Bayer & Mingolla Const. Co. v. Deschenes

Decision Date02 March 1965
CourtUnited States State Supreme Judicial Court of Massachusetts Supreme Court
PartiesBAYER & MINGOLLA CONSTRUCTION COMPANY, Inc. v. Hector J. DESCHENES et al.

Robert J. Sherer, Boston (Frederick W. Roche, Boston, with him), for defendant Aetna Ins. Co.

Seymour Weinstein, Worcester, for plaintiff.

Before WILKINS, C. J., and WHITTEMORE, CUTTER, KIRK and REARDON, JJ.

CUTTER, Justice.

The plaintiff (Bayer) was the general contractor on a State highway contract (the prime contract), awawrded on a unit price basis. The defendant Deschenes made a subcontract with Bayer to do certain excavation work 'in strict compliance with * * * the [p]rime [c]ontract' which was incorporated by reference in the subcontract. The subcontract unit prices were lower than the prime contract unit prices. Under the subcontract all work was to start not later than November 24, 1958. Deschenes started work on December 1. The work was to be completed on or before March 1, 1959, a period of three months plus one week. By June 22, 1959, when he quit, Deschenes had completed only about half the work.

The subcontract required Deschenes to 'furnish a bond with surety satisfactory to' Bayer in the sum of $91,000, 'conditioned that * * * [Deschenes] shall faithfully perform this [subc]ontract and satisfy all claims and demands in connection with the performance of same and shall pay all bills contracted for * * * in connection with the work * * * and shall reimburse * * * [Bayer] for all * * * expense which * * * [Bayer] may incur in making good any default of' Deschenes. Deschenes furnished a bond of Aetna Insurance Company (Aetna) for $91,000, which incorporated the subcontract by reference, to indemnify Bayer 'against any loss or damage directly arising by reason of * * * [Deschenes's] failure * * * faithfully [to] perform * * * [the sub]contract' and to pay claims for labor and materials, 'subject * * * to the following express conditions [among others] * * * (2) That upon receipt of written notice from * * * [Bayer] of [Deschenes's] default * * * [Aetna] shall have the right within thirty * * * days after the receipt of such notice to remedy the default or to proceed, or procure others to proceed, with the performance of such [subc]ontract; that if * * * [Aetna] does proceed or procure others to proceed with the performance of such [subc]ontract * * * all money that may at the time of such default be due, or that thereafter [may] become due to * * * [Deschenes] under said [subc]ontract shall become due and payable to * * * [Aetna] and * * * [Aetna] shall be subrogated to all the rights of * * * [Deschenes]. 1

There were various disputes between Bayer and Deschenes over quantities and billings. Certain portions of the work were done by Bayer prior to June 22, 1959, for Bayer's 'own convenience and to facilitate other work * * * and Deschenes was either impliedly or expressly relieved from doing this work.' 2 In June, 1959, representatives of Bayer talked with Deschenes, who 'told them that he had an opportunity to do another job * * * and was going to leave the Bayer * * * job.' Bayer's chief engineer said that they were 'far behind schedule' and that he 'wanted him to stay on the job.' It may easily be inferred that Bayer at all times was interested in getting Deschenes to perform his subcontract, rather than treating him as in default. On June 22, 1959, Deschenes removed his last equipment from the job.

Bayer sent to Aetna various progress reports (the first sent on February 2, 1959) showing in each instance a probable completion date later than that set out in the subcontract. The last report indicated a probable completion date of December 1, 1959. When Deschenes left the job site, Bayer proceeded itself to complete the subcontracted work and finished doing so by September 2, 1959. On August 18, 1959, Bayer notified Aetna of Deschenes's default. Deschenes was adjudicated a bankrupt on November 3, 1960.

As a consequence of these events, Bayer brought this action at law against Deschenes and Aetna for breach of contract and to recover on Aetna's bond. 3 The facts already stated are based upon the report of an auditor, whose findings were to be final. He found that Bayer is entitled to recover $15,134.95 from Deschenes and Aetna for work that Bayer was required to do because of Deschenes's breach of the subcontract.

The auditor also found (a) that 'any extensions of the completion date * * * [of the subcontract were] by mutual agreement of Bayer * * * and Deschenes'; (b) that Aetna 'had knowledge that the completion date had been extended'; (c) that Aetna 'was not [in] any way damaged by Bayer * * * performing the balance of the work required by the sub-contract' and that Bayer's delay in giving Aetna notice of Deschenes's default 'was not injurious to Aetna'; and (d) that on August 21, 1959, Aetna acknowledged Bayer's notice to it of Deschenes's default.

The judge ordered judgments on the auditor's report for Bayer for $16,848.66 against both Aetna and Deschenes. From these orders Aetna and Deschenes appealed.

