Elk River Concrete Products Co. v. American Cas. Co. of Reading, Pa., 39152

• Decision Date: 29 May 1964
• Docket Number: No. 39152,39152
• Citation: 129 N.W.2d 309,268 Minn. 284
• Court: Minnesota Supreme Court
• Parties: ELK RIVER CONCRETE PRODUCTS COMPANY, Respondent, Borchert-Ingersoll, Inc., Respondent, Northfield Iron and Culvert Company, Respondent, v. AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA, Defendant and Third-Party Plaintiff, Respondent, Raymond FISCHER, Third-Party Defendant, Appellant.

Page 309

129 N.W.2d 309

268 Minn. 284

ELK RIVER CONCRETE PRODUCTS COMPANY, Respondent, Borchert-Ingersoll, Inc., Respondent, Northfield Iron and Culvert Company, Respondent, v. AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA, Defendant and Third-Party Plaintiff, Respondent, Raymond FISCHER, Third-Party Defendant, Appellant.

No. 39152.

Supreme Court of Minnesota.

May 29, 1964.

Syllabus by the Court

1. A contractor is not under an implied duty to apply money earned in performance of a state highway construction contract to the payment of bills incurred by reason of its performance.

2. Failure to submit a jury issue does not cause prejudice if the court's decision of the fact question involved is right as a matter of law.

3a. A stipulation of facts does not prejudice a party not bound by it.

3b. The burden of proof is met by a prima facie case if no evidence to rebut it is offered 3c. Failure to resort to collateral held not to release an indemnitor.

4a. The promise of an indemnitor is supported by consideration when, in exchange, the indemnitee accepts the risk of loss from which he is to be held harmless by terms of the indemnity agreement.

4b. Evidence considered and held not to make a fact question on the issue of fraud.

5. If S is surety for R on state highway construction jobs X and Y and if I, indemnitor of S on job Y Only, is called upon to pay losses suffered by S because of job Y, he cannot defeat S's claim by showing that money earned by R on job Y was used to pay bills incurred on job X, even though S would have suffered loss on account of job X had such payment not been made.

Frank Hammond, David C. Forsberg and Richard H. Kyle, St. Paul, Briggs & Morgan, St. Paul, of counsel, for appellant.

Peter Dorsey, Dorsey, Owen Marquart Windhorst & West, Minneapolis, for respondent Elk River Concrete Products Co.

Michael N. Lyons, Jr., St. Paul, for respondent Borchert-Ingersoll, Inc.

Paul C. Thomas, Thomas, King, Daubney, Swenson & Collatz, St. Paul, for respondent Northfield Iron and Culvert Co.

Donald F. Pratt, Townsend, Pratt, Trench, Ericson & MacGregor, Minneapolis, for respondent American Casualty Co. of Reading, Pa

SHERAN, Justice.

Appeal from an order of the district court denying the motion of third-party defendant for a new trial.

Plaintiffs, Elk River Concrete Products Company, Borchert-Ingersoll, Inc., and Northfield Iron and Culvert Company (hereinafter called suppliers), furnished material and equipment to Howard J. Fredrickson who had contracted with the State of Minnesota for road construction at Hibbing, McGrath, and Littlefork. Defendant and third-party plaintiff, American Casualty Company of Reading, Pennsylvania, (hereinafter called American) was Fredrickson's corporate surety on all of these projects. Raymond Fischer, third-party defendant, executed an agreement to indemnify American against loss sustained by it on account of the Littlefork job. Also, Fischer performed part of the construction work at Hibbing and McGrath in conformity with a subcontract secured from Fredrickson.

Plaintiffs each instituted a separate action against American to recover sums owed by Fredrickson for material and equipment. American, by its separate answers, acknowledged that it was surety on the statutory bond filed in each instance as required by Minn. St. 574.26; ¹ admitted that each of the plaintiffs had supplied materials and services; and claimed as a defense that each of the suppliers had failed to file a written notice of claim prior to the expiration of 90 days after the completion of the contract and acceptance thereof by the proper public authorities--a statutory condition precedent to action against the surety on the bond. ² American joined Fischer as a third-party defendant to secure indemnity with respect to claims of plaintiffs attributable to construction at Littlefork. Fischer, by amended answers, disputed the timeliness of the statutory notice of claim filed by the plaintiffs and attacked the validity and binding effect of the indemnity agreement executed by him. ³ He also asserted a counterclaim against American on the theory that if the notices filed by the plaintiffs were timely, similar notices filed by Fischer with respect to the work done by him as subcontractor on the Hibbing and McGrath jobs also met the statutory requirement and entitled him to recover from American for work done pursuant to the subcontracts but not paid for by Fredrickson. ⁴

