American Surety Company of New York v. School District No. 64

• Decision Date: 15 May 1928
• Docket Number: 25876
• Citation: 219 N.W. 583,117 Neb. 6
• Parties: AMERICAN SURETY COMPANY OF NEW YORK, APPELLEE, v. SCHOOL DISTRICT NO. 64, DOUGLAS COUNTY, APPELLANT
• Court: Nebraska Supreme Court

219 N.W. 583

117 Neb. 6

AMERICAN SURETY COMPANY OF NEW YORK, APPELLEE, v. SCHOOL DISTRICT NO. 64, DOUGLAS COUNTY, APPELLANT

No. 25876

Supreme Court of Nebraska

May 15, 1928

APPEAL from the district court for Douglas county: JAMES M FITZGERALD, JUDGE. Reversed and dismissed.

Judgment reversed and proceeding dismissed.

DeLamatre & DeLamatre and J. C. Travis, for appellant.

Montgomery Hall, Young & Johnsen, contra.

Heard before GOSS, C. J., DEAN, GOOD, THOMPSON, and EBERLY, JJ and REDICK, District Judge.

OPINION

EBERLY, J.

Action in the district court for Douglas county, Nebraska, by the American Surety Company of New York (hereinafter referred to as surety company) against School District No. 64, Douglas county (hereinafter designated school district) on an alleged covenant in writing contained in a builder's bond executed by the surety company only, which, by delivery to, alleged acceptance of, and retention by, the school district, became the obligation of the latter. This alleged covenant provides in express terms that "the obligee (school board of School District No. 64, Douglas county, Nebraska) shall retain * * * not less, however, in any event, than ten per centum of (the value of all work performed or materials furnished in the prosecution of such contract)." There was judgment for the surety company for the amount of its claim, and from this judgment the school district appeals.

The plaintiff, as part of its petition in the trial court, set forth copies of certain specifications in writing for the construction of the proposed school building; the written proposal or bid of one Gustafson based thereon, wherein it was stated that the "amount of the bid on the specified work" is an amount named and certain (without any further or other specifications as to times and conditions of payment); the acceptance of such bid in writing on May 31, 1924, by "school board of School district No. 64, Douglas county, Nebraska," and also a copy of the builder's bond (identified as exhibit D and expressly made a part of plaintiff's petition) executed in behalf of Gustafson by the surety company only. In this bond the "school board of School District No. 64, Douglas county, Nebraska," is the sole obligee named. The penalty of the bond is $ 10,300. It is dated June 2, 1924. It identifies the primary contract to which it is collateral and sets forth the terms and conditions thereof in the following language:

"Whereas, the principal has entered into a written contract dated May 31st, 1924, with the obligee, for erection of new school building according to the plans and specifications attached, a copy of which is hereto annexed: Now, therefore, the condition of this obligation is such that, if the principal shall indemnify the obligee against any loss or damage directly arising by reason of the failure of the principal to faithfully perform said contract, and if the principal shall pay off and settle in full with the person or persons entitled thereto all accounts and claims that may become due by reason of laborers' or mechanics' wages, or for materials furnished or services rendered to the principal in executing or performing the obligations of said contract, so that each of such persons may receive his just dues in that behalf, then this obligation shall be void; otherwise to remain in full force and effect.

"Provided, however, and upon the express conditions, the performance of each of which shall be a condition precedent to any right to recovery hereon:

"First: That in the event of any default on the part of the principal, a written statement of the particular facts showing such default and the date thereof shall be delivered to the surety, by registered mail, at its office in the city of Omaha, Nebraska, promptly and in any event within ten (10) days after the obligee or his representative, or the architect, if any, shall learn of such default; that the surety shall have the right within thirty (30) days after the receipt of such statement to proceed, or procure others to proceed, with the performance of such contract; shall also be subrogated to all of the rights of the principal; and any and all moneys or property that may at the time of such default be due, or that thereafter may become due to the principal under said contract, shall be credited upon any claim which the obligee may then or thereafter have against the surety, and the surplus, if any, applied as the surety may direct.

