Monmouth Lumber Co. v. Indemnity Ins. Co. of North America, A--122

• Decision Date: 07 May 1956
• Docket Number: No. A--122,A--122
• Parties: , 59 A.L.R.2d 742 MONMOUTH LUMBER COMPANY, etc., et al., Plaintiffs-Respondents, v. INDEMNITY INSURANCE CO. OF NORTH AMERICA, Defendant-Appellant. GEORGE C. KOEPPEL & SON, Inc., etc., Plaintiff-Respondent, v. DEAL BUILDING SITES, Inc., et al., Defendants-Appellants. Ira LETTS, trading as T. Letts & Sons, Plaintiff-Respondent. v. DEAL BUILDING SITES, Inc., et al., Defendants-Appellants. Joe PETRILLO, etc., Plaintiff-Respondent, v. INDEMNITY INSURANCE CO. OF NORTH AMERICA, Defendant-Appellant.
• Court: New Jersey Supreme Court

Page 439

21 N.J. 439

122 A.2d 604, 59 A.L.R.2d 742

MONMOUTH LUMBER COMPANY, etc., et al., Plaintiffs-Respondents, v. INDEMNITY INSURANCE CO. OF NORTH AMERICA, Defendant-Appellant.

GEORGE C. KOEPPEL & SON, Inc., etc., Plaintiff-Respondent, v. DEAL BUILDING SITES, Inc., et al., Defendants-Appellants.

Ira LETTS, trading as T. Letts & Sons, Plaintiff-Respondent. v. DEAL BUILDING SITES, Inc., et al., Defendants-Appellants.

Joe PETRILLO, etc., Plaintiff-Respondent, v. INDEMNITY INSURANCE CO. OF NORTH AMERICA, Defendant-Appellant.

No. A--122.

Supreme Court of New Jersey.

Argued April 16, 1956.

Decided May 7, 1956.

Robert R. Witt, Asbury Park, for defendant-appellant Indemnity Ins. Co. of North America (Robert V. Carton, Asbury Park, of counsel; Durand, Ivins & Carton, Asbury Park, attorneys).

Rocco Ravaschiere, Red Bank, for plaintiffs-respondents Monmouth Lumber Co. and Monmouth Concrete Co. (Parsons, Labrecque, Canzona & Combs, Red Bank, attorneys).

Sverre Sorenson, Atlantic Highlands, for plaintiffs-respondents George C. Koeppel & Son, Inc., etc., and Ira Letts, trading as T. Letts & Sons (Harry S. Evans Long Branch, N.J., on the brief).

Barkave G. Elian, Newark, for plaintiff-respondent Joe Petrillo, etc.

The opinion of the court was delivered by

VANDERBILT, C.J.

This is an appeal by the Indemnity Insurance Company of North America, hereafter referred to as the surety company, from four summary judgments entered against it in the Superior Court, Monmouth County, in favor of the four separate plaintiffs as unpaid laborers and materialmen in a construction project covered by its contractor's bond. These four matters were consolidated for appeal by order of the Appellate Division of the Superior Court to which these appeals were taken. While pending there we certified the matters on our own motion.

Although the facts are somewhat intricate, the principles involved are relatively clear-cut and the facts themselves all but dictate the result.

On May 7, 1953 the defendant surety company executed a contractor's surety bond in the penal sum of $24,147.50 with Deal Construction Corp., the contractor, as principal, and Deal Shore Estates Association, Section II, the owner, and the Trust Company of New Jersey, the lender, as obligees. The following portions of the instrument are germane:

'Now, Therefore, the condition of this obligation is such that, if Principal shall well and truly perform all the undertakings, covenants, terms, conditions and agreements of said Contract on its part, and fully indemnify and save harmless Obligees from all cost and damage which they may suffer by reason of failure so to do, and fully reimburse and repay Obligees all outlay and expense which Obligees may incur in making good any such default, and further, that if Principal shall pay all persons who have contracts directly with Principal for labor or materials furnished pursuant to the provisions of said Contract, failing which such persons shall have a direct right of action against Principal and Surety under this obligation, subject to Obligees' priority, then this obligation shall be null and void; otherwise it shall remain in full force and effect.'

'The aggregate liability of Surety hereunder to the Obligees or their assigns is limited to the penal sum above stated, and Surety, upon making any payment hereunder, shall be subrogated to, and shall be entitled to an assignment of, all rights of the payee either against Principal or against any other party liable to the payee in connection with the loss which is the subject of the payment.'

The four summary judgments that have been obtained amount to $9,431.33 more than the penal sum of the bond. The matter is further complicated by the intervening bankruptcy of the Deal Construction Corp., the contractor and principal, and the existence of other creditors who have been secured by this bond.

