Court Opinion

ID: 9445434
Source: CourtListenerOpinion
Date Created: 2023-08-03 21:28:54.742823+00
Date Added: 2024-06-11T17:30:15.790405
License: Public Domain

JOHN R. BROWN, Circuit Judge
(specially concurring).
I concur in reversal and for a full trial on the merits.
I. think, however, that while, as so well stated by the Court, Harrold’s authority to take over dispositiqn of the claim and. contract can be established by waiver and estoppel, this is too narrow' a view; I think it can be established that he had actual authority, expressed or implied.
The Power of Attorney (note 2, Court’s opinion) was not the contract of agency between Surety and Harrold. This, as the surety industry well knows, was to establish in a manner permitting third parties, ‘public agencies, banks, financial institutions, builders, etc. to have absolute assurance, positive authority to bind the company to the extensive obligations of a; surety contract. As between Harrold, the Agent, and the Surety, it was not, nor was it intended to be, an outline of his general responsibility nor any limitation on his power as agent.
There is no magic in the relationship between a surety company and its agent. The agent’s authority to buy or sell hogs, cotton, cattle, timber, oil, coal, eggs, wheat, or any other commodity, or issue insurance policies, may be partly written, partly oral with much of it in the sometimes weird realm of the customs of the trade. Here, the agency contract — so far as formally written— was the “Agency Agreement.1” Specifically authorizing Harrold (Agent) to solicit, write, issue and deliver fidelity, surety, bonds, and contracts, it then, by its own terms, 'recognized that he had a continuing authority and responsibility since he could cancel bonds in his discretion.
The letter of May 31, 1951 (note 3, Court’s opinion) if a part of the underlying. agreement between Surety and Agent, as it may well be, in no sense detracts from this for it was, as its heading2 so plainly states instructions *107on how the Agent should exercise3 the underwriting judgment and discretion necessarily reposed in one having such wide authority to bind the Company. Violation of instructions by an agent, failure to use wisely the same judgment or reach the same conclusions as would the principal, neither for manual laborers, truck drivers, nor insurance agents, is the equivalent of lack of authority.
In this setting, the conduct of the Surety is especially significant — not in putting it in a position where it is inequitable to assert lack of authority— but in showing that it considered4 that questions and matters arising out of or under the building contract guaranteed by its surety bond should be handled by the Agent Harrold.
Such a person has real authority— actual authority. He has it by the acts and deeds of his principal. The person who has paid a substantial premium to that principal is entitled to look to that agent, as an appointed, designated agent, without running the sometime tortuous course of waiver and estoppel.
Next, and on the merits, Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, compels me to accept the Georgia rule.5 But it does not compel me to predict that a Georgia Court would apply that rule to this building contract to vitiate the entire obligation of the Surety who has yet made no showing of any actual harm or prejudice. On the contrary, I would expect Georgia Courts merely to reduce, pro tanto, the amounts payable to the extent, if any, which prepayment by Gilmore to the Contractor may have actually prejudiced the surety.
I do this because the building contract itself contemplated that changes 6 would *108and could be made. And it was this contract the Surety undertook to guarantee, If it be thought that this exposed the Surety to wide liabilities, the simple answer is that this was plainly evident and was apparently weighed in the underwriting appraisal by the Surety before accepting the risk. Moreover, this Surety, like its hundreds of competitors, writes surety bonds throughout the nation and seldom, if ever, is there now found, for compensated sureties, the rule of strict construction. 50 Am.Jur., Suretyship §. 318; Vol. 9 Building and Construction Contracts, § 107 (Supp. 1956). And those familiar with demands of modem day finance, construetion and operation contracts with public bodies and large industrial enterprises, know that it is a common thing for the surety, in the bond, or in the guaranteed base contract, to agree that changes can and will be made. Fort Worth Independent School Dist. v. Aetna Casualty & Surety Co., 5 Cir., 48 F.2d 1, 77 A.L.R. 222, certiorari denied 284 U.S. 645, 52 S.Ct. 24, 76 L.Ed. 548; Republic Nat. Bank & Trust Co. v. Massachusetts Bonding & Ins. Co., 5 Cir., 68 F.2d 445.
The Agreement, guaranteed by Surety, permitted the parties to it (Owner and Contractor) to require “deviation from * * * said contract.” It could hardly have been a plainer statement that the contract would remain in full force and effect even though changes were made. The undertaking of the Surety then became, in effect, that it would guarantee performance of “the contract as therein provided or as modified by the parties.” 9 Am. Jur., Building and Construction Contracts § 105; Vol. 50, Suretyship § 56; United States v. McMullen, 222 U.S. 460, 32 S.Ct. 128, 56 L.Ed. 269; Restatement of the Law, Surety and Creditor § 128 Comment C.
This is a nprmal, business-like arrangement especially for alteration and renovation of old buildings, and a voluntary authorized change, by implied acquiescence of both, as to the method 0f interim progress payments, was equally within the broad language of permissible contract changes and exposed the Surety to no more perils 7 than changes in physical work to be done,
Indeed, there is yet no showing that contractor’s default was due to failure or jnability pay claims of labor-erg an¿ materialmen. For all that we know an such claims were scrupulously paj¿ by contractor from the progress payments received, and his default was ¿ue incompetence, faulty estimates, or extraordinary unanticipated obstacles as work progressed. If this were so, then the Surety, by a most flagrant and fortuitous technicality, escapes the performanee of the undertaking which it sold for a profit. It has found sanctuary in the fine print without there ever being any fine print.
I think a Georgia Court would prevent that.

