Hollerman Mfg. Co., Inc., a Corp. v. Standard Accident Insurance Company

• Decision Date: 19 December 1931
• Docket Number: 5973
• Citation: 239 N.W. 741,61 N.D. 637
• Court: North Dakota Supreme Court

239 N.W. 741

61 N.D. 637

HOLLERMAN MFG. CO., INC., a Corporation, Appellant, v. STANDARD ACCIDENT INSURANCE COMPANY, a Corporation of Detroit, Michigan, Respondent

No. 5973

Supreme Court of North Dakota

December 19, 1931

Appeal from a judgment of the district court of Logan County Hutchinson, J.

Reversed.

Arthur B. Atkins and Coventry & Thompson, for appellant.

The guarantor of a contract binds himself to a performance of the same acts which the principal himself had undertaken to perform. Evand & H. Fire Brick Co. v. National Surety Co. 175 N.W. 448; Western Material Co. v. Enke (S.D.) 223 N.W. 385; Doll v. Crune (Neb.) 59 N.W. 806; State Bank v. Schultze, 51 N.D. 66, 199 N.W. 138.

When one makes a promise to another for the benefit of a third person, such third person may maintain an action upon the promise, even though the consideration does not run directly from him, and even though at the time he knew nothing of the promise to pay him. McDonald v. Finseth, 32 N.D 400, 155 N.W. 863; Wheeler, O. & Co. v. Everett Land Co. 43 P. 316.

A bond which undertakes to guarantee the faithful performance of a subcontractor to furnish all necessary labor and materials for a specified portion of a structure implies to pay for such labor and materials so furnished. Pacific States Electric Co. v. United States Fidelity & G. Co. 293 P 812; Crowley v. United States Fidelity & G. Co. 69 P. 784.

Where contracts for improvements are entered into between an owner and a surety who receives a premium for its engagement of fidelity, terms may be used which fairly contemplate the financial protection of subcontractors who employ labor and furnish material for the structure contemplated in the bond. Royal Indem. Co. v. Northern Ohio Granite & Stone Co. 100 Ohio St. 373, 12 A.L.R. 378, 126 N.E. 405.

The obligation of the bond is to be read in the light of the contract it is given to secure, and ordinarily the extent of the engagement entered into by the surety is to be measured by the terms of the principal's agreement. Ideal Brick Co. v. Gentry, 191 N.C. 656, 132 S.E. 800.

When several instruments are made as a part of one transaction, they will be read together and each will be construed with reference to the other. 13 C.J. 528; Merchants Nat. Bank v. Reiland, 51 N.D. 287, 199 N.W. 945; Neutson v. Kemper (Minn.) 216 N.W. 545.

A compensated surety is in effect an insurer, that its contract will be construed as an insurance contract most strongly in favor of the party protected thereby. Maryland Casualty Co. v. Fowler, 31 F. 884; National Surety Co. v. McCormick, 268 F. 185; Fellows v. Errington (Iowa) 170 N.W. 545; Duke v. National Surety Co. (Wash.) 227 P. 2; Bank of England v. Maryland Casualty Co. 293 F. 783.

The state, when constructing a public building, is chargeable with a moral duty to protect the persons who furnish labor and material for the erection of the building as far as possible. Sample v. Hale, 51 N.W. 837.

The guarantor of a contract binds himself to a performance of the same acts which the principal himself has undertaken to perform. Lyman v. Lincoln, 57 N.W. 530; Kauffman v. Cooper, 65 N.W. 796; Evans & H. Fire Brick Co. v. National Surety Co. 173 N.W. 448.

A bond given to guarantee the execution of a contract according to its terms becomes a part of the contract, and to that contract the sureties become parties the same as though they had actually made and executed the contract itself. Ryan v. Shannahan (Cal.) 285 P. 1045.

Dullam & Young and Guesmer, Carson & McGregor, for respondent.

Carr & Rittgers and Clapp, Elmquist, Briggs, Gilbert & McCartney, amici curiae.

An unpaid laborer or materialman has no right to maintain any direct action upon the bond. Babcock & Wilcox v. American Surety Co. (C.C.A.) 236 F. 340; U.S. v. Stewart (C.C.A.) 288 F. 187; United States v. American Fence Co. (C.C.A.) 15 F.2d 450; Electrical Appliance Co. v. United States Fidelity & G. Co. 110 Wis. 434, 85 N.W. 648.

An obligation to furnish is not an obligation to pay for material that will be furnished. Babcock v. American Surety Co. 149 C.C.A. 472, 236 F. 340; United States ex rel. National Regulator Co. v. Montgomery, Heating & Ventilating Co. 167 C.C.A. 59, 255 F. 683.

