Fid. & Cas. Co. Of N.Y. v. Lackland

• Decision Date: 08 April 1940
• Citation: 8 S.E.2d 306
• Court: Virginia Supreme Court
• Parties: FIDELITY & CASUALTY CO. OF NEW YORK . v. LACKLAND et al.

8 S.E.2d 306

FIDELITY & CASUALTY CO. OF NEW YORK .

v.LACKLAND et al.

Supreme Court of Appeals of Virginia.

April 8, 1940.

Appeal from Law and Equity Court of City of Richmond, Part Two; Frank T. Sutton, Jr., Judge.

Notice of motion for judgment filed by J. S. Lackland and others against Fidelity & Casualty Company of New York for judgment against defendant on a bond for the price and value of materials furnished and used on a highway project. From a judgment for plaintiffs, defendant appeals.

Affirmed and remanded.

Argued before CAMPBELL, C. J., and HOLT, GREGORY, BROWNING, EGG-LESTON, and SPRATLEY, JJ.

Alexander H. Sands and Alexander H. Sands, Jr., both of Richmond, for plaintiff in error.

Joseph F. Hall, of Richmond, for defendant in error.

EGGLESTON, Justice.

On August 22, 1927, C. S. Luck & Sons, Inc., entered into a written contract with the Commonwealth of Virginia, through the State Highway Commission, for the construction of a certain road in Rockingham county, near Elkton. On the same date the contractor, as principal, executed the usual bond with Fidelity & Casualty Company of New York, as surety, guaranteeing the payment of bills for labor and materials furnished on the work.

C. S. Luck & Sons, Inc., sublet the entire project to Allport Construction Corporation as subcontractor. During the months of October and November, 1927, the James River Concrete Pipe & Products Corporation furnished to the Allport Construction Corporation concrete pipe which was used in the work. It is admitted that the price of this material, $1,183.88, was due on February 1, 1928, and that no part thereof has been paid. In December, 1927, the Allport Construction Corporation was adjudicated a bankrupt. Subsequently in the liquidation of its affairs its general creditors received a dividend of 10% on their claims. The James River Concrete Pipe & Products Corporation filed no proof of claim and received no dividend.

After the failure of the Allport Construction Corporation, C. S. Luck & Sons, Inc., the general contractor, completed the work as required by its contract with the Highway Department.

On December 28, 1927, the James River Concrete Pipe & Products Corporation made demand upon C. S. Luck & Sons, Inc., for the payment of its claim. To this demand the general contractor, through its president, replied that litigation had arisen between it and the subcontractor and requested that pressure of the claim be withheld pending the outcome. Subsequently the Pipe Company placed its claim in the hands of an attorney who from time to time made demand on C. S. Luck & Sons, Inc., for payment. These efforts, however, were unavailing and finally, in 1933, C. S. Luck & Sons, Inc., went into liquidation.

In the meantime, on December 24, 1927, the Pipe Company had written a letter to the chairman of the State Highway Commission enclosing a statement of the account showing the material furnished on the project and asking the name of the bonding company which had guaranteed the contract, in order that the claimant might notify the latter of the outstanding account. The chairman of the Commission replied that the State's contract was with C. S. Luck & Sons, Inc., and that the bond given by it did not cover the payment of material which had been furnished by the claimant to the subcontractor.¹

During the next twelve months the State Highway Department paid to C. S. Luck & Sons, Inc., in various instalments, the full amount of the contract price for the work, or approximately $150,000.

In 1932 the James River Concrete Pipe & Products Corporation discontinued business, and on May 31, 1937, its charter was revoked by the State Corporation Commission for failure to pay the franchise tax and registration fee assessed against it for the two preceding years.

On October 6, 1937, J. S. Lackland, A. F. Martin, O. E. Obershain, W. J. Martin, L. R. Markham, and W. R. Allen, as directors and trustees for the defunct James River Concrete Pipe & Products Corporation, under the authority of Code, § 3812, as amended by Acts 1936, c. 198, filed their notice of motion for judgment against the Fidelity & Casualty Company of New York, seeking to recover on the bond for the price and value of the material furnished and used on the project.

The defendant Surety Company filed three special pleas asserting the defenses that, (1) the claim was barred by the three-year statute of limitations; (2) the James River Concrete Pipe & Products Corporation was estopped by its laches to recover on the bond; and (3) the plaintiffs, as directors and trustees of the defunct corporation, had no right to institute the suit.

The plea of the statute of limitations and the plea challenging the right of the directors to bring the suit were stricken out on the motion of the plaintiffs, a jury was empaneled and the case proceeded to trial upon the third plea.

