National Surety Co. v. George E. Breece Lumber Co., 583.

• Decision Date: 05 August 1932
• Docket Number: No. 583.,583.
• Citation: 60 F.2d 847
• Parties: NATIONAL SURETY CO. v. GEORGE E. BREECE LUMBER CO.
• Court: U.S. Court of Appeals — Tenth Circuit

60 F.2d 847 (1932)

NATIONAL SURETY CO. v. GEORGE E. BREECE LUMBER CO.

No. 583.

Circuit Court of Appeals, Tenth Circuit.

August 5, 1932.

E. R. Wright, of Santa Fé, N. M. (Jones, Goldstein, Hardie & Grambling, of El Paso, Tex., and Donovan N. Hoover, of Santa Fé, N. M., on the brief), for appellant.

J. Benson Newell, of Las Cruces, N. M. (W. C. Whatley, of Las Cruces, N. M., on the brief), for appellee.

Before PHILLIPS and McDERMOTT, Circuit Judges, and POLLOCK, District Judge.

PHILLIPS, Circuit Judge.

On September 7, 1926, the lumber company entered into a contract with Cooper and Otey, a partnership composed of C. H. Cooper and Charles B. Otey, by which the partnership agreed to cut, skid, and deliver to the lumber company fifty million feet of logs on the Mescalero Indian Reservation in Otero County, New Mexico.

Thereafter Cooper and Otey as principal and the National Surety Company as surety entered into a bond, the material portions of which follow:

"Know All Men by These Presents, That We, C. H. Cooper and Charles B. Otey, doing business as Cooper and Otey, a partnership, of Flagstaff, Arizona, hereinafter called the Principal, as Principal, and the National Surety Company, a corporation under the laws of the State of New York, hereinafter called the Company, as surety, are held and firmly bound unto The George E. Breece Lumber Company, a corporation, hereinafter called the obligee, in the penal sum of Twenty Thousand Dollars ($20,000.00), which sum is hereby agreed to be the maximum liability hereunder, lawful money of the United States of America, well and truly to be paid, and for the payment of which we and each of us hereby bind ourselves, our heirs, executors, administrators and successors, jointly and severally, firmly by these presents.

"Dated this 25th day of October, 1927. * * *

"Whereas, said Principal has entered into a certain contract * * * bearing date September 7th, 1926, with said Obligee, providing for the cutting of timber on the Mescalero Indian Reservation * * * which contract contains a clause, No. 15, reading as follows:

"`15. It is further agreed that the party of the Second Part (Cooper and Otey) is to assume all obligations and fully comply with the requirements of the Indian Department, not only in cutting and delivering said logs, but also the brush and disposal of the refuse and in every manner meet the requirements of said Indian Department; and will also clean up each area as it is reached after logging operations have been begun and particularly that no back areas shall be left as the said work progresses.' * * *

"Now, Therefore, the condition of this instrument is such that if the Principal indemnifies the obligee against all loss or damage directly arising by reason of the failure of the Principal to faithfully comply with the conditions imposed by said paragraph 15 of the contract above referred to, as herein quoted, then this instrument shall be null and void, otherwise to remain in full force and effect."

The lumber company brought this action on the bond and in its complaint alleged that Cooper and Otey had breached such paragraph 15; that the Bureau of Indian Affairs had demanded that the lumber company clean up the cut over areas as required by such paragraph 15; that the lumber company had notified the surety company of such breaches and demand; that the lumber company cleaned up such areas and that the cost thereof, after applying thereto certain credits due to Cooper and Otey, was $7,774.50; and that Cooper and Otey had not indemnified the lumber company therefor.

In its amended answer the surety company alleged, as its first affirmative defense, that Cooper and Otey fully performed the provisions of paragraph 15 of the logging contract from the date of its execution to April 1, 1928; that on such date the partnership was dissolved by mutual consent and Otey had retired therefrom; that thereupon the lumber company and Cooper agreed that Otey should be released from the logging contract, and that it should thereafter be carried out by Cooper individually; that Cooper individually continued to perform such contract; and that the release of Otey was without the knowledge and consent of the surety company. As its second affirmative defense, it alleged that Otey died about July 1, 1928; that up to that date Cooper and Otey and Cooper individually fully complied with the provisions of paragraph 15 of the logging contract; that the death of Otey dissolved such partnership and terminated the logging contract, and that the surety company was not liable under such bond for any acts or defaults occurring subsequently thereto. It further alleged, as an offset, that Cooper discontinued work under such contract on March 2, 1929; that the lumber company and Cooper agreed that the latter should be released from the contract, and that he should be credited with the reasonable value of all cut logs remaining in the logged areas and the credit applied against the cost of cleaning up the cut over areas; that such credit amounted to $2,817.25, and that the surety company was entitled to offset that amount against any liability under the bond.

