source: Caselaw Access Project

author: SPRECHER, Circuit Judge. STEVENS, Circuit Judge

license: Public Domain

text:
    INTERNATIONAL MINERALS AND CHEMICAL CORPORATION, Plaintiff-Appellee, v. HUSKY OIL COMPANY, Defendant-Appellant.
    No. 72-1191.
    United States Court of Appeals, Seventh Circuit.
    Argued March 2, 1973.
    Decided Sept. 27, 1973.
    Rehearing Denied Oct. 18, 1973.
    George V. Bobrinskoy, Jr., Chicago, Ill., for defendant-appellant.
    Henry A. Preston, Chicago, Ill., for plaintiff-appellee.
    Before FAIRCHILD, STEVENS and SPRECHER, Circuit Judges.
   SPRECHER, Circuit Judge.

This diversity case raises the question of whether interest became due and payable on a loan. The parties, despite able counsel, have managed to balance the affirmative and negative factors in almost perfect equipoise.

Husky Oil Company appeals from a judgment holding it liable for interest in the amount of $115,000, plus interest on that sum, due on two promissory notes given by Husky to International Minerals and Chemical Corporation (IMC) in 1967 and 1968.

I

The facts as found by the district court are as follows: IMC is a New York corporation engaged in the discovery, extraction and sale of various minerals and chemicals for industrial and consumer use. Husky is a Delaware corporation whose business is the production, refining and marketing of oil, gas and oil products. In 1956, Husky acquired ownership of leaseholds in Idaho containing extensive bodies of phosphate ore.

On October 20, 1961, IMC and Husky entered into an agreement under which Husky would receive a $3,000,000 interest-free loan from IMC, to be repaid December 15, 1966 unless the agreement was terminated earlier. In return, IMC would be allowed to explore the phosphate leaseholds in order to determine whether a profitable mining operation was feasible. If the operation appeared profitable, the agreement permitted submission and acceptance of a joint venture program. If IMC did not submit a joint venture program by May 1, 1966, or if any such program was not approved by Husky, the agreement would terminate on December 15, 1966. In this event, Husky was obligated to repay the loan either in cash, whereupon IMC would also receive a 25% interest in the leaseholds, or by conveying the leaseholds to IMC, in which case IMC would pay Husky 50% of the appraised value of the leaseholds in excess of $3,000,000.

The agreement was modified in June, 1962 whereby Husky borrowed $3,000,000 from the First National Bank of Chicago against a note due December 15, 1966. The bank loan was guaranteed by IMC and IMC agreed to pay 4%% interest on the note. The proceeds of this loan were used to repay the loan from IMC.

The agreement was again amended in February, 1966, extending the term of the agreement until December 15, 1967, to allow IMC further time to explore the possibility of a joint venture. In December, 1966, Husky agreed to extend the maturity of the bank loan from December 15, 1966 until December 15, 1967.

In December of 1966, representatives of Husky and IMC also met in Los Angeles to discuss, among other things, the termination of the agreement. The district court found that they agreed that if'the leaseholds had not been sold prior to September 30, 1967, Husky would reimburse IMC for interest on the $3,000,000 loan after that date.

On November 14, 1967, pursuant to the amended agreement, Husky requested IMC to prepay Husky’s $3,000,000 note to the First National Bank by December 1, 1967. IMC did prepay the principal and accrued interest on December 1, and the First National Bank delivered Husky’s noninterest bearing $3,000,000 note to IMC.

Representatives of IMC and Husky met in Chicago on November 28, 1967. The question of Husky’s reimbursing IMC for interest on the $3,000,000 loan was discussed at this meeting. On December 18, 1967, Husky sent IMC a check for $37,972.60 for interest on the loan from September 30, 1967 through December 15, 1967.

Prior to December 15, 1967, Husky requested that the due date on its $3,000,000 loan be extended from December 15, 1967 to December 29, 1967. IMC agreed on the condition that 6% interest be paid for the extension period. Husky sent IMC a check for $6,904.10 in payment for this interest on December 29, 1967.

Prior to the December 29, 1967 due date, Husky informed IMC that it elected to repay the $3,000,000 loan by conveyance of the phosphate leaseholds. Husky sought, however, to convey the leaseholds in installments oyer a three-year period (1967-69) so that it would not realize the entire gain during 1967, thus distorting its per share earnings. Donald Jensen, General Attorney and Assistant Secretary of Husky, drafted a proposed agreement and read the proposal over the phone to an IMC representative. IMC later called Jensen back and told him that IMC wanted the interest increased from 6% to 7% per annum. The agreement in final form embodied the proposed change.

After reciting the terms of the earlier 1961 agreement, the Termination Agreement dated December 29, 1967, stated in relevant part:

“On or before and effective as of December 29, 1967, Husky will convey an undivided 25% of the phosphate leaseholds, as described in attachment 1 of the referenced October 20, 1961, agreement (the ‘Leases’), to International with warranty of good and merchantable title and will also deliver to International its promissory note in the amount of $2,250,000.00 bearing interest at 7% with a due date of June 30, 1968. Upon delivery of such assignment and note, International shall surrender to Husky its promissory note of December 1, 1967, in the original amount of $3,000,000.00. If either party is successful in arranging a sale of the Leases at an amount in excess of $3,000,000.00 and upon terms and conditions mutually acceptable to both International and Husky prior to June 30, 1968, the proceeds of such a sale shall be allocated first to the payment of the Husky note plus interest, then International shall receive the next $750,000.00, and thereafter, Husky shall receive 75% of the remainder and International shall receive 25%.
* •>:- * * * *
“If a mutually acceptable sale has not been obtained on or before June 30, 1968, Husky shall convey to International a good and merchantable title to an additional undivided 40% interest in and to the Leases; and deliver to International its promissory note in the amount of $1,050,000.00 bearing interest at 7 %; and International shall surrender Husky’s prior note of December 29, 1967, in the amount of $2,250,000.00. If either party is successful in arranging a sale of the Leases at an amount in excess of $3,000.000.00 and upon terms and conditions mutually accepted to both International and Husky prior to January 10, 1969, the proceeds of such a sale shall be allocated first to the payment of the Husky note plus interest, then International shall receive the next $1,950,000.00, and thereafter, Husky shall receive 35% of the remainder and International shall receive 65%.
* * * * *
“If a mutually accepted sale has not been obtained on or before January 10, 1969, Husky shall thereupon convey to International all of Husky’s remaining undivided interest in and to the Leases; and, upon such conveyance, International shall surrender Husky’s note of June 30, 1968, in the amount of $1,050,000.00.”

The December 29, 1967 agreement also expressly provided for the handling of ■ interest in the event of one contingency:

“At áhy time subsequent to January 15, 1968,'ánd during the term of this agreement, International is granted the unconditional right and option, upon 90 days’ advance written notice, to demand a conveyance from Husky of all of Husky’s then remaining undivided interest in and to the Leases. If such a demand is made by International and a conveyance tendered by Husky prior to June 30, 1968, International shall, on June 30, 1968, (i) credit Husky’s Note account in the amount of $1,200,000.00 plus interest accrued on such amount, and (ii) on January 10, 1969, International shall issue an additional credit to Husky in the amount of $1,050,000.00 plus interest. Upon such credits being issued, International shall surrender to Husky on January 10, 1969, its promissory note dated December 29, 1967, in the principal amount of $2,250,000.-00.”

In January, 1968, Husky sent to IMC its promissory note for $2,250,000, bearing interest at 7% per annum “until the principal hereof shall have become due and payable,” and interest at 8% thereafter, due June 30, 1968. Husky also sent assignments of a 25% interest in the phosphate leaseholds. IMC had no prior notice of the form of the note or of the provisions it would contain. On May 8, 1968, IMC returned Husky’s $3,000,000 promissory note.

On June 28, 1968, Husky sent to IMC its promissory note for $1,050,000 plus 7% interest as before, due January 10, 1969. Assignments of an additional 40% interest in the leaseholds were also sent. On July 1, 1968, IMC returned Husky’s promissory note for $2,250,000. On July 19, IMC demanded payment of the interest due on the note.

On December 31, 1968, Husky conveyed to IMC its remaining 35% interest in the leaseholds. In January, 1969 IMC returned Husky’s promissory note in the amount of $1,050,000. No purchaser had been found for the leaseholds between the effective date of the Termination Agreement (December 29, 1967) and December 31,1968. No interest was paid by Husky on either the $2,250,000 or $1,-050,000 promissory note.

On the basis of these facts, the district court held that Husky’s obligation to pay 7% interest on each of its promissory notes until maturity was not dependent upon whether a mutually acceptable sale of the phosphate leaseholds was made prior to the maturity date of the notes and that IMC did not intend to renounce its claim for interest when it surrendered the two notes. Husky argues that these findings and conclusions are clearly erroneous and insists that it was only obligated to pay interest under the Termination Agreement if a purchaser for the leaseholds was found.

II

The two notes upon which the district court entered judgment for interest amounting to $115,000, plus interest thereon, or a total of $116,881.31, each contained a promise by Husky to pay IMC the respective principal amount “with interest at 7% until the principal hereof shall have become due and payable (whether at the stated maturity or by required prepayment, notice of prepayment, declaration or otherwise), and thereafter at the rate of 8% per annum until paid” and in two places on each note reference was made to the payment of interest, “if any” (emphasis added).

The first clause indicates an obligation by Husky to pay 7% interest under any and every circumstance and the “if any” language implies a possible circumstance where no interest would be payable.

