Fidelity & Deposit Co. v. Agnew, 31-1906.

• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
• Citation: 152 F. 955
• Docket Number: 31-1906.
• Parties: FIDELITY & DEPOSIT CO. v. AGNEW.
• Decision Date: 10 April 1907

152 F. 955

FIDELITY & DEPOSIT CO.
v.
AGNEW.

No. 31-1906.

United States Court of Appeals, Third Circuit.

April 10, 1907

[152 F. 956]

Norman Grey and John G. Johnson, for plaintiff in error.

John Harding, of Griggs & Harding, for defendant in error.

Before DALLAS and GRAY, Circuit Judges, and ARCHBALD, District Judge.

ARCHBALD, District Judge.

The provision in a building or working contract that the contractor or builder shall be paid as the work progresses according to the amount of materials furnished or work performed, upon estimates to be made by the supervising architect or engineer, whether a percentage is to be retained therefrom, until the whole is done or not, redounds to the benefit of a surety or guarantor of the party who is to fulfill the contract; and, upon payment being made in disregard of it, there is such a departure from the contract upon which the undertaking of the surety or guarantor is based that he is released. The purpose of such a stipulation is to guard against the consequences of a default, in case the principal contract proves a losing one, or the contracting party for any reason fails to comply, the percentage retained, where that is provided for, affording additional security, as well as holding out an incentive; and when it is not observed, and advance or overpayments are made, it is so obviously to the prejudice of the surety that it operates as a discharge as matter of law. Steam Navigation Co. v. Bolt, 6 Com.Bench N.S. 550; Calvert v. London Dock Co., 2 Keen, 639; Prairie State Bank v. U.S., 164 U.S. 227, 17 Sup.Ct. 142, 41 L.Ed. 412; Shelton v. American Surety Co. (C.C.) 127 F. 736, affirmed 131 F. 210, 66 C.C.A. 94; Welch v. Hubschmitt, 61 N.J.Law, 57, 38 A. 824; Village of Chester v. Leonard, 37 A. 397, 68 Conn. 495; Fitzpatrick v. McAndrews, 12 Pa.Co.Ct.Rep. 353. This is too well established to be controverted, and the only question is how far it applies here.

The bond upon which suit is brought was given by the Avondale Marble Company, as principal, with the Fidelity & Deposit Company [152 F. 957] of Maryland, as surety, to W. H. H. van Houten, in the sum of $66,000, for the faithful performance of an agreement entered into by the marble company, to furnish and deliver marble and granite for the new courthouse, in process of construction at Paterson, N.J., of which Mr. Van Houten was the contractor or builder. By the agreement referred to it was, among other things, stipulated that 'the sum to be paid by the party of the second part (Van Houten) to the party of the first part (the marble company) for the said materials shall be one hundred and ten thousand dollars' (subject to deductions as therein provided), and that the said sum should be paid in current funds on or about the 5th day of each and every month, 'upon estimates made by the architect in charge of said work, of the material on the ground, delivered during the preceding month,' the marble company to be paid 90 per cent. of the amount of the amount of these estimates, and 30 days after the architect should have accepted all the material the retained 10 per cent. to be paid to the marble company upon its furnishing satisfactory evidence that no liens existed thereon. The marble and granite was to be delivered f.o.b. at the quarry, at Avondale, Chester county, Pa., and shipped to Van Houten, the contractor, with the cost of the freight from the quarry to the city of Paterson 'to be allowed and deducted' by him from the contract price; and upon failure to deliver it, as required by the agreement, he was to be at liberty, upon five days' written notice, to supply the material and deduct the cost from the moneys due. The complaint of the surety is that, instead of adhering to the terms of the agreement and paying upon estimates of the architect as the work went on, no estimates, or at least none worthy of the name, were made, with the result that, with the knowledge of the contractor, payments were allowed which were greatly in excess of the material delivered; and, further, that, when but a fraction of the agreement had been performed, the marble company, needing money to conduct its operations, was favored with large advances to be met by future deliveries, this arrangement continuing down to the close of the transaction, the restrictions provided by the agreement being thereby virtually...