Noel Construction Co. v. Atlas Portland Cement Co.

Pearce, J., delivered the opinion of .the Court. This action was brought by the Noel Construction Com ²²³ pany, a corporation, to recover from the Atlas Portland Cement Company, a corporation, damages for the breach of an alleged contract to deliver to the plaintiff twenty-five thousand barrels of cement purchased for use in the erection of Midshipmen’s Quarters at the Naval Academy in Annapolis, Maryland. ' • The declaration contains the common money counts, and the following special count: “And for- that the plaintiff in the early part of the year 1902, acting by its agents, Edgar M. Noel and David W. Thomas, agreed to buy of the defendant, and the defendant, acting by its duly authorized agent, agreed to’sell to the plaintiff, twenty-five thousand barrels of Atlas Portland Cement, to be delivered as ordered by the plaintiff on the dock at the Naval Academy grounds at the city of Annapolis, in the State of Maryland, at and for the price of one dollar and twenty cents per barrel, delivered; and the plaintiff in fact says that it was at all’.times ready and willing to accept and pay for said cement; and that it made frequent demands upon the defendant for the delivery of the same; but that the defendant wholly failed and refused to make said deliveries .or to perform any part of its-said contract. And the plaintiff further says that because of the said failure and refusal on the part of the said defendant, it was compelled to go into the open market, and purchase, at -a price largely in excess of the agreed price aforesaid; to-wit, at the rate of $1.468 per barrel, 25,000 barrels of cement similar to that which the said defendant so as aforesaid sold, but failed and refused to deliver. “And the plaintiff claims ten thousand dollars ($10,000.) The defendant filed the general issue pleas, and at the close of the plaintiff’s testimony the Court granted a prayer offered by the defendant instructing the jury that there “was no evidence legally sufficient -to entitle,the plaintiff to recover under the pleadings in the case,” and from this ruling the single exception in the record is taken. It will be necessary to state the facts somewhat at length in order to a proper understanding of the case, but the questions ²²⁴ of law arising thereon are but two in number, and these depend for their solution upon well-established principles.

Sometime in December, 1901, the United States Government had awarded to Edgar M. Noel and David W. Thomas, as associate contractors, a contract for the erection of Midshipmen’s Quarters at Annapolis, Maryland, for the sum of $2,448,000, and on January 14th, 1902, the contract was formally executed in writing, the bond required of said contractors by the United States Government, in the sum of $270,000, for payment of the contractors’ debts, being then given, and all other requirements of the Government being then complied with. On January 9th, 1902, Noel and Thomas in order the better to enable them to carry out said contract, together with Jacob D. Kline, Moses Pels and J. Kemp Bartlett, formed a corporation under the name of The Noel Construction Company, with a capital stock of $250,000, of which one-half was at once paid up in cash. The certificate of incorporation was duly recorded January 14th, 1902, and on the same day the required bonus tax was duly paid to the State of Maryland by the said corporation. The certificate stated that the corporation was formed for the purpose “of carrying on the business of general contractors; * * * to make, enter into, and perform any and all contracts and agreements with the Government of the United States, State, County and Municipal Governments, and with corporations, firms and individuals; * * * also for the purpose of indemnifying sureties, individual or corporate, upon any bond or bonds required by any of said Governments, guaranteeing the performance of any contract or contracts in which the corporation hereby formed, is or maybe interested.” On January 15th, 1902, at the first meeting of the stockholders of. the Noel Construction Company, its officers duly elected were authorized to execute in its behalf an agreement of indemnity to the United States Fidelity and Guaranty Company against all loss it might sustain as surety for Noel and Thomas upon the bond of $270,000 guaranteeing the performance of their contract for the erection of said quarters, ²²⁵ and to deposit $50,000 of the funds of the Noel Construction Company with the United States Fidelity and Guaranty Company as collateral security for the performance of said contract of indemnity; also to enter into agreements with subcontractors of Noel and Thomas guaranteeing the payment of their claims for labor and materials in the prosecution of the work of erecting said quarters; also to enter into such subcontracts for labor and materials in the. erection of said quarters as they might deem for the best interests of the company, and in case any sub-contractors should prefer that their contracts be with Noel and Thomas, as associate contractors, to execute in behalf of the company agreements guaranteeing the payment of the just claims of said ■ sub-contrators under said contracts.