The rule which permits a surety to stand upon its strict legal rights, when applicable, does not prevent a construction of the bond with a view to determining the fair scope and meaning of the contract in the light of the language used and the circumstances surrounding the parties. Maryland Casualty Co. v. Fowler, 31 F.2d 881.

It is also a correct rule of construction if the insurance contracts are prepared by the insurer, that doubtful expressions will be construed in favor of the insured. Crane v. Shaw, 99 S.E. 8.

Burke, J. Christianson, Ch. J., and Birdzell, Nuessle and Burr, JJ. concur.

OPINION

BURKE

This is an action upon a builders contract and bond to recover for material furnished by the plaintiff to the contractor. The only question involved is whether the bond secured the payment of the material so furnished to the contractor by the plaintiff. The contract is as follows, to-wit:

". . . Article No. 1. The Contractor agrees to provide all the materials and to perform all the work shown on the drawings and described in the specifications entitled 'General Construction, of a Church Building for the Church of St. Mary, Hague, North Dakota,' prepared by Charles A. Hausler, Architect & Engineer, St. Paul, Minnesota, acting as, and in these contract documents entitled the Architect & Engineer, Harry Firminger Associate, and to do everything required by the Contract, the Specifications, and the Drawings, which Specifications and Drawings are hereby amended as follows: Accepting Alternates No. Three (3), Four (4), Five (5), Six (6), Nine (9) and Thirteen (13) in accordance with the proposal submitted by the Contractor, dated May 8th, 1929, a copy of which proposal is hereto attached and provided further that the Owner reserves the right to accept or reject any additional alternates in accordance with the proposal hereto attached providing he notifies the Contractor of such acceptance or rejection within Thirty (30) days of date of this contract.

"Article No. 2. The owner agrees to pay the Contractor in current funds for the performance of the Contract, Fifty Three Thousand, Six Hundred Seventy Dollars ($ 53,670.00), subject to additions or deductions as provided in said specification and to make payments on account thereof as provided by and in accordance with requirement of the said specification.

". . . Article No. 4. The Contractor and the Owner agree that the General Conditions of the Contract, the Specifications and the Drawings together with this agreement, form the Contract, and that they are as fully a part of the same, as if hereto attached or herein repeated; and that the following is an exact enumeration of the specifications and drawings: Specifications -- Pages 1 to 34 inclusive. Drawings -- Sheets No. 1 to 17 inclusive.

"Article No. 5. It is further understood and agreed that the Contractor shall execute and deliver to the Owners a good and sufficient surety bond equal in amount to the amount of the contract, and extending for a period of two (2) years from execution thereof and conditioned for the faithful performance of said contract; and that the Contractor shall satisfy all claims and demands, incurred for the same, and shall fully indemnify and save harmless the Owners from all cost and damage which he may suffer by reason of failure so to do, and in making good any such default, and shall pay all persons who have contracts directly with the principal for labor or materials, then this obligation shall be null and void; otherwise it shall remain in full force and effect. . . ."

By Article 4 of the contract it is specifically provided that the specifications and drawings, together with said agreement, is made the contract as fully as if attached thereto or repeated in the said agreement.

On page 3 of the specifications there is a paragraph providing that "the successful bidder will be required to enter into a written contract with the Owners for doing the work or furnishing the materials aforesaid within ten (10) days after notice by the Owners has been given that the contract is ready for execution. The successful bidder shall be required within the ten (10) days aforesaid to furnish a surety company bond for the full amount of the contract price, conditioned for the faithful performance of the contract and for payment for all labor and material used in connection therewith and such other conditions as may be required by law. Bond to remain in force for a period of two (2) years from date of contract."

On page 14 of the specifications there is a paragraph providing that "the contractor is to pay for all water used in the entire work covered by these specifications."

And again on the same page, "The cement used throughout the construction of all work herein specified unless otherwise expressly stated, shall be one brand, and brand must be approved by the Architect and Engineer. Architect and Engineer will designate testing laboratory to make test, and contractor shall pay for same."

The material part of the bond executed by the contractor reads as follows:

"Whereas the above bounden Principal has entered into a certain written contract with the above named Obligee, dated the 20th day of May, 1929 to furnish all materials and perform all work in connection with construction of a Church Building for the Church of St. Mary, Hague, North Dakota which contract is hereby referred to and made a part hereof as fully and to the same extent as if copied at length herein.

"Now therefore, the condition of the above...