However, each note also provided that it was issued “pursuant to an agreement dated December 29, 1967, between the Company [Husky] and International Minerals & Chemical Corporatiop and is subject to all of the terms and conditions thereof” and therefore the agreement must be examined as well as the notes.

The December 29, 1967 agreement stated that the two notes in question would bear interest at 7 %; that if a sale of the leasehold interests to an outside buyer was accomplished, “the proceeds of such a sale shall be allocated first to the payment of the Husky note plus interest;” that “[i]f a mutually acceptable sale has not been obtained . International [IMC] shall surrender Husky’s . . . note . . .”.

Husky contended that although the notes bore interest at 7% prior to maturity, that amount of interest was only payable if a sale to an outside buyer was accomplished since the agreement speaks of the payment of the note “plus interest” whereas in the absence of a sale the note was to be “surrendered” without any reference being made to interest.

However, the provision in the agreement referring to the contingency of IMC demanding an advance conveyance of “Husky’s then remaining undivided interest in and to the Leases” also referred to the “surrendering” of each of the two notes. In that provision, the language preceding “surrender” required IMC to “credit Husky’s Note account in the amount of $1,200,000.00 plus interest accrued on such amount,” and to “issue an additional credit to Husky in the amount of $1,050,000.00 plus interest.”

In other words, the agreement made it clear that (1) interest was due and payable to IMC if the leaseholds were sold to an outside buyer and that (2) interest was not due and payable if IMC accelerated the conveyance of all of Husky’s interest in the leaseholds from January 10, 1969 (the latest agreement date for final conveyance) up to June 30, 1968 (the latest date of conveyance under the acceleration clause). Neither of these two contingencies occurred: the leaseholds were not sold to an outside buyer and IMC did not accelerate the conveyance of the final interest.

What did happen was the contingency covered by the use of the words “surrender Husky’s note.” It is true that this contingency did not expressly state that interest would be due and payable as in the case of the outside purchaser, where the words “plus interest” were used. It is also true that this contingency did not expressly state that interest would not be due and payable as in the case of the acceleration clause, where the words IMC “shall . . . credit Husky’s Note account in the [principal] amount . plus interest” were employed.

The use of the word “surrender” in the acceleration provision after the express language requiring the crediting by IMC of interest otherwise due and payable by Husky, indicated that the parties use of the word “surrender” in the case of the contingency which did in fact occur — the three-installment conveyance of the leaseholds to IMC — did not automatically imply that no interest was due and payable.

The word “surrender” was also used in the agreement in reference to the $3,000,000 note dated December 1, 1967, upon which Husky had paid interest in full.

Inasmuch as “surrender” was used several times in the Termination Agreement without any fixed meaning relating to the payment or non-payment of interest, it can not take on an application that no interest was intended when used in regard to the two notes at issue. For this reason, cases which define “surrender” in other contexts are not applicable.

Ill

The keystone of contract interpretation is the ascertainment of the intention of the parties derived from the language they used. The meaning of the words which the parties employed is found by focusing on the words themselves and then drawing back and testing that meaning in the context of the entire contract, the circumstances surrounding its execution, and the manner in which the parties interpreted it by performance. We have heretofore construed Illinois law as permitting the consideration of extrinsic evidence in contract interpretation and such consideration does not require a threshold determination that the contract is ambiguous. Ortman v. Stanray Corp., 437 F.2d 231 (7th Cir. 1971).

In that case Chief Judge Swygert said at 235:

“Admitting evidence of prior negotiations and agreements for the purpose of discovering the meaning of the terms used in the integration does not violate the parol evidence rule. ‘Such testimony does not vary or contradict the written words; it determines that which cannot be varied or contradicted.’ ”

On October 20, 1961, Husky and IMC agreed that IMC would make an interest-free loan to Husky of $3,000,000 for a five-year period from December 15, 1961 to December 15, 1966. The consideration for this sizeable interest-free loan was the granting by Husky to IMC of the exclusive right to examine and explore, at IMC’s expense, for a five-year period certain phosphate-bearing leaseholds in Idaho then owned by Husky. As a result of this exploration, IMC “may furnish a Joint Venture Program” which Husky would have the right “to approve or disapprove.”

If IMC failed to submit a joint venture program by May 1, 1966 or if IMC submitted a program which Husky failed to approve, then Husky “shall repay the Loan on December 15, 1966 either in cash or property.” If Husky elected to repay the loan in cash, IMC would also receive a 25% interest in the phosphate leaseholds. Husky could elect to repay the loan in property by conveying the leaseholds to IMC, in which event IMC was obligated to pay Husky 50'% of the appraised value of the leaseholds in excess of $3,000,000.

On February 25, 1966, the October 20, 1961 agreement was amended in several respects, one of which was to extend the date when Husky was to repay the loan from December 15, 1966 to

“[T]he earlier of (a) the 360th day following the earlier of the date on which International [IMC] (i) has furnished a Joint Venture Program to Husky pursuant to IV 2 or (ii) given written notice to Husky of the abandonment of the Joint Venture Program and termination of this agreement or (b) December 15, 1967.”

Representatives of IMC and Husky met in Los Angeles, California, on December 20, 1966, as a result of which each party sent to the other party a proposed letter agreement setting forth that party’s interpretation of certain agreements reached orally at that meeting. Neither recipient party accepted the other party’s proposed draft. Significantly, however, both drafts contained this identical language:

“. . . Husky agrees that September 30, 1966 shall be deemed to be the date on which IMC gave Husky notice of abandonment of the joint venture program . . . . ”

Accepting both parties’ ascertainment of the date of the abandonment of the joint venture program, the date for repayment of the IMC loan under the October 20, 1961 agreement as amended on February 25, 1966, would have been September 25, 1967. Assuming the existence of these facts and no others, several presumptions would follow if Husky failed to pay the interest-free loan on September 25, 1967. In the first place, the quid pro quo — that is, the interest-free loan in consideration for a period of exploration equated in length of time by reference to the period of the loan, as clearly intended in the October 21, 1961 agreement as amended — would end on September 25, 1967, inasmuch as IMC’s right to explore with a view to entering a joint venture had ended 360 days earlier. After September 25, 1967, IMC would receive no consideration for continuing the $3,000,000 loan at no interest. At that time the presumption would follow that interest is intended when there is neither presumption of a gift nor other consideration. I Willis-ton, Contracts § 36A, at 106 (3rd ed. 1957):

“So if money is paid by one person at the request of another, the request, unless the circumstances are such that the inference of a requested gift is possible, implies an offer to repay the money with interest at the legal rate if the requested payment is made.
“The contracts implied in fact arising from offers of the sort mentioned in this section are closely connected in the history of the law with quasi contracts.”

Under Illinois statutory law another presumption would arise as set forth in 23 Illinois Law and Practice, Interest § 22 at 15:

“By statute, interest may be allowed on a written instrument stipulating for the payment of money, after it becomes due, although there is no provision in the instrument for the payment of interest; but in order to entitle a party to interest on moneys which become due on any instrument in writing, the relationship of debtor and creditor must exist between the parties . . . .” (emphasis added).

These were some of the circumstances prior to and contemporaneous with the making of the December 29, 1967 agreement which was the basis for the two notes at issue. If no agreement had been executed at that time, interest would have commenced to run on the $3,000,000 after ,, September 25, 1967. Instead, however, the parties executed the agreement and these surrounding circumstances point in the direction that interest was intended to be paid on the underlying notes.

Husky stated in its brief that “[o]ne of the best guides to interpreting a contract is to examine the conduct of the parties during performance of the contract,” citing Prince v. Packer Mfg. Co., 419 F.2d 34, 37 (7th Cir. 1969).

During the existence of the $3,000,000 loan, it was financed from June 29, 1962 to December 1, 1967, through The First National Bank of Chicago.

The parties began to dispute over the payment of interest on the loan at the end of 1966 or the beginning of 1967.

Glenn Nielson was Husky’s chief executive officer and its principal negotiator with IMC during the period from 1961 to 1969. In Nielson’s memorandum of a meeting with IMC people held on November 28,1967, he wrote:

“During the conversation it developed that International [IMC] was still paying the interest on the three million dollars, although I had understood we were to pay it from September.”

Accordingly, Husky paid interest on December 18, 1967 in the amount of $37,972.60 for the period from September 30 through December 15, 1967, and paid $6,904.10 additional interest on December 29, 1967 for the period through December 29, 1967, or a total of $44,876.70.

In regard to the negotiations leading up to the December 29, 1967 agreement, Allen Spafford of IMC testified that shortly before that agreement (App. at 137):

“I also told Jensen that we expected interest on the unpaid balance of the obligation during the term of the agreement. I went on and explained the reasons for both of these conditions. I told him that we were essentially handicapping our business by letting them have this involvement in the property for the next 13 months —which is what his proposal was, as I remember — and that we would be much better off if we had the property free and clear to permit more straightforward negotiations with potential buyers of the property.
“I said that to have this Husky entanglement was essentially a hardship for IMC, but that we would accept it on these two conditions, provided that we could get rid of the Husky entanglement on a- short term notice to Husky and, secondly, that we would get paid interest.
“And I explained that it was the opportunity to receive that interest that was very important and that it was a very important motive that was permitting me to go along with this essential hardship for the company, for IMC.”

The district judge could and impliedly did credit this testimony when he found that it was not the intention of the parties that Husky’s obligation to pay interest on the two notes in issue be qualified in any respect.