. This was dated November 4, 1949, but effective' June 20, 1949, long prior to the formal Power of- Attorney and provided: “The Company [Surety] hereby grants authority to the Agent * * * to solicit and submit applications for the classes of insurance and fidelity and surety bonds for which a commission is specified * * *; subject, however, to restrictions placed upon the Agent by the laws of the state or states in which such agent is authorized to do an insurance business'; "to issue and deliver policies, bonds, certificates, endorsements and binders which ; the Company may, from time to time, authorize to be issued and delivered; to collect and receipt for premiums thereon or therefor; to cancel such policies, bonds and obligations in the discretion of the Agent where cancellation is legally possible; * * * ” [emphasis supplied].

. The caption of the letter was: “Limitations and important instructions in connection with power of attorney No. 12160 * * *” [emphasis supplied].

. E. g.: “In the interest of sound business policy, you are not authorized to execute any bonds whatsoever other than those specified herein and any violation may necessitate the Company holding you personally liable for any loss or expense it sustains.”
See also the following:
“ * * * Please observe these instructions and the limitations herein most carefully, and notwithstanding the fact that your power of attorney may provide for a higher amount, secure special authority from the Company for the execution of all bonds exceeding the amounts stipulated herein * * *
“In no event do we desire you to execute any bond where such bond is given to succeed the bond of a previous surety, without first secui'ing the authority of the Home Office. (This does not apply to fidelity or blanket bonds)” [emphasis supplied],
which actually contradicts the broad authority specified in the Power of Attorney and thus suggests that, by the Power of Attorney, the Surety was attempting to create the appearance to outsiders of an authority greater than he actually had.

. James A. Haggerty, Field Representative for the Surety with superintendence over Hnrrold’s agency, in connection with Gilmore’s call to Royal’s listed office in Macon, Georgia, swore:
“This person [Gilmore] inquired whether this was the Royal Indemnity Office and I * * * asked if there was anything that I might do to assist him. This person then stated that he was having some trouble about a bond which was written by the Royal Indemnity Company in Macon and I told him that I knew nothing about it but that the Royal Indemnity Company’s agent in Macon who would have written said bond would be Cruger C. Harrold of the Edward B. Harrold Company.
“I notified Mr. Harrold and he said that he would get in touch with this par-£y * *

. Hartford Accident & Indemnity Co. v. Mauney, 66 Ga.App. 403, 17 S.E.2d 885; Lowndes Alliance Warehouse Co. v. Greene, 17 Ga.App. 542, 87 S.E. 826; Little Rock Furniture Co. v. Jones & Co., 13 Ga.App. 502, 79 S.E. 375; Mauney v. Hartford Accident & Indemnity Co., 68 Ga.App. 515, 23 S.E.2d 490; Blackburn v. Morel, 13 Ga.App. 516, 79 S.E. 492, cited by the Court.

. “Should the Owner [Gilmore] at any time during the progress of the work require any alteration of, deviation from, addition to, or omission in the said contract, he shall have the right and power to make such change or changes, and the same shall in no way injuriously affect or make void the contract, but the difference shall be added to or deducted from the amount of the contract, as the case may be, by a fair and reasonable valuation.” [emphasis supplied].

. The risk to a surety is ultimately the financial capacity of the contractor either to do the work or exonerate the surety if there is default. This is measured hy what the contractor has taken on. Here, by subsequent agreement between Owner and Contractor (alone and with no notice to Surety) the Contractor’s obligation could have been increased 100%. For example, by cork floors in place of asplialt at an increase of $1,000.00; alumium windows in lieu of wooden frames at $1,000.00; acoustical ceilings in place of normal plaster at $1,030.00, and so on up to $12,000.00. In that case, the surety’s risk' is admittedly increased for it would then guarantee, up to the penalty sum of $12,000.00, the performance of a $24,000.00 contract. Yet, clearly, the base contract permitted this.