Cagle, Inc. v. Sammons

• Decision Date: 08 June 1977
• Docket Number: No. 40990,40990
• Citation: 198 Neb. 595,254 N.W.2d 398
• Parties: CAGLE, INC., a corporation, Appellant, v. Jerry L. SAMMONS d/b/a Jerry Sammons Drywall, and United States Fidelity& Guaranty Company, a corporation, Appellees.
• Court: Nebraska Supreme Court

Page 398

254 N.W.2d 398

198 Neb. 595

CAGLE, INC., a corporation, Appellant, v. Jerry L. SAMMONS d/b/a Jerry Sammons Drywall, and United States Fidelity& Guaranty Company, a corporation, Appellees.

No. 40990.

Supreme Court of Nebraska.

June 8, 1977.

Syllabus by the Court

1. A general demurrer tests the substantive legal rights of the parties upon admitted facts including proper and reasonable inferences of law and fact which may be drawn from the facts which are well pleaded. A petition is sufficient if from the statement of facts set forth therein the law entitles the plaintiff to recover.

2. A demurrer reaches an instrument filed with the petition and made a part thereof.

3. A performance bond guarantees that the contractor will perform the contract, and a labor and material payment bond guarantees that all bills for labor and materials contracted for and used by the contractor will be paid by the surety if the contractor defaults.

4. The right to amend a petition after the sustaining of a demurrer is not absolute, and an application to amend is addressed to the sound discretion of the trial court. Before error can be predicated upon the refusal of the trial court to permit an amendment, the record must show that the ruling of the trial court was an abuse of discretion.

5. The doctrine of subrogation includes every instance in which one person pays a debt for which another is primarily liable, and which in equity and good conscience should have been discharged by the latter, so long as the payment was made under compulsion or for the protection of some interest or right of the one making the payment. Subrogation is never awarded to one who is merely a volunteer in paying the debt of one person to another.

6. It generally constitutes an abuse of discretion to sustain a demurrer without leave to amend where there is a reasonable possibility that the defect can be cured by amendment, particularly in the case of an original complaint.

Thomas F. Hoarty, Jr., of Fraser, Stryker, Veach, Vaughan & Meusey, P. C., Omaha, for appellant.

Pilcher, Howard & Dustin, Omaha, for appellees.

Heard before WHITE, C. J., and SPENCER, BOSLAUGH, McCOWN, BRODKEY and WHITE, JJ., and KUNS, Retired District Judge.

BRODKEY, Justice.

This is an appeal from a District Court judgment sustaining a demurrer in an action on a contract and a surety bond on the ground that the plaintiff did not allege facts sufficient to constitute a cause of action against one of the defendants, the surety. Plaintiff has appealed, contending that the District Court erred in sustaining the demurrer and in refusing to allow plaintiff leave to amend its petition. We reverse and remand for further proceedings.

Cagle, Inc., the plaintiff and appellant herein, filed a petition in the District Court for Douglas County on February 4, 1976, alleging that it, as a general contractor, entered into a subcontract with Jerry L. Sammons on August 21, 1975, under the terms of which Sammons was to complete drywall construction on a housing project. The petition alleged that Sammons furnished a performance bond, guaranteeing payment for labor and materials utilized by him in fulfilling the subcontract, and that the bond obligated Sammons and United States Fidelity & Guaranty Company (USF&G), the defendants and appellees herein, to make payments to claimants, as defined in the bond, for labor and materials used in performance of the subcontract. The subcontract and bond were attached to and made a part of the petition.

The petition further alleged that Sammons failed and refused to perform a substantial part of the work required by the subcontract; failed to pay costs and expenses incurred in performance of the subcontract for labor and materials; and failed to pay costs and expenses for labor and materials needed to complete his obligations following his withdrawal from the project. Cagle alleged that USF&G failed and refused to reimburse plaintiff as a claimant, as defined in the bond, for "costs and expenses for labor and material which Plaintiff has paid, or become obligated to pay" as a result of the breach of the subcontract and bond by Sammons. Cagle prayed for a judgment of $44,337.16, jointly and severally, against Sammons and USF&G.

