Nodaway Drainage District Number One v. Illinois Surety Co.

160 S.W. 999, 252 Mo. 543, 1913 Mo. LEXIS 126

• Court: Supreme Court of Missouri
• Decided: November 24, 1913
• Status: Published

Opinion

OPINION.

I.

BOND-, J.

(After stating the facts as above.)— The first error assigned by the appellant is, the action by the trial court in striking out that portion of its answer, which alleged as a defense that its principal, the Gilligan Company, had not been licensed to do business in this State, wherefore its contract with the. plaintiff was void; and hence the bond entered into by defendant securing the performance of said contract was also void. That is quite a novel proposition Corporation' Liability of surety. independent of its moral aspect. Whether ^he Gilligan Company could have enforced its contract against plaintiff or vice versa, is a matter between it and the plaintiff, as to which the present defendant is not interested. This action is for breach of the contract made by this defendant with the plaintiff by the terms and stipulations of the bond sued upon. This defendant was authorized to do business in this State by executing bonds, to. secure tbe performance of tbe obligations assumed by ptber persons or corporations, for which this defendant received a valuable consideration and probably indemnity. Tbe contract between tbe plaintiff and defendant, expressed in tbe bond sued upon, was in all respects lawful and made between competent parties. Its legal effect was an unconditional undertaking on tbe part of tbe defendant, that tbe Gilligan Company should faithfully perform tbe work and duties imposed upon it by an agreement between it and tbe plaintiff. If it became necessary for tbe Gilligan Company to obtain a State license before doing tbe work which it contracted to do, then tbe obtention by it of such a license was within tbe unconditional contract made by tbe defendant with tbe plaintiff that tbe Gilligan Company should faithfully carry out its contract with tbe plaintiff. Tbe license in question was not impossible to obtain, for under tbe law, it would have been issued to tbe Gilligan Company upon compliance on its part with tbe statutory requirements; hence, even if it should be held that such a license was essential to tbe validity or enforceability of tbe contract between plaintiff and tbe Gilligan Company, it would also have to be held that it was tbe duty of tbe present defendant under tbe agreement made in bond in suit, to see to it, that tbe Gilligan Company should take the proper steps to authorize it to proceed with its contract, and should thereafter, in all respects, well and truly perform such contract according to its stipulations and obligations. This upon the clear principle that tbe obligations of an unconditional contract impose upon tbe obligor tbe performance of all covenants which are not illegal or impossible of performance. [Whittemore v. Sills, 76 Mo. App. 1. c. 251.] It is evident that tbe obtention of a license to do business in this State by tbe Gilligan Company was a matter of easy accomplishment and which was sane-tinned and provided for by law of tbis State; and it is equally plain that the present defendant, having by its contract guaranteed the performance of the Gilligan contract, by necessary implication guaranteed that the Gilligan Company would take all proper steps required to enable it to perform its contract. The necessary corollary to these propositions is, that the failure of the Gilligan Company to do any of the things which, the defendant had contracted it should do, was breach of defendant’s contract which entitled plaintiff to the resulting damages. The contrary position now assumed by defendant is not only untenable, but places it in the unenviable attitude of repudiating the terms of a lawful contract for the making of which it received an adequate consideration, and, inferably, protection against loss which, as we understand, is the only basis upon which contracts like the one in suit are executed. [Lobaugh v. Thompson, 74 Mo. 600; Young v. Gaus, 134 Mo. App. 166.]

For the foregoing reasons we have reached the conclusion that the ruling of the trial court, on the point under review, was correct, irrespective of the technical support afforded to it, by the failure of the defendant to complain thereof in its motion for new trial or properly to present the matter for review. [Shohoney v. Railroad, 231 Mo. 1. c. 142; Williams v. Railroad, 112 Mo. 463.]

II.

The appellant in this case requested no instructions except a direction to find in its favor. It complains of certain instructions given for plaintiff and a misreception of evidence. The various points discussed in appellant’s oral argument and brief arise under the foregoing assignments of error and may be disposed of by a review of the questions presented by the above classification.

In support of the contention that there was error in the refusal of its peremptory instructions, appellants main contentions are; (a) that it did not receive the notice, prescribed by the terms of its contract with plaintiff, of the defaults and omissions of its principal, the Grilligan Company, in the matter of performing the work; (b) that plaintiff after the abandonment of the work by the Grilligan Company entered into materially different contracts with other persons. "We will consider these in order.:

III.