"Second: That no claim, suit or action by reason of any default shall be brought against the principal or surety after the twenty-fifth day of February, 1925, nor shall recovery be had for damages accruing after that date; that service of writ or process commencing any such suit or action shall be made on or before such date; that the principal shall be made a party to any such suit or action, and be served with process commencing the same if the principal can with reasonable diligence be found; that no judgment shall be rendered against the surety in excess of the penalty of this instrument.

"Third: That the surety shall not be liable for any damages resulting from strikes or labor difficulties, or from mobs, riots, fire, the elements, or acts of God, or for the repair or reconstruction of any work or materials damaged or destroyed by any such causes; nor for damages from injury to person, or for the death of any one; nor under or by virtue of any statutory provision for damages or compensation for injury to or for the death of any employee; nor for the nonperformance of any guaranties of the efficiency or wearing qualities of any work done or materials furnished or the maintenance thereof or repairs thereto; nor for the furnishing of any bond or obligation other than this instrument; nor for damages caused by delay in finishing such contract in excess of ten per centum of the penalty of this instrument.

"Fourth: That the obligee shall faithfully perform all the terms, covenants and conditions of such contract on the part of the obligee to be performed; and shall also retain that proportion, if any, which such contract specifies the obligee shall or may retain of the value of all work performed or materials furnished in the prosecution of such contract (not less, however, in any event, than ten per centum of such value), until the complete performance by the principal of all the terms, covenants and conditions of said contract on the principal's part to be performed; that the plans and specifications mentioned in said contract are not in any respect defective, and are and at all times will be kept adequate for the complete performance of such contract, and that no change shall be made in such plans and specifications which shall increase the amount to be paid the principal more than ten per centum of the penalty of this instrument, without the written consent of the surety.

"Fifth: That no right of action shall accrue upon or by reason hereof, to or for the use or benefit of any one other than the obligee herein named; and that the obligation of the surety is, and shall be construed strictly as, one of suretyship only, shall be executed by the principal before delivery, and shall not, nor shall any interest therein or right of action thereon, be assigned without the prior consent, in writing, of the surety." (Italics designate typewritten as distinguished from printed form.)

The plaintiff also alleged in substance, as the sole default of Gustafson, his failure to pay certain laborers and mechanics for labor that was performed, certain materialmen for materials actually used in erecting the school building covered by said contract, and his builder's bond, which claims for such labor and materials this plaintiff paid, and that such default constitutes the sole and ultimate basis for its claim under the terms of the alleged covenant specifically set forth in its petition.

The answer of the defendant embraced in substance (1) a general denial; (2) that the defendant and said Gustafson on or about May 31, 1924, in addition to the writing set forth in plaintiff's petition, entered into a further oral agreement whereby it was orally agreed that the "amount of the bid," as accepted by the school district, was to be paid in certain definite installments by the school district to Gustafson at certain definite times, and that the "full balance" due on this contract was to be paid to said Gustafson when the schoolhouse to be constructed was completed by him and had been inspected and accepted by the school district; that the plaintiff was duly informed and advised of all the terms of this oral agreement prior to the execution and delivery of the bond (exhibit D), and that in due course of time the building was completed and inspected and accepted by the defendant, and the amount of the accepted bid paid and received by Gustafson, all in strict compliance with the terms thus orally agreed upon. To the allegations of this answer the plaintiff filed a general denial by way of reply.

The record discloses that, on the trial, all evidence as to the oral agreement pleaded by defendant relating to the times of payment and amount of installments constituting the "amount of the bid" was, on objection of the plaintiff, excluded. It was thought by the trial court to involve a violation of the parol evidence rule. But it also appears without substantial contradiction that the first paragraph of the conditions of the bond (exhibit D) was written in that instrument by the surety company at the request of the obligees for the purpose of making the bond in this matter comply with section 3224, Comp. St. 1922; also that the entire contract price for the school building constructed was, in good faith and in strict compliance with the terms of its...