Appendix — Butler v. United States

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APPENDIX A

Opinion of the United States Court of Appeals

For the Ninth Circuit

UNITED STATES COURT OF APPEALS

For tue NintH Circuit

No. 21,307, No. 21,307 A, No. 21,307 B, No. 21,307 C

Fivor Corporation, Lrp., et al., Unton Tank Car Company,

Warp Inpustrigs CorRPoRATION,

Appellants and Cross-Appellees,

vs.

Unzrep States or America, ex rel. MosHeR STEEL CoMPANY,

Appellees and Cross-Appellants.

[January 6, 1969]

Appeal from the United States District Court

for the District of Arizona

Before:

Hamuin, Browning, and Ety,

Circuit Judges.

Brownine, Circuit Judge:

The district court rendered judgment in favor of Mosher

Steel Company and against the various appellants for

prices agreed to be paid for materials furnished and

services rendered by Mosher in the fabrication of steel

used in the construction of missile launch facilities in

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Opinion of the United States Court of Appeals

Arizona and California.’ We affirm the trial court’s judg-

ment except as it denied prejudgment interest. As to

this, we reverse and remand for further proceedings.

Appellants strongly attack many of the trial court’s

findings. We have, therefore, examined the record with

care. We find substantial conflicts in the testimony and

the documentary evidence, and even stronger differences

in the construction that the parties urge should be placed

on events leading to the litigation and the inferences that

should be drawn from them.*? We heve not asked ourselves

whether we would have resolved the conflicts and ambi-

guities as the trial judge did, or whether we would have

drawn the same inferences. United States v. Real Estate

Boards, 339 U.S. 485, 495-96 (1950). We have, however,

satisfied ourselves that upon an examination of the entire

evidence we are not “left with the definite and firm con-

viction that a mistake has been committed” in any of

the trial court’s findings. United States v. U.S. Gypsum

Co., 333 U.S. 364, 395 (1948); see Commissioner v: Duber-

stein, 363 U.S. 278, 291 (1960). We therefore accept the

trial court’s findings, and base the statements of fact in

this opinion upon them.

Fluor Corporation, Ltd., was the prime contractor for

the construction of the Arizo1a launch facilities, and the

insurance company appellees were sureties on Fluor’s

performance bond. Matich Bros. and M. M. Sundt Con-

struction Corp., who are not parties to this litigation,

1 Prior litigation in this court arising out of these projects is

reported in Dragor Shipping Corp. v. Union Tank Car Co., 361

F.2d 43 (1966) ; 371 F.2d 722 (1967) ; 378 F.2d 241 (1967).

2 The parties are well aware of these conflicts and differences;

they have explored them in great detail in their briefs. No useful

purpose would be served by publishing them here.

GEYSER LORD RIT ETO, RT EY nae hagas tein aint, ©. ential Aik AS Soe BEE

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Opinion of the United States Court of Appeals

were the prime contractors for the California launch

facilities.

Fluor and Matich & Sundt entered inte separate first

tier subcontracts with Union Tank & Mfg. Co.* Union, in

turn, entered into second tier subcontracts for steel fabri-

eation work with IMI-Ward, «. joint venture created by

Idaho-Maryland Industries Inc. and Ward Industries Cor-

poration.

When IMI-Ward fell behind schedule in the performance

of its subcontract, Union, on Neteber 10 or 11, 1961, in-

structed an IMI-Ward officiel to “farm out” the steel

fabricating work, and approved the selection of Mosher

to perform it. Because the IMI-Ward official did not

think Mosher would accept an IMI-Ward purchase order,

Union agreed that if a satisfactory contract could be

worked out with Mesher, Union would give Mosher a

Union purchase order.

On October 13, the IMI-Ward official negotiated a de-

tailed contract with Mosher for required work. As anti-

cipated, Mosher would not accept IMI-Ward’s credit. The

IMI-Ward official then advised Mosher that Union pur-

chase order would be issued. On October 16, Mosher set

out the agreed-upon terms in a letter addressed to the

IMI-Ward official. That official signed the letter on be-

half of Union and sent copies of the executed writing to

Union. Mosher then began performance of the work.

