Long v. Am. Sur. Co. of N.Y.

• Decision Date: 29 June 1912
• Citation: 23 N.D. 492,137 N.W. 41
• Parties: LONG v. AMERICAN SURETY CO. OF NEW YORK.
• Court: North Dakota Supreme Court

23 N.D. 492

137 N.W. 41

LONG

v.AMERICAN SURETY CO. OF NEW YORK.

Supreme Court of North Dakota.

April 24, 1912.

On Rehearing, June 29, 1912.

Syllabus by the Court.

In an action upon a surety bond given to a contractor to secure the faithful performance of a subcontract, and where knowledge of the principal contract can be imputed to the surety, the measure of damages may be the difference between the price agreed to be paid to the principal contractor and the price agreed by him to be paid to the subcontractor, or the profits of the contract. Such surety company may also be held liable for any cost or damage or charge which he may incur by reason of the breach of his own contract with his principal which is brought about by the default of the subcontractor. Such liability, however, must be definitely proved, and a mere possible and problematical liability cannot be made the basis of a recovery.

Where a contract was made with a subcontractor for the construction of a portion of a drainage ditch, and such contractor defaulted, and after the default and the failure of the principal contractor to perform his contract with a board of drainage commissioners, on account thereof, the board of commissioners, after such default and before the trial of an action brought by the contractor on the bond of his subcontractor, entered upon and completed the ditch, and there was no evidence that the cost of completion to them exceeded the price agreed by them to be paid to the principal contractor, no damages can be recovered by the said contractor against the surety company on account of a possible liability on his part to the drainage commissioners, and the possibility that the cost of completion by them was greater than the contract price.

On Rehearing.

Where, in such a case, the bond provides that a portion of the contract price shall be retained by the principal contractor until the whole of the work is completed, a failure to retain such portion will release the surety.

Where a bond requires notice “of any default in any of the terms, covenants and conditions of the contract” to be given to the surety company within a specified time, an abandonment of the work before the time of completion will constitute such a default, and notice must be given thereof, and within the time prescribed.

Where a surety company is paid a premium for issuing its bond, it will usually be treated rather as an insurer than according to the strict law of suretyship. This rule, however, does not exempt the beneficiary from living up to the terms of his own agreement, and the provisions of such bond are not to be construed strictly for or against either party, but reasonably as to both.

Appeal from District Court, Sargent County; Allen, Judge.

Action by C. A. Long against the American Surety Company of New York. Judgment for plaintiff, and defendant appeals. Reversed and remanded, with directions.

This is an action on a bond and against the defendant surety company to recover damages for the breach of a subcontract to excavate a portion of a drainage ditch. The principal contract was made on October 3, 1906, between the plaintiff, Long, and the tricounty drainage board of Ransom, Sargent, and Richland counties, and an extension thereof was made on April 6, 1908. The subcontract, for the faithful performance of which this bond was given, was made between Long and the subcontractor, Chas. C. Gentry, on May 12, 1908, and the bond sued upon was executed by the defendant on August 6, 1908. Gentry has defaulted under his contract, and the plaintiff sues on the bond to recover damages for his loss.