At the trial it developed that prior to the revocation of its charter the James River Concrete Pipe & Products Corporation had sold all of its assets, including this claim, to J. S. Lackland, Walter J. Martin, administrator of the estate of A. F. Martin, deceased, Walter J. Martin, W. R. Allen, L. R. Markham, and Otho Lipes. Thereupon counsel for the plaintiffs was permitted, over the objection of the defendant, to endorse on the notice of motion for judgment the names of the real parties in interest and the fact that the action was being maintained for their benefit. Since counsel for the defendant was taken by surprise, a mistrial and continuance were ordered on his motion.

Subsequently the matter again came on for trial and at the conclusion of all of the evidence the court struck the defend-ant's evidence in support of its plea of estoppel by laches. A verdict and judgment for the plaintiffs followed.

The first assignment of error challenges the action of the court in not sustaining the plea of the three-year statute of limitations. The argument is that the material was furnished by the James River Concrete Pipe & Products Corporation to the Allport Construction Corporation on open account; that since the right of action on the open account was barred after three years, Code, § 5810, and since the surety is entitled to every defense available to the principal, action on the bond, which merely guarantees the payment of the account, was likewise barred by the three-year limitation.

There is a conflict of authority as to whether an action to recover on a contract of guaranty or suretyship may be successfully defended by showing that the claim against the original debtor has been barred by the statute of limitations. 24 Amjur, Guaranty, § 43, p. 903; 50 C.J, § 312, p. 188; Williston on Contracts, Rev.Ed, Vol. IV, § 1231, p. 3528, and notes; 122 A.L.R. p. 205, note; Weems v. Carter, 4 Cir, 30 F.2d 202, 203.

Some authorities hold that it would be inequitable to require the surety to pay the debt after the creditor's claim against the debtor has been barred by the statute of limitations, because, it is said, the surety's right of reimbursement against the debtor has likewise been barred. See Auchampaugh v. Schmidt, 70 Iowa 642, 27 N.W. 805, 59 Am.Rep. 459; Mulvane v. Sedgley, 63 Kan. 105, 64 P. 1038, 55 L.R. A. 552.

It is not necessary that we decide whether the surety's right of reimbursement in the instant case has been barred by the statute of limitations, for, even if it be true, that is a situation which the surety could have avoided. Before the claim was barred it could have paid the debt and sued for reimbursement, or it could have required the creditor to sue by giving it notice under Code, § 5774. It did neither.

Again, some of the courts which hold that the running of the statute of limitations against the principal debtor discharges the guarantor or surety of liability, base this conclusion upon the theory that there has been an extinguishment of the debt by the bar of the statute, and that, therefore, the guarantor or surety is re leased. Typical of these are Bass v. Hark-reader, 162 Tenn. 518, 39 S.W.2d 275; Bridges v. Blake, 106 Ind. 332, 6 N.E. 833; Pacific Elevator Co. v. Whitbeck, 63 Kan. 102, 64 P. 984, 88 Am.St.Rep. 229.

It is settled in this State that the running of the statute of limitations merely bars the creditor's remedy but does not extinguish the debt. Smith's Ex'x v. Washington City, etc, Co, 74 Va. 617, 33 Grat. 617, 620, 621; Virginia Hot Springs Co. v. McCray, 106 Va. 461, 474, 56 S.E. 216, 10 L.R.A, N.S, 465, 10 Ann.Cas. 179.

Consequently m Manson & Shell v. Rawlings, 112 Va. 384, 71 S.E. 564, this court adopted the view that a surety is not released because the claim against the original debtor has been barred by the statute of limitations. In that case a judgment had been obtained against the principal and the surety. Before the institution of proceedings for enforcement it was barred against the estate of the principal debtor by Code, § 6477. The surety claimed that therefore it was barred as to him. The syllabus thus summarizes our holding with respect to this contention:

"Principal and Surety — Judgments Against—Limitation of Actions.—At law, the creditor rests under no obligation to look to the principal or to his property, or to exhaust his remedies against him before resorting to the surety. He may collect his debt out of either, and, where judgment has been recovered against both, though it may be barred as to the principal, it is not for that reason merely barred as to the surety. No length of time short of the period prescribed by the act of limitations will bar the right of the creditor to enforce his judgment against the surety, or his estate. The judgment must be barred as to the surety himself, to produce that result."

In Weems v. Carter, supra, the Circuit Court of Appeals for the Fourth Circuit adopts the reasoning in Manson & Shell v. Rawlings, supra, and holds that it is in accordance with both the weight of authority and the better reasoning. See also, Williston on Contracts,...