IV

We conclude that the district court’s proper consideration of all of the circumstances surrounding the execution of the December 29, 1967 agreement and the resulting finding and conclusion that “it was the parties intention expressed in the provisions of the Termination Agreement and the terms of the promissory notes given pursuant thereto that Husky’s obligation to pay interest at the rate of 7 % until maturity upon the principal of its promissory notes was not dependent upon whether or not a mutually acceptable sale had been made pri- or to the maturity of the notes,” was not clearly erroneous.

Affirmed.

STEVENS, Circuit Judge

(dissenting).

Both the language of the instruments and the character of the underlying transaction persuade me that interest was not payable when either note was surrendered in exchange for a conveyance of property.

I.

Each of the two notes recites that it was issued pursuant to the agreement of December 29, 1967, and expressly states that it “is subject to all of the terms and conditions thereof.” That agreement recited that the parties had decided to attempt to obtain a buyer for the property, and provided for the allocation of the proceeds of sale if a buyer was found. Putting to one side the differences which different dates of sale would create, the basic alternatives covered in the agreement were (1) that IMC would find a buyer; (2) that Husky would find a buyer; or (3) that there would be no sale prior to the expiration of the agreement.

IMC’s ultimate control of £he property was assured by the last section of the agreement which gave it an unrestricted right, upon 90 days’ notice, to demand a conveyance from Husky of its then remaining interest in the leaseholds. Following such a conveyance, Husky would have no further interest in the property or the proceeds of any sale by IMC unless Husky thereafter found an acceptable purchaser. Under the plain language of the agreement, a conveyance by Husky pursuant to IMC’s demand would have discharged Husky’s entire obligation under the notes, for interest as well as principal, and entitled it to a surrender of any outstanding note. In short, the conveyance of property would have paid whichever note was then outstanding in full and required its surrender.

If a buyer had been procured by Husky, Husky would share in the proceeds of sale, provided that the purchase price was in excess of $3,000,000, plus interest on the note. In the event of such a sale, the agreement plainly stated that the note would be payable out of the proceeds of sale, and that such a cash payment would include interest as well as principal.

As events developed, neither party found a buyer. That contingency was covered in the agreement by language, which, as I read it, simply provides that in exchange for a conveyance of property from Husky to IMC, IMC shall surrender the note then outstanding. There is no express reference to the payment of interest, in addition to the conveyance of property. I do not think the agreement can properly be read to imply either (a) that IMC’s obligation to surrender the note was conditioned on the receipt of a cash payment equal to file amount of interest that had accrued; or (b) that a right to receive interest was intended to survive the surrender of the note. In short, I think the reference to a surrender of the note in exchange for the assignment of property was the equivalent of a statement that the assignment would constitute payment in full.

II.

What I view as the plain meaning of the agreement of December 29, 1967, is entirely consistent with the underlying transaction which gave rise to that agreement.

It is true, of course, that the basic agreement entered into in 1961 created a somewhat unique debtor-creditor relationship. I believe, however, that this relationship can be better understood by emphasizing the fact that Husky was a seller and IMC a purchaser of a valuable asset. Quite obviously, in 1961, when they negotiated the basic agreement, the parties were convinced that the phosphate leases had a value of at least $3,000,000, and probably more if properly developed. In essence, in 1961 Husky transferred control of those leases to IMC for a price of $3,000,000 plus an additional contingent benefit — sometimes described as a “kicker” or “bonus.”

Pending receipt of its contingent bonus, Husky retained legal title to the property — no doubt for security purposes — but the significant indicia of ownership were all transferred to IMC when the original agreement was executed in 1961. IMC assumed the burdens of ownership, such as the obligation to pay real estate taxes, minimum royalties, minimal rentals, and all responsibility for such mandatory prospective or development work as might be necessary, and it acquired the same rights to use and develop the property as would an outright owner.

Depending on the results of IMC’s exploration and development, the bonus for Husky would have been payable in different ways. For example, if IMC determined that it could successfully mine and work the phosphate, it might offer Husky a minority interest in a joint venture program but Husky was not required to participate. If Husky accepted such an offer, the minority interest in the joint venture would represent its bonus or, in effect, the payment of the balance of the original purchase price. If Husky rejected such an offer, and if the appraised value of the properties then exceeded $3,000,000, Husky was entitled to an amount equal to 50% of that excess. Of course, if the appraised value was less than $3,000,000, and if Husky did not elect to participate in a joint venture, Husky would receive no bonus.

If IMC did not submit a joint venture proposal to Husky, Husky had two options. It could reacquire control of 75% of the property for a price of $3,000,000; quite obviously it would not make that election unless it appraised the property as worth at least $4,000,000. Alternatively, it could simply assign title to the leaseholds to IMC. The former option was described in the agreement as a repayment of the loan in cash; the latter as a payment of the loan in property. In sum, if the property should be worth less than $3,000,000, there would be no justification for any bonus for Husky and the final closing of the transaction would simply involve the release of Husky’s security interest in the property and its retention of the $3,000,000 payment which had been made by IMC in 1961; the original $3,000,000 “interest free loan” would then constitute the entire purchase price and IMC would have unencumbered ownership of the property.

As events turned out, the parties decided that neither wanted to undertake development of the property. On December 29, 1967, Husky was unquestionably entitled to transfer the leaseholds to IMC in exchange for a surrender of the $3,000,000 note. No interest would then have been payable. Instead of exercising that right, however, Husky requested, and IMC agreed, to divide the assignment as well as the surrender of the note into three parts in order to avoid a distortion of its annual earnings and presumably to spread the tax consequences of the transaction over a three-year period. If the 1967 agreement is regarded as primarily designed to provide for the method of repaying an existing debt, it is quite reasonable to con-elude — -as the majority does — that an implied obligation to pay interest arose to compensate the lender for the delay in receiving payment of the principal. But if the 1967 agreement is viewed as prescribing the final steps to be taken in the wind-up of a somewhat complex sales transaction in which the original $3,000,000 payment represented the minimum purchase price for the transferred assets, no reasonable justification for an interest charge is apparent.

The postponement of the final conveyance of Husky’s legal title did not interfere in any way with IMC’s right either to use the property or to sell it to a third party. IMC already possessed all significant indicia of ownership and had an unqualified right to demand a full conveyance on 90 days’ notice. Moreover, as the agreement plainly stated, the postponement also gave IMC the benefit of having Husky cooperate in the attempt to procure a purchaser.

I find it hard to believe that Husky would agree to pay the amount of interest claimed in order to obtain the benefit of spreading its capital gain over a three-year period; after all, the value of the use of the money needed to pay the tax is obviously only a fraction of the total purchase price. On the other hand, since the postponement really cost IMC nothing, I find it hard to credit its claim that the right to receive interest motivated its acceptance of Husky’s proposal.

In sum, I think the agreement which simply provides that the note shall be surrendered in exchange for an assignment of the leases means exactly what it says. I respectfully dissent.

      . Tax savings presumably were not involved. “Tax considerations did not enter into Mr. Nielson’s request, Husky having substantial tax credits against which the entire capital gain could be offset (App. 150).” Brief for Appellant at 19. IMG apparently accepted the earnings distortion as the motivation for the request. Brief for Appellee at 6.

      . “If any” lias been described as a “clause of precaution” similar to such clauses as without prejudice, without admitting, claimed, supposed, purported, alleged and others. D. Mellinkoff, The Language of the Law 185 (1963). A search of Words and Phrases does not reveal any case where its use has influenced the construction of a legal document in any significant way.

      . Even in the absence of the express language, it would be proper under Section 3-119(1) of the Uniform Commercial Code to consider the agreement pursuant to which the notes were issued: “As between the obligor and his immediate obligee or any transferee the terms of an instrument may be modified or affected by any other written agreement executed as part of the same transaction . . . . ” Ill.Rev.Stat. ch. 26, § 3-119(1) (1971).

      . It is not clear why the agreement called for crediting Husky’s Note account with interest accrued in the event of an accelerated conveyance since this amounts to merely an accounting entry. However, it does lead to the conclusion that interest was considered to be accruing on the unconveyed portion. Why this accruing interest should not be owing at the end of the entire term of the agreement whereas it was considered owing at any point prior in time (including the circumstance where Husky procured a buyer) is not easy to comprehend.

      . This interpretation is strengthened by a second provision which referred to a demand for acceleration by IMC: “If the demand is made by International and the conveyance tendered by Husky after June 30, 1968, International shall surrender to Husky, on its due date, the Husky promissory note then outstanding.”

      . Both parties have cited Illinois law extensively as to the meaning of “surrender” and for other propositions. We assume that both parties accept the fact that Illinois law applies in this diversity case and consequently we have also looked to Illinois law.

      . “If relevant testimony concerning the circumstances surrounding the signing of a contract is offered, it should generally be heard. The meaning of words cannot be ascertained in a vacuum. The function of interpretation of a contract is to ascertain the intention of the parties as manifested by the words they used to evidence their agreement. This cannot normally be done by an isolated inquiry limited to the four corners of a document ; it requires that a court attempt to place itself in the same situation as that of the parties at the time of the execution of the contract.” 437 F.2d at 234-235.

      . The October 20, 1961 agreement provided that Husky and IMC were agreeing to what followed, including the making of the loan and the examination and exploration of certain properties, “ [i] n consideration of the mutual covenants and agreements of the parties.”