These last-mentioned provisions were made because the formal contract with the Government was required to be made with the bidders to whom it was awarded, and could not be made in the name of the Noel Construction Company, and under the provisions of the Federal statutes the bonds given by contractors for government work can be sued on for work and máterial furnished, it being regarded as doubtful whether those who might, contract with the Noel Construction Company could resort to such bonds; thus those who elected to contract with, Noel and Thomas as associate contractors could depend upon the bond of the United States Fidelity and Guaranty Company, and those who might contract directly with the company could rely upon the guaranty of the company itself. On the same date, January 15th, 1902, Noel and Thomas entered into an agreement under seal with the Noel Construction Company, reciting the contract of Noel and Thomas with the United States Government, together with the resolution of the Noel Construction Company to execute said contract in behalf of said Noel and Thomas, and proceeded, in consideration of the premises and other good considerations, to assign to the said Noel Construction Company all the right, title and interest of Noel and Thomas in said contract, and in all sums to become due thereunder. Under the Federal statutes, any assignment of a Government con ²²⁶ tract is voidable at the option of the Government, but the formation of the Noel Construction Company for the purposes stated and the contemplated assignment to it of the contract with Noel and Thomas was commuicated to and considered by the United States Government authorities in charge of this work, and Judge Advocate General Lemley informed Noel and Thomas that the Department had no objection to recognizing such assignment upon condition that Noel and Thomas remain liable to the Government upon their contract, notwithstanding such assignment; that the Noel Construction Company also be deemed liable for the fulfillment of the original contract with Noel and Thomas, and that the United States Fidelity and Guaranty Company be liable for any default, whether said contract be carried on by Noel and Thomas, or by said Noel Construction Company. Subsequently however, Judge Advocate General Hanna, acting for Judge Advocate General Lemley, thought that there might be some embarrassment to the Government by a formal recognition of the assignment and that it would be best to let it remain a merely tacit recognition.

Consequently no formal recognition of the assignment was made. This recital of facts will serve to show clearly how complete and thorough was designed to be the substitution qf the Noel Construction Company for Noel and Thomas in the execution of this contract, and it will hereafter be shown that knowledge of all these facts was brought home to the Atlas Portland Cement Company when they contracted to deliver the cement in question. Prior to January 14th, 1902, The Atlas Portland Cement Company had been endeavoring to secure this contract, as appears from a letter or telegram of that date from McClaren, their sales agent, to Noel and Thomas. in which he says: “We understand you are now ready to talk cement for your Annapolis contract and will be obliged if you will advise us when it will be convenient to see the writer in reference to this matter.” This brought an interview with McClaren in Baltimore on January 31st, 1902, when he submitted the following proposition: ²²⁷ January 31st, 1902. “Messrs. Noel and Thomas, Baltimore, Md. We hereby offer to supply you with 25,000 bbls Atlas Portland Cement or what you may require for your contract on dock at Naval Academy, Annapolis, atone dollar and twenty ($1.20) 4 bags to the bbl. subject to the engineer’s approval on test, usual rule for bags to be exacted.

Signed. The Atlas Portland Cement Company per P. M. McClaren.” To which’proposal the following reply was then made, Baltimore, January 31, 1902. “The Atlas Portland Cement Company 30 Broad St., N. Y. Gentlemen We hereby accept your Mr. McClaren’s proposal to deliver us on dock at Annapolis Naval Academy, approximately 25,000 barrels Atlas Portland Cement, or all that we may require on our contract at said Annapolis Academy, in duck bags, 4 bags to the barrel, at $1.20 per barrel. The usual charge of 10 cts per bag will be exacted. The acceptance of this cement of course, is subject to the engineer’s test and approval.

Terms 90 per cent in 30 days, or 1 per cent cash in ten days. The cement to be delivered as we may require it on order. This acceptance is subject to a contract which may be mutually agreed upon later. Signed E. M. Noel and D. W. Thomas” According to this undisputed evidence, McClaren, who is since dead, dictated this acceptance.

Mr. Noel testified that McClaren came to see him relative to this order several weeks before it was placed, and he then told him before it could be placed it was necessary for them to make some financial arrangements, and that they might form a Construction Company; that at the interview of January 31st he told him the Construction Company was formed, and the contract of Noel and Thomas had been assigned to this company; that.they were now ready to give orders, and that McClaren’s order was the first one placed and signed. Mr. Thomas was present at that interview, but he too has since died. Testifying in detail Mr. Noel said, “McClaren asked me who the Noel Construction Compay was, and what ²²⁸ it was for. I told him it was formed for the purpose of financing this contract for us, and that the contract had been assigned to the company.

I told him we had authority to make contracts in the name of Noel and Thomas, for the benefit of the Noel Construction Company, and I had such authority.” On February 6th, 1902, The Atlas Portland Cement Company wrote Noel and Thomas, saying, “Referring to your acceptance of our Mr. McClaren’s proposal to furnish you with 25,000 bbls Atlas Portland Cement for use on your Annapolis contract would say we have been informed that the Noel Construction Company has been formed and has some connection with your contract. We would request that you advise us at your earliest convenience if this information is correct; and if so, what the relationship is between yourselves and the above-mentioned company. Meanwhile we will prepare the contract spoken of in the last paragraph of your letter above referred to.” On February nth Noel and Thomas replied, saying: “The Noel Construction Company has underwritten the contract and will pay all bills for this work. Your contract will have to be written with Noel and Thomas, as the Government will not recognize any assignment of contracts.

The company has a capital of $250,000, fifty per cent of which is paid in cash. I will forward you contracts duly executed by us.. within a few days. You may ship us a cargo of cement whenever you see fit. We will be able to take care of it in about two weeks.” This was acknowledged February 13th saying, “We presume you will make the company a party to the contract with us, and awaiting same, we remain, &c. ” On February 18th Noel and Thomas wrote: “Our sheds are built and we are awaiting the cement, and have to request you will have the same reach here at the earliest possible moment as this cement has to stand a 28 day test before it can be used.” On February 19th the Atlas Portland