Union told Mosher on October 23 that Union’s purchase

order would be issued within two or three weeks, and that

the October 16 letter would serve as an interim purchase

order until the formal purchase order could be mailed.

3 Union acted principally through a division known as Graver

Tank & Mfg. Co., and the trial court’s findings refer to “Union”

and “Graver” interchangeably.

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Opinion of the United States Court of Appeals

Thereafter, on October 31, IMI-Ward asked Mosher, as

a matter of accounting convenience for IMI-Ward, to

change the designated customer on the job from Union

to IMI-Ward, and to accept IMI-Ward purchase orders

in place of those of Union. Mosher agreed, provided

Union would ke responsible for payment.

_ IMI-Ward sent Mosher two purchase orders on Novem-

ber 3 covering the work to be done. Mosher informed

Union that compieted material weuld not be shipped until

Mosher received confirmation that Union would be respon-

sible for payment.

On November 15, after securing IMI-Ward’s approval,

Union advised Mosher that Union would pay Mosher di-

rectly and deduct the payments from the amounts Union

was to pay IMI-Ward under the latter’s subcontract.‘

sher understood, and Union intended Mosher to un-

- derstand, that its commitment extended to all the work

covered by IMI-Ward’s purchase orders of November 3.

Upon receiving Union’s commitment, Mosher changed the

customer’s name from Union to IMI-Ward, completed

the work, and delivered the fabricated steel to the job

sites.

On February 2, 1962, IMI filed a voluntary petition

under Chapter 11 of the Bankruptcy Act. Mosher sub-

*The commitment was given orally. Union told Mosher that it

would be confirmed by a subsequent letter. Although the letter

was prepared by Union, it was not sent because Mosher continued

to make shipments without it. Union argues that the sending of

this letter was intended to be condition precedent to the. formation

of a contract, and that the trial court’s finding to the contrary is

clearly erroneous. We think the finding is supported by evidence

from which the trial court could conclude that the promised letter

was intended to be a written confirmation of an agreement already

reached. Merritt-Chapman & Scott Corp. v. Gunderson Bros. Eng’r

Corp., 305 F.2d 659, 664-65 (9th Cir. 1962), upon which Union

relies, is inapplicable for this reason.

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Opinion of the United States Court of Appeals

mitted a proof of claim in these proceedings, and it was

issued IMI stock under a plan of reorganization. Except

for this stock, Mosher was not paid for its work.

The district court gave judgment against Union, finding

that the commitment Union gave Mosher on November 15

and Mosher’s completion and delivery of the work there-

after created a contract between Union and Mosher obli-

gating Union to pay Mosher directly. Judgment was

rendered against Fluor and its sureties under the Miller

Act, 40 U.S.C. $270.5 The district court entered judg-

ment against Ward on the ground that IMI-Ward’s No-

vember 3 work orders and Mosher’s fabrication and

delivery of material pursuant to such orders created a

contract between Mosher and IMI-Ward obligating Ward

to pay Mosher in accordance with the terms and condi-

tions of those orders.

Union contends that Mosher performed the work for

IMI-Ward; that Union’s agreement, if any, was only a

guarantee to pay Mosher if IMI-Ward did not; and, being

oral, this agreement to answer for the debt of another

was unenforceable under the Statute of frauds.

Ward, on the other hand, contends that the only viable

‘contract was an oral agreement between Mosher and Union

arising on October 13, binding Mosher to perform the

work and Union to pay for it. If there was a November

agreement between Mosher and IMI-Ward, Ward argues,

it required nothing of Mosher which Mosher was not al-

ready obligated to do under its October agreement with

Union, and, therefore, any promise by IMI-Ward was

not supported by consideration. Furthermore, the only

5 Since Fluor was not involved in the California project, the

judgment against Fluor and its sureties was limited to the amount

due for materials used in the construction of the Arizona facilities.

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Opinion of the United States Court of Appeals

consideration for which Mosher bargained was Union’s

unconditional promise to pay Mosher directly. Conse-

quently, any promise by IMI-Ward was not bargained

for and hence was unenforceable under our decision in

Colorado Nat’l Bank of Denver v. Boehm, 286 F.2d 494

(1961).