      . Husky’s annual report for 1968 indicated that its total investment in the leaseholds as late as 1967 was only $169,000 and that it realized a gain of $2,831,000 in 1967 and 1968, when it eventually sold the leaseholds to IMC for $3,000,000. Pl.Ex. 50.

      . Pl.Ex. 16, pp. 1-2; Pl.Ex. 18, p. 1; PI. Ex. 49, p. 4.

      . Ill.Rev.Stat. cli. 74, § 2 (1971) provides in relevant part:
      “Creditors shall he allowed to receive at the rate of five (5) per centum per annum for all moneys after they become due on any . . . promissory note, or other instrument of writing . . . . ”

      . Illinois cases hold that under the statute an interest-free loan bears interest when it becomes due and after maturity. Smolikowski v. Laibe, 170 Ill.App. 181, 184 (1912); Harnish v. Miles, 111 Ill.App. 105, 107 (1903).

      . Husky executed a note to the bank in place of the original note which it had issued to IMC; IMC agreed to pay the interest due to the bank; when IMC paid the bank loan on December 1, 1967, Husky executed a new note for $3,000,000 and delivered same to IMC.

      . Pl.Ex. 20, p. 2. See also, Pl.Ex. 51.

      . Pl.Ex. 24. This represented interest on the Husky note held by the bank to Deeember 1, 1967 and interest on the Husky note held by IMC from December 1, 1967.

      . Pl.Ex. 31.

      . Nielson testified that he paid this interest as a “moral obligation.” App. at 151-52. IMC had expended $1.1 million dollars in interest and development expense. Pl.Ex. 44.

      . More precisely, IMC could make sucli a demand any time later than 17 days after the execution of the agreement. The first sentence of section 7 stated:
      “At any time subsequent to January 15, 1968, and during the term of this agreement, International is granted the unconditional right and option, upon 90 days’ advance written notice, to demand a conveyance from Husky of all of Husky’s then remaining undivided interest in and to the Leases.”

      . The last paragraph of the agreement stated :
      “At any time following such a conveyance by nusky to Intel-national of the full interest in the Leases, but prior to January 10, 1969, and so long as International continues to hold such full title, Husky may continue to attempt to obtain a buyer for sucli properties. If a sale is arranged during such period in accordance with Article 2 above solely through the efforts of Husky, the credits, payments and percentages provided in Articles 1. and 2. above shall apply. However, it is expressly understood and agreed that nothing in this Article 7. shall be construed to restrict in any way International’s absolute ownership and control of the Leases following a conveyance under the terms of this Article 7.”

      . The portion of Article 7 not quoted in the above footnotes provided:
      “If such a demand is made by International and a conveyance tendered by Husky prior to June 30, 1968, International shall, on June 30, 1968 (i) credit Husky’s Note account in the amount of $1,200,000.00 plus interest accrued on such amount, and (ii) on January 10, 1969, International shall issue an additional credit to Husky in the amount of $1,050,000.00 plus interest. Upon such credits being issued, International shall surrender to Husky on January 10, 1969, its promissory note dated December 29, 1967, in the principal amount of $2,250,000.00,

        ‘Tf the demand is made by International and the conveyance tendered by Husky after June 30, 1968, International shall surrender to Husky, on its due date, the Husky promissory note then outstanding.”
      IMC places considerable emphasis on the fact that this provision indicated that the parties intended that interest would continue to accrue until the note was surrendered. But, of course, the accrual of interest on IMC’s books was a matter of complete indifference to Husky unless Husky was required to pay that interest. And the only contingency under which any obligation to pay such interest is mentioned in the December 29, 1967 agreement is the unlikely event that the parties found a buyer at such a favorable price that the payment of interest would merely reduce the amount of a profit which Husky did not actually anticipate receiving. In other words, Husky merely agreed to have an amount of interest paid with a third party’s cash — not with its own.

      . I recognize that the agreement refers to a mutually acceptable sale arranged “by either party,” and therefore would entitle Husky to share in the proceeds in the unlikely event that IMC procured the purchaser and did not exercise its right to acquire title on 90 days’ notice. Presumably, however, the provisions of tlie agreement giving Husky an interest in the proceeds contemplated a sale which Husky helped to arrange.

      . Paragraph 3 of the agreement reads as follows :
      “If a mutually acceptable sale has not been obtained on or before January 10, 1969, Husky shall thereupon convey to International all of Husky’s remaining undivided interest in and to the Leases; and, upon such conveyance, International shall surrender Husky’s note of June 30, 1968, in the amount of $1,050,000.00.”
      The preceding paragraph, dealing with the exchange that was required on June 30, 1968, if an acceptable sale had not yet been made, was identical except that the surrender of the then outstanding note was in exchange for property interests, including (a) a new note, and (b) a partial assignment of the leasehold interest. In neither paragraph 2 nor paragraph 3 was there any reference to the payment of interest in connection with a surrender of a note in exchange for property. Instead, the language was parallel to that used in paragraph 1 when admittedly the surrender of the original $3,000,000 note in exchange for a new note in a lesser amount and a partial assignment of the leases did not contemplate any interest payment.

      . Article V, (1) provided in part:
      “Upon the execution of the Joint Venture Agreement and the making of all required capital contributions International shall participate 60% and Husky shall participate 40% in the profits and losses of the Joint Venture and all additional capital contributions thereafter shall be made 60% by International and 40% by Husky.”

      . It was authorized “to repay the Loan in cash . . . [and] concurrently with such repayment assign to International good and merchantable title to an undivided 25% interest in the leaseholds created by the Leases.”

      . Under the agreement, the only way in which IMC could recover its original $3,000,000 payment (other than by developing the property) was by way of a sale at a higher price, either to a third party or through a repurchase by Husky (see note 7, supra). Since it appears that the property could not be sold for more than the $3,000,000, it seems unrealistic to treat the purchaser’s retention of the basic purchase price as justifying an interest payment to compensate for the use of that money.

      . I recognize that the record indicates that tax consequences did not play any part in Husky’s motivation and that Husky merely desired to avoid a distortion of its 1969 earnings. If that be the fact, it is particularly hard to understand why Husky would elect to pay $115,000 in interest to avoid the cost or the consequences of an explanatory footnote in its annual statement.

      . I do not contend that the use of the term “surrender” necessarily implies that no interest was due and payable. I do contend that an obligation to surrender a note in exchange for a conveyance of property unaccompanied by any cash payment is inconsistent with a claim that an obligation to pay interest survived the surrender of the note or a claim that the note did not have to be surrendered in response to a tender of the property. As I read the entire 1967 agreement, every time the word “surrender” is used, it has exactly the same meaning. Only in the event of a sale to a third party is IMO’s obligation to surrender the note conditioned on the payment of any cash whatsoever.


author: GOLDBERG, Circuit Judge:

text:
    JOHNSON SERVICE COMPANY, Plaintiff-Appellee, v. TRANSAMERICA INSURANCE COMPANY et al., Defendants-Appellants.
    No. 73-1108.
    United States Court of Appeals, Fifth Circuit.
    Oct. 5, 1973.

      James R. Harris, Corpus Christi, Tex., for defendants-appellants.
    J. M. Burnett, Corpus Christi, Tex., for plaintiff-appellee.
    Before GOLDBERG, CLARK and RONEY, Circuit Judges.
   GOLDBERG, Circuit Judge:

In this diversity case defendants, Transamerica Insurance Company and Penner-Ring Co., appeal from the decision of the district court for the Southern District of Texas, 349 F.Supp. 1220, awarding plaintiff, Johnson Service Company, payment on a labor and material bond furnished to the United States. Finding defendants’ contentions of error below unsupported by both the facts and the applicable Texas law, we affirm.

THE FACTS

On March 29, 1968, the Post Office Department, acting pursuant to 39 U.S. C. § 2103 et seq., publicly solicited bids for the construction and subsequent leasing to the Government of a post office building in Corpus Christi, Texas. Under the terms of the Department’s advertisement, the Government agreed to convey the post office site to the successful bidder by quitclaim deed. The facility was then to be leased back to the Government for a term of 30 years, with eight 5 year renewal options. Defendant Penner-Ring submitted a bid in the form of a lease-back agreement. The bid was accepted on June 24, 1968; and, shortly thereafter, Penner-Ring executed and submitted to the Government a performance bond in the penal sum of $1,556,800 and a labor and material bond in the penal sum of $622,720 (hereinafter the “Transamerica bond”). PennerRing was principal on each of these bonds, the United States was obligee, and defendant Transamerica Insurance Company was designated surety. The bonds were given in accordance with the specifications of paragraph 10 of the original advertisement for bids and paragraph 1A of the agreement to lease.

Subsequently, Penner-Ring entered into a contract with Braselton Construction Company of Corpus Christi for the actual construction of the building. As part of this contractual arrangement, Braselton agreed:

“to furnish at Contractor’s expense a properly executed performance and completion bond and labor and material payment bond . . . running in favor of Owner [Penner-Ring] and any party or parties designated by Owner.”

In fulfillment of this obligation Braselton executed in October, 1968, a payment bond provided under Texas law by the Hardeman Act, Article 5472d, Vernon’s Ann.Tex.Civ.St. (hereinafter the “Hardeman Act bond”).

