James Black Masonry & Contracting Co. v. National Sur. Co.

• Decision Date: 04 January 1911
• Citation: 61 Wash. 471,112 P. 517
• Court: Washington Supreme Court
• Parties: JAMES BLACK MASONRY & CONTRACTING CO. v. NATIONAL SURETY CO.

112 P. 517

61 Wash. 471

JAMES BLACK MASONRY & CONTRACTING CO. v. NATIONAL SURETY CO.

Supreme Court of Washington

January 4, 1911

Department 2. Appeal from Superior Court, King County; Wilson R. Gay Judge.

Action by James Black Masonry & Contracting Company against the National Surety Company. Judgment for plaintiff, and defendant appeals. Reversed, with instructions.

Roberts Battle, Hulbert & Tennant, for appellant.

Arthur E. Griffin, for respondent.

CHADWICK J.

Respondent took a contract for the erection of the Leary building in the city of Seattle. He let a subcontract to the Ellis Granite Company, to cut and place all the stone in the first two stories of the building. It was agreed that the entire work should be finished within 125 days from the date of the contract, which was December 12, 1908. The work was delayed, through no fault of the Ellis Company, for about 60 days, but was finally finished without any changes or alterations material to this inquiry. The contract price was $16,500, to be paid as follows: 'On the 1st day of each month the contractor shall render to the general contractor an itemized statement of the work placed in the building during the preceding month, which statement shall be verified by the architects, and upon the certificate of the architects there shall immediately be paid to the contractor by the general contractor, eighty-five (85) per cent. of the amount of work finished. On the final completion of the work and the acceptance thereof by the architects, as evidenced by their certificate, the remainder of the contract price, together with the percentage retained shall be immediately payable.' The contract provided that 'the contractor shall furnish a bond in the amount of $5,000 for the proper performance of the terms of this agreement.' Appellant furnished this bond, which by its terms provided that the contract should be a part of its contract of indemnity. The bond contained the usual provisions with reference to notice to the surety of any material alterations or changes in the contract. On February 3, 1909, the Ellis Company gave notice that it was ready to begin the work of installing the stone but owing to some delay on the part of the general contractors, it was not permitted to begin the work of placing the stone at the time provided in the contract. This delay continued for 60 days. The Ellis Company, having no other immediate source of income, was unable to meet its pay rolls, and accordingly called upon respondent to make some advances. Respondent, in conjunction with and by the direction of the Leary Company, and having satisfied itself that a considerable quantity of the stone, about $7,000 worth, had been cut and was in the yards of the Ellis Company, ready for delivery, did make the following advances February 11, 1909, $500; February 17, 1909, $2,000; March 6, 1909, $1,000. It being apparent to respondent and the Leary Company that additional advances would have to be made, their respective superintendents went to the local agent of the appellant, and asked him to approve in writing of the payments already made and give his indorsement to the payment of such additional sums as were necessary to meet the expense account of the Ellis Company. This request was referred by the agent of appellant to its attorneys, and on the next day respondent and the Leary Company were informed that appellant conceived the contract to have been broken, and that it was no longer liable on its bond, and accordingly refused to approve the payments that had been made or to give its indorsement to the additional payments required. On March 26th, respondent notified the Ellis Company to forthwith proceed with the erection of the granite for the Leary building, 'under and pursuant to your contract dated December 12, 1908,' and on March 30, 1909, respondent notified the appellant that the Ellis Company had 'defaulted in the performance of its contract and has refused to proceed therewith, and further that the wages of the employés of said company for the week ending March 20, 1909, were due and had not been paid, and no work has been done under said contract since that date.' This notice was of date May 25th, and repudiated by appellant, on the theory that, by the advancements referred to and other advancements made thereafter, it was no longer liable, and refused to recognize any further liability on the bond. The court found that, when the Ellis Company made default in payment of its workmen and failed to proceed with the work of installing the stone in the building, it was impossible for the respondent to procure the stone elsewhere, without great delay which would have been disastrous to respondent and subjected it to great loss. At or about March 26th and prior to the notice given by the respondent to the appellant that the Ellis Company had abandoned its contract, its president and secretary went to respondent and to the Leary Company and told them, that the Ellis Company would not be able to carry out its contract, that it was without funds, and that the party who had been financing it had refused to make any further advances, and thereupon offered to respondent and to the Leary Company the material in its yards, and the use of its yards and appliances, in the event that they desired to perform the work upon their own account. Whereupon the Ellis Company discharged its bookkeeper, took out its telephone, and from that time on did nothing in the way of performance of its contract. The Leary Company and respondent put their own man in charge of the yard as timekeeper and bookkeeper, and employed the president of the Ellis Company as superintendent at a salary of $50 a week, and at each week end the Leary Company drew a check to cover the pay rolls and necessary expenses. This check was drawn in favor of Mr. Sayre, the superintendent, and by him converted into cash, which was paid over to the laborers. It does not appear in evidence that anything was paid by the Leary Company or the respondent over and above the actual cost of labor and material, unless it be some charges for the timekeeper, telephone, and other items which might be deducted without affecting the real question before us.