As we read the district court’s findings, the court deter-

mined that both Union and IMI-Ward assumed direct

obligations to pay Mosher for the work. IMI-Ward con-

tracted directly with Mosher to have Mosher perform the

work described in the November 3 work orders in return

for payment by IMI-Ward of the prices fixed in those

orders. This agreement was subject, however, to the con-

dition precedent that Union also agree to be directly

liable for payment. When Union agreed to pay Mosher,

it became directly bound to Mosher. Union’s promise also

satisfied the condition precedent to the direct contractual

obligations between IMI-Ward and Mosher.°

In view of Union’s obligations under its subcontract

with Fluor and Matich & Sundt, Union had a substantial

interest in assuring performance of the work by Mosher.

As the district court found, “in agreeing to pay Mosher

directly, [Union] . . . acted primarily to protect and

advance its own interests under its subcontracts. . . .”

Since Union’s promise to pay was a direct and original

undertaking rather than a collateral promise to pay IMI-

Ward’s debt, it was not within the Statute of Frauds,

6 Ward argues that no agreement arose because Mosher rejected

an element of IMI-Ward’s initial offer, namely, that IMI-Ward’s

credit be substituted for that of Union. There was substantial evi-

dence supporting the trial court’s findings that IMif-Ward agreed

to Mosher’s counter-offer to accept IMI-Ward work orders and to

substitute IMI-Ward for Union as the account customer if Union

would agree to pay for the work.

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Opinion oj the United States Court of Appeals

even though IMI-Ward was also obligated to pay for the

work. Holmes v. Suffrin, 198 Ill. App. 45 (1916); Peters

v. Raven, 159 Ill. App. 122 (1910); Letsman & Co. v. Otto,

64 Ky. (1 Bush) 225 (1866); cf. Granite City Lime &

Cement Co. v. Beard of Educ. of School Dist. 126, 203

Ill. App. 134 (1916). See 4 Corbin on Contracts $926,

p. 705.’

As to Ward’s argument that any promise made by

Ward to Mosher in November was without consideration

because of Mosher’s pre-existing contractual obligation

to perform the same work for Union, it should be noted

that the district court did not conclude that a Union-

Mosher contract arose in October. Even if such a prior

Union-Mosher contract existed, IMI-Ward’s subsequent

promise would still have consideration. Under the ar-

rangement finally agreed to, Mosher, at IMI-Ward’s soli-

citation, undertook the additional obligation to designate

IMI-Ward, rather than Union, as the customer, and to

accept the IMI-Ward purchase orders. These new under-

takings were sufficient to support IMI-Ward’s promise to

pay.®

Ward’s reliance upon Colorado Nat’l Bank of Denver v.

Boehm, supra, 286 F.2d 494, is also misplaced. Mosher’s

7™Union also contends that its commitment was limited to ma-

terials produced for use in constructing the Arizona launch facili-

ties. Although the testimony of one witness might be read as sup-

porting the limitation for which Union argues, as Mosher points

out, there was other evidence supporting the trial court’s finding

that Unicn’s commitment covered payment for all of the work

Moshe¢ was to do—whether used in construction of the Arizona

facilities or those in California.

®The basis for IMi-Ward’s interest in these arrangements is

suggested by the district court’s finding that the prices which IMI-

Ward had agreed to pay Mosher for the work were lower than

those which IMI-Ward would collect from Union for the work.

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Opinion of the United States Court of Appeals

insistence upon a direct commitment from Union does not

mean that this was the only consideration for which Mosher

bargained, Mosher also sought and obtained a promise of

payment from IMI-Ward. The fact that IMI-Ward’s

promise alone was not enough to satisfy Mosher, or that

Union’s promise alone might have been sufficient, is irrele-

vant. See Granite City Lime & Cement Co. v. Board of

Educ. of School Dist. 126, supra, 203 Ill. App. 134; Peters

v. Raven, supra, 159 Ill. App. 122; Restatement of Con-

tracts $§ 111, 113.