Braselton chose Godbe Mechanical Contractors as a major sub-tontractor on the Corpus Christi project. Godbe, in turn, contracted with plaintiff, Johnson Service Company, for the installation of a “complete workable temperature control system” for the building. Plaintiff fulfilled its part of the bargain. Godbe, unfortunately for all concerned, did not. It was unable to make payment for the labor and materials furnished by plaintiff and a number of other sub-contractors.

The Post Office Department accepted the building in November, 1969, and began its occupancy the following month. On April 2, 1970, plaintiff, acting pursuant to the ninety day notice requirement of the Transameriea bond, informed defendants, as principal and surety, that there was still $26,650 owing to it for labor and material furnished Godbe. On May 27, 1970, plaintiff filed the action under review here in federal district court seeking recovery on the Transamerica labor and material bond. During the period of pre-trial discovery in the federal suit, plaintiff filed, on March 3, 1971, a petition in the 105th District Court of Nueces County, Texas, attempting to recover on the Hardeman Act bond. The state court suit proceeded more speedily than the instant ease, and plaintiff received partial recompense in that litigation on November 15, 1971. The remainder of the monies owed plaintiff by Godbe, some $21,790, was awarded by the federal district court in its judgment entered August 2, 1972.

In attacking this subsequent federal decision, defendants raise five points, which we will treat seriatim: (1) when a Hardeman Act bond has been provided, Texas law precludes recovery against or involving the owner in any way other than by suit on that bond; (2) by proceeding to judgment in the state suit, plaintiff made an election of remedies under Texas law and cannot recover on a second bond; (3) the Transameriea bond was to be available only in the event of a Government takeover of the project; (4) plaintiff did not comply with the ninety day notice provision of the Transameriea bond; and (5) plaintiff is barred by the Texas doctrine of judicial estoppel from showing timely notice.

I. THE HARDEMAN ACT

In 1961 the Texas legislature extensively amended the Mechanics’ and Materialmen’s Lien Act, creating what is popularly known as the Hardeman Act. Among the many changes made was the addition of Article 5472d. This new statute provides for the filing of a bond by the prime contractor on a construction site, which bond will then stand in lieu of any liens on the property that would otherwise be available under Texas law to sub-contractors who had furnished labor or materials for the project. Such a payment bond has long been required in Texas of any prime contractor involved in building for the State or its agencies. See Article 5160, V.A.T.S. Through suits on the bond, rather than through the perfection of liens on public facilities, materialmen are protected, work on state projects is made attractive and secure, and the State is guaranteed unencumbered occupancy and use of essential projects.

Article 5472d extended this regime from the public into the private sector. For the protection of materialmen, definite standards were established in the form, filing, and amount of these private construction bonds. See Article 5472d(l)-(3). For the protection of prime contractors and their sureties, detailed and highly technical notice requirements were promulgated. See Article 5472d(4). For the protection of owners, persons in the position of defendant Penner-Ring, the legislature provided Section 7 of the new act.

“In all cases where bonds have been filed in accordance with this Article, no suits shall be filed against the owner nor against his property, and any purchaser, lender or other person acquiring any interest in said property shall be entitled to rely upon the record of such bond and contract on file as constituting payment of all claims and liens for labor, or subcontracts, or materials or specially fabricated materials, as if he were the owner who approved, accepted and endorsed the bond; and the owner shall be relieved of all obligations under Articles 5454, 5463 and 5469 hereof. If the valid claims against a bond are in excess of the penal sum of the bond, each claimant shall be entitled to share pro rata in such penal sum.”

Defendants call upon us to validate their interpretation of this provision. Simply put, it is their contention that Section 7 creates an absolute bar to any other method of collection by a materialman against or involving the owner . once a Hardeman Act bond has been posted. Defendants argue that Section 7 goes beyond providing an optional shelter for owners, to the point of disabling them, and their sureties, from making voluntary, contractual efforts to afford materialmen additional protection. Under such a reading of the Texas law, the Transamerica bond becomes a legal nullity in the State, since no suits could have been brought under its provisions after the filing of the Hardeman Act bond.

Neither this Court nor the parties have discovered any state decisions addressed directly to the effect of Section 7 on the freedom of an owner to contract for additional liability. As nearly as we can determine, this is a matter of first impression; and this Court, ever mindful of Erie’s teaching, must be particularly careful to consider itself in both spirit and substance a court of the state. For though we are without direct authority on the point in question here, the legislative and judicial tribunals of Texas have provided three inconclusive but illuminating beacons to light our Erie way, (1) the direction of the Supreme Court of Texas on the purpose of the 1961 amendments and the spirit in which they are to be interpreted; (2) the use of language in the statute itself; and (3) state court opinions in cases involving other sections of the Hardeman Act.

The Supreme Court of Texas has indicated that the 1961 amendments to the lien statutes were designed to remove technical obstacles to recovery by subcontractors and materialmen. Addressing itself to an owner’s argument that Article 5469 of the Act should be interpreted to deny relief that would have been available under the old law, the Court said:

“If there was a purpose or intention in the Hardeman Act to reduce the measure of protection afforded laborers and materialmen on a construction project ... it was not expressed in the caption or the emergency clause. True to its stated purpose, the bill continued the overall scheme of its antecedents and improved the protection offered various types of mechanics and materialmen.”

Hayek v. Western Steel Company, 1972, 478 S.W.2d 786, 792 (Tex.Sup.Ct.). In line with this view of legislative purpose, the Court endorsed continued reliance on the “rule of long standing that the mechanic’s and materialman’s lien statutes of this State will be liberally construed for the purpose of protecting laborers and materialmen.” In elaborating on the underlying justification for such a standard, the Court noted that,

“[o]ne reason for the lien statutes and the liberal rule of construction is that labor and materials lose all further value to the laborer and material-man once they are furnished and put into the house or building, but they usually enhance the value of the property to the benefit of the owner and those who take under him.”

Id. at 795. Certainly in this case, plaintiff has furnished material and labor which has inured to the benefit of defendant Penner-Ring.

Informed by the opinion in Hayek on the proper attitude to assume in applying this statute, we can turn to the language of the Act itself. Section 7 does explicitly provide that once a bond has been properly filed by the prime contractor, as obligor, running to the owner, as obligee, for the benefit of materialmen and for a sum in excess of the contract price, “no suits shall be filed against the owner nor against his property.” It explicitly removes the statutory protections provided sub-contractors by other provisions of the Hardeman Act. Consequently, once the bond has been filed, the owner is shielded from both the personal liability and responsibility imposed by Articles 5454, 5463, and 5469, and the vulnerability to liens created by Article 5452. However, an examination of the entire act indicates that the legislature drew a distinction between suits against an individual, either in personam or in rem, and suits filed under the provisions of a bond. Accordingly, although the prime contractor and his surety are named as defendants in a Hardeman Act case, Section 4 of the statute explicitly views such claims as actions to be enforced “against the bond.” Though hardly conclusive on the question of Section 7’s meaning, the Act’s use of language to distinguish simple actions against persons in contract or on a lien from proceedings initiated under a bond is legitimately persuasive in determining the scope of the statute’s ban on additional suits against the owner. It indicates that the legislature distinguished between suits on a bond and suits against individuals, and that a ban on the latter should not necessarily be applied to the former. In light of this distinction, we should not be quick to assimilate into the forbidden category this suit against an independent, voluntarily given security, without the clearest kind of state direction.

This reluctance is considerably bolstered by the view of the terms of Article 5472d offered by the Texas courts. In Barlite, Inc. v. Trinity Universal Insurance Company, 1966, 400 S.W.2d 405 (writ ref’d n. r. e.), the Court of Civil Appeals (San Antonio), though specifically considering only the notice and coverage provisions of the Article, presents a brief description of the effect of Section 7 on materialmen’s remedies.

“Under the terms of Art. 5472d, when a bond with corporate surety is furnished by an original contractor in a penal sum of not less than the contract amount, it constitutes claimant’s only statutory security — replacing the lien claim on the property.” [emphasis added]

400 S.W.2d at 407. When the Texas Supreme Court came to consider Barlite after extended procedural wrangling in the lower courts, it also noted that “[t]he bond required by Art. 5472d is to take the place of the liens fixed by Art. 5452 . . . .” Trinity Universal Insurance v. Barlite, Inc., 1969, 435 S. W.2d 849 (Tex.Sup.Ct.). This interpretation is a far cry from the proposition advanced by defendants on this appeal. For defendants urge us to hold that not only does the Act remove the statutory remedies already mentioned, but that it also prevents recovery on any additional non-statutory security that the owner might provide.

The constitutional and statutory grants of diversity jurisdiction to the federal courts have placed on us the burden of making a novel interpretation of Texas law. It is not a task which we have welcomed, but rather one that we could not conscientiously have avoided.

However, having been instructed by the Texas Supreme Court to interpret this Act liberally for the benefit of those in plaintiff’s class, having observed the distinctions drawn by the legislature between actions on a bond and suits against a person, and having received in Barlite the teaching of the Texas courts that Article 5472d was designed merely to consolidate the statutory remedies available to a materialman, we must conclude, however warily, that a Texas court would not find an action on the Transamerica bond covered by the Hardeman Act’s ban on additional suits against the owner.

II. ELECTION OF REMEDIES

The Texas law on the limitation of contractual remedies is not disputed by the parties. The Court of Civil Appeals (Dallas) has succinctly stated the general rule, that

“A contract will not be construed to limit the remedial rights of the parties unless such an intention is clear. But when parties stipulate in a contract what the consequences of a breach of the agreement shall be, such stipulation if reasonable is controlling and excludes other consequences.”

