Graybar Elec. Co. v. Manufacturers Cas. Co.

Decision Date14 May 1956
Docket NumberNo. A--139,A--139
Citation21 N.J. 517,122 A.2d 624
PartiesGRAYBAR ELECTRIC CO., Inc., Plaintiff, v. MANUFACTURERS CASUALTY CO., a corporation, Defendant and Third-Party Plaintiff-Appellant, Board of Education of the City of Plainfield, a municipal corporation, Third-Party Defendant-Respondent.
CourtNew Jersey Supreme Court

Alastair J. Sellar, Newark, argued the cause for appellant (Mead, Gleeson, Hansen & Pantages, Newark, attorneys).

Frank H. Blatz, Plainfield, argued the cause for the respondent.

The opinion of the court was delivered by

JACOBS, J.

In Graybar Electric Co. v. Manufacturers Cas. Co., 37 N.J.Super. 284, 117 A.2d 196 (Law Div.1955), Judge Waugh held that the Casualty Company could not prevail on its third-party claim against the Board of Education of the City of Plainfield. The Casualty Company appealed to the Appellate Division and we certified under R.R. 1:10--1(a).

On May 21, 1953 the board of education entered into a contract with Mr. Epstein (trading as the N. R. Epstein Electric Company) for additions and alterations to the electrical system in the Evergreen School of Plainfield. The contract provided that monthly payments would be made to the contractor, based on 90% Of the estimated cost of the completed work at the end of each month as certified by the engineer, and that payment of the retained percentage would be made 60 days after final date of acceptance. Mr. Epstein completed his work and submitted his final invoice under date of October 7, 1953. This invoice bore the notation 'All work completed as per plans and specifications' and was approved by the consulting engineers under date of October 29, 1953. At its November 17, 1953 meeting the board of education approved payment of Mr. Epstein's final invoice and payment in full was thereupon made. Under date of April 6, 1954 counsel for Graybar Electric Co., Inc., a subcontractor which had supplied materials to Mr. Epstein made inquiry of the board of education as to whether the contract had been completed and the work accepted. On May 4, 1954 Mr. Epstein filed a voluntary petition in bankruptcy and on June 7, 1954 the board of education adopted a resolution which was stated to have been 'made necessary by the bankruptcy of the contractor.' This resolution set forth that whereas the Epstein Electric Company had substantially completed the contract for electrical work in October 1953 and whereas final payment was approved on November 17, 1953, 'Now therefore, be it Resolved that the work covered by the said contract dated May 21, 1953, be and hereby is accepted as completed by the Board of Education.'

On September 28, 1954 the Graybar Electric Co., Inc. instituted its action against the Manufacturers Casualty Company which had issued its bond No. 501349 providing for the faithful performance by Mr. Epstein of his contract for electrical work at the Evergreen School. Graybar's complaint alleged that Mr. Epstein had failed to pay for electrical supplies and materials which it had delivered to him and which were used in the Evergreen School and that the Manufacturers Casualty Company was liable therefor under the terms of its bond. Thereafter the Casualty Company obtained leave to file a third-party complaint against the board of education, alleging that under the terms of the contract dated May 21, 1953 the board was obligated to retain 10% ($4,394) of the total sum due under the contract until 60 days after final date of acceptance; that the board failed to do so but made premature payment instead; and that consequently the Casualty Company should have judgment in the sum of $4,394 against the board to be applied towards satisfaction of Graybar's claim. The Casualty Company settled Graybar's claim by payment of $11,846.50; its claim against the board for reimbursement to the extent of $4,394 was denied by Judge Waugh who sat without a jury in accordance with an express waiver (cf. R.R. 4:39) and who decided the cause on the basis of facts stipulated by the parties.

The Casualty Company asserts that the retained percentage provision was not only for the benefit of the board but was also for the benefit of lien claimants and itself as surety. See Meyer v. Standard Accident Ins. Co., 114 N.J.L. 483, 490, 177 A. 255 (E. & A.1935); Jersey City Water Co. v. Metropolitan Const. Co., 76 N.J.L. 419, 422, 69 A. 1088 (Sup.Ct.1908). Cf. Guttenberg v. Vassel, 74 N.J.L. 553, 65 A. 994 (E. & A.1907). It points out that if the board had not actually made the final payment, the unpaid balance due on the contract would still be available for its indemnification on well-settled equitable principles. See National Surety Corp. v. Barth, 11 N.J. 506, 510, 95 A.2d 145 (1953); Stulz-Sickles Co. v. Fredburn Const. Corp., 114 N.J.Eq. 475, 477, 169 A. 27 (Ch.1933). Cf. Bankers Title & Abstract Co. v. Ferber Co., 15 N.J. 433, 105 A.2d 408 (1954); Standard Accident Ins. Co. v. Pellecchia, 15 N.J. 162, 104 A.2d 288 (1954). And it relies heavily on out-of-state cases where the surety was permitted to recover from the public agency upon a showing that the prepayment in departure from the terms of the contract actually served to prejudice the surety which had been required to pay lien claimants. See Fort Worth Independent School Dist. v. Aetna Cas. & Sur. Co., 48 F.2d 1, 4, 77 A.L.R. 222 (5th Cir. 1931), certiorari denied 284 U.S. 645, 52 S.Ct. 24, 76 L.Ed. 548 (1931); Hochevar v. Maryland Casualty Co., 114 F.2d 948 (6th Cir. 1940). Cf. Corporation of President etc., v. Hartford Acc., etc., Co., 98 Utah 297, 95 P.2d 736, 741 (Sup.Ct.1939); Aetna Casualty & Surety Co. v. Robertson Lumber Co., 3 S.W.2d 895 (Tex.Civ.App.1928); American Surety Co. v. Plank & Whitsett, 159 Va. 1, 165 S.E. 660 (Sup.Ct.App.1932). See also Arant, 'Rationale of the Rule That An Obligee's Premature Payment Discharges His Surety,' 80 U.Pa.L.Rev. 842 (1932); Note, 'Payments or advancements to building contractor by obligee as affecting rights as between obligee and surety on contractor's bond,' 127 A.L.R. 10 (1940).

Judge Waugh did not deny that the foregoing represented general principles ordinarily applicable in the field of construction bonds. He noted, however, that the bond in the instant matter was in a special statutory form and embodied, in strict compliance with N.J.S. 2A:44--147, N.J.S.A., an express provision that the surety "stipulates and agrees that no modifications, omissions or additions in or to the terms of the said contract or in or to the plans or specifications therefor shall in anywise affect the obligation of said surety on its bond." (37 N.J.Super. 284, 117 A.2d 201.) And he found, in this broad phraseology, a legislative intent that the surety be held liable without recourse against the public agency 'no matter what alteration, omission or addition the board and the contractor may make in or to the terms of the contract.' The Casualty Company complains about the sweeping nature and adverse effects of this holding and points out that it fixed its premium rates 'on the theory that there is some stability to the contract between the parties.' It urges that the quoted language in N.J.S. 2A:44--147, N.J.S.A., be construed as applicable 'only to individual and slight...

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