American Surety Co. of N.Y. v. Noe
| Decision Date | 21 June 1932 |
| Citation | 245 Ky. 42 |
| Parties | American Surety Co. of New York v. Noe. |
| Court | United States State Supreme Court — District of Kentucky |
2. Principal and Surety. — Plea of estoppel against right of contractor's surety to complain of certain payment was inadequate as plea of estoppel against, or waiver of, surety's chief defense, that breach of contract constituted release.
3. Principal and Surety. — Paid surety cannot avail itself of rule strictissimi juris which controls liability of gratuitous surety.
Voluntary or gratuitous surety is only bound by very terms of contract, and if beneficiary does any act which, in contemplation of law, without his consent, alters his position or increases his risk, or deprives him, even for a moment of a right, he is thereby discharged, and fact that surety may not have been actually injured is immaterial.
4. Principal and Surety. — Beneficiary of contract, performance of which is secured by bond of paid surety, must observe expressed obligations of contract, and refrain from doing anything which in law alters position of surety or his liability.
5. Principal and Surety. — Paid surety must show injury proximately resulting from alteration or violation of principal's contract.
6. Principal and Surety. — Paid surety is not discharged by independent contract between principal parties not varying terms which bind surety.
7. Principal and Surety. — Plaintiff's signing of note as surety for contractor, even if regarded as payment in advance, held not to have injured contractor's surety.
8. Principal and Surety. — Indorsing and delivering to plaintiff, and her application of architect's certificate to payment of note signed by her as surety for contractor, could not be regarded as breach by her of contract, as regards liability of contractor's surety.
9. Mechanics' Liens. — Claimants for material and labor furnished contractor were, by reason of contract and bond, entitled to maintain action thereon against contractor's surety for recovery of their claim.
10. Appeal and Error. — Appellant cannot complain because of particular item of damage, where no judgment was entered against it therefor.
Appeal from Harlan Circuit Court.
W. PRATT DALE and FORESTER & CARTER for appellant.
JOHN B. SNYDER, JAMES M. GILBERT, H.H. FUSON and E.H. JOHNSON for appellee.
Affirming.
Mrs. Margie Noe desiring to construct a theater and office building in Harlan, Harlan county, Ky., entered into a written contract for that purpose, on the 2d day of September, 1928, with Crider & Dunavent, a firm engaged in the business of general contractors, to construct it for her. To secure her in their performance of the contract, a bond for $17,850 was executed and delivered by them with the American Surety Company, as their surety. In their contract with her for the agreed consideration of $35,700, they bound themselves to "provide all the materials and perform all the work to erect and complete the building according to its terms and the plan and the specifications prepared by the architects named in the contract." She agreed to pay them 85 per cent. of the contract price, on "only architects' certificates" as the work progressed. By the bond of the American Surety Company, it agreed that the principals named in the bond shall well and truly perform said contract and specifications in the manner and within the time therein specified according to the letter and spirit thereof, and shall pay for all material and labor used by the obligors in lawful moneys of the United States.
Crider & Dunavent failed to carry out their contract. On September 2, 1928, Mrs. Noe instituted this action in the Harlan circuit court to recover of them and the American Surety Company the amounts which she claimed she was caused to expend to complete the building as per the contract of Crider & Dunavent. The court decreed against Crider & Dunavent a recovery of $19,756.18, and against the American Surety Company, $17,850, the sum specified in its bond, with interest. The American Surety Company appeals.
In its original answer, in addition to a traverse, it affirmatively alleged: "That the plaintiff violated that part of the contract in that she procured for and furnished to the contractors, Crider & Dunavent, the sum of $15,000.00 without any certificate being issued by said architects, R.F. Graf & Sons, and which was used by the said contractors in the payment of their indebtedness of their own and not included in the performance of work under a contract in this case, contrary to the terms of said contract and the bond sued on herein, improperly and without right taken credit as a payment on said contract for said sum of $15,000.00." It further averred: "That she failed to retain the sum of 15 per cent. on amount of the contract price and retained only $3,249.09, when in fact she should have retained $5,580.00, making a difference between what she should have retained, and what she retained under the contract the sum of $2,335.91, for no part of which sum this defendant will be liable under this bond and contract."
