Community Bldg. Co. v. Maryland Casualty Co.

• Decision Date: 04 January 1926
• Docket Number: No. 4592.,4592.
• Citation: 8 F.2d 678
• Parties: COMMUNITY BLDG. CO. v. MARYLAND CASUALTY CO.
• Court: U.S. Court of Appeals — Ninth Circuit

8 F.2d 678 (1925)

COMMUNITY BLDG. CO. v. MARYLAND CASUALTY CO.

No. 4592.

Circuit Court of Appeals, Ninth Circuit.

November 9, 1925.

Rehearing Denied January 4, 1926.

Neill & Sanger, of Pullman, Wash., and Post & Russell, of Spokane, Wash., for plaintiff in error.

James A. Williams and E. A. Cornelius, both of Spokane, Wash., and George F. Cushwa, of Baltimore, Md., for defendant in error.

Before GILBERT, RUDKIN, and McCAMANT, Circuit Judges.

GILBERT, Circuit Judge (after stating the facts as above).

Error is assigned to the denial of the motion of the plaintiff in error to remand the case to the state court. The ground of the motion was that the contractor, who was a citizen of the state of California, and who had not appeared or been served with summons, did not join in the petition for removal. He was a necessary party defendant under the terms of the bond. While there are some early decisions and expressions in the text-books to the effect that all the defendants, whether or not they have been served and brought within the jurisdiction of the court, must join in the petition for removal, the weight of authority, and we think the better reasoning, sustains the rule that defendants over whom the court has not acquired jurisdiction may be disregarded in removal proceedings, and that the defendants who have been summoned must of necessity be allowed to exercise their right of removal. 11 Ann. Cas. 963; 23 R. C. L. 732; Tremper v. Schwabacher (C. C.) 84 F. 413; Bowles v. H. J. Heinz Co. (C. C.) 188 F. 937; Hunt v. Pearce (D. C.) 271 F. 498, affirmed on appeal Hunt v. Pearce (C. C. A.) 284 F. 321.

It was expressly stipulated in the bond, as a condition precedent to any right of recovery thereon, that, in the event of any default on the part of the principal, notice should be given the surety within 10 days after the obligee should learn of such default, and the right was reserved to the surety within 30 days thereafter to procure others to proceed with the performance of the contract. The court below, while holding in substance that ordinarily the obligee of such a bond owes no duty of active diligence to take care of the interest of the surety, and that his failure to give notice to the latter of a contractor's default will not have the effect of discharging the surety, held that it is otherwise in cases where, as here, the owner has in the contract of suretyship expressly agreed to give such notice, citing National Surety Co. v. Long, 125 F. 887, 60 C. C. A. 623, and United States Fidelity & Guaranty Co. v. Rice, 148 F. 206, 78 C. C. A. 164.

The plaintiff in error contends that under the contract here involved the failure to give notice of the contractor's default in complying with his agreement to have the sleeping rooms ready for occupancy by September 15, 1922, could have no greater effect than to relieve the surety from liability for the stipulated per diem liquidated damages, and that the trial court should have followed the rule established by the decisions of the Supreme Court of the state of Washington in Lazelle v. Empire State Surety Co., 58 Wash. 589, 109 P. 195, Trinity Parish v. Ætna Indemnity Co., 37 Wash. 515, 79 P. 1097, Monro v. National Surety Co., 47 Wash. 488, 92 P. 280, Parsons v. Pacific Surety Co., 69 Wash. 595, 125 P. 954, and Eilers Music Co. v. Hopkins, 73 Wash. 281, 131 P. 838, which cases hold that the failure to give notice of such a default is a defense to a claim for damages for delay or demurrage only, and constitutes no defense to an action for breach of other covenants of the building contract. The rule so adopted by the Supreme Court of the state of Washington prevails in Minnesota, Lakeside Land Co. v. Empire Surety Co., 105 Minn. 213, 117 N. W. 431; Fitger Brewing Co. v. American Bonding Co., 115 Minn. 78, 131 N. W. 1067; in Missouri, Lackland v. Renshaw, 256 Mo. 133, 165 S. W. 314; in Kansas, School Dist. No. 1 v. Massachusetts Bonding & Ins. Co., 92 Kan. 53, 142 P. 1077, Ann. Cas. 1916B, 238; Hull v. Bonding Co., 86 Kan. 342, 120 P. 544; in Indiana, Illinois Surety Co. v. Huber, 57 Ind. App. 408, 107 N. E. 298; in Georgia, Ætna Indemnity Co. v. Town of Comer, 136 Ga. 24, 70 S. E. 676; and in Oklahoma, American Surety Co. v. Scott & Co., 18 Okl. 264, 90 P. 7. In probably an equal number of states the rule of strict construction, as expressed in National Surety Co. v. Long, supra, is adhered to.

In brief, there are two lines of decisions in cases of this kind, one holding that the parties have the right by contract to make such conditions precedent as they may agree upon, and such agreements are enforceable strictly according to the letter thereof; others holding that an insurer for hire is not a favorite of the law, and is not entitled to a literal interpretation of the contract, if it works a practical injustice and that if it appears that the surety has not been injured by lack of notice, it is not thereby absolved from all obligation under the contract. While we are referred to no decision of the Supreme Court of the United States on the question we find that some color is lent to the liberal rule by what is said in Guaranty Co. v. Pressed Brick Co., 191 U. S. 416, 426, 24 S. Ct. 142, 144 (48 L. Ed. 242): "The rule of strictissimi juris is a stringent one, and is liable at times to work a practical injustice. It is one which ought not to be extended to contracts not within the reason of the rule, particularly when the bond is underwritten by a corporation, which has undertaken for a profit to insure the obligee against a failure of performance...