Gill v. Paysee

226 P. 302, 48 Nev. 12, 1924 Nev. LEXIS 2

• Court: Nevada Supreme Court
• Decided: June 4, 1924
• Docket: 2610
• Status: Published

Opinions

Bond provides surety will save county harmless from loss by breach of contract, not that it will pay contractor's debts. Materialmen and laborers cannot sue on bond not made for their benefit. The few cases holding to contrary are lost in great weight of authority. First M.E. Church v. Isenberg, 92 A. 141; Page on Contracts, sec. 2408; Babcock v. Surety Co., 236 Fed. 340 (distinguishing Peake v. U.S., 16 App. D.C. 415, and Spear v. U.S., 31 App. D.C. 376, in which bond, though defective, provided contractors pay for material); 27 Cyc. 308.

Statute will not be read into bond to create liability not disclosed. Schaarbauer v. Lampasas Co., 214 S.W. 468.

If bond is not conditioned as required by statute it furnishes no protection to materialmen. Wilcox Co. v. School, 114 N.W. 263. Crux of case is whether bond was in contemplation of 1913 Stats. 407. Appellant claims it was merely to indemnify county and not for faithful performance.

Stats. 1921, 63, was read into bond which recites board was acting under its provisions. Statute is in bond precisely as if expressly referred to. E.I. Dupont Co. v. Culgin Co.,92 N.E. 1023; 15 C.J. 561.

Contract and bond refer to 1921 statute which refers to 1913 statute. This constitutes adoption. Thaites v. Bicksbee,167 P. 166; 36 Cyc. 1152; 2 Sutherland Cons. (2 ed.) 787.

When statutory terms are referred to they are binding though not set forth. People v. Surety Co., 105 N.E. 99.

Where bond is executed to secure performance of contract, bond and contract must be construed together. Walker Co. v. Surety Co., 211 P. 998.

Public building contract and bond that contractor furnish or provide material and perform labor, mean to pay for same and third party furnishing either can sue on such bond. Nye etc. Co. v. Roeser, 173 N.W. 605.

OPINION This is an appeal from a judgment rendered upon the overruling of appellant's general demurrer to a complaint filed to recover a balance of $2,900 of an amount due upon a contract for labor performed upon and materials furnished and used in the construction of a public building known as the "Lander County High School," at Battle Mountain, Nevada, in said county.

The facts alleged in the complaint are substantially as follows:

The legislature at its session in 1921 enacted a law which authorized, empowered, and directed the board of county commissioners of Lander County to issue bonds not to exceed in amount the sum of $75,000 for the purpose of providing funds for the construction of a county high school building in the town of Battle Mountain in said county, upon a site to be chosen by the county board of education, and for equipping and furnishing the said building. Statutes 1921, p. 63. The act provides that the board of education of said county, when created and organized pursuant to law, or, until so created and organized, the board of county commissioners, acting as a county board of education pursuant to law, shall determine as to the character of said building, the materials to be used therefor, and the plans therefor, and when such determination is made said board shall advertise for bids for the construction of said building and let the construction thereof by contract to the lowest and most responsible bidder. The laws in force governing the letting of contracts by boards of county commissioners are made applicable to and govern the action of the board in carrying out the provisions of the act.

Said board of county commissioners (designated the owner), acting as the board of education of said county, and in pursuance of said act, on the 5th day of January, 1922, let a contract to one Robert Paysee (designated the contractor) for the erection and construction of said building, in which the contractor agreed to provide all materials and perform all the work for the erection and construction of said building in accordance with the drawings and specifications on file in the office of the clerk of said county and made a part of the agreement, and agreed to complete said building not later than August 15, 1922. The agreement states:

"The full price to be paid for such work and materials is sixty-two thousand and no/100 (62,000) dollars, payable in accordance with said specifications, subject to additions and deductions therein provided for."

The contractor agreed to purchase the entire issue of bonds provided for in said act at par.

To secure the construction of the building, the contractor, contemporaneous with the letting of said contract, gave a bond to secure its performance, with the United States Fidelity and Guaranty Company as surety, which bond is conditioned as follows:

"Whereas, said principal has entered into a certain written contract with the obligee, dated January 5, 1922, to provide all the materials and perform the work for the erection and construction of building known as `Lander County High School,' at Battle Mountain, Nevada.

"Now, therefore, the condition of the foregoing obligation is such that if the said principal shall well and truly indemnify and save harmless the said obligee from any pecuniary loss resulting from the breach of any of the terms, covenants and conditions of the said contract on the part of the said principal to be performed, then this obligation shall be void; otherwise to remain in full force and effect in law: Provided, however, that this bond is issued subject to the following conditions and provisions:

"First. That no liability shall attach to the surety hereunder unless, in the event of any default on the part of the principal in the performance of any of the terms, covenants or conditions of the said contract, the obligee shall promptly, and in any event not later than thirty days after knowledge of such default, deliver to the surety at its office in the city of Baltimore, written notice thereof with a statement of the principal facts showing such default and the date thereof; nor unless the said obligee shall deliver written notice to the surety at its office aforesaid, and the consent of the surety thereto obtained, before making to the principal the final payment provided for under the contract herein referred to.