Wilburn v. Missouri, Kansas & Texas R. Co., 1954, 268 S.W.2d 726, 731, quoting 12 Am.Jur. § 458. Defendants argue that the Hardeman Act bond, of which plaintiff is a third party beneficiary, provides the degree of explicit limitation of remedies required under state law; and that, by rushing to judgment in the state court suit, plaintiff became bound by the Hardeman bond’s prohibition on further actions.

Defendants’ argument raises an interesting question on the extent to which a third party beneficiary to several contracts can be precluded from exercising rights under one agreement by the provisions of a wholly separate one. Even assuming that the contract between Braselton and Penner-Ring sought to preclude further suits in the event of a default on required payments to sub-contractors, it is difficult to see how that agreement could affect an independent contractual obligation, also running to plaintiff’s benefit, between Penner-Ring and the United States. However, we need not delve into the Texas law of' third party beneficiaries, for defendants base their contention that the Hardeman Act bond has explicitly limited available remedies entirely on the fact that the bond incorporated the provisions of Article 5472d. The election of remedies argument therefore depends upon our interpretation of Section 7 for even the most tenuous validity. Since we have not found that provision to bar reliance on additional bonded security, defendants are without any contractual terms excluding the remedy sought on the Transamerica bond.

Nor are we haunted here with possibly inconsistent remedies or double recovery of damages. The Hardeman Act relief was limited only by failure to comply with the quite rigid notice requirement of that statute; and plaintiff has reduced its claim under the Transamerica bond by the amount of the state court judgment. Plaintiff has elected neither contractually nor logically inconsistent remedies in the understandable attempt to recover the full value of labor and material furnished Braselton for defendant Penner-Ring’s benefit.

III. THE TRANSAMERICA BOND

The third argument advanced in favor of reversal of the district court shifts our emphasis from the Hardeman Act to the provisions of the Transamerica bond. Defendants contend that “the [Transamerica] bond sued upon was contemplated to only benefit mechanics and materialmen if and when the United States Government took over the ownership of the United States Post Office Project.”

Defendants’ reasoning on this point is remarkable. They note first that under the Miller Act, 40 U.S.C.. § 270a et seq., any person contracting with the Government to furnish or repair a public building or public work for any sum in excess of $2,000 must provide a performance and payment bond. Although the leaseback arrangement in this case prevented the Miller Act from governing, since the Post Office building would not become a public facility until after its completion, the Department nevertheless required the posting of the Transamerica bond on a Miller Act form. Defendants now argue that the only explanation for the Government conduct must have been its desire to provide for payments to materialmen in the event that Penner-Ring would wholly default on its agreement to build and thereby force the Government to step in prematurely as owner under the original agreement. Relying on the Texas rule that persons are assumed to contract only for their own benefit, and that third party beneficiary status must be clearly shown to permit recovery, defendants urge that plaintiff’s failure to demonstrate the Government’s interest in benefiting materialmen, absent a take-over, blocks relief under the Transamerica bond.

This argument completely misconstrues both the law of Texas and the facts of the case. It is the clear rule in Texas that

“one who is not privy to the written agreement may demonstrate satisfactorily that the contract was actually made for his benefit and that the contracting parties intended that he benefit by it so that he becomes a third-party beneficiary and eligible to bring an action on such agreement.”

Republic National Bank v. National Bankers Life Ins. Co., 1968, 427 S.W.2d 76, 79 (Ct. of Civil Appeals, Dallas, writ ref’d n. r. e.). See Banker v. Breaux, 1939, 133 Tex. 183, 128 S.W.2d 23 (Comm.App., Section A, opinion adopted). See also Camco Oil Corp. v. Vander Laan, 5 Cir., 1955, 220 F.2d 897. The state courts have established with equal clarity that the intention of the parties to benefit others must be ascertained from the language of the contract itself.

“In this connection it must be emphasized that it is not the intention which the parties may have had, but failed to express in the instrument, but it is the intention which by said instrument they did express. Stated another way, the question is not what the parties meant to say but the meaning of what they did say.”

Id. 427 S.W.2d at 79-80. See Citizens National Bank v. Texas & P. Ry. Co., 1941, 136 Tex. 333, 150 S.W.2d 1003; Davis v. Andrews, 1962, 361 S.W.2d 419 (Ct. of Civil Appeals, Dallas, writ ref’d n. r. e.).

The Texas law directs us to find the intention of the parties in their written agreement. An examination of the Transamerica labor and material bond reveals language explicitly stating that the agreement is designed to benefit third parties in plaintiff’s position, indeed the guarantee of payment to suppliers is the whole purpose of a construction payment bond. The agreement among the United States, Penner-Ring, and Transamerica Insurance Company states that

“[t]he above named Principal and Surety hereby jointly and severally agree with the Government that every claimant as herein defined, who has not been paid in full before the expiration of a period of ninety (90) days after the date on which the last of such claimants’ work was done or performed or materials were furnished by such claimant, may sue on this bond for the use of such claimant, prosecute the suit to final judgment . and have execution thereon.”

No language could more accurately cover the position of plaintiff. Moreover, the bond is conspicuously lacking in any indication that its provisions will apply only in the event that the Principal, Penner-Ring,. should default on its obligation to the Government. Three preconditions to liability under the bond are listed: (1) delivery of labor and material on the project; (2) failure of payment; and (3) delivery of notice. Under the Texas standards for interpretation of a contract urged upon us by defendants, this Court cannot “resort to arbitrary rules of construction where the intention of the parties is clearly expressed in unambiguous language.” Citizens National Bank v. Texas & P. Ry. Co., supra, 150 S.W.2d at 1006.

Moreover, even were we to find sufficient ambiguity in the instrument to require a search into underlying motives for the Transamerica bond, defendants would fare no better. It is their contention that it makes no sense for the Government to require a bond in this non-Miller Act situation. A careful analysis reveals, however, that the action of the Post Office in contracting for the benefit of materialmen is perfectly understandable in a case such as this. When a project is owned by the United States, and consequently covered by a Miller Act bond, the Government is constitutionally protected from the interference of state liens with its occupancy or disposition of the property. A Miller Act bond must therefore be viewed as an example of laudable Government concern for the welfare of subcontractors deprived of the security of liens, and also as an effort to make work on public projects as attractive and sought after as a job in the private sector. See United States for Benefit of Sherman v. Carter, 1957, 353 U.S. 210, 77 S.Ct. 793, 1 L.Ed.2d 776; St. Paul Fire and Marine Ins. Co. v. United States, 8 Cir., 1962, 309 F.2d 22. When the Government does not own the project from the beginning, but rather contracts to come in as lessee at a later date, an additional factor argues for the posting of a bond. For in such an instance the interim owner or eventual lessor is not protected from liens; and, without the posting of a payment bond, the Government might well find that its subsequent acquisition, leasing, or disposition of the property would be prevented or complicated by outstanding obligations. At the very least, it is not surprising that departments of the national government would rather make assurance doubly sure through bonds like the one in question, here than wrestle with the intricacies of fifty different lien statutes . The unambiguous language of the bond conforms perfectly to the reasonable motives of the contracting parties. There exists no warrant for denying plaintiff relief on the ground that the Transamerica bond was not intended to operate absent a Government take-over of the project.

IV. THE NINETY DAY NOTICE Paragraph 3 of the Transamerica bond provides that:

“No suit or action shall be commenced hereunder by any claimant, (a) Unless claimant . . . shall have given written notices to the Principal and to the Surety above named, within ninety (90) days after such claimant did or performed the last of the work or labor, or furnished the last of the materials for which said claim is made

It is undisputed that plaintiff sent notice to defendants on April 2, 1970. In order for such notice to have been timely given, plaintiff must have supplied labor or material on or after January 2, 1970. The court below found that two activities undertaken by plaintiff subsequent to January 2 tolled the notice limitation period: (1) a training school for Post Office maintenance employees conducted by plaintiff from January 21 through January 23, 1970; and (2) the rewiring and recalibration of chillers and cooling equipment “subsequent to January 26.” Defendants do not deny that such events took place at the times found by the district court. However, they allege that the actions performed in late January are not within the proper definitions of “work” and “materials furnished” as those terms are used in the Transamerica bond.

Although this project was not governed by the provisions of the Miller Act, the Transamerica bond was executed on a form prescribed by that Act; and the terms of that bond, including the language considered here, have been the subjects of extensive litigation in the federal courts. Defendants urge that, while the Miller Act decisions are not entirely controlling in the construction of contract terms in this diversity case, they are strong persuasive authority and should be seriously scrutinized by this Court. With this proposition we agree. We come to a parting of the ways with defendants, however, on the question of the clarity and direction of Miller Act precedents.

Defendants contend that the rewiring performed by plaintiff did not extend the time for notification under the bond, since it was merely repair woik. See General Insurance Company of America v. United States, 5 Cir., 1969, 406 F.2d 442; United States for Use and Benefit of Light & P. U. Corp. v. Liles Construction Company, 5 Cir., 1971, 440 F.2d 474. Defendants are correct in their statement of the general rule that "repairs” are not sufficient to toll the notice period. United States for Use of State E. S. Co. v. Hesselden Construction Co., 10 Cir., 1968, 404 F.2d 774. Like all limitations provisions the ninety day notice requirement in the Transamerica bond is designed to encourage the speedy resolution of disputes, to permit distribution of assets with a full knowledge of liability, and to provide both debtor and surety with an ultimate, secure repose. These ends would be largely thwarted were materialmen allowed to delay the final reckoning repeatedly by a series of minor adjustments to completed projects. But the federal courts have had difficulty distinguishing such insignificant activity, whether contrived or not, from major work, whether labelled repairs or additions, that arises unexpectedly after the supposed completion.

