New Amsterdam Casualty Co. v. Waller

64 S.E.2d 826, 233 N.C. 536, 1951 N.C. LEXIS 335

• Court: Supreme Court of North Carolina
• Decided: May 2, 1951
• Docket: 454
• Status: Published

Opinion

BaRNHill, J.

The contract sued upon is a contract of indemnity in which the defendant obligates himself to save the plaintiff harmless from any loss it might suffer by reason of its compliance bond issued in behalf of the Construction Company. In executing the same did the defendant become surety for the Construction Company? The court below answered in the affirmative. In this conclusion we are unable to concur.

Contracts of indemnity and of suretyship differ in a number of material repents. In indemnity contracts the engagement is to make good and save another harmless from loss on some obligation which he has incurred or is about to incur to a third party, and is not, as in suretyship, a promise to pay the debt of another. Somers v. U. S. Fidelity & Guaranty Co., 217 P. 746; Indemnity Co. v. Knott, 136 So. 474.

A surety is directly and immediately liable for a debt; an indemnitor is liable for the loss established by unsuccessful efforts by the indemnitee to collect from the debtor. In re Brock, 166 A. 778. The contract of a surety involves a direct promise to perform the obligation of the principal in the event the principal fails to perform; a contract of indemnity obligates the indemnitor to reimburse his indemnitee for loss suffered or to save him harmless from liability, but never directly to perform the obligation indemnified. Gill v. Johnson, 69 P. 2d 1016; Mahana v. Alexander, 263 P. 260.

A contract of suretyship requires three parties: the principal, the surety, and the promisee or obligee; while indemnity requires only two: the indemnitor and the indemnitee. Moore v. Bank, 264 N.W. 288; 42 C.J.S. 567.

The promise of an indemnitor is original. The promise of a surety is superadded to that of the principal; the first is direct, the second is collateral. Dozier v. Wood, 208 N.C. 414, 181 S.E. 336; Moore v. Bank, supra; Trust Co. v. Cattle Co., 286 N.W. 766; 42 C.J.S. 564.

Ordinarily, it is true, a contract of indemnity refers to and is founded on another contract, either existing or anticipated, between the indemnitee and a third party, and the indemnitor covenants to protect the indemni-tee from any loss he may incur as a party to such other contract. Yet it is not a contract to answer for the contractual debt, default, or miscarriage of one other than the promisee, but a contract to make good the loss resulting from such debt, default, or miscarriage. Blades v. Dewey, 136 N.C. 176; Howell v. Com’r. of Int. Rev., 69 F. 2d 447; Peterson v. Nelson, 252 P. 368; Land Co. v. Handle, 171 A. 520.

A policy of fidelity insurance insuring an employer against loss on account of the peculations of an employee, or a political agency against the defalcation of an officer is a contract of indemnity. The promisor contracts to make good the loss occasioned by the breach of faith by another. Yet no one would seriously contend that the promisor is a surety and not a principal.

It follows that the contract sued upon is an original agreement executed on an independent consideration and the defendant promisor is a principal. The ten year statute of limitations, G.S. 1-47 (2), is controlling. Crane Co. v. Longest & Tessier Co., 177 N.C. 346, 99 S.E. 8; Chappell v. Surety Co., 191 N.C. 703, 133 S.E. 21; Garren v. Youngblood, 207 N.C. 86, 176 S.E. 252; Coleman v. Fuller, 105 N.C. 328; U. S. v. Mitchell, 74 E. 2d 571.

We do not mean to say that the maker of a contract of indemnity is in all events a principal; that under no condition is he a surety. When, however, the promisor has a personal, immediate, and pecuniary interest in the transaction in which the third party is the original obligor, the courts will always give effect to the promise as an original and direct promise to pay.

Here, the defendant was not only a stockholder of the Construction Co. having a direct and immediate pecuniary interest in its contract with West Virginia, he was also a silent partner of the Construction Company in making that contract. It is so stipulated in his indemnity agreement. As such he was and is originally, directly, and primarily liable for the payment of the debts of the partnership. Such interest and liability on his part was a substantial consideration for the execution by him of the contract sued upon.

The judgment below is

Reversed.