"Second. That in case of such default on the part of the principal, the surety shall have the right, if it so desire, to assume and complete or procure the completion of said contract; and in case of such default, the surety shall be subrogated and entitled to all the rights and properties of the principal arising out of the said contract and otherwise, including all securities and indemnities theretofore received by the obligee, and all deferred payments, retained percentages and credits, due to the principal at the time of such default, or to become due thereafter by the terms and dates of the contract.

"Third. That in no event shall the surety be liable for a greater sum than the penalty of this bond, or subject to any suit, action or other proceeding thereon that is instituted later than the 5th day of January, A.D. 1923.

"Fourth. That in no event shall the surety be liable for any damage resulting from, or for the construction or repair of any work damaged or destroyed by an act of God, or the public enemies, or mobs, or riots, or civil commotion, or by employees leaving the work being done under said contract, on account of so-called `strikes' or labor difficulties.

"Fifth. (a) That the surety shall not be liable for damages for injuries to the person of any one, under or by authority of any statutory provision for damages or compensation to any enployee, or otherwise; and

"(b) Shall not be obligated to furnish any bond or obligation other than the one executed."

After the execution and delivery of said contract and bond, the contractor entered upon the construction of the building, and on or about the 27th day of May, 1922, entered into a contract with one W.C. Gill, whereby said Gill agreed to wire said building and install a clock system therein for the agreed price of $3,400. Gill performed his contract, and $500, and no more, was paid him for his labor and materials furnished and used in the construction of the building, leaving a balance of $2,900, which the contractor and the surety on his bond, upon the demand of Gill, refused to pay.

The building was accepted by the owner's architect as a completed building in accordance with said drawings and specifications on December 4, 1922, and the building was formally received by the board of county commissioners of Lander County as a completed structure on January 2, 1923. On said date the owner owed the contractor a balance of $10,150 on his building contract. Prior to that date the contractor had assigned, or attempted to assign, all or a greater portion of said sum to the Battle Mountain State Bank. On the day the building was received the owner caused an order to be made and entered in its minutes directing that said sum of $10,150 due the contractor be paid over to the United States Fidelity and Guaranty Company, the surety on his bond. Thereafter the Battle Mountain State Bank commenced an action against said board of county commissioners and certain officers of Lander County and prayed for an injunction that they be restrained and enjoined from the payment of said sum of $10,150 to said surety company, which action is pending.

On the 24th day of February, 1923, W.C. Gill, as subcontractor, commenced this action against Robert Paysee, the contractor, and the United States Fidelity and Guaranty Company, to recover judgment for the sum of $2,900, alleged to be due him upon his contract for the labor, material, and equipment furnished and used in the construction of the building, and for $500 attorney's fee. In addition to the recital in his complaint of all the facts hereinabove set out, he alleged that the bond given to secure the performance of the contract between Paysee, the contractor, and the board of county commissioners, as owner, was exacted, required, and obtained pursuant to a statute enacted in 1913 entitled:

"An act requiring bonds for the protection of subcontractors, laborers and materialmen on public buildings and structures; providing for the filing of such bonds and the giving and effect of certified copies thereof; creating a penalty for failure to exact such bonds; relating to actions thereon, to procedure in such actions, and allowing an attorney's fee to the prevailing party." Statutes 1913, 407.

The defendant Paysee did not appear in the action. The defendant company interposed a general demurrer to the complaint, which was overruled. Said defendant elected to stand upon its demurrer and allowed judgment to go against it for the sum of $2,900 and $500 attorney's fee. Thereafter said defendant perfected its appeal from said judgment, and upon appeal assigns as error that the complaint does not state facts sufficient to constitute a cause of action against appellant and that the complaint does not support the judgment. The record does not disclose upon which of the two grounds urged in this court in support of the general demurrer the order of the district court overruling the demurrer was based, and therefore the question of whether the complaint supports the judgment is presented here de novo.

It is contended that the plaintiff cannot maintain this action against appellant for two reasons: First, that it is apparent that the bond sued upon was executed solely to indemnify and save harmless the obligee from any pecuniary loss resulting from any breach of the principal's contract to provide all the materials and perform all the work for the erection and construction of the building known as the Lander County High School; that said bond was not given for the benefit of laborers and materialmen, and since plaintiff is not a party to the bond, he has no cause of action against appellant upon the bond as a common-law undertaking. Second, that the bond sued upon is not the bond required by the statute of 1913, enacted for the protection of subcontractors, laborers, and materialmen, in that the bond does not contain the mandatory condition required by the statute, which is as follows:

"Which bond shall be conditioned that the contractor shall well and truly pay, or cause to be paid, all just debts contracted by him for labor performed upon and materials furnished for the work provided to be done by said contract."