On the theory that action on a statutory bond is triable by the court without a jury, the district judge heard evidence on the issue of timely notice and, ultimately, found in plaintiffs' favor on this question. ⁵ The issues raised by American's third-party complaint against Fischer were litigated before a jury, which at the close of the evidence was directed by the trial court to confirm answers to interrogatories, ⁶ the effect of which was to determine that the indemnity agreement was not induced by fraud or misrepresentation; was supported by consideration; and had not been nullified by actions of American prejudicial to Fischer. The trial court then proceeded to determine that Fischer had a valid setoff against American by reason of work done by him at Hibbing and McGrath.

The findings of fact and conclusions of law which were made and entered in these actions came to this: Plaintiffs are entitled to judgment against American because of Fredrickson's failure to pay for supplies and materials furnished by them at McGrath, Hibbing, and Littlefork. American is entitled to indemnity against Fischer for so much of the resulting loss suffered by it as is traceable to the Littlefork project. The counterclaim of Fischer for services performed at McGrath and Hibbing is good as against American. If judgments were entered pursuant to the order for judgment the net result would be an obligation on Fischer's part to pay American approximately $15,000.

1. Upon appeal, Fischer argues that American is unjustly enriched and reasons:

(a) The obligation of Fischer to indemnify American for losses resulting from the operations of Fredrickson was limited to the Littlefork job.

(b) If the money earned by Fredrickson at Littlefork had been used to pay bills incurred by him in performing that contract American would have sustained no loss on account of that job; and there would be no reason for it to claim indemnity against Fischer.

(c) Instead Fredrickson used some of this money to pay obligations incurred by reason of performance of his contract on the Hibbing and McGrath projects.

(d) If he hadn't done so, American, as Fredrickson's surety, would have sustained loss on the McGrath and Hibbing bonds. It would then have had no claim against Fischer because his agreement to indemnify covered Littlefork only.

The result, Fischer contends, is that American has benefited at his expense. Fredrickson, he insists, was dutybound to apply payments received on the Littlefork job to the satisfaction of Littlefork bills. If he had done so, the loss occasioned by Fredrickson's insolvency would have fallen on American as surety on the McGrath and Hibbing projects and Fischer would not have been involved.

If such a duty, express or implied, can be spelled out of the facts appearing in this record, there is substantial authority to support Fischer's contention, at least where the person benefited by the breach of duty encourages or acquiesces in it. ⁷

It is out opinion, however, that no such duty exists here. In Standard Oil Co. v. Day, 161 Minn. 281, 201 N.W. 410, 41 A.L.R. 1291, the successful bidder entered a contract with the state and furnished a surety bond. During progress of the work, he made payment to a subcontractor to whom he had let a portion of the job. The subcontractor turned this money over to a supplier of material used in performance of the subcontract. The supplier applied the payment on an obligation owed by the subcontractor to it but unrelated to the subcontract. Thereafter, the supplier made claim against the contractor and his surety for the material used in performance of the subcontract. It collected even though it knew that the money previously paid to it by the subcontractor was received by him on account of the work for which the materials were supplied. The result is that a contractor may be required to pay twice for materials--once to the subcontractor and again to the subcontractor's supplier. And in the Standard Oil Company case the supplier acted with full knowledge of the facts.

It could be argued that the subcontractor agreed Implicitly to apply payments received on account of contract work to the payment of bills incurred in performing. Such a promise is not implied, however, in the case of the subcontractor because, as stated in the Standard Oil Company case (161 Minn. 287, 201 N.W. 412, 41 A.L.R. 1291):

'* * * Most contractors and subcontractors must necessarily use some of their money that they receive in payment of obligations not incurred in the particular contract from which their money is received. When they receive their money unconditionally it is their own and they may do with it as they please.'

We believe that the reasoning in that case applies here. If a paid subcontractor is not under a duty toward a contractor and his surety to apply the money received to discharge bills which, if unpaid, give rise to obligations on the contractor's bond, we cannot say that he has such a duty toward an indemnitor similarly exposed.

2. The trial court determined that the contract on account of which the statutory bond had been filed had not been accepted at the time plaintiffs filed notice of claim as required by Minn.St. 574.31. Issue as to the timeliness of the notices had been joined initially between plaintiffs and the defendant who entered into a stipulation of the relevant facts which was not binding on the third-party defendant. In due course, the third-party defendant also contested the...