Ward contends that Ward is not liable even if IMI is,

because the extension of credit or the delivery of goods to

one member of a joint venture does not obligate the joint

venture. The cases upon which Ward relies involve the

assumption of liability by a joint venturer beyond the

scope of his authority to act for the joint venture.’ Here,

however, the district court concluded on the basis of find-

ings supported by substantial evidence that IMI’s acts

were authorized by and performed on behalf of the IMI-

Ward joint venture.

Both Union and Ward argue that because Mosher filed

a claim in the IMI bankruptcy proceedings representing

that the amount due Mosher was an unsecured independent

obligation of IMI, and because Mosher accepted a distri-

bution of the stock of the reorganized debtor on the basis

of this claim, it is estopped from asserting that Union and

Ward are liable. The result urged by Union and Ward

can obtain only if it is required by some legal fiction for

Mosher in its proof of claim against IMI explicit'y re-

_ *See, for example, Wreen v. Moskin, 226 App. Div. 563, 235

N.Y.S. 405 (1929); American Mut. Life Ins. Co. v. Hanna, Za-

briskie & Daron, 297 Mich. 599, 298 N.W. 296, 299 (1941); and

Matanuska Valley Bank v. Arnold, 223 F.2d 778 (9th Cir. 1955).

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Opinion of the United States Court of Appeals

served its rights against Ward, Union, Fluor, and the

sureties,’°

Thus, unlike the claimant in Eads Hide & Wocl Co. v.

Merrill, 252 F.2d 80 (i0th Cir. 1958), which is relied on

by Ward and Union, Mosher did not in the bankruptcy

proceedings elect the remedy of recovery against only one

of the allegedly liable parties. Moreover, Mosher did not

assume different positions as to the facts in that pro-

ceeding and in this. It is not for us to say whether the

decision allowing Mosher’s claim in the bankruptcy pro-

ceeding was correct. We do hold that Mosher’s full dis-

closure and express retention of rights in that proceeding

precluded an estoppel against Mosher in this litigation."

In addition to defending against Mosher’s claim, Union

filed a counterclaim alleging that if it were liable at all

it would be as a surety only, and praying that Mosher be

required to seek satisfaction first from Ward. In its find-

ings and conclusions the trial court did not refer expressly

to Union’s counterclaim. When the omission was called

to the court’s attention, the court entered a judgment that

Union “take nothing by its counterclaim.” Union contends

that the existence of a principal-surety relationship not

1° Mosher’s claim in the bankruptey proceeding stated: “Claim-

ant corporation claims that Ward Industries Corporation, as joint

venturer with the Debtor, and Union Tank Car Company through

its division, Graver Tank & Mfg. Co., are also liable to claimant

corporation for the entire said debt, ... . Claimant corporation’s

filing of the claim in this proceeding is made without prejndice

to its rights against the said Ward Industries Corporation, and

the said Union Tank Car Company .... In addition . . . claimant

corporation has claimed that Fluor Corporation Ltd. and its sure-

ties are liable... .”

1 Mosher will not obtain double recovery. In computing the

amount of the judgment, the trial court deducted the stipulated

value of the stock received by Mosher in the bankruptcy proceed-

ing.

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Opinion of the United States Court of Appeals

only was admitted in Mosher’s answer to Union’s counter-

claim but was established by the evidence, and that, in

any event, the cistrict court erred in disposing of the

counterclaim without entering findings of fact and conclu-

sions of law as required by Fed. R. Civ. Proc. 52(a).

The purpose of Rule 52(a) is satisfied if the trial court’s

findings are sufficient to afford a clear understanding of

the ground upon which the court based its judgment.

Seligson v. Roth, ...... F.2d ...... (Sth Cir. 1968). It is ap-

parent to us that the trial court rejected Union’s counter-

claim because it found Union’s relationship to the debt to

be that of a direct obligor, not a surety. Contrary to

Union’s contention, Mosher did not admit in its pleadings

that Union was merely a guarantor ;’* and, as we have said,

the trial court’s finding that Union agreed to a direct and

primary obligation is not clearly erroneous.

On the basis of this finding we also reject the conten-

tion advanced by Fluor and its sureties that Mosher was

not a “person having a direct contractual relationship with

a subeontractor” of Fluor within the meaning of 40 U.S.C.