In considering the statute of 1913 and the scope of the bond as a statutory undertaking, my associates entertain divergent views. Their conclusions, however, upon this branch of the demurrer do not dispose of the case. The basis for the demurrer is that regardless of the character of the instrument sued on, whether it be classed as a common-law undertaking or a bond required by the statute, the plaintiff cannot maintain this action against appellant, because, in strictness, the bond is solely for the benefit of the owner and was given to indemnify and save harmless the owner from any pecuniary loss resulting from the breach of the contractor's agreement to provide all the materials and perform all the work necessary for the construction of the school building according to the drawings and specifications therefor. It is argued that the building was completed according to contract and was accepted by Lander County through its board of county commissioners; that the county has sustained no loss, and it is not alleged that it has suffered any loss or that it will suffer any, and since the payment of claims of laborers and materialmen were not provided for in the bond, the liability of appellant cannot by construction be extended so as to include laborers and materialmen, on the theory that the contractor's agreement to provide all the materials and perform all the work was equivalent to an agreement to pay therefor. This proposition seems to be supported by the greater weight of authority, but I am not unmindful of the authorities cited by counsel for respondent, which are to the effect that contracts of similar character to the one here involved are for the benefit of laborers and materialmen.

1. I am unable, however, to follow the argument of able counsel for appellant that in the determination of the legal bounds of appellant's liability upon its surety contract, the rule of strictissimi juris must be applied. The class of suretyships to which appellant belongs is not regarded as "a favorite of the law." And if the terms of the surety contract are susceptible of two constructions, that one should be adopted, if consistent with the purpose to be accomplished, which is most favorable to the beneficiary. See Royal Indemnity Co. v. Northern Granite Stone Co., 100 Ohio St. 373, 126 N.E. 405, 12 A.L.R. 378, note page 382. The court in that case remarks:

"Especially is this so when the contract of suretyship employs ambiguous terms relating to those furnishing labor and material which enter into the structure."

It is interesting to note that in the opinion the court expressly disapproves the principle announced in Cleveland Metal Roofing, etc., Co. v. Gaspard, 89 Ohio St. 185, 106 N.E. 9, L.R.A. 1915A, 768, Ann. Cas. 1916A, 745, and approves the case of W.P. Fuller Co. v. Alturas School District, 28 Cal.App. 609,153 P. 743, holding that a contract to provide labor and materials at the contractor's own risk, cost, and expense is not for the benefit of the owner alone, but, as well, for the benefit of laborers and materialmen.

2. Appellant contends that there is nothing in the bond here involved which, either by express provision or by necessary implication, guarantees the payment by the contractor of laborers and materialmen; that the bond is conditioned that if the contractor shall well and truly indemnify and save harmless the obligee from any pecuniary loss resulting for his failure to provide all the materials and perform all the work necessary for the construction of the building, its obligation shall be void. Therefore, in the opinion of counsel, it cannot reasonably be claimed that the contractor's engagement to provide the materials and perform the work casts any liability upon appellant to pay therefor.

Coming to the real question in the case, as said in one of the cases cited by appellant, the case is not difficult, unless we try to make it different from what it really is. In the opinion of the writer, the parties themselves have placed such a practical construction upon the bond as to make it inure to the benefit of plaintiff. On the day the building was received as a completed structure according to the drawings and specifications, the obligee and the surety were confronted with the contractor's default in payment for the labor and materials which entered into the structure. The price fixed by the agreement to be paid for such work and materials was $62,000, payable according to the drawings and specifications. The obligee was required by the condition of the bond to notify the surety in the event of any default on the part of the contractor, and not to make the last payment due the contractor in case of such default without its consent. In this situation the obligee, instead of recognizing the contractor's assignment of the amount due him for the work and materials, ordered said sum to be paid over to appellant, his surety, for no purpose that I can perceive other than to enable the appellant to indemnify and save harmless the obligee from any pecuniary loss resulting from the default of the contractor to pay for the labor and materials which entered into the completed structure. The acts and conduct of the parties on the day for final settlement is a demonstration that their interpretation of the contract and bond was that the agreement of the contractor to provide all labor and material was equivalent to an agreement to pay therefor. Except as stated, the contract was in all other respects performed, and the appellant cannot consistently contend, under the attendant facts and circumstances, that plaintiff has no direct right of action on the bond as a third party beneficiary.

To suppose that such was not the understanding of the parties is too unreasonable a proposition to be for a moment entertained. If it were not contemplated by the parties that the contractor was obligated by his contract to pay for the labor and material which entered into the structure, there was neither reason nor necessity for the obligee to order that the last payment due the contractor of $10,150 be paid over to the appellant, his surety. In my judgment, this was such a contemporaneous construction of the contract and the bond given for its fulfillment that it should govern in their interpretation.

I conclude that the labor and materials furnished in this case were within the obligation of the surety company on the bond, and in that view I affirm the judgment, with the understanding that I intimate no opinion as to who is entitled to the sum of $10,150 due upon the building contract.