After the evidence was taken, it filed an amended answer wherein it was charged that: "She signed the $15,000 note as surety for Crider & Dunavent under an understanding and agreement between the plaintiff and said contractors, Crider & Dunavent, that the said note would be paid by plaintiff using for said payments the amount due under the first estimate or certificate obtained from the contractor in charge of said work to the said amount of $15,000.00; that the architects made an estimate on December 11, 1928, and issued the certificate of $15,000.00, and that plaintiff attempted to credit her account with the contractors by the amount of her liability under the note executed for the $15,000.00." It further averred that: "Through the execution of said note by the plaintiff to the First State Bank of Harlan, and the deposit to the credit of Crider & Dunavent in said bank the sum of $15,000.00, was a payment in advance under said contract between plaintiff and Crider & Dunavent, or plaintiff has failed to pay to said contractors the amount of the estimate or certificate issued by the architect in the sum of $15,000.00 on the 11th day of December, 1928, and one of said alternatives is true, and this defendant is unable to state which alternative is true other than disclosed by the proof herein."
It is fairly shown by the evidence that Crider & Dunavent, at the time they entered into the contract with Mrs. Noe, were not financially prepared to begin the execution of, much less to carry out, their contract, and that their securement of the proceeds of the $15,000 note was both necessary and required to enable them to begin its performance. After securing the loan of $15,000 and before December 11, 1928, the date of the architect's first certificate, they deposited in the bank, funds derived from other sources, and the proceeds of the $15,000 note, the sum of $32,777.59, with which they paid on other contracts $15,164.89, and for material and labor which actually went into Mrs. Noe's building, the sum of $17,877.59. On the 11th day of December, 1928, the architect made the first estimate and issued the first certificate per the terms of the contract under which Mrs. Noe's building was constructed. At that time Crider & Dunavent claimed to him that they had on the ground for use in her building $25,000 worth of material. But on their and his estimate of the material on hand, he issued the certificate only for $15,000, delivered it to them, and they assigned it to Mrs. Noe; she retained it until the $15,000 note matured in April, 1929, when she applied its proceeds to the payment of the note. After the $15,000 certificate was issued, Crider & Dunavent continued to perform their contract. The building progressed, and the architect's certificates were issued, from time to time, to the contractors and paid by Mrs. Noe, until February 27, 1929, when, on their failure properly to perform their contract, the architect took under advisement with the American Surety Company of New York, the condition and situation of Crider & Dunavent and the status of the building of Mrs. Noe. He explained the situation, and condition of Crider & Dunavent, and imparted to Radford, its assistant manager, the amount that had been expended on her building. He advised Radford that the best thing to do was to take over the building under article 5 of the contract; that Crider & Dunavent did not have a capable foreman and superintendent on the job. Thereupon, Radford and the architect agreed for the architect to find and place in charge of the construction and completion of the building a suitable man as foreman and superintendent, which was accordingly done. Under this arrangement between them, Elmer Henry was selected and placed in charge as foreman and superintendent. "From then on they proceeded that way." At that time Crider & Dunavent were unable to pay their laborers, and the architect would not issue to them certificates. Thereupon, the American Surety Company, of New York, through its agent, C.T. Dodson, agreed to, and did, advance Crider & Dunavent $1,000 which they secured by an order on Mrs. Noe's contract for that amount and delivered it to the American Surety Company of New York; the architect agreeing to issue the certificate when the work had thereafter sufficiently progressed to justify him. Crider & Dunavent were unable further to carry out the contract without assistance. The architect sought and obtained on May 6, 1929, the written consent of the American Surety Company of New York to apply the contract price in excess of 85 per cent. to pay for material as it was delivered. Thereafter the architect continuously corresponded with the...
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