U.S. Fid. & Guar. Co. v. Thomlinson Co.

Citation172 Or. 307,141 P.2d 817
PartiesUNITED STATES FIDELITY & GUARANTY CO. ET AL. <I>v.</I> THOMLINSON-ARKWRIGHT CO ET AL.
Decision Date13 October 1943
CourtSupreme Court of Oregon
                  Contractor as indemnitee, note, 12 A.L.R. 1411. See, also, 21
                R.C.L. 978
                  17 C.J.S., Contracts, § 313
                

Before BAILEY, Chief Justice, and BELT, ROSSMAN, KELLY, LUSK, BRAND and HAY, Associate Justices.

Appeal from Circuit Court, Multnomah County.

ALEX G. BARRY, Judge pro tempore.

Action by the United States Fidelity & Guaranty Company and another against Thomlinson-Arkwright Company and the Occidental Indemnity Company to recover on a subcontractor's bond executed by first-named defendant in favor of Warren Northwest, Inc., to which the plaintiffs had issued public liability policies. From an adverse judgment, plaintiffs appeal.

REVERSED.

David Sandeberg, of Portland, (Sheppard & Phillips, of Portland, on the brief) for appellants.

John Lichty, of Portland (Robert Clapperton, of Portland, on the brief) for respondent.

This is an action on a bond which was executed by the Thomlinson-Arkwright Company, as principal, and the Occidental Indemnity Company, as surety, in favor of Warren Northwest, Inc. The plaintiffs are the United States Fidelity and Guaranty Company and the General Casualty Company of America, who claim to be subrogated to the rights of the Warren Company on the bond and against the surety thereon. The principal on the bond was never served, and the cause against the Occidental Indemnity Company went to trial before the court without a jury upon stipulated facts, no testimony being taken. Judgment was entered for the answering defendant. The plaintiffs appeal.

We shall refer to the plaintiffs as the U.S.F. & G. Company and the General Casualty Company, respectively to Warren Northwest, Inc., as the Warren Company or the general contractor, to the Thomlinson-Arkwright Company as the Thomlinson Company or the subcontractor, and to the Occidental Indemnity Company as the Occidental Company.

The facts appear from the admissions of the pleadings and the stipulation of the parties. The two plaintiffs and the answering defendant are qualified surety companies. The Warren Company entered into a contract with the State of Montana for the improvement of a certain highway in that state. Shortly thereafter each of the plaintiffs issued its separate liability insurance policy to the Warren Company. A few days later the Warren Company entered into a written contract with the Thomlinson Company whereby a portion of the work was sublet to the latter company. Among many provisions this subcontract provided that the work should be done by the subcontractor strictly in accordance with the principal contract and "to the satisfaction of the engineer of the State Highway Commission." It was also provided that the subcontractor (the Thomlinson Company) shall

"* * * at its own expense carry public liability insurance for the account of itself and the Principal * * *."

It was also agreed that the subcontractor should give to the Warren Company

"* * * a Contract Bond in the penal sum of $50,000.00, executed by a corporate surety qualified to do business in the State of Montana, and in form acceptable to the Principal."

By reason of the fact that the subcontract incorporates into itself certain provisions of the principal contract between the Warren Company and the State of Montana, it becomes necessary to notice some of the terms of that principal contract. A bare outline will suffice. It was agreed between the Warren Company and the State of Montana that whenever possible a portion of the highway under construction would be closed and traffic detoured. The general contractor was required to avoid unnecessary interference with traffic, to maintain in passable condition ways to accommodate essential traffic, "particularly mail transportation, that cannot in the opinion of the Engineer be detoured over other existing highways." All work was to be done under the direct supervision of the engineer who was to decide all questions as to the quality and acceptability of materials and work performed, the manner of performance, rate of progress, the interpretation of plans and specifications and the fulfillment of the contract. The engineer's decision was to be final, subject only to review in court. Subcontracts were to be let only with permission, and if let were in no way to relieve the contractor of any responsibility under his contract. It was provided that

"* * * subcontractors will be recognized only in the capacity of foremen or responsible employees of the Contractor; and except as such they shall have no relations with the Commission."

It was also provided that all subcontracts

"* * * shall provide that the work be performed in accordance with all the provisions of the agreement of contract obligating the general contractor."

The engineer was given authority to suspend the work for various causes, and to direct the excavation and disposal of material from borrow pits. The times and manner in which watering of surface material might be resorted to were specified. The device to be employed in such watering was to be approved by the engineer prior to use. The use of a water plant and the amount of water used was to be as directed by the engineer.

Pursuant to the provisions of the subcontract between the Warren Company and the Thomlinson Company, the Thomlinson Company, as principal, and the Occidental Company, as surety, executed a bond in favor of the Warren Company, and it is on this bond that suit has been brought On the same day that the contract bond was executed, the Occidental Company, which was surety on the contract bond, also issued its public liability insurance policy which on its face covered the subcontractor, Thomlinson Company, alone, in its operations on the project.

Before setting forth the pertinent provisions of the bond, we will state the events which gave rise to the...

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