Attached to the bond in suit was provision that the obligor should be notified in writing of any act or default on the part of his principal, involving loss to of'oefauit'of06 Principal. the surety, within twenty-four hours,by registered letter mailed to the Chicago address of the Surety Company. The answer of the defendant sets up, as an affirmative defense, that the principal was ousted about January 1, 1908, from the further performance of the work, and “that John Gilligan and the John Grilligan Company [the principal] had up to that time performed all the conditions contained in said original contract as well as in its modifications, that they had agreed on their part to perform, in digging or otherwise.”

The answer nowhere pleads the failure to give notice as a release of defendant from its bond of surety-ship.

The respondent gave defendant the following - notices:

“Oregon, Mo., Jan. 16, 1908, Office of Chief Engineer of Nodaway Drainage District No. One.

“The Illinois Surety Company,

Chicago, Ill.

“Dear Sirs:

“In compliance with the provision of yonr bond, executed to the Nodaway Drainage District No. One, securing the John Gilligan contract with said drainage district, I hereby forward you the following notice by registered letter: The time of the contract between the said the John Gilligan Company and the said drainage district expired yesterday, the 15th day of January, 1908, and the said the John Gilligan Company has failed in the fulfillment of said contract.

“We will therefore, look to you for damages arising from said failure.

“Yours truly,

“ JOHN H.'Peeet,

“Chief Engineer and Superintendent of the Works.”

And afterwards these notifications and demands:

“It is hereby ordered by the board of supervisors of Nodaway Drainage District No. 1 that the John Gilligan Company, the assignee of the original contractor, John Gilligan, and the Illinois Surety Company, of Chicago, Illinois, the surety of the said contractor and its said assignee, be notified by the attorney of the said board, that they and .each of them, are required to adjust and settle, at once, with the said board of supervisors of said drainage district, for all damages resulting to said drainage district, by the failure of the said contractor' and its assignee and their sureties, the Illinois Surety Company, to comply with his, and its contract, and the conditions of said bond, and that unless such adjustment and settlement is so made by the fifth day of' February, A. D. 1908, legal steps will be taken by said drainage district against them, and each of them, upon the said.contract, assignment and bond'; and it is further ordered, that each of said parties, the John Gilligan Company and the Illinois Surety Company, be furnished with a copy of this order, duly certified by the secretary of this board, to be forwarded to each of them, to the last known post office address, by the said attorney of said district.

“I, Charles W. Lnkens, the secretary of the said Nodaway Drainage District No. 1, of Holt county, Missouri, hereby certify that the above and foregoing is a true and correct copy of an order made by the said board of supervisors at its last meeting held on the 22d day of January A. D. 1908, as fully as the same appears upon the minutes and records of the said Nod-away Drainage District No. 1. "

“Witness my hand with the seal of the said Drainage District No. 1, at the city of Oregon, Missouri, this 22d day of January, A. D. 1908.

. “O. W. Lukens,

• “Secretary Nodaway Drainage District No. 1

“(Seal Nodaway Drainage District No. 1.)”

To which this answer was made:

“January 30, 1908.

“Mr. T. C. Dungan, Attorney for Board of Supervisors, Oregon, Mo.

“Dear Sir: We acknowledge receipt of your notice of January 22d, relative to the John Gilligan Company.

‘ ‘ Same will receive our immediate attention.

“Tours truly,

“ILLINOIS-SURETY COMPANY,

“By James S. Hopkins.”

•On February 5th. respondent’s attorney sent the following letter which seems was unanswered.

“Office of T. C. Dungan, Attorney at Law,

“Oregon, Mo., February 5, 1908.

“The Illinois Surety Company, Chicago, Illinois.

“Dear Sirs: Your letter of recent date, in answer to mine, in reference to the default of the John Q-illi-gan Company, on its contract for the construction of the work and improvements, contracted by it, with the Nodaway Drainage District No. 1, and your consequent liability on your bond, was duly received, and I note what you say, as to the matter having your, immediate attention. The time expires today, and. the board has just had a meeting and have instructed me to write you in answer.

“The John Gilligan Company did not appear, although duly notified of the meeting, and so nothing' was done, or offered on their part. Mr. Stevens, the purchaser of the dredge boat, and assignee of the Gilligan contract, seemingly a good man, was present, but could do or offer nothing.

“The board refused to recognize his assignment, or to approve the same, or to extend the time to him, or to the John Gilligan Company, or to do anything until the liabilities' and damages sustained by it have been adjusted and settled by the said Gilligan Company or its surety,

“The board recognizes the right of such Surety Company to complete the said contract and work, within a reasonable time, according to the terms of the contract.

