R.P. Williams & Co. v. U.S. Fidelity & Guaranty Co.

Citation75 S.E. 1067,11 Ga.App. 635
Docket Number4,270.
Decision Date09 October 1912
PartiesR. P. WILLIAMS & CO. et al. v. UNITED STATES FIDELITY & GUARANTY CO.
CourtUnited States Court of Appeals (Georgia)

Syllabus by the Court.

Where in consideration of the execution of a bond by a surety company, the condition of which was the faithful performance by the principal of a certain building contract, the principal executed a written instrument as a part of the application for the bond, agreeing to indemnify the surety company "against all loss, costs, damages, charges, and expenses whatever resulting from any act, default, or neglect" of the principal which the surety might "sustain or incur," the indemnity agreement of the principal was not merged in and extinguished by the bond, but suit for its breach could be brought thereon at any time within the statutory period.

The liability of the principal to the surety in the bond, under the indemnity agreement set forth above, does not constitute a claim provable in bankruptcy against the estate of the principal until the surety has actually paid the obligee in the bond the damages sustained by reason of the principal's default. No such damage has been sustained or incurred by the surety, within the meaning of the agreement until after actual payment.

(Additional Syllabus by Editorial Staff.)

A deed is not allowable in bankruptcy, unless it is provable; but it may be provable, without being allowable. Allowability implies, not only provability, but also validity; and if for any reason the claim is improper, or if there is a good defense to it, it is not allowable, though it may be provable, as a debt.

"Indemnity" consists in the obligation or duty resting on one person to make good any loss or damage another has incurred while acting at his request or for his benefit.

Error from City Court of Atlanta; H. M. Reid, Judge.

Action by the United States Fidelity & Guaranty Company against R P. Williams & Co. and others. Judgment for plaintiff, and defendants bring error. Affirmed.

The case as made by the petition was substantially as follows: The defendants entered into a contract for the building of a schoolhouse in the state of Florida. They executed to the trustees of the school a bond in the penal sum of $7,500, conditioned to faithfully comply with all of the terms of the contract. The bond further provided that, if the principals should fail to comply with the conditions of the contract to such an extent that the same should be forfeited, the surety should have the right to assume the contract and to sublet or complete the building, whichever the surety might elect to do; that in the event of a breach of any of the conditions of the bond the surety should be subrogated to all the rights of the principals under the contract, and all deferred payments and all money and property at that time due and payable, or which might thereafter become due and payable, to the principals under the contract, should be credited upon any claim which the trustees might make upon the surety because of the breach of contract. The bond was issued pursuant to a written application made to the surety company by the contractors, in which application they agreed to indemnify the surety "against all loss, costs, damages, charges, and expenses whatever resulting from any act, default, or neglect of ours that said United States Fidelity & Guaranty Company may sustain or incur by reason of its having executed said bond or any continuation thereof." The agreement further provided: "And we further agree, in the event of our being unable to complete or carry on the aforementioned contract, to assign such plant as we may own, or have upon said work, to the said United States Fidelity & Guaranty Company, that it may use the same in the prosecution of said work to completion. We hereby further agree, for ourselves, our heirs, executors, and administrators, to accept the vouchers or other evidence of any losses paid by the United States Fidelity & Guaranty Company under the aforesaid obligation, together with vouchers, or other evidence of payment, of all costs and expenses whatever incurred by the said United States Fidelity & Guaranty Company in adjusting such loss or in completing said contract, as conclusive evidence against us and our individual estates of the fact and extent of our liability under said obligation to the said United States Fidelity & Guaranty Company. And we do further agree, in the event of any breach or default on our part of the provisions of the contract hereinbefore mentioned, that the United States Fidelity & Guaranty Company, as surety on the aforesaid bond, shall be subrogated to all our rights and properties as principals in said contract, and that deferred payment and any and all moneys and properties that may be due and payable to us at the time of such breach or default, or that may thereafter become due and payable to us, on account of said contract, shall be credited upon any claim that may be made upon the United States Fidelity & Guaranty Company under the bond above mentioned." The application, with the agreement made by the contractors therein embodied, was under seal and duly signed by the contractors. The application was made on March 24, 1900, and the bond was executed on March 29, 1900. The contractors having defaulted, suit on the bond was brought against the principals and the surety, and on July 1, 1904, judgment was duly rendered against them, and on February 20, 1905, the surety paid the judgment, amounting to $5,475.36.

The present suit was brought by the surety against the principals in the bond to recover this sum, together with certain sums paid by the surety for attorney's fees, costs, and other expenses, in connection with the litigation. After setting forth the facts above detailed, the plaintiff alleges that by reason of these facts the defendants are liable, jointly and severally, to indemnify and pay over to the plaintiff the loss, costs, damages, and charges above set forth, all of which, it is averred, resulted from the default of the defendants under the contract, for the faithful performance of which the bond was given and the indemnity contract made. The defendants demurred to the petition, upon the ground that it did not distinctly appear upon what cause of action the plaintiff had declared--whether for money paid for the use of defendants, or upon the judgment rendered against the plaintiff, or upon the bond upon which the plaintiff was surety, or upon the application for the bond, containing the indemnifying agreement on the part of the defendants. It is insisted by the demurrer that, if the suit is based upon the application, the petition should be dismissed, because the application was extinguished when the bond was issued, and could not serve as a cause of action against the defendant, having been merged in the bond; that, if the action is based upon the bond, it fails, because the bond was merged in and extinguished by the judgment; that, if the suit is based upon the judgment, it should be dismissed, because it does not appear that the judgment was ever assigned to the plaintiff, and because the action is barred by the statute of limitations; that, if the cause of action is for money paid for defendants' use, it is likewise barred by the statute of limitations. The demurrer raised the further objection that the contract made by the defendants with the school trustees is not set forth in or attached to the petition. The demurrer was overruled. The defendants answered, admitting the execution of the bond and the application, copies of which were exhibited with the petition. The answer also admitted the recovery of a judgment in the state of Florida and contained the special defense that on May 28, 1901, the defendants filed their petition in bankruptcy and were duly adjudged bankrupt, and on October 5, 1901, were discharged in bankruptcy.

The case was submitted to the presiding judge, without the intervention of a jury, upon an agreed statement of facts. The amount of liability was agreed upon, if the defendants were liable at all. It was further agreed that on November 9 1900, the defendants abandoned their contract with the trustees of the school in Florida for the erection of the schoolhouse referred to in the bond executed by the plaintiff as surety; that immediately thereafter the trustees took charge of the building, and on April 13, 1901, completed it, and that on May 14, 1901, they gave notice of its completion to the plaintiff and the surety on the bond referred to, and made demand upon the surety for payment of the amount that they had expended upon the building in excess of the contract price; that on May 28, 1901, the defendants filed a voluntary petition in bankruptcy, and on the same day were duly adjudged bankrupt; that in the schedule attached to the petition it was recited that in April, 1900, the defendants entered into a contract for the building of the schoolhouse referred to in the bond; that to guarantee the completion of the contract the bond was executed, with the plaintiff as surety thereon; and that the school board terminated the contract by taking charge of the building and completing it. It was further recited in the bankrupts' schedule that: "Whether or not there will be any liability on said bond petitioner is unable to say, as the matters involved in said contract and said building and the termination thereof have not been adjusted." In the schedule of creditors whose claims were unsecured appeared the name of the plaintiff, with the statement that the petitioner's liability to the surety company was fully described in another schedule, referred to above. On July 31, 1901, the trustees of the school proved their claim in the bankrupt court for $6,876.08, for...

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