Wright v. Fid. & Deposit Co. of Md.

• Decision Date: 17 December 1935
• Docket Number: Case Number: 24640
• Parties: WRIGHT v. FIDELITY & DEPOSIT CO. OF MARYLAND.
• Court: Oklahoma Supreme Court

1935 OK 1215

54 P.2d 1084

176 Okla. 274

WRIGHT v. FIDELITY & DEPOSIT CO. OF MARYLAND.

Case Number: 24640

Supreme Court of Oklahoma

Decided: December 17, 1935

Syllabus

¶0 1. PRINCIPAL AND SURETY--Action Against Building Contractor's Surety -- Proof of Judgment Against Contractor Held to Make Prima Facie Case.

Where a building contractor executes a building contract which provides in substance that the contractor will construct a building for a sum certain or as much less as is necessary and is to receive as his compensation therefor 10 per cent. of the cost of construction; and, pursuant to said contract, a surety company executes a bond to the owner, which bond in substance undertakes that the contractor, as the principal shall faithfully perform the contract on his part, together with other conditions therein contained, and when thereafter the owner institutes a suit against the contractor and recovers judgment for fraudulent overcharges, and after securing said judgment against the contractor, said owner institutes a suit against the bonding company, held, that upon the establishment of a judgment by the owner against the contractor, a prima facie case is made against the surety.

2. CONTRACTS--When Covenants Implied.

A contract consists not only of the agreement of the parties expressed in words, but also such covenants as are reasonably implied; and covenants are implied in a contract, first, when so clearly a part of the contract that the court can say the parties considered them so without the necessity of writing theme, into the contract; or second, where implying such covenants is necessary to carry out the expressed agreements.

3. PRINCIPAL AND SURETY--Action Against Surety on Contractor's Bond--Judgement for Defendant not Sustained.

Record examined, and held, that the trial court committed error in rendering judgment for the defendant.

Appeal from District Court, Oklahoma County; Jesse J. Worten, Assigned Judge.

Action by John H. Wright against the Fidelity & Deposit Company of Maryland. Judgment for defendant, and plaintiff appeals. Reversed and remanded.

A. Gray Gilmer and John H. Wright, for plaintiff in error.

Thurman, Bowman & Thurman and T. Raymond Higgins, for defendant in error.

BAYLESS, J.

¶1 The plaintiff in error, John H. Wright, plaintiff below, appeals to this court from a judgment of the district court of Oklahoma county, Okla., in favour of the defendant in error, Fidelity & Deposit Company of Maryland, a corporation, the defendant below. The parties will be referred to as they appeared in the trial court.

¶2 The facts are these, substantially: Plaintiff (and another who need not be noticed further herein) entered into a written contract with one McCright, a builder, to construct a hotel building, and defendant became surety upon McCright's bond for the faithful performance of the contract. The contract price for the building was to be $ 400,000 or such part thereof as was necessary to pay for the materials, labor, etc., plus 10 per cent. thereof for McCright's services. Later alterations in the plans and specifications changed the contemplated maximum cost somewhat, but not in a manner material to the determination of this action. When McCright had completed the building he was paid a certain amount by the plaintiff. Litigation then ensued between plaintiff and McCright, McCright claiming to have been paid in full and plaintiff cross, petitioning for overpayments alleged to have been procured from him by McCright by means of misrepresentation, fraud, and deceit. Plaintiff recovered judgment against McCright, by a verdict of the jury, for the sum of $ 37,241.52. Plaintiff then instituted the action out of which this appeal arises, against defendant as surety on McCright's bond.

¶3 The principal defense made by the defendant is: That the bond is what is called a performance bond as distinguished from a fidelity bond, and it has not undertaken nor is it bound to assure McCright's fidelity in his relations with plaintiff.

¶4 The Plaintiff contends that because of the obligations resting upon McCright, under the contract, he was bound to be honest and faithful in his dealings with plaintiff and that the defendant obligated itself to assure McCright's honesty, faithfulness, and fidelity.