The trial court sustained the lumber company's demurrer to the second affirmative defense.

The evidence established that all of the breaches of the provisions of paragraph 15 of the logging contract occurred after the death of Otey. The surety company introduced evidence which fully supported the allegations of its first affirmative defense, and tendered an instruction which properly submitted such defense to the jury. The court refused to give such instruction. The surety company tendered evidence in support of the allegations upon which its claim of set-off was based. Such evidence was rejected.

From a verdict and judgment in favor of the lumber company for $8,561.01, the surety company has appealed.

Counsel for the lumber company contend that the bond is a contract of guaranty insurance rather than one of suretyship, and that the rights and the liabilities of the parties must be determined from the principles applicable to insurance contracts.

While the distinctions between ordinary contracts of suretyship and those of guaranty insurance have not been clearly drawn, one usually recognized is that in contracts of suretyship the surety obligates himself to do the act if the principal fails, while in contracts of guaranty insurance the insurer agrees to indemnify the insured for any loss he may sustain on account of the acts or defaults of the principal. Cooley's Briefs on Insurance (2d Ed.) vol. 1, p. 16.

Mr. Joyce in his work on insurance (2d Ed.) vol. 1, § 12, says:

"Guaranty insurance is a contract whereby one, for a consideration, agrees to indemnify another against loss arising from the want of integrity, fidelity, or insolvency of employees and persons holding positions of trust, against insolvency of debtors, losses in trade, losses from non-payment of notes and other evidences of indebtedness, or against other breaches of contract."

This definition has been judicially approved in the following cases: People v. Rose, 174 Ill. 310, 51 N. E. 246, 44 L. R. A. 124; People ex rel. Gosling v. Potts, 264 Ill. 522, 106 N. E. 524; American Surety Co. v. Folk, 124 Tenn. 139, 135 S. W. 778, Ann. Cas. 1912D, 1024. See, also, Craft v. Standard Accident Ins. Co., 220 Ala. 6, 123 So. 271; Hare & Chase v. National Surety Co. (D. C. N. Y.) 49 F.(2d) 447, 453.

Under the terms of the bond in the instant case, Cooper and Otey agreed to indemnify the lumber company against loss resulting from their failure to carry out the terms of such paragraph 15, and the surety company agreed to pay such indemnity in the event of default therein by Cooper and Otey. As between the lumber company and Cooper and Otey, the bond may be a contract of indemnity insurance. As between the lumber company and the surety company, the latter was surety for Cooper and Otey.

It is a general rule that, where a partnership has entered into an executory contract which remains unperformed in whole or in part at the date of the death of one of the partners, his death does not release the partnership from performance of such contract, in the absence of provision in the contract to that effect; and the existence of the partnership, with its active functions to be performed by the survivor, is continued until such contract has been fully executed. Whitesell v. Pioneer Const. Co. (Mo. App.) 2 S.W.(2d) 147; Ayres v. Chicago, R. I. & P. R. Co., 52 Iowa, 478, 3 N. W. 522; Davis v. Sowell & Co., 77 Ala. 262; Jacksonville, M. P. Ry. & Nav. Co. v. Warriner, 35 Fla. 197, 16 So. 898; Asbestos Mfg. & S. Co. v. Lennig-Rapple Eng. Co., 26 Cal. App. 177, 146 P. 188; Griswold v. Waddington, 16 Johns. (N. Y.) 438; Lackner v. McKechney (C. C. A. 7) 252 F. 403; Rowley's Modern Law of Partnership, Vol. 1, § 599.

In Griswold v. Waddington, supra, the court said:

"A dissolution of a partnership only has respect to the future. The parties remain bound for all antecedent engagements. The partnership may be said to continue as to every thing that is past, and until all preexisting matters are wound up and settled."

It is true that the survivor cannot make new contracts and bind the personal representative of the deceased partner thereby, but he may and it is his duty to perform contracts entered into before the death of his copartner. Ayres v. Chicago, R. I. & P. R. Co., supra; Andrews v. Stinson, 254 Ill. 111, 98 N. E. 222, Ann. Cas. 1913B, 927.

Contracts which provide for the performance of personal services or require the exercise of peculiar skill, and therefore can only be performed by a particular person, terminate with the death of the one bound to perform such services or to exercise such skill, and are excepted from the general rule. Ayres v. Chicago, R. I. & P. R. Co., supra; Wolfe v. Howes, 20 N. Y. 199, 75 Am. Dec. 388; Story on Bailments, § 36; Williston on Contracts,...