“Now, the board desires to know, at once, whether or not your company as such surety wishes to take hold, by itself, or by its contractors and employees, or to hire Mr. Stevens to finish this work, and complete the contract.

‘ ‘ The work and ditches, both main and lateral, are in bad shape and getting worse every day, and will soon fill up, unless they have immediate attention, and the damages suffered by the drainage district will be greatly enhanced and increased.

“If your company, explicitly, refuses to take charge of this w;ork, and complete this contract, then the board will feel at liberty to do it themselves, and look to the John Gilligan Company, and the surety on its bond, for all increased cost and damages sustained by such drainage district.

“Please let me bear from yon, at once, as to what your intentions are in this matter, so that the hoard may act advisedly, in the premises.

“Yours truly,

“T. C. DuNgaN,

“Attorney for Board of Supervisors of Nod-away Drainage District No. 1.”

We think these notices of the defaults of the principal were all that were required to he given under the terms of the bond, the allegation of due notice in the petition, and the averment in the answer that no defaults were made' by the principal up to January 1, 1908.

After this statement of the answer, respondent was not required to prove notice for any default or omission prior to the date (about June 1, 1908) before which the answer expressly admitted no defaults or failures of the principal had existed or taken place. For as said by Graves, J., in speaking of an answer against the interests of a defendant, “It is fundamental that what is admitted by the pleadings is unnecessary to be shown by the testimony.” [McKenzie v. United Railways Co., 216 Mo. 1. c. 19.]

Although the answer of the appellant in this case contained a preliminary clause, denying all allegations of the petition, ‘ ‘ except such as hereinafter admitted; ’ ’ this, by its very terms, could not be a denial of what was afterwards both admitted, and set up as a special defense to the action. Hence it was only necessary for respondent to show that the proper notice was given of the defaults after the time, up to which appellant admitted there were none.

Now it was incontrovertibly shown that on January 15, 1908, the time limit of the performance of his contract, the principal had abandoned it and left the work in a worthless state and not half completed. That thereafter, full and prompt notices of the defaults and failures of the principal were sent to the defendant whose reply was that “same will receive immediate attention.” The defendant did not in its correspondence, nor when its answer was filed, claim a want of prior notice or set that up as a release from the obligations of the bond. Neither did it give the matter any attention nor did it exercise its option to take charge of and complete the work or cause the same to be done.

Under the pleadings and evidence in this case we do not think the appellant is in any position to claim that due notice was not given to it of the defaults and failures of its principal and we overrule its contention on that point.

IY.

There is no evidence whatever that prior to the abandonment of the work by the contractor or before' the expiration of the time for its completion, any change of plan or performance was made which ma-Plan: No Evidence. change of terially altered the contract or effected its integrity.. Hence, this case does not fall within the rule relating to change in contracts during the course of performance, without the consent of the surety. [Fuller v. Doyle, 87 Fed. 1. c. 694; Heidbrink v. Schaffner, 147 Mo. App. 1. c. 643.] Since- the surety in the case at bar has not shown any facts or circumstances prior to the time when its principal abandoned his contract or before the date fixed for its completion which would entitle it to invoke the above rule, we hold the case does not fall within -its purview.

Y.

But the theory of the appellant is, as we gather it from the brief and argument, that the only remedy left to respondent after the time the work was to he Breach of Remedies. done and after it had been .abandoned by the contractor, was to take it in hand and cause it to be completed, strictly m accord with the provisions of the contracts under which it had been originally let, and after that had been done, to bring suit for the excess of the reasonable cost of its completion over the contract price. We cannot assent to that view. It is universally held that, upon the breach of a contract of the kind made by respondent with the Gilligan Company, and guaranteed by the bond of defendant, two remedies are open to the contractee against the contractor and his surety. The suggestion of appellant is one of these remedies, the other remedy is the right to sue for breach of such contract at any time thereafter, and to recover the probable damage directly caused by such breach. [Spink v. Mueller, 77 Mo. App. 1. c. 93; Hirt v. Hahn, 61 Mo. 496; Simons v. Wittmann, 113 Mo. App. 1 .c. 370.]

This is but the correlative of the rule of law governing cases where the contractor is notified by the other party that he has annulled and repudiated the contract. In such cases the rule is settled that the contractor may sue at once and recover as his damages “the difference between the contract price and what it would have cost to perform the uncompleted part.” [Berthold v. St. Louis Elec. Co., 165 Mo. 1. c. 304; Chapman v. Railroad, 146 Mo. 494; Black River Lumber Co. v. Warner, 93 Mo. 374; Gabriel v. Brick Co., 57 Mo. App. 520; 2 Sutherland on Damages (2 Ed.), sec. 713; Fitzgerald v. Hayward, 50 Mo. 1. c. 524.]

