Maryland Casualty Co. v. Fowler

• Decision Date: 09 April 1929
• Docket Number: No. 2798.,2798.
• Citation: 63 ALR 1375,31 F.2d 881
• Parties: MARYLAND CASUALTY CO. v. FOWLER et al.
• Court: U.S. Court of Appeals — Fourth Circuit

63 ALR 1375, 31 F.2d 881 (1929)

MARYLAND CASUALTY CO. v. FOWLER et al.

No. 2798.

Circuit Court of Appeals, Fourth Circuit.

April 9, 1929.

J. S. Manning, of Raleigh, N. C. (Fred S. Hutchins, of Winston-Salem, N. C., and John H. Manning, of Raleigh, N. C., on the brief), for appellant.

Julius C. Smith, of Greensboro, N. C. (P. W. Glidewell, of Reedsville, N. C., A. L. Brooks, E. S. Parker, Jr., C. R. Wharton, E. J. Martenet, R. R. King, and Chas. A. Hines, all of Greensboro, N. C., Glidewell, Dunn & Gwyn, of Reidsville, N. C., Brooks, Parker, Smith & Wharton, King, Sapp & King, and Hines, Kelly & Boren, all of Greensboro, N. C., and D. H. Parsons, of High Point, N. C., on the brief), for appellees.

Before WADDILL and PARKER, Circuit Judges, and McDOWELL, District Judge.

PARKER, Circuit Judge.

This suit was instituted in the court below by the Maryland Casualty Company to determine its liability under a contractor's bond covering the erection of a school building. The defendants were E. W. Fowler, the contractor, the county board of education of Rockingham county, N. C., the obligee under the bond, and certain furnishers of materials who had filed claims thereunder. The cause was referred to J. E. Alexander, Esq., as special master, who, in an able and painstaking report, found that the company was liable to the county board of education in the sum of $9,169.74 for the cost of completing the building and to the materialmen in the sum of $5,045.43. This report was confirmed by the District Judge, and from the decree rendered thereon the casualty company has appealed. It makes two contentions: (1) That the claims of the furnishers of materials were not protected by the bond; and (2) that it was discharged from all liability thereunder on account of failure of the board of education to give notice in accordance with its terms of the default of the contractor.

On the first point the facts are that the board of education, on the 21st day of June, 1922, entered into a contract with Fowler to construct a school building at the price of $44,489.80. To secure compliance with this contract it required a bond of him in the sum of $22,000, which he executed with the casualty company as surety. The bond was conditioned upon the principal's indemnifying the obligee against any loss or damage directly arising from failure of the principal to faithfully perform the contract, and one of its provisions was that no right of action should accrue upon it to any person other than the obligee. By reference, however, it incorporated all of the provisions of the contract which it guaranteed, one of which was that the contractor should furnish and pay for all material, labor, etc., required for the performance of the work, and should furnish and pay for a satisfactory surety bond, equal to 50 per cent. of the contract price, as a guaranty that the building would be built according to the plans and specifications, that the contract would be complied with, and that all bills for labor and material used on the work would be paid in full.

The casualty company's position that there is no liability under the bond to the furnishers of materials is based upon the contention that the bond is one strictly of indemnity, and that it expressly provides that no right of action shall accrue to, or for the use or benefit of, any one other than the obligee. It was executed prior to the enactment of chapter 100 of the Public Laws of North Carolina of the Session of 1923, which provides that every bond given pursuant to the requirements of section 2445 of the Consolidated Statutes shall be conclusively presumed to have been given in accordance therewith, whether it be drawn to conform to the statute or not, and the contention is made that, under the doctrine of such cases as Page Trust Co. v. Carolina Const. Co., 191 N. C. 664, 132 S. E. 804, and Warner v. Halyburton, 187 N. C. 414, 121 S. E. 756, the surety is not liable for the claims of materialmen.

Most of the cases upon which the company relies, however, are distinguishable from the case at bar, in that they did not involve a contract expressly providing that the contractor should pay for labor and materials and should give a bond guaranteeing their payment. The contract in the instant case does so provide, and it is by reference made a part of the bond itself. This distinguishes it from the North Carolina cases relied upon, and also from the case of U. S. v. Starr (C. C. A. 4th) 20 F.(2d) 803. As the bond was executed prior to the 1923 amendment to section 2445 of the Consolidated Statutes, it is, of course, to be construed without reference to the amendment; but, even when so construed, we think that it clearly imposes upon the company liability for the claims of materialmen. The exact question was before this court in Hartford Accident & Indemnity Co. v. Board of Education (C. C. A. 4th) 15 F.(2d) 317, where the statute of West Virginia was substantially the same as that of North Carolina prior to the amendment of 1923, and we held in that case that such a bond did cover such claims. This holding, we think, is in accordance with the decisions of the Supreme Court of North Carolina. Scheflow v. Pierce, 176 N. C. 91, 97 S. E. 167; Orinoco Supply Co. v. Shaw Bros. Lumber Co., 160 N. C. 428, 76 S. E. 273, 42 L. R. A. (N. S.) 707. And it is also in accord with well-reasoned decisions in other jurisdictions. Peake v. U. S., 16 App. D. C. 415; Speir v. U. S., 31 App. D. C. 476; Royal Indemnity Co. v. Northern Granite & Stone Co., 100 Ohio St. 373, 126 N. E. 405, 12 A. L. R. 378.

In Ideal Brick Co. v. Gentry, 191 N. C. 636, 132 S. E. 800, Chief Justice Stacy clearly states the rule applicable in such cases as follows:

"The principle is well established by many authoritative decisions, here and elsewhere, that in determining the surety's liability to third persons on a bond given for their benefit and to secure the faithful performance of a building contract as it relates to them, the contract and bond are to be construed together. Mfg. Co. v. Andrews, 81 S. E. 418, 165 N. C. 285, Ann. Cas. 1916A, 763. In application of this principle, recoveries on the part of such third persons, usually laborers and materialmen, though not expressly named therein, are generally sustained where it appears, by express stipulation, that the contractor has agreed to pay the claims of such third persons, or where by fair and reasonable intendment their rights and interests were being provided for and were in the contemplation of the parties at the time of the execution of the bond citing cases. 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."

In the case at bar the bond was taken to guarantee the performance of a contract for the construction of a public building. Under the law of North Carolina in effect at the time, such a building was not subject to liens created under the mechanics lien statute; but, in lieu thereof, the law provided that the board of education should require the contractor to execute a bond conditioned upon the payment for labor and materials. C. S. ß 2445. The contract provided, not only that the contractor should pay for these, but also that he should furnish bond guaranteeing their payment, as well as that the contract would be complied with. This contract was by reference made a part of the bond, and these provisions were thereby incorporated in it as fully and completely as if written out therein totidem verbis. We have a case, therefore, where not only by fair intendment were the rights and interests of laborers and materialmen being provided for as required by statute, and as shown by the terms of the contractor's agreement, but also one where the terms of this agreement were expressly made a part of the bond itself. In such case it is clear that the rights of laborers and materialmen are protected. To hold otherwise would deny all force and effect to the provision of the contract incorporated in the bond that the latter should guarantee that all bills for labor and material should be paid in full, would convict the board of education of violating the provisions of section 2445 of the Consolidated Statutes, and would place the company in the absurd position of executing a bond in violation of the terms of a contract, and at the same time incorporating the contract in the bond.

It is argued that the provision of the bond to the effect that no right of action shall accrue upon or by reason of it to...