1. Aetna contends that it is discharged as surety by the extensions of time for performance given by Bayer to Deschenes, despite Aetna's knowledge of these extensions, and the absence of any finding of injury to Aetna caused thereby. Aetna, however, 'is a compensated surety and is not entitled to invoke the ancient doctrine of strictissimi juris.' Veneto v. McCloskey & Co., 333 Mass. 95, 104, 128 N.E.2d 337, 342. See Agoos Leather Cos., Inc. v. American & Foreign Ins. Co., 342 Mass. 603, 608, 174 N.E.2d 652; Maryland Cas. Co. v. Dunlap, 68 F.2d 289, 291 (1st Cir.). 4

In the case of an accommodation surety, 'where the principal and creditor, without the surety's consent, make a binding agreement to extend * * * time * * * the surety is discharged unless the creditor in the extension agreement reserves his rights against the surety.' Restatment: Security, § 129(1). See Brockton Sav. Bank v. Shapiro, 311 Mass. 695, 702-704, 42 N.E.2d 826. Cf. Northampton Inst. for Sav. v. Putnam, 313 Mass. 1, 5-6, 45 N.E.2d 936 (burden rests on surety of showing an extension and that it was discharged). The modern rule, however, with respect to a compensated surety, see Restatement: Security, § 129(2), is that such a surety 'is discharged only to the extent that he is harmed by the extension.' See United States Fidelity & Guaranty Co. v. United States, 191 U.S. 416, 423-426, 24 S.Ct. 142, 48 L.Ed. 242; American Auto. Ins. Co. v. United States, 269 F.2d 406, 408-409 (1st Cir.); United States for Use and Benefit of Construction Products Corp. v. Bruce Constr. Corp., 272 F.2d 62, 66 (5th Cir.); Phoenix Assur. Co. v. City of Buckner, 305 F.2d 54, 57-58, 83 S.Ct. 207, 9 L.Ed.2d 165 (8th Cir.). See also Appleman, Insurance Law and Practice, §§ 6796, 6848-6851; annotation, 12 A.L.R. 382. Cf. Stearns, Suretyship (5th ed.) §§ 6.8, 6.16-6.19. Present day authority thus generally rejects, with respect to compensated sureties, the contrary rule stated in Schwartz v. American Sur. Co. of New York, 231 Mass. 490, 493-494, 121 N.E. 424 (where there was no apparent consideration of the circumstance that the case dealt with a compensated surety). Cf. Manufacturers' Fin. Co. v. Rockwell, 278 Mass. 502, 505, 180 N.E. 224; Taborsak v. Massachusetts Bonding & Ins. Co., 289 Mass. 8, 12-13, 193 N.E. 729; Hartford Acc. & Indem. Co. v. Casassa, 301 Mass. 246, 252, 16 N.E.2d 860. 5

In any event, it is only by a binding, enforceable agreement for new consideration for an extension, which cannot be rescinded or disregarded, that the discharge of a surety will be effected. See Restatement: Security, § 129, comment c. The auditor's finding concerning the extensions of time for performance is merely that they were made 'by mutual agreement of Bayer * * * and Deschenes.' This finding does not import to us an enforceable agreement for consideration but merely Bayer's effort to obtain even dilatory performance by Deschenes. Cf. Taborsak v. Massachusetts Bonding & Ins. Co., 289 Mass. 8, 12-13, 193 N.E. 729 (binding agreement).

We hold that Aetna, which has not shown itself to have been harmed by the extensions of time, was not thereby discharged as surety.

2. Aetna contends that Bayer is barred from recovery on the performance bond by its failure to notify Aetna promptly of Deschenes's default, and thus to give Aetna 'an opportunity, within thirty days after receiving [such] notice * * * to * * * complete the work left undone.' Condition (2), see fn. 1, is stated in the bond to be an express condition.

Condition (2) does not expressly require Bayer, as obligee of the bond, to give notice of Deschenes's default. It does, however, imply that Bayer was bound to give such notice within a reasonable time (see Segal v. Aetna Cas. & Sur. Co., 337 Mass. 185, 187-188, 148 N.E.2d 659) so that Aetna might have opportunity to decide whether it would complete Deschenes's work as a method of minimizing its own loss.

No purpose of Condition (2) is stated other than to give Aetna the opportunity to make that decision. Indeed, the absence from Condition (2) of any specific requirement for giving Aetna notice of a default strongly suggests that no investigation by Aetna (other than of the appropriate method of keeping completion costs low) was contemplated.

Express requirements for prompt notice of a loss or an accident are often found in insurance contracts. In respect of insurance contracts, however, the situation is somewhat different, for it is frequently important that an insurer have such prompt notice, so that seasonable investigation of the facts relating to liability may be undertaken. Cf. Boston Elev. Ry. v. Maryland Cas. Co., 232 Mass. 246, 250-251, 122 N.E. 196; Kana v. Fishman, 276 Mass. 206, 210-211, 176 N.E. 922; Wainer v. Weiner, 288 Mass. 250, 251-252, 192 N.E. 497; Potter v. Great Am. Indem. Co. of New...

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