§ 270(b). We are not cenvinced that recognition of Mosher’s

claim will extend the coverage of the Miller Act beyond

that intended by Congress, nor that the result will be to

“impose liability on the payment bond in situations where

it is difficult or impossible for the prime contractor to

protect himself.” MacEvoy v. United States, 322 U.S. 102,

110 (1944). Fluor could easily have protected itself by

12Tn its answer to Union’s counterclaim, Mosher admitted that

it had alleged in the complaint that Union was a surety, but

Mosher also stated “the amended Complaint includes other counts

and allegations as therein set forth.” These “other counts and

allegations” of Mosher’s complaint asserted that Union was directly

liable to Mosher for the debt. “A party may ... state as many

separate claims . . . as he has regardless of consistency ....” Fed.

R. Civ. Prue. 8(e) (2).

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Opinion of the United States Court of Appeals

requiring appropriate security from Union. See Hill v.

American Surety Co., 200 U.S. 197, 204-05 (1906) ; Mankin

v. Ludowici-Celandon Co., 215 U.S. 533, 540 (1910).

We turn to Mosher’s cross-appeal from the portion of

the judgment which denied prejudgment interest on the

amount found to be due under the contracts.

There is some disagreement among the parties as to

whether the governing law is that of the state of the forum

(Arizona) or of the states in which the contracts were to

be performed (Arizona and California). Since there is

nothing to indicate that the relevant law of the two states

differs, we have not concerned ourselves with the problem.

The California rule is stated in section 3287, California

Civil Code, “Every person who is entitled to recover dam-

ages certain, or capable of being made certain by calcu-

lation, and the right to recover which is vested in him

upon a particular day, is entitled also to recover interest

thereon from that day ....” Arizona follows the same

general rule.'*

Cross-appellees argue that Mosher’s damages were not

“certain or capable of being made certain by calculation”

prior to judgment because of the disputed value of the

18 The California statute was enacted in 1872, and states the

common-law rule. Restatement, Contracts § 337 (a). Arizona has

not codified the rule, but it is followed by the courts of that state.

United States Fidelity & Guar. Co. v. California-Arizona Constr.

Co., 21 Ariz. 172, 186 Pac. 502, 509 (1920); Palmeraft Dev. Co.

v. Phoenix, 46 Ariz. 400, 51 P.2d 921 (1935) ; Schwartz v. Schwerin,

85 Ariz. 242, 250, 336 P.2d 144, 149 (1959); Feighner v. Clarke,

2 Ariz. App. 286, 408 P.2d 219, 222-23 (1965), vacated on other

grounds, 101 Ariz. 334, 419 P.2d 513 (1966) (in banc) ; Betz v.

Goff, 5 Ariz. App. 404, 406, 427 P.2d 538, 540 (1967).

A recent addition to the California statute provides that where

an unliquidated contract claim is involved interest may be awarded,

in the court’s discretion, for some or all of the period between the

filing of suit and entry of judgment. Calif. Stats. 1967, ch. 1239,

§ 1.

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Opinion of the United States Court of Appeals

IMI stock which Mosher received in partial payment of

its claim in the IMI bankruptcy proceedings. The dispute

over the stock’s value was not resolved until the parties

stipulated to its worth during the course of trial."

Clearly, this circumstance did not render the amount of

Mosher’s claim uncertain until it arose. At a minimum,

therefore, Mosher was entitled to prejudgment interest on

the whole amount owing under the contracts from the

date it became due (thirty days after February 28, 1962)

to the date Mosher received the stock in partial payment.

It is equally apparent that Mosher was not entitled to

interest after the latter date upon the portion of his claim

which had been paid. But uncertainty about the precise

value of the partial payment should not bar Mosher from

compensation for the continued loss of the use of the much

larger balance remaining unpaid. Interest on the differ-

ence between the amount due Mosher under the contracts

and the value of the stock as determined at trial should

be allowed from the date the stock was received to the

date of judgment. Although we have found no decisions

directly on point, this result is supported by analogous

authorities.

Thus, even though the existence of an unliquidated

counterclaim or set-off necessarily puts the amount pay-

14 Cross-appellees also intimate that Mosher should be denied

pre-judgment interest because the issue of liability was disputed.