The only difference between those cases and the one at bar, is that here the contract was abandoned and repudiated by the contractor and not by the coh-tractee. Necessarily the contractee is entitled to compensation on the same basis which is applicable to the contractor; i. e., the difference between the reason-Measure of Damages. able cost of completing the work and the price agreed to be paid; and unless that would exceed the contract price nó recovery could be had, since the contractee (the drainage district) could not be damaged by being compelled to pay what it had agreed to pay. The purpose and object of the rule announced in the above decisions' was to measure the compensation of the contractor by the excess of the contract price over what it would have cost him to complete the work, thereby giving him the benefit of his contract. This is all that is sought in the present action. And it cannot affect the right of respondent to this relief, that a physical difference in the application of the rule (necessitated by the relative rights of the two parties to the agreement) re-qured proof in this case of the excess of cost above the contract price instead ¡of belotv.it This distinction rests only upon the peculiar interests and rights of the two parties to the agreement. But the principle of making the contract price the standard beyond which one of them could not recover, and below which the other could not be damaged, is identical. The injuries to each of the parties, upon a repudiation of the contract by the other, consists in the failure to get the benefit of the price fixed in his agreement, in the one case by being compelled to pay more than that sum, and in the other case by receiving less than that sum; the comparison in both cases, to be made as upon full performance of the work, by the suing party, at its reasonable cost.

After unavailing efforts to induce the appellant to take charge of . the further performance of the work, and after the principal had repudiated his contract and the time fixed therein for the work had expired, respondent undertook to complete the same under the new contracts with the other parties and brought this action against appellant for damages caused by the failure to comply with the obligations imposed by tire bond in the suit. [3 Sutherland on Damages (3 Ed.), sec. 699; Am. Surety Co. v. Woods, 105 Fed. 1. c. 746.]

The case was tried below upon the theory that respondent was entitled to recover any excess above the contract price which it had reasonably paid up to the time' of trial and would be compelled to pay for the completion of the' work, according to the plans and specifications of the original contract. This is shown by the instructions numbered 1, 2, 3 given by the court on behalf of the plaintiff, which set forth fully the original plans and specifications under which the work was to be performed, the bond and its conditions executed by appellant, together with a proper hypothesis of the facts, to' enable the jury to pass on the issues presented under this legal principle. We hold there was no error in thus submitting the case to the jury and that it was not indispensable that respondent in order to maintain his action, should first have completed or caused to be completed, the entire work; but that it had the legal right upon the expiration of the time limit of its contract, letting the work, and its abandonment in an unfinished state, to bring this action for the proximate damages caused by such breach against appellant, upon the guaranty contained in the bond in suit.

The conclusions reached above dispose of the criticism made by appellant upon the instructions given by the court and its refusal to direct a verdict.

VI.

Appellant makes some complaint as to the admission of testimony. An examination of the testimony objected to, does not sustain the view of the appellant, Evidence: that it was inadmissible on the ground that it contained a mere guess of the witness as to the cost- of the final completion of the work. In the instance at mind Mr. Peret stated: “When I said that it cost $14,000 to dig the ditch, I meant that it wonld cost $14,000 to finish what remains to he dng on the ditch from station O to Station 46. I don’t know to the exact cent. I am not guessing at it. In making my estimate of $14,000 I meant to put it in condition as is called for hy the plans and specifications.”

The record shows that this was only part of the uncompleted work and had no reference to the cost of its entire completion. The answer further , discloses that the estimate of the expert witness was made on the cost of the work if done according to the flans and specifications of the original contract. Which was the proper basis for the estimates.

There is evidence in the record that the aggregate of the amounts paid hy the plaintiff to the defaulting contractor, and.the reasonable sum expended for the prosecution of the work up to the timé of the trial, and the further reasonable sum which must be expended for its completion in the manner provided for in the original contract, will largely exceed the amount of recovery in this case, after the deduction of the contract price, from the foregoing aggregate. According to this testimony, the verdict of the jury is well within the damages suffered hy plaintiff and the judgment thereon is affirmed.

IN BANC.

PER CURIAM.

The foregoing opinion of Boetd, J., in Division is adopted by the Court in Banc.

Graves and Bond, JJ., concur; Brown and Faris, JJ., concur in result; Lamm, C. J., Woodson and Walher, JJ., dissent.