O'Neill v. Title Guaranty & Trust Co.

• Decision Date: 07 November 1911
• Docket Number: 2,126.
• Citation: 191 F. 570
• Parties: O'NEILL v. TITLE GUARANTY & TRUST CO.
• Court: U.S. Court of Appeals — Sixth Circuit

191 F. 570

O'NEILL v. TITLE GUARANTY & TRUST CO.

No. 2,126.

United States Court of Appeals, Sixth Circuit.

November 7, 1911

John C Donnelly (Brennan, Donnelly & Van De Mark and Phillips &amp Jenks, on the brief), for plaintiff in error.

Luman W. Goodenough, for defendant in error.

Before WARRINGTON and KNAPPEN, Circuit Judges, and HOLLISTER District judge.

WARRINGTON Circuit Judge.

The controversy in this cause arises upon a surety bond. It was given to secure the owner, O'Neill, against loss through failure of his contractor, Herman, to perform a contract according to drawings and specifications, for the construction of a theater and commercial building in Port Huron, Mich. Suit was brought by O'Neill against the guaranty company and Herman, but later Herman, under voluntary proceedings in bankruptcy, was discharged, and on motion of plaintiff the suit was discontinued as to him and an order made that he proceed against the defendant guaranty company alone. An instructed verdict was rendered for the company in the court below, and upon the overruling of a motion for a new trial the cause was brought here upon proceedings in error.

One of the defenses urged is that O'Neill violated the contract by failing to retain from Herman 10 per cent. of the total contract price for the building, and through the overpayment so involved discharged the surety. If this defense is sound, it will not be necessary to consider any other question presented.

The building contract required Herman 'to provide all manner of materials and labor, scaffolding, implements, molds, models and cartage of every description for the performance of the several works,' except only wiring, plumbing, hearing, and certain sewers to be furnished and placed in position by O'Neill, for the sum of $25,500. It was further provided:

'* * * Payments to be made on the first day of each month in the following manner. Ninety per cent. of the amount of labor and material in place in said building, and fifty per cent. of the amount of material on the ground, the final payment to be made when the building is fully completed to the satisfaction of the architect. * * * '

The bond in dispute was given by Herman as principal and the guaranty company as surety in favor of O'Neill in the penal sum of $10,000, and its conditions required the surety to indemnify the owner and hold him harmless from pecuniary loss resulting from the contractor's breach of any of the provisions of the building contract, and limited the surety's liability to a sum not greater than the penalty of the bond. Another condition of the bond was that, in case of default of the contractor, the surety should have the right to complete the contract and be subrogated to the rights of the contractor as to 'all deferred payments, retained percentages,' etc. The contractor failed to complete the building and pay the claims of some materialmen.

Payments were made on formal estimates in some instances and informal estimates in others. The total amount paid by O'Neill to Herman between November 1, 1905, and May 15, 1906, was either $24,393.05 or $24,512.30. The payments were thus in excess of 90 per cent. of the contract price stated, no matter which sum is regarded. Does this discharge the surety?

On March 28, 1906, plaintiff gave notice by letter to defendant that the building was nearing completion and that he expected to make final payment within two weeks. At that time he had paid all of the sum first above stated except $79.89. In the same notice he also stated that there were certain outstanding claims for materials furnished for the building, amounting to something like $4,000. A stipulation was filed in the cause later by which it was agreed that the amount of recovery to which plaintiff should be entitled, if he could recover at all, was $6,500 with a possible reduction of $440. It is apparent that the building was, through causes not distinctly shown, suffered to cost nearly $5,000 in excess of the contract price. This fact accentuates alike the importance of the retained percentage clause and the injurious effects of its nonobservance by the owner.

The interpretation contended for on behalf of plaintiff respecting payments is that 90 per cent. of the estimated value of the material and labor in the building and 50 per cent. of the value of the material on the ground could rightfully be paid, however much the sum of such values might exceed the price named in the contract.

Judge Denison, who presided at the trial below, held:

'The contract and the bond must be construed together. The ordinary, normal

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