On March 5, 1976, USF&G demurred to the petition on the ground that it failed to state facts constituting a cause of action against USF&G. Hearing was had on the demurrer of USF&G, and on June 29, 1976, the trial court sustained the demurrer. In its order, the trial court stated: "The court finds as a matter of law that plaintiff does not qualify as a 'claimant' under the bond as set forth in the petition, and, accordingly, that the demurrer should be sustained. The court further finds by reason thereof that no amendment of the petition in an action on the bond against said defendant would correct the deficiency or state a cause of action, and that the action should therefore be dismissed as against United States Fidelity and Guaranty Company." Cagle's motion for rehearing and new trial was overruled, and it has now appealed to this court, contending that the District Court erred in sustaining the demurrer, in dismissing the action against USF&G, and in refusing to allow Cagle leave to amend its petition.

A general demurrer such as the one in this case "tests the substantive legal rights of the parties upon admitted facts including proper and reasonable inferences of law and fact which may be drawn from the facts which are pleaded. A petition is sufficient if from the statement of facts set forth therein the law entitles the plaintiff to recover." Lee v. Brodbeck, 196 Neb. 393, 243 N.W.2d 331 (1976). A demurrer reaches an instrument filed with the petition and made a part thereof. Prucha v. Department of Motor Vehicles, 172 Neb. 415, 110 N.W.2d 75 (1961). Therefore, it was appropriate for the trial court to refer to the surety bond, which plaintiff attached to and made a part of its petition, in determining whether the petition stated a cause of action against USF&G.

The bond was a "Subcontract Labor and Material Bond," and was executed by Sammons as principal and USF&G as surety. The obligee under the bond was Red Oak Housing Agency, which was the owner of the construction project involved in this case. USF&G agreed under the bond to bind itself to the obligee "for the use and benefit of claimants as hereinbelow defined, in the amount" of $24,000. The bond defined "claimant" as follows: "A claimant is defined as one having a direct contract with the Principal for labor, material, or both, used or reasonably required for use in the performance of the contract, * * *." The bond provided that the principal and surety agreed that every claimant "may sue on this bond for the use of such claimant." The trial court found as a matter of law that the plaintiff, under the facts alleged in its petition, did not qualify as a claimant under the bond.

Cagle contends that it does qualify as a claimant under the bond because it had a direct contract with Sammons for labor or material, or both, as required in the definition of "claimant" set forth in the bond. Cagle relies on a provision in the subcontract, which was made a part of the bond by reference, providing that in the event of Sammons' default on the subcontract, Cagle was entitled to take over the subcontract and complete the same, and to charge the cost thereof to Sammons. We do not find this argument persuasive.

Generally speaking, contractors' bonds are of two types: Performance bonds, and labor and material payment bonds. "A performance bond guarantees that the contractor will perform the contract, and usually provides that if the contractor defaults and fails to complete the contract, the surety can itself complete the contract or pay damages up to the limit of the bond. A labor and material payment bond guarantees the owner that all bills for labor and materials contracted for and used by the contractor will be paid by the surety if the contractor defaults." 17 Am.Jur.2d, Contractors' Bonds, § 1, p. 192. A relevant case recognizing this distinction is Standard Accident Ins. Co. of Detroit v. Rose, 314 Ky. 233, 234 S.W.2d 728 (1950). In that case, the court had to construe a bond which had provisions almost exactly like those in the bond in this case. The court found that the provisions of the bond meant that the surety would guarantee that all bills for labor or materials contributed for and used by the contractor would be paid by the surety if the contractor defaulted. The court rejected the argument that the bond covered all labor and materials used in completion of the building contract after the contractor defaulted, finding that the bond covered only labor and materials provided to the contractor while he was on the job.

The bond in this case is a labor and material bond, and not a general performance bond. The bond is in no way ambiguous, and USF&G bound itself only to pay persons having a direct contract with Sammons for labor or materials used or reasonably required for use in the performance of the subcontract. The general rule is that the "surety is bound in the manner and to the extent provided in the obligation." School District No. 65R of Lincoln County v. Universal Surety Co., 178 Neb. 746, 135 N.W.2d 232 (1965). See also, W. T. Rawleigh Co. v. Smith, 142 Neb. 527, 7 N.W.2d 80 (1942).

In this case Cagle did not state facts in its petition sufficient to state a cause of action...