For the sake of clarity the details of the actions leading to the present summary judgments should be enumerated. The Monmouth Lumber Company brought action against Deal Construction Corp. to recover for materials furnished and delivered to the project in question which went unpaid for, and on June 11, 1954 recovered a default judgment for $3,471.88 and costs. On November 22, 1954, in a similar action against Deal, the Monmouth Concrete Corp. recovered a default judgment in the amount of $627.50 and costs. Subsequently, in March 1955, both Monmouth Lumber Company and Monmouth Concrete Company joined as parties plaintiff in an action against the surety company seeking payment of their judgments from it under the obligation on the bond. In that suit the surety company filed an answer admitting the execution of the bond, denying any independent knowledge as to the facts upon which the original default judgments were recovered and denying that the goods and the materials which formed the basis of those judgments were actually delivered to or incorporated in the construction project covered by the bond. It then demanded answers to certain interrogatories, but before answering the interrogatories these plaintiffs moved for summary judgment. Annexed to the moving papers was detailed proof by affidavit setting forth the material and supplies and a bare assertion that the items were delivered to and used on the job covered by the bond. The answering affidavit furnished by an officer of the surety company indicated that the Monmouth Lumber Company was seeking to recover in part for materials furnished prior to the effective date of the surety bond, that there were no facts set forth in the moving affidavit tending to prove the delivery to and incorporation in the job of the materials and finally that the surety company had no independent knowledge of any of the relevant facts. Summary judgment was granted covering both claims. The order for judgment was signed June 16, 1955.

In the meantime, other suits had been brought to recover for unpaid labor and materials furnished to the same building project. In two of them, the suits brought by T. Letts & Sons and George C. Koeppel & Son, Inc., the actions were against Deal Construction Corp. and the surety company and others not here material as defendants. The surety answered as it did in the Monmouth case, and submitted interrogatories. This was countered with motions for summary judgments. In these cases, however, evidently becoming concerned because of its actual knowledge of claims in excess of the penal amount of the bond and the probable insolvency of the principal, the surety company made a cross-motion (1) to restrain these plaintiffs from pursuing their motions for summary judgments, (2) for leave to consolidate all these pending actions against these defendants, (3) for leave to file a complaint and order to show cause on all known creditors who had not yet brought suit why they should not be joined and have their claims adjudicated, and (4) for leave to file counterclaims seeking an accounting as to each claim and an adjudication as to each creditor's Pro rata share of the amount of the bond. The summary judgments were granted without any of the relief sought by the cross-motion. The trial court did, however, indicate that it might grant relief by way of restraining the plaintiffs from executing on their judgments until such time as an appeal had been taken from the summary judgments.

In accordance with the court's suggestion the surety company moved for an order restraining the execution of those judgments already entered and sought a consolidation for trial of the remaining suits that had not yet gone to judgment. On July 8, 1955 an order was entered consolidating seven causes of action for 'control and supervision by the Superior Court, Law Division, until such time as this entire matter is finally disposed of.' These seven actions included the three in which summary judgments had been obtained and four pending cases. The pending cases were also consolidated for trial purposes and Letts, Koeppel and the Monmouth Companies restrained from taking any proceedings on their judgments beyond levying until the appeals therefrom had been determined.

During this period Joe Petrillo and Sam Rubenstein, trading as P. & R. Constractors, had recovered a default judgment in an action brought against the contractor, Deal Construction Corp. alone, and had thereafter brought action, as did the Monmouth Lumber and Concrete Companies, against the surety company seeking payment of that default judgment. This action was one of the pending cases consolidated for trial. On a similar motion for summary judgment the court granted the judgment but restrained any action thereon beyond the point of levy until the appeal in the Monmouth case had been decided.

The final factual detail was the order entered by the Appellate Division of the Superior Court consolidating the four appeals taken by the surety company from the four summary judgment detailed above.

The issues presented in this matter are: (1) the legal effect on the surety company of the judgments obtained by default in the actions brought against the principal in which the surety was not joined; (2) the propriety in the circumstances here of granting the summary judgments; (3) whether, having knowledge of the fact that the amount of the debts which might be entitled to be satisfied out of the fund is greater than the fund, a Pro rata distribution should be ordered; and (4) the extent of the liability of the surety company.

(1) Is a default judgment against the principal on a bond in an action where the surety is not made a party conclusive in the action thereafter brought against the surety to recover the amount of the judgment? While there is a difference of opinion among the many jurisdictions in this country, the rule in this State is clearly against binding on a judgment so obtained a surety who has merely undertaken to be responsible for the debts or defaults of the principal and who has...