.)
It is also apparent from the testimony of the churchmen that they were interested in protection and that they looked to the bond to give them such protection. The fact that the contractor had the bond in his possession gave them the assurance they needed to go ahead with the building. Moreover, although such does not expressly appear in the record, there is every possibility that the churchmen may have brought up the question of the applicability of the bond to Addendum No. 3, and the further questions of whether the bond had been shown to appellant, or whether it would have to be presented to it. It does not take a great deal of imagination to form a mental image as to what this particular contractor might have said in response to questions of this type. It is precisely because we do not have evidence in the record on this point that I believe further testimony should be adduced.
If such evidence would be adduced and that which I believe to be only implicit in the record at present would become explicit, then the question of the appellant’s responsibility for the actions of the contractor would have to be met. I think it would be profitable at this point to examine briefly the relationship of the appellant and the contractor and the actions of appellant with respect to the bond itself.
The contractor and appellant had done business prior to their negotiating the bond here in question on many occasions. In fact, the contractor testified that
“I was in touch with the bonding company just about every day or every other day because I was receiving bonds constantly for different jobs, bid bonds as we put in bids for various jobs.” (Emphasis added.)
Moreover, the contractor testified that as of the date of his securing the bond (November 21, 1962), he did not believe that he had reached any final agreement with the church. He stated:
“After I received the bond, I held the bond until the proper time because at this time when I obtained it, we were not sure whether the job was still going to be effected or not. So, therefore, I kept it until such time as the final agreement was made.”
We therefore find the appellant in the curious position of releasing into the hands of an unreliable contractor a completion bond on a contract which was not considered by the contractor to be in final form on a job that was not even certain to go through. The contractor then kept the bond in his possession for nearly three months before finalyz*539ing the contract with the church, apparently without any notice to appellant as to what was transpiring with regard to the bond and without paying the premium due on the bond.
It may also be profitable here to examine the bond which appellant had entrusted with this contractor for such a great length of time. The bond itself refers only to the contract dated October 20, 1962. It says nothing about any of the addenda. At the time the surety and the contractor entered into the bond agreement (November 21, 1962), the contractor presented to the surety addenda 1 and 2 (executed November 3, 1962). Thus the surety, in writing the bond, did so with reference only to the contract dated October 20, 1962, and did so by stating: “which contract is hereby referred to and made a part hereof as fully [and] as to the same extent as if copied at length herein.” If the contract of October 20, 1962 were in fact to be “copied at length [therein]” it would not contain Addenda 1 and 2 and the bond would have reference only to the contract of October 20. The only way that Addenda 1 and 2 would be considered covered by the bond would be if the reference to the contract dated October 20, 1962 were interpreted to include any addenda entered into subsequent in time to the contract date, up to the date of the bond. It certainly would not be an unreasonable interpretation for the appellees, looking at the bond in February 1963, to read it to mean that Addenda 1 and 2 were covered by the bond even though not mentioned.
If the surety would sign a bond and release it to the contractor referring by its terms only to the contract of October 20, 1962, when it also had the addenda in its hands, it is not unreasonable to believe that the churchmen, seeing the October 20 date referring only to the contract and knowing that the surety had entered into the contract after the signing of the addenda, could believe that all addenda (including Addendum No. 3) subsequent in time to October 20 would be covered by the surety bond. In fact, the contractor may well have been able to explain the matter to the churchmen in such a manner so as to allay any fears they may have expressed as to the applicability of the bond to Addendum No. 3. Again, we don’t know what the contractor said to the churchmen on this point, and I do not believe this case can fairly be decided until we do.
Finally with respect to the face of the bond itself, it does not even disclose the extent of the surety’s undertaking. Anyone attempting to discover the extent of the surety’s undertaking could only discover such by reference to the addenda wherein the penal sum was contained.
It seems to me that in 'view of all of the foregoing, the majority makes considerable more of the churchmen’s responsibility for failing to notify the surety of Addendum No. 3 in this case than the record will support. The fact that the churchmen requested the contractor to secure the bond does not seem to me sufficient reason for visiting on their heads all of the sins of the contractor. In fact, their reliance in such a matter is in conformity with commercial practice in undertakings of the sort involved here. Typically the contractor will secure the bond, not the property owner.
There is much confusion in this case. Perhaps it could have been dispelled had the findings been more specific or had the subjects considered in this dissent been explored at greater length. But where there is confusion, I think it is our duty to send the case back to allow the parties and the court an opportunity to attempt to dispell such confusion, rather than to simply substitute our confusion for theirs.
I respectfully dissent.

. The District Court had this to say about the financing operation:
“The church relied upon Basay to secure financing for the project and awarded the contract to him upon his assurances that he could secure the necessary financing; that at all times Basay wsa fully aware of the financial inability of the church to go forward without outside financing; that Basay knew, or should have known, under all the circumstances that the Church could not meet the financial conditions of the contracts as drawn by him; that the contracts were so designed as to reduce to Basay’s possession the maximum of available cash with the least possible detriment to him in that all available cash would be paid to him when the building reached the earliest stage of completion; that he carried the work through to that stage of completion in a shoddy unworkmanlike manner, knowing as an expert builder that the workmanship was inadequate and would have to be replaced, that his so-called financing of the project through the stated escrow arrangement was a sham to place in the hands of his designated escrowee all cash which was or might become available to the Church while he submitted to the escrowee a valueless piece of paper — a check not covered by funds * *