The principal contract of October 3, 1906, fixed the price to be paid Long by the commissioners at 17 cents per cubic yard. The subcontract of May 12, 1908, fixed the price to be paid Gentry by Long at 13 1/2 cents per cubic yard. The so-called “extension agreement” of April 6, 1908, reduced the price to be paid Long from 17 to 15 cents per cubic yard, but provided “that if the said C. A. Long shall comply with all the conditions herein contained, and within the times herein mentioned, time being declared as the essence of this contract, the parties of the first part agree to pay to C. A. Long, as a bonus, an additional one and one-half cents per cubic yard for contract excavation upon completion of said drain.” The extension agreement provided that the drain should be completed by January 1, 1909, and the same provision was contained in the subcontract between Long and Gentry. Both the principal contract and the subcontract contained the provision that, “if the party of the second part fails to proceed with said work with reasonable diligence, the said party of the first part may enter upon the work and complete the same, holding said party of the second part liable for all costs and expense in finishing said ditch, over and above the amount of the contract price hereinbefore referred to,” while the extension agreement also contained the provision that “in the event the conditions herein are not complied with in the manner herein specified, and within the times herein specified, then, and in that event, this extension agreement and the original contract are declared forfeited and determined, and all right to continue work under said original contract and this extension is ended.” There is some question as to the validity of this so-called extension agreement, except in so far as its extension of time to January 1, 1909, was concerned. The obligation of the bond was that the principal should “faithfully perform said contract on his part according to the terms, covenants, and conditions thereof,” and the contract referred to was the contract of May 12, 1908, between Long and said Gentry, and a copy of both the contract between Long and Gentry and the principal contract between Long and the drainage board, of October 3, 1906, was attached to the bond. There were also provisions in the bond “that in the event of any default on the part of the principal in the performance of any of the terms, covenants and conditions of said contract, written notice thereof with a verified statement of the particular facts showing such default and the date thereof shall within fifteen days after such default be delivered to the surety at its office in the city of Minneapolis, and in case of any such default, all moneys which, but for such default, would be due, or would thereafter become due to the principal shall be held by the obligee and by him applied for the indemnification of the surety. * * * The obligee shall retain not less than fifteen per cent. of the value of all work performed and materials furnished in the performance of such contract, until the complete performance by said principal of all the terms, covenants and conditions thereof on said principal's part to be performed.”

The defense of the surety company was that the plaintiff had failed and neglected to make payments to said Gentry as provided for in his contract with him, and, having violated his contract in that behalf, could not insist upon its performance; that the plaintiff, after the default, had not entered upon and completed the work, and therefore could not recover any damages based thereon; that the plaintiff had failed to notify the defendant within 15 days after the default; that the plaintiff had hindered and delayed Gentry in the performance of his work; that the plaintiff did not furnish Gentry with proper plans and profiles and from time to time required Gentry to make alterations in the work not provided for in the contract. There was also a claim that the defendant made and executed the bond sued upon, relying upon the representations in the contract between the plaintiff and Gentry, and with the understanding that the contract to perform the work described in said contract had been made and was then existing by and between said plaintiff and the drainage commissioners, and that the terms and conditions of the contract between the drainage commissioners and the plaintiff had been adopted to apply to the performance of the work provided for in the contract between the plaintiff and Gentry, with the exception, however, that the time for the ultimate performance had been extended until January 1, 1909; that the contract between the board and the plaintiff had, without the knowledge or consent of the defendant, been modified to the extent of extending the time of the performance to January 1, 1909, and the price agreed to be paid to the said Long was changed from 17 cents per cubic yard to 15 1/2 cents per yard, as a condition for said extension, said new contract being unknown to the defendant, and the defendant claiming that at the time it made and executed the bond it believed that the only contract for the performance of said bond was the original contract between the plaintiff and the board and the subcontract between the said plaintiff and Gentry; that notice and knowledge of said change was willfully withheld from the defendant by plaintiff for the purpose of inducing him to make and deliver its bond; and that if the defendant had known of the change it would not have executed the bond. A recoupment was also pleaded on account of money alleged to be due and owing on account of the work from Long to Gentry. A verdict was rendered in favor of the plaintiff for $1,392.49, and interest at 7 per cent. from January 1, 1909, and from a judgment based upon this verdict this appeal is taken. Prior to the entry of a judgment, a motion for a judgment in favor of the defendant and notwithstanding the verdict was made and denied, as well as a motion for a new trial in the alternative. Prior to the verdict, also, the ordinary motions to dismiss and for a directed verdict were made and denied.

Wolfe & Schneller, of Wahpeton, and Kerr & Fowler, of Minneapolis, Minn., for appellant. Purcell & Divet, of Wahpeton, for respondent.

BRUCE, J. (after stating the facts as above).

Although there...