The trial court found: 'That the defendant National Surety Company was not prejudiced, injured, or damaged in any way or to any extent whatsoever either by the first three payments made February 11, 1909, February 17, 1909, or March 6, 1909, aggregating $3,500, and that said defendant was not prejudiced, injured, or damaged in any way whatsoever by the subsequent payments made by the plaintiff to the defendant Ellis Granite Company to secure the completion of the contract of said Ellis Granite Company.' The court concluded: 'That the plaintiff is entitled to a judgment against the defendant National Surety Company for the full sum of $5,000, together with interest thereon at the rate of 6 per cent. per annum from the 24th day of November, 1909.'

Appellant relies upon five propositions to sustain its appeal: 'First, the advancement of $3,500 before any work whatever was done; second, payment of $6,632.46 before any material was delivered upon the grounds; third, payment of $9,571.19 before any payment was due; fourth, advancements and payments at all times over and beyond the 85 per cent.; fifth, making final payment without notice and without holding back reserve fund as stipulated.' The contentions of respondent are sufficiently indicated by the statement of the facts and the findings which we have quoted or summarized.

This court has held, and it is a doctrine from which we are not inclined to depart, that a compensated surety will not be relieved of his obligation, unless it be shown that he has been in fact prejudiced by a breach of the contract; that is to say, the breach must not have been technical but substantial, working a pecuniary disadvantage to the surety, or depriving him of some protection or privilege reserved in the bond. Beebe v. Redward, 35 Wash. 622, 77 P. 1052; Cowles v. U.S. Fidelity & Guaranty Co., 32 Wash. 121, 72 P. 1032, 98 Am. St. Rep. 838; Title Guaranty & Trust Co. v. Murphy, 52 Wash. 194, 100 P. 315; Denny v. Spurr, 38 Wash. 352, 80 P. 541; Heffernan v. United States Fidelity & Casualty Co., 37 Wash. 477, 79 P. 1095; Monro v. National Surety Co., 47 Wash. 488, 92 P. 280; Leghorn v. Nydell, 39 Wash. 17, 80 P. 833.

Respondent relies principally upon Leghorn v. Nydell, supra, and Monro v. National Surety Co., supra. These were cases holding that payments advanced to a contractor before the time stipulated in the contract would not exonerate the bond, in the absence of a positive showing of prejudice. In each of these cases as in others of a like nature, there was a substantial compliance with the terms of the contract by the contractor. The payment was made in accordance with the terms of the bond, and having thereafter become due by reason of a performance of the contract, it was held that the objection was technical, and the surety was held to its obligation. As was said in Cowles v. United States Fidelity & Guaranty Co., supra, the bond is subject to the contract, and was made after the contract. It is the contract instead of the bond which is primarily to be construed. And, as there suggested, the inquiry should be, whether another or a new contract has been substituted for the old one. We think that in this case there was not only a substantial departure, but a clear abandonment of the original contract, and a new contract whereby respondent and the Leary Company undertook to do the work upon their own account and for their own benefit. The contract provided that payment should only be made when the stone had been placed in the building, and then upon the...