¶5 The pertinent portions of the contract between plaintiff and McCright are as follows:

"Article 1.

"The contractor shall furnish all of the materials 'and perform all of the work shown on the drawings and described in the specifications entitled Black Hotel, 10 stories in height, and located at Hudson & Grand avenues, Oklahoma City, Okla. * * * and shall do everything required by this agreement, the general conditions of the contract, the specifications and drawings. * * *

"Article 3.

"The owner Shall pay the contractor for the performance of the contract, subject to additions and deductions provided therein, in current funds, as follows: $ 400,000 (four hundred thousand dollars) * * * or such part thereof as is necessary to pay for all labor, material, appliances, bond, travelling expenses, interest, overhead, etc., required to erect and complete the structure plus 10%, which is to pay for the contractor's services: the contractor agrees to guarantee the cost, however, not to exceed the above stipulated amount. * * *

"Article 4.

"Progress Payments -- The owner shall make payments on account of the contract as provided therein, as follows: On or about the first * * * day of each month * * * 100% per cent. of the value, based on the contract prices of labor and materials incorporated in the work and of materials suitably stored at the site thereof up to the * * * first day of that month, as estimated by the architect less the aggregate of previous payments; and upon substantial completion of the entire work, a sum sufficient to increase the total payment to * * * 100% * * * per cent. of the contract price. * * * The owner shall pay the contractor 75% of his fee monthly as the work progresses."

¶6 The pertinent portions of the bond are as follows:

¶7 Know all men: That we, E. V. McCright * * * hereinafter called the surety, are held and firmly bound unto John W. Wright * * * hereinafter called the owners, * * * in the sum of two hundred thousand and no/l00 ($ 200,000) dollars. * * *

"Whereas, the principal has, by means of a written agreement, dated June sixteenth, 1980, entered into a contract with Lucian Black for construction of a ten story building at the corner of Hudson street and Grand avenue, Oklahoma City, Okla., a copy of which agreement is by reference made a part hereof:

"Now, therefore, the condition of this obligation is such that if the principal shall faithfully perform the core, tract on his part, and satisfy all claims and demands, incurred for the same, and shall fully indemnify and save harmless the owners from all costs and damage which he may suffer by reason of failure so to do. and shall fully reinsure (sic) and repay the owners all outlay and expense which the owners may incur in making good any default, and shall pay all persons who have contracts directly with the principal for labor or materials, then this obligation shall be null and void: otherwise, it shall remain in full force and effect."

¶8 Since the bond refers to the contract and makes the contract a part of the bond. the two must be construed together. 50 C. J. 77, citing Commercial Cas. Ins. Co. v. Breckenridge, 128 Okla. 215, 262 P. 208, and Willoughby v. Fidelity & Deposit Co., 16 Okla. 546, 85 P. 713, 7 L. R. A. (N. S.) 548.

¶9 In our opinion the general rule for interpreting the obligations of a surety on a bond is generally stated in 21 R. C. L. 975, sec. 28. This is a rule calling for a strict Interpretation. However, many courts, and this one among them, make a difference in the application of the rules of construction of the obligations of a gratuitous surety and a compensated surety, or a surety for hire, as our statute puts it, See section 10613, O. S. 1931, and the cases of Columbia B. & T. Co. v. U.S. F. & O. Co., 33 Okla. 533, 126 P. 556; Southwestern Surety Ins. Co. v. Bd. of Comm'rs, 77 Okla. 137, 187 P. 467; and Fuqua v. Tulsa Masonic Bldg. Ass'n, 129 Okla. 106, 263 P. 660. See, also, 50 C. J. 80, sec. 133. The duty of this court, then, is to Ignore re the rule of strictissimi juris, and to liberally construe the obligations of the contract of surety under consideration.

¶10 Referring again to the portion of the bond above...