The generally accepted rule is that uncertainty as to liability, as

distinguished from w’.certainty as to the amount of the damage,

does not bar recovery of prejudgment interest. Restatement, Con-

tracts § 337(a), comment d. Despite disputed liability, prejudg-

ment interest was awarded in both Feighner v. Clarke, 2 Ariz.

App. 286, 408 P.2d 219, 222-23 (1965), vacated on other grounds,

101 Ariz. 334, 419 P.2d 513 (1966) (in banc); and betz v. Goff,

5 Ariz. App. 404, 406, 427 P.2d 538, 540 (1967). California cases

to the same effect are collected in 5 U.C.L.A. L. Rev. 262, 266 n. 28

(1958).

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Opinion of the United States Court of Appeals

able in doubt, it is well settled that it does not render the

claim itself uncertain or deprive the claimant of the right

to prejudgment interest.'* If the unliquidated set-off or

counterclaim is based upon a breach unrelated to the sum

due under the primary claim, interest is allowed on the

entire claim. The amount of the counterclaim or set-off as

determined at trial is then deducted from this total. If,

as in the present case, the unliquidated set-off or counter-

claim constitutes a partial payment of the primary claim,

interest is allowable on the balance due after deducting

the amount of the set-off or counterclaim as determined

at trial.’

The result we reach is also supported by the principle

recently applied in Coleman Erg’r Co. v. North American

Aviation, 55 Cal. Rep. 1, 420 P.2d 713 (1967). There, de-

fendant argued that prejudgment interest was barred be-

cause a lesser amount of damages was awarded than

plaintiff had originally demanded. The reduced claim re-

sulted from the plaintiff’s successful efforts in obtaining

1° Hansen v. Covell, 218 Cal. 622, 631-32, 24 P.2d 772, 775, 89

A.L.R. 670 (i233) (in bane) ; MeCowen v. Pew, 18 Cal. App. 482,

483 et seq., 123 Pac. 354, 355-56; Hunt Foods v. Phillips, 248 F.2d

23, 26-27 (9th Cir. 1957) (Calif.). Other California decisions are

collected in 14 Cal. Jur. 2d 79, 705-06, and 5 U.C.L.A. L. Rev.

262, 268 n. 37 (1958). See also Mall Tool Co. v. Far West Equip.

Co., 45 Wash. 158, 273 P.2d 652, 663 (1954) ; Sam Macri & Sons,

Ine. v. United States, 313 F.2d 119, 129-30 (9th Cir. 1963) ;

American Sur. Co. v. United States, 368 F.2d 475, 479-80 (9th

Cir. 1966) ; 5 Corbin, Contracts § 1046, p. 286, § 1051, pp. 305-06.

“In short,” Professor McCormick states, “it is the character of

the claim and not of the defense that is determinative of the ques-

tion whether an amount of money sued for is a ‘liquidated sum.’ ”

McCormick on Damages, § 54 p. 2i€ (1935).

** Hansen v. Covell, 218 Cal. 622, 631-32, 24 P.2d 772, 775-76

(1933) (in bane) ; Hunt Foods v. Phillips, 248 F.2d 23, 26-27 (9th

Cir. 1957) (Calif.); and cases collected at 14 Cal. Jur. 2d § 79,

pp. 705-06.

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Opinion of the United States Court of Appeals

settlements with third persons and in salvaging materials.

The Supreme Court of California held that under these

circumstan*es uncertainty as to the amount due did not

bar an award of prejudgment interest. It stated, “we are

satisfied that reductions in damages due to plaintiff's

efforts to mitigate damages should not preclude an award

of prejudgment interest. If the rule were otherwise, %

plaintiff might be encouraged to forego opportunities to

mitigate damages so as not to jeopardize his right to pre-

judgment interest.” Similarly, Mosher’s right to prejudg-

meni interest should not be denied because Mosher in seek-

ing and obtaining partial payment from a joint obligor

reduced the amount of its claim against. cross-appellees.

The judgments are affirmed on the appeals and reversed

for further consideration on tbe cross-appeal.

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