National Bank of Tacoma v. Aetna Cas. & Sur. Co.

• Decision Date: 09 March 1931
• Docket Number: 22908.
• Court: Washington Supreme Court
• Parties: NATIONAL BANK OF TACOMA v. AETNA CASUALTY & SURETY CO.

296 P. 831

161 Wash. 239

NATIONAL BANK OF TACOMA v. AETNA CASUALTY & SURETY CO.

No. 22908.

Supreme Court of Washington

March 9, 1931

Department 1.

Appeal from Superior Court, Pierce County; W. O. Chapman, Judge.

Action by the National Bank of Tacoma against the AEtna Casualty &amp Surety Company. Judgment for plaintiff, and defendant appeals.

Affirmed.

J Speed Smith and Henry Elliott, Jr., both of Seattle, and Henderson, Carnahan & Thompson, of Tacoma, for appellant.

Hayden Langhorne & Metzger, of Tacoma, for respondent.

HOLCOMB J.

This is an action upon an indemnity bond given by appellant, a compensated surety company, to respondent on January 3, 1929. The bond so far as material reads:

'That we, American Wood Pipe Company, a corporation of the State of Washington, with principal place of business at Tacoma, Washington, as Principal, and the Aetna Casualty and Surety Company of Hartford, Connecticut, as Surety, are held and firmly bound unto Twin Harbors Lumber Company of Aberdeen, Washington and/or the National Bank of Tacoma, Tacoma, Washington, in the penal sum of Twenty-Eight Hundred and No/100 ($2800.00) Dollars, lawful money of the United States, for the payment of which, well and truly to be made the said principal and the said surety bind themselves, their heirs, executors, administrators, successors and assigns, jointly and severally firmly by these presents.

'Signed and sealed this 3rd day of January A. D. 1929.

'The condition of this obligation is such that, whereas, the said principal has accepted a written order from the Twin Harbors Lumber Company of Aberdeen, Washington, and/or the National Bank of Tacoma, Tacoma, Washington, dated December 21st, 1928 for furnishing the following quantity of material:

'65,000 ft. 2X6 16 ft. S2S T. & G. to 1 1/2X5 1/4 Pattern Number 7056 at $42.00 F. A. S. Vessel--Shaffer Terminal No. 1 shipment to be made within ninety days, which order is by reference made a part hereof as fully to all intents and purposes as if set forth at length herein.

'Now, therefore, if the said principal shall supply the material in accordance with the written order, and that they will indemnify Twin Harbors Lumber Company of Aberdeen, Washington and/or the National Bank of Tacoma, Tacoma, Washington, against any direct or indirect damages that may be suffered or claimed for lack of delivery of material within the time called for; and further conditioned as required by law for the payment of all laborers, mechanics, sub-contractors and material men, and all persons who shall supply such person or persons or sub-contractors with provisions or supplies for the carrying on of such work, and all just debts, dues and demands incurred in the performance of the work, then and in that event this obligation shall be void, but otherwise it shall remain in full force and effect.

'In testimony whereof, the said principal and the said surety have hereunto caused this instrument in writing to be signed and sealed by their duly authorized officers.'

The bond was executed under the corporate seal of American Wood Pipe Company, a corporation, and by the surety company by its resident vice president, at Tacoma, attested by the signature of its resident assistant secretary, with the corporate seal of the surety company affixed. After the execution the bond was delivered by agents of the surety company to the president of the Wood Pipe Company, who delivered it to the bank, at which time he also delivered to the bank an indorsement in the form of an invoice covering goods described in the bond which had not then been manufactured. The invoice also had indorsed thereon an assignment to the bank. Upon receipt of these papers respondent loaned to the American Wood Pipe Company $2,235, taking from the pipe company a promissory note, payable on demand, to cover the repayment of the loan. Respondent deposited the amount of the loan to the credit of the American Wood Pipe Company and permitted it to draw against the deposit. Some time afterwards the pipe company shipped to the Twin Harbors Lumber Company a portion of the materials called for in the order and at that time made and delivered an invoice covering the materials shipped, together with an assignment of the invoice, to respondent, which was for the value of the materials then delivered in the sum of $974.79. Upon receipt of this invoice, respondent sent a written notice to the Twin Harbors Lumber Company that it had received the invoice and that payment of the same should be made to the bank. On or about April 9, 1929, the Twin Harbors Lumber Company paid to the bank the sum of $974.79, which it credited to the amount of the note. In April, 1929, the pipe company was adjudged insolvent and a receiver appointed for it. Subsequently, the Twin Harbors Lumber Company wrote to the receiver canceling the order referred to in the bond, to which cancellation the receiver consented.

The bank commenced this action for the full amount of the original invoice, namely, $2,730, alleging that had the pipe company filled its order respondent would have collected that sum, but that the pipe company failed to fulfill the order and the bank was damaged accordingly. The bank alleged an oral understanding by reason of certain alleged conversations antedating the bond, testified to by officers of the bank as having been entered into by one of the agents of the surety company concerning the effect of and construction to be placed upon the bond.

The case was tried to the court without a jury, at the end of which findings of fact and conclusions of law were made favorable to respondent and judgment entered accordingly. Findings and conclusions were submitted by appellant which were rejected by the trial court. Exceptions were taken by appellant to most of the findings of the trial court, to itts conclusion of law, and to the refusal of the trial court to make findings and conclusions submitted by appellant.

The discussions by counsel for both parties go far afield in citing and discussing many texts and authorities not apposite to this case. In the first place, we are unable to agree with appellant's construction of the bond.

Appellant begins its statement in its brief as follows: 'The action is one based upon a surety bond.'

The bond before us is not a surety bond. It is, as it states and as its context implies, in law an indemnity bond. 31 C.J. 419, 420. It does guarantee the performance of the order which is referred to in the bond as a part of it. But its obligation is to 'indemnify Twin Harbors Lumber Company of Aberdeen, Washington and/or The National Bank of Tacoma, Tacoma, Washington, against any direct or indirect damages that may be suffered or claimed for lack of delivery of material' within the time called for. It is true that the bond is further conditioned, 'as required by law for the payment of all laborers, mechanics,' etc., and those furnishing 'provisions or supplies for the carrying on of such work,' which may well be construed to be an obligation which could have been enforced by the Twin Harbors Lumber Company in case of default on the part of the principal on the bond in those particulars.

'* * * There is an obvious and important difference between a contract of guaranty or suretyship and a contract of indemnity.' 14 R. C. L. 44.

'In the interpretation of indemnity contracts, the cardinal rule is that which applies to contracts generally, i. e., to ascertain the intention of the parties and to give effect to that intention if it can be done consistently with legal principles. Contracts of indemnity, therefore, must receive a reasonable construction so as to carry out, rather than defeat, the purpose for which they were executed. To this end they should neither, on the one hand, be so narrowly or technically interpreted as to frustrate their obvious design nor, on the other hand, so loosely or inartificially as to relieve the obligor from a liability within the scope or spirit of their terms. Where the general import of a contract is one of indemnity, it is the rule that all of the words used therein should be construed to be in harmony with, and subservient to, the general purpose of the bond. When applied, however, this rule should be in aid of the intention of the parties and should not be employed to defeat their purpose. Hence if a bond contains both a covenant to indemnify against loss and a...