The limitations period of the bond, requiring suit within one year of the final work or delivery of material, has been tolled by as little as the replacement of defective pipe, where the importance of that task was verified by the attitude of Government inspectors. Trinity Universal Insurance Company v. Girdner, 5 Cir., 1967, 379 F.2d 317. A simple delay in required Government approval, however, has been held insufficient ground for the extension of the notice term. United States v. Liles Construction Company, supra. On other occasions, the magnitude of the task, or its relation to a significant building component, has determined the final day for notice, with no reference to the Government's position. United States for Use of General Electric Co. v. Gunnar I. Johnson & Son, 8 Cir., 1962, 310 F.2d 899.

Common to all of these decisions, however, is the notion that each case must be judged on its own facts and that sweeping rules about “repairs” offer little help in the necessary analysis. Plaintiff, Johnson Service Company, agreed to install temperature control equipment. According to the findings of the district court and undisputed testimony in the record, plaintiff, while still conducting inspections of the project, learned in late January, 1970, of crucial defects in the operation of its equipment caused by the incorrect plans and specifications of other sub-eontraetors. Without the alteration of these mistakes, the central control panel, which regulated the air conditioning equipment, would not have been a workable installation. The court below specifically found that “the cooling system was not complete until the Plaintiff correctly wired the chillers and recalibrated the equipment.”

In light of the unexpected nature of the work, the fact that it arose from faulty plans furnished by others, and the. importance of the changes for the entire system, the labor performed by plaintiff after January 26, 1970, falls well within the range of conduct that has been recognized in Miller Act decisions as extending the notice period. See, e. g., Trinity Universal Insurance Company v. Girdner, supra; United States for Use of General Electric Co. v. Gunnar I. Johnson & Son, supra; United States for Use of Noland Co. v. Andrews, 4 Cir., 1969, 406 F.2d 790; United States for Use and Benefit of Austin v. Western Electric Co., 9 Cir., 1964, 337 F.2d 568. Whether our task be viewed either as a simple examination of the trial court’s findings of fact for indications of clear error or as an independent application of law to fact, the decision of the able district judge on this point must stand.

Recognizing that the maintenance school operated by plaintiff on January 21-23, 1970, cannot by characterized as repairs by any stretch of judicial fancy, defendants abandon their Miller Act analogy and attack the finding below on the basis of Texas law. They argue that plaintiff’s agreement with Godbe to “furnish all labor and materials required to make a complete workable Temperature Control Installation” must be read to limit labor to the energy expended in the installation alone; and that it cannot include the work performed in connection with the school. The district court, however, specifically found that the school was essential for completion of the installation and was, therefore, necessarily included by the parties under the voluntary terms of the labor and material contract and bond. Defendants cite no Texas cases that would require us to overrule this interpretation. Indeed, defendants’ one state authority, 47 Texas Jurisprudence 2d, relies on state cases that give the broadest possible reading to the word labor, as it is used in construction contracts.

“The term ‘labor’ is a very broad term, with a well defined, understood, and accepted meaning, and includes all bodily or intellectual exertion done for a purpose other than the pleasure derived from the performance.”

Massachusetts Bonding & Insurance Co. v. Steele, 1927, 293 S.W. 647, 648 (Ct. of Civil Appeals, Waco, writ ref’d). No one has yet contended that plaintiff ran its protracted maintenance school for the sheer fun of it, and ample evidence supports the district court’s determination that the school formed an integral part of the original agreement.

V. JUDICIAL ESTOPPEL

The Texas law on judicial estoppel, applicable to this Texas contract, is succinctly stated in the landmark decision of the state Supreme Court in Long v. Knox, 1956, 155 Tex. 581, 291 S.W.2d 292, 295:

“The doctrine of judicial estoppel is not strictly speaking estoppel at all but arises from positive rules of procedure based on justice and sound public policy. It is to be distinguished from equitable estoppel based on inconsistency in judicial proceedings because the elements of reliance and injury essential to equitable estoppel need not be present. ‘Under the doctrine of judicial estoppel a party is estopped merely by the fact of having alleged or admitted in his pleadings in a former proceeding under oath the contrary to the assertion sought to be made.’ 31 C.J.S. Estoppel § 121, p. 390 ....
It has likewise been held that it is not necessary that the party invoking this doctrine have been a party to the former proceeding.” Judicial estoppel is a technical rule designed to meet needs of broad public policy. It is directed against those who would attempt to manipulate the court system through the calculated assertion of divergent sworn positions in judicial proceedings. Because the rule looks toward cold manipulation and not an unthinking or confused blunder, it has never been applied where plaintiff’s assertions were based on fraud, inadvertence, or mistake. See Blackburn v. Blackburn, 1942, 163 S.W.2d 251 (Ct. of Civil Appeals, Amarillo).
Defendants base their claim for application of this rule on two of plaintiff’s written statements involved in the previous state court suit on the Hardeman Act bond, in which Braselton Construction and its surety were named defendants: (1) a letter dated December 16; 1969, from plaintiff to Braselton claiming the entire balance due under the installation contract and (2) a lien affidavit filed in state district court on January 16, 1970, stating that “claimant [plaintiff] has furnished all labor and material required to make complete workable temperature control installation ...” Since both of these alleged completion statements were made prior to the work relied on by the court below, defendants contend that plaintiff’s late January activities cannot now be used to demonstrate delivery of labor or material after January 2. However, an examination of the facts indicates that these statements come within neither the letter nor the spirit of judicial estoppel.

Long v. Knox specifically applies the estoppel only in the event that pleadings have been made under oath in a prior proceeding. The December 16 letter, however, was not included in plaintiff’s pleadings in the state court suit. Moreover, the original petition filed in state court was not made under oath, nor was it required to be by the Texas Rules of Civil Procedure. Plaintiff’s mere statement on the witness stated or in answer to interrogatories that the December 16 letter constituted notice of unpaid debts does not satisfy the technical requirement of sworn pleadings laid down in Knox. Nor does the application of judicial estoppel on the basis of the general language of the letter, which makes no specific reference to completion, comport with the underlying rationale of the doctrine — the preservation of the sanctity of the oath and the elimination of prejudice in the event that specific, calculated, and contradictory positions are taken in judicial proceedings. Such a rule does not allow for the resolution of ambiguities in favor of estoppel. Cf. Yarber v. Pennell, 1969, 443 S.W.2d 382 (Ct. of Civil Appeals, Dallas, writ ref’d n. r. e.).

Equally troublesome technical and interpretive problems prevent the use of judicial estoppel on the basis of the January 16, 1970, lien affidavit. Though this latter statement was made under oath and does contain strong language of completion, a serious quéstion is raised as- to whether the affidavit comes within the definition of “pleadings” as that term is used in Knox and the Texas Rules of Civil Procedure. And even were we to resolve this question in favor of a broad reading of Knox, defendants would nevertheless fail, if only on the basis of the impromptu nature of the chiller rewiring. For the district court found that the post-January 26 work was unexpectedly forced on plaintiff through no fault of its own. The uneontradieted testimony on which the district court based this finding indicates that plaintiff simply did not know on January 16, at the time its sworn statement was made, the nature of the task that lay ahead. Long v. Knox cannot be extended to reach an affiant whose major failing is the absence of clairvoyance. This is precisely the type of situation for which the inadvertence and mistake exceptions to the application of judicial estoppel were designed. Defendants are once again unable to bring their case within the precise .language or fundamental purpose of the rule. Many courts have at one time or another stretched one of these elements in order to accommodate the other; but no warrants in precedent or common sense can justify the distortion of both urged on us by defendants.

CONCLUSION

Deceptively simple on its facts, this case has required an analysis of several of the most technical and infrequently litigated provisions of Texas law. We have tread on uncharted paths through lien laws to find the valley of decision. With the guidance provided by the opinion and findings of the district court and the invaluable indications of Texas policy revealed in state court decisions, we have completed our journey. We do not intimate immortality for this opinion, it represents merely the best that mortal federal judges can do.

Affirmed.

      . Penner-Ring Company is a partnership composed of Joseph Penner, Seldon Ring, and Ellis Ring. Each of these parties is individually joined as a defendant.

      . Relief was limited in the state court proceeding to recovery for labor and material provided after October 1, 1969. The state court found that plaintiff was barred from additional recovery on that bond by its failure to comply with the notice requirements of the Hardeman Act, Article 5472d(4), V. A.T.S.

      . Articles 5452 et seq., V.A.T.S.

      . Any pursuit of legislative intent in this case is made somewhat illusory by the fact that the situation under consideration here was almost certainly not in the contemplation of the legislature at the time the Act was passed. Generally, construction is a buyer’s market with each purchasing enterprise, whether it be the owner, prime contractor, or major sub, holding the whip hand over many sellers anxious for its business. Cf. Schultz, “The Firm Offer' Puzzle: A Study of Business Practice in the Construction Industry,” 10 Chi.L.Rev. 237 (1952). Cases like the one considered here, in which some ultimate owner or user is able and willing to use leverage against the owner for the benefit of lowly materialmen, are doubtless few and far between.

