Kearsarge Metallurgical Corp. v. Peerless Ins. Co.

• Court: United States State Supreme Judicial Court of Massachusetts
• Writing for the Court: Before HENNESSEY; ABRAMS
• Citation: 383 Mass. 162,418 N.E.2d 580
• Parties: KEARSARGE METALLURGICAL CORPORATION v. PEERLESS INSURANCE COMPANY.
• Decision Date: 13 March 1981

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418 N.E.2d 580 383 Mass. 162 KEARSARGE METALLURGICAL CORPORATION
v.
PEERLESS INSURANCE COMPANY. Supreme Judicial Court of Massachusetts, Suffolk. Argued Dec. 3, 1980.
Decided March 13, 1981.

[383 Mass. 163] Allan Green, Boston, for defendant.

Irvin D. Gordon, Boston, for plaintiff.

Before [383 Mass. 162] HENNESSEY, C. J., and BRAUCHER, KAPLAN, WILKINS and ABRAMS, JJ.

[383 Mass. 163] ABRAMS, Justice.

The defendant Peerless Insurance Company (Peerless) appeals from the entry of summary judgment against it and in favor of Kearsarge Metallurgical Corporation (Kearsarge), enforcing an arbitration award

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against Peerless. Kearsarge had previously obtained an arbitration award against Waghorne-Brown Company of N.E., Inc. (Waghorne), Peerless's principal under a performance and payment bond issued by Peerless. Peerless claims that the judge erred by (1) denying its motion to dismiss for failure to state a claim upon which relief could be granted; (2) denying its motion to dismiss for forum non conveniens; and (3) granting summary judgment in favor of Kearsarge when the affidavits and pleadings on file demonstrated there were genuine issues of material facts. ¹ We granted direct appellate review. We affirm.

We summarize the facts. On September 16, 1975, Kearsarge entered into a "Building Construction Agreement" with Waghorne, a New Hampshire corporation then engaged in the construction business. Pursuant to that contract, Waghorne agreed to act as general contractor for the construction of a manufacturing building for Kearsarge in Conway, New Hampshire. The contract stated the completion date of the project as December 31, 1975, and further specified that all times stated in the contract "are of the essence." It also stated that in the event completion was delayed more than sixty days thereafter by "any neglect or omission" of the contractor, Kearsarge (through its representative, the clerk of the works) was entitled to assess penalties of up to $500 a day for each additional day of [383 Mass. 164] delay. ² The contract also provided that "(a)ll claims and disputes" arising thereunder were to be "subject to arbitration" in accordance with the rules of the American Arbitration Association. ³

Kearsarge required Waghorne to obtain a performance and payment bond to insure Waghorne's performance under the contract. Waghorne obtained such a bond from Peerless on September 16, 1975, in the amount of $264,216.00, the price of the underlying construction contract. The bond stated that the Kearsarge-Waghorne contract "is made a part of this bond, the same as though fully set forth herein." ⁴

The building was not completed by the agreed date of performance, nor by the date after which Kearsarge was entitled to assess penalties for delays due to the neglect or [383 Mass. 165] omission of Waghorne. In May, 1976, Waghorne advised Kearsarge and Peerless that it would not be able to complete the project. On June 16, 1976, Waghorne filed a voluntary petition in bankruptcy in the United States District Court for the District of New Hampshire. Waghorne was discharged in bankruptcy on September

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3, 1976. Following negotiations between Peerless and Kearsarge, Peerless took over the construction contract, and hired subcontractors to work on the job. Kearsarge moved into the building in 1976, during the completion work. However, according to an affidavit by Kearsarge's president, all the work called for in the original contract had not been completed as of May 14, 1979.

On June 21, 1978, pursuant to the arbitration clause in the Kearsarge-Waghorne contract, Kearsarge filed a demand for arbitration with the American Arbitration Association in Boston, seeking to recover damages "for incomplete and non-conforming work and for delay damages." Copies of the demand were sent to both Waghorne and Peerless. Attorneys for Waghorne informed Kearsarge and Peerless that Waghorne had been adjudicated a bankrupt and ceased all business operations. Kearsarge continued to demand arbitration, and continued to provide Peerless with copies of all the documents relating to its request for arbitration. The arbitration took place on September 26, 1978, without representatives of either Waghorne or Peerless present. ⁵ Subsequently, the arbitrators made an award in favor [383 Mass. 166] of Kearsarge, holding that Waghorne shall pay Kearsarge $140,094. ⁶

1. The effect of the arbitration clause. Peerless argues that the judge below misapplied the law of New Hampshire ⁷ in holding that the language of the Peerless bond should be construed as binding Peerless, as surety, under the arbitration clause of the Kearsarge-Waghorne contract. Therefore, Peerless argues, the judge should have allowed its motion to dismiss for failure to state a claim on which relief can be granted, and should have denied Kearsarge's motion for summary judgment. We do not agree.

Under New Hampshire law, if "a bond refers to and is conditioned on the performance of a specific agreement the latter's terms become a part of the bond and the instruments should be read together as a whole." Paisner v. Renaud, 102 N.H. 27, 29, 149 A.2d 867 (1959). Maine Bonding & Cas. Co. v. Foundation Constructors, Inc., 105 N.H. 470, 473, 202 A.2d 481 (1964) ("the bond, contract and the specifications ... constitute an integrated obligation"). Rivier College v. St. Paul Fire & Marine Ins. Co., 104 N.H. 398, 401, 187 A.2d 799 (1963). Kenney v. Barry, 86 N.H. 35, 36, 162 A. 774 (1932). The rule that a bond must be read together with the contract it secures derives from the broader principle of law that "(d)ifferent instruments are to be construed together, as parts of the same contract, where [383 Mass. 167] it is necessary to carry into effect the agreement and intention of the parties." Hill v. Huntress, 43 N.H. 480, 483 (1862). Bogosian v. Fine, 99 N.H. 340, 344, 111 A.2d 190 (1955). By its terms, the Peerless bond made the Kearsarge-Waghorne contract "a part of this bond, the

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same as though fully set forth herein." ⁸ "(T)he liability of the company as surety is coextensive with that of the principal ... under the contract and specifications." Paisner v. Renaud, supra at 29, 149 A.2d 867. Lavigne v. Lavigne, 87 N.H. 223, 225, 176 A. 282 (1935). See Powers Regulator Co. v. United States Fidelity & Guar. Co., --- Mass.App. --- ^a, 388 N.E.2d 1205 (1979); Fidelity & Deposit Co. v. Parsons & Whittemore Contractors Corp., 48 N.Y.2d 127, 131, 421 N.Y.S.2d 869, 397 N.E.2d 380 (1979) (stating that implicit in the surety's acceptance of an underlying contract which included an arbitration agreement is that "for purposes of later determining its liability under its performance bond, it would accept and be bound by the resolution reached in the arbitration forum"). See generally 9 J. Appleman, Insurance Law and Practice § 5276, at 70-71 (1943).

Although no New Hampshire case has specifically decided that an arbitration clause in a construction contract is binding upon the surety who guarantees performance of that contract, we think that New Hampshire courts would follow the general principles outlined above and hold that where the parties to a contract have agreed to resolve their disputes by arbitration, the surety who guarantees the performance of the contract will be likewise bound. "(I)t is not the practice of courts to require a retrial of the facts which the arbitrators have already decided." Southwestern N.H. Transp. Co. v. Durham, 102 N.H. 169, 174, 152 A.2d 596 (1959).

For the reasons stated above, we...