      . Though the Hardeman Act bond eventually provided full protection against liens under state law, at the time of the original agreement and the making of the Transamerica bond, no Hardeman Act bond had been posted, nor did Penner-Ring’s contract with the Government call for any state payment bond.

      . Both the ninety day notice period and the one year term for initiating suit are calculated from the same day — the point of last delivery of labor or material.

      . See Rule 93, Texas Rules of Civil Procedure.


author: GODBOLD, Circuit Judge:

text:
    Ann M. ZIMMERER, Ph.D., etc., Plaintiff-Appellant-Cross Appellee, v. Thomas M. SPENCER, Individually, etc., and San Jacinto Junior College District, et al., Defendants-Appellees-Cross Appellants.
    No. 72-2709.
    United States Court of Appeals, Fifth Circuit.
    Aug. 28, 1973.
    Rehearing and Rehearing En Banc Denied Nov. 12, 1973.

      Larry Watts, Houston, Tex., W. Michael Gottesman, Washington, D. C., for appellant.
    Jeff Crane, Houston, Tex., Stanley Baskin, Pasadena, Tex., for appellees.
    Before TUTTLE, GODBOLD and MORGAN, Circuit Judges.
   GODBOLD, Circuit Judge:

This is a teacher discharge case. The District Court found that Dr. Zimmerer, a teacher at San Jacinto Junior College, in Texas, was entitled to procedural due process because, though non-tenured, she had “an expectancy of reemployment under the policies and practices of the institution” (emphasis added). It found that the college Board of Regents had deprived her of procedural due process by refusing to renew her contract without sufficient notice of charges against her and without a sufficient hearing. Relief was granted in the form of the pay (and salary raise) that she would have received during the following year, plus attorney fees. Both sides have appealed. We are of the opinion that the District Judge correctly resolved the matter, and affirm.

The record adequately supports the finding that Dr. Zimmerer was not accorded procedural due process, and we agree with that finding. The Board insists, however, that the Supreme Court decision in Perry v. Sinderman, 408 U.S. 593, 92 S.Ct. 2694, 33 L.Ed.2d 570 (1972), which was handed down after the District Court’s decision in the present case, requires that this case be reversed. The argument misconceives both Perry and the trial court decision in the case before us. In Perry the Supreme Court held that a merely subjective expectancy of reemployment by a non-tenured teacher was not such an interest that the threatened loss of it was protected by the due process clause of the fourteenth amendment. It is at least arguable whether the prior “expectancy of employment” cases were ever wholly subjective. Certainly many of them embraced objective facts concerning prior actions and usages. Perry does not reject but rather requires analysis of such objective facts, discarding only the “mere subjective expectancy” of the teacher as the predicate for procedural due process. The Supreme Court recognized that the absence of an explicit written contractual provision did not always foreclose the possibility that the teacher had the necessary “property” interest in reemployment, arising from the employer’s words and actions whose meaning would be found in the usage of the past. 408 U.S. at 601, 92 S.Ct. at 2699, 33 L.Ed.2d at 580.

A teacher, like the respondent, who has held his position for a number of years, might be able to show from the circumstances of this service — and from other relevant facts — that he has a legitimate claim of entitlement to job tenure. Just as this Court has found there to be a “common law of a particular industry or of a pai’ticular plant” that may supplement a collective-bargaining agreement, United Steelworkers v. Warrior & Gulf Co., 363 U.S. 574, 579, [80 S.Ct. 1347, 1351, 4 L.Ed.2d 1409, 1415], so there may be an unwritten “common law” in a particular university that certain employees shall have the equivalent of tenure. This is particularly likely in a college or university, like Odessa Junior College, that has no explicit tenure system even for senior members of its faculty, but that nonetheless may have created such a system in practice. See Byse & Joughin, Tenure in American Higher Education 17-28.

408 U.S. at 602, 92 S.Ct. at 2700, 33 L.Ed.2d at 580. This concept of unwritten “property” interests is fleshed out by language in Board of Regents v. Roth, 408 U.S. 564, 92 S.Ct. 2701, 33 L.Ed.2d 548 (1972), decided the same day. There the Court pointed out the necessity for giving meaning to the term “property” as used in the due process clause and noted that it had eschewed rigid or formalistic limitations on the protection of procedural due process. More specifically the Court said:

The Fourteenth Amendment’s procedural protection of property is a safeguard of the security of interests that a person has already acquired in specific benefits. These interests — property interests — may take many forms.

408 U.S. at 576, 92 S.Ct. at 2708, 33 L.Ed.2d at 560. And, after describing various situations in which one may have a protectible interest in a benefit, the Court continued:

Certain attributes of “property” interests protected by procedural due process emerge from these decisions. To have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it. . It is a purpose of the constitutional right to a hearing to provide an opportunity for a person to vindicate those claims.

Id. at 577, 92 S.Ct. at 2709, 33 L.Ed.2d at 561.

Dr. Zimmerer’s cqse clearly falls within the “common law of the institution.” Indeed, that is substantially what the District Judge said by his statement that Dr. Zimmerer’s had an expectancy of reemployment “under the policies and practices of the institution.” If at that time the Supreme Court’s decision had been available the findings of fact might have been more precisely targeted, but the statement quoted, appearing after a description of the objective facts of institutional policies and practices, is more of a precursor of the Supreme Court in Perry than inconsistent with it.

Like the college in Perry, Dr. Zimmerer’s college had no explicit tenure system even for its senior members. She had taught in the college for six years and had been department chairman for five. She was the senior member of the Psychology Department. Although faculty contracts were issued for only one year at the time, the Faculty Handbook contained a section entitled “Tenure” which stated that “Tenure is expected to be stable.”

The term “tenure” in the handbook must be given some content and meaning short of formalized tenure, which did not exist at the college. The Board attempts no explanation of what the term means, nor does it claim that the presence of the provision in the handbook is an accident. Rather it says that Dr. Zimmerer’s and the District Judge should not have placed so much reliance on what the handbook said. Also, under an established procedure, if the college decided that a teacher’s contract was not to be annually renewed the teacher was placed on probation. This, the president explained, “is a way of telling them that unless the corrections were made that were thought to be necessary that at the end of the year the contract would not be renewed.”

Thus the facts reexamined with the benefit of the Supreme Court’s guidance support the existence of a protectible property interest.

This leaves the question of whether the relief granted by the District Court was correct. We think that it was.

In Perry the Supreme Court stated: Proof of such a property interest would not, of course, entitle him to reinstatement. But such proof would obligate college officials to grant a hearing at his request, where he could be informed of the grounds for his nonretention and challenge their sufficiency.

408 U.S. at 603, 92 S.Ct. at 2700, 33 L.Ed.2d at 580-581. In the present ease the District Court, in its hearing, not only inquired into the issue of whether Dr. Zimmerer had a property interest but also went to the merits of the controversy between Dr. Zimmerer and the college and concluded that there were “valid non-discriminatory, constitutionally sufficient reasons for the Board’s actions.” Thus the court had gone past the point of remanding to the Board, as contemplated by Perry, to enable that body to inquire into the merits of the dispute. See also Ferguson v. Thomas, 430 F.2d 852 (CA5, 1970). The District Court recognized that remand to the Board would be useless because three years had elapsed since the original incident, because, as the court found, the Board’s reasons for its actions were sufficient [which finding, of course, left little doubt what the result of a remand would be] and because the parties themselves recognized that their feelings were so deeply entrenched that remand was fruitless. Having vindicated Dr. Zimmerer’s interest in having a full and fair hearing on the substantive merits of her discharge, as the Board should have done originally, and having found that the Board had valid reasons for discharging her, the Court was then faced with the question of the appropriate relief due Dr. Zimmerer for the delay in affording due process.

Dr. Zimmer insists she is entitled to reinstatement at this time and until the Board gives her a hearing complying with due process, and back pay from the time of refusal to renew her contract. The Board suggests that under Perry the District Court could grant neither reinstatement (which it did not do) nor back pay but could order only a remand to the Board with directions to conduct a hearing complying with due process. We think neither extreme is required in this case.

In deciding upon remedy, the District Court considered the scope of Dr. Zimmerer’s original protectible interest. In effect it found that the “constructive tenure” she had was for one-year’s employment and that this was what she lost. This finding was supported by the existence of the procedure, described above, of putting an unsatisfactory teacher on probation for one year and then not renewing her contract for the succeeding year. An argument can be made that during a year of probation she might have rehabilitated the situation. But in view of the finding that the Board’s reasons for its actions were valid, and the finding that the controversy was intractable and recognized by the parties to be such, we cannot say that the court was wrong in considering as a practical consequence that the most that Dr. Zimmerer lost was one year’s pay. Under other circumstances different relief may be appropriate.

We have considered the argument that independently of the foregoing Dr. Zimmerer is entitled to a hearing at this time for the purpose of “clearing her name,” because the Board’s action is a deprivation of her liberty. Board of Regents v. Roth, supra; see also Moore v. Knowles, 482 F.2d 1069 [No. 71-3523, CA5, Aug. 2, 1973, opinion on rehearing]. The District Court correctly found that there had been no deprivation of liberty in the Roth ease sense.

Affirmed.

      . Including a reference to a tenured teacher. Perry makes clear that the protectible tenure interest of the teacher is not limited to an arrangement formally incorporated into a written contract.

      . If the court, rather than itself deciding the merits of the dispute, had remanded to the Board for it to discharge that function, the Board, as the initial body to consider potential remedies, would have had the duty to fashion relief.