Rowe v. Stufflebeam
| Decision Date | 06 May 1958 |
| Docket Number | No. 49393,49393 |
| Citation | 89 N.W.2d 875,249 Iowa 985 |
| Parties | Donald M. ROWE and Mabel M. Rowe, Appellees, v. F. L. STUFFLEBEAM, Defendant, and New Amsterdam Casualty Co., Appellant. |
| Court | Iowa Supreme Court |
Gilmore, Dull & Keith, Ottumwa, for appellant.
Burn Bannister, Ottumwa, for defendant F. L. Stufflebeam.
Jones, White & Johnson, Ottumwa, for appellees.
Defendant New Amsterdam Casualty Co., a paid surety on a bond to secure performance of a private construction contract, was granted this appeal under rule 332, Rules of Civil Procedure from an adverse interlocutory ruling adjudicating law points under rule 105, R.C.P.
The action is in equity by the obligee of the bond, Donald M. Rowe, and his wife (who may be disregarded), for whom defendant Stufflebeam contracted to construct a residence in Ottumwa for $31,105.40. Upon substantial completion of the house about June 20, 1955, there were many unpaid claims for labor and material, some in large amounts. The petition against Stufflebeam and the casualty company alleges, in addition to the above matters, default in performance of the contract in failing to pay claims filed as mechanics' liens and claims of certain carpenters and in some other respects, and asks for judgment in the total amount of such defaults and for other equitable relief.
The vital provisions of the bond are: 'Now, therefore, the condition of this obligation is such, That if the principal shall indemnify the Obligee against any loss or damage directly arising by reason of the failure of the Principal faithfully to perfrom said contract, then this obligation shall be void; otherwise * * * in full force and effect.
'This Bond is executed and accepted upon the following express conditions precedent:
'1. That the Obligee shall faithfully and punctually perform all the terms and conditions of said contract to be performed by the Obligee.
'2. That if the Principal shall abandon said contract * * * the Surety shall have the right to complete said contract, and thereby become entitled to the payment, * * * of the balance of the contract price, * * *.
I. After many voluminous pleadings were filed plaintiff, apparently with the casualty company's consent, asked the court to adjudicate certain law points under rule 105. The court stated the first of these points was whether plaintiff's failure to give notice to the surety in the manner provided in the bond released it from all liability thereunder even though notice was given in the manner alleged in the petition and admitted in the surety's answer.
From these two pleadings it appears plaintiff gave written notice, about June 18, 1955, of the defaults complained of by letter to the surety's resident agent in Ottumwa who countersigned the bond, rather than by registered letter at the surety's office in Baltimore. Also that about July 1, 1955, plaintiff received a letter from the surety's Chicago branch office stating it would send a representative to Ottumwa to see plaintiff, about July 19 this representative from the Chicago office came to Ottumwa and a conference was held relative to plaintiff's claims, attended by all parties to this action, by plaintiff's attorney and appellant's Ottumwa counsel.
The petition alleges that by reason of the above facts appellant waived strict compliance with provisions of the bond relative to notice by registered mail addressed to its Baltimore Office. The trial court so ruled in adjudicating the first law point and that the surety was not released from liability by departure from terms of the bond as to manner of giving notice. It is not here contended the notice was not given within a reasonable time after breach of the contract came to plaintiff's knowledge. We have no doubt this ruling is correct.
We may note that the condition of the bond requiring notice of breach of the contract is one to be performed after occurrence of the loss for which recovery is sought and is not essential to the binding force of the bond prior to any default. Conditions of this class pertain to the remedy and, although precedent to maintenance of an action, are not ordinarily as strictly construed by courts as are conditions involving the essence of the agreement. Van Buren County v. American Surety Co., 137 Iowa 490, 495, 115 N.W.24, 126 Am.St.Rep. 290, and citations. See also Schoeman v. Loyal Protective Life Ins. Co., 239 Iowa 664, 670, 32 N.W.2d 212, 215.
We may also observe that the rule prevails in many jurisdictions that failure to give a paid surety and notice of the contractor's default in failing to complete the building in the time agreed upon is no defense to an action on the bond based upon default arising from unpaid claims for labor and material. Community Bldg. Co. v. Maryland Casualty Co., 9 Cir., 8 F.2d 678, 679, and citations; Maryland Casualty Co. v. Fowler, 4 Cir., 31 F.2d 881, 63 A.L.R. 1375, 1379-80. Van Buren County v. American Surety Co., supra last above, is frequently cited in support of this rule.
It appears here without dispute appellant acquired from plaintiff in proper time all information it was entitled to receive through a registered letter at its Baltimore office and, after some delay on its part, acted thereon. It made no objection to a failure to comply literally with this provision of the bond until after this action was commenced. Under these circumstances it must be held to have waived strict compliance with this requirement of the bond.
Our conclusion finds support in Green v. Des Moines Fire Ins. Co., 84 Iowa 135, 50 N.W. 558; Harris v. Phoenix Ins Co., 85 Iowa 238, 52 N.W. 128; Pringle v. Des Moines Ins. Co., 107 Iowa 742, 747-9, 77 N.W. 521; Travelers Ins. Co. v. Farm M. F. Ins. Ass'n, 211 Iowa 1051, 1061-1062, 233 N.W. 153; Lee v. Farmers M. H. Ins. Ass's, 214 Iowa 932, 933, 241 N.W. 403; Schoeman v. Loyal Protective Life Ins. Co., supra, 239 Iowa 664, 668-671, 32 N.W.2d 212, 214-16; Johnson v. Laurence, 171 Minn. 202, 214 N.W. 24 (closely in point).
That the cases just cited growing out of insurance contracts are in point upon the proposition now considered see Van Buren County v. American Surety Co., supra, 137 Iowa 490, 495, 115 N.W. 24, 126 Am.St.Rep. 290, and citations; Annotations 127 A.L.R. 10, 11; 12 A.L.R. 382.
Another reason which supports the trial court's adjudication of the first law point is that appellant was not prejudiced by plaintiff's departure from the strict terms of the bond in the manner of notifying it of breach of the building contract. See authorities cited in the next division hereof.
II. The remaining law points present related questions and may be considered together. The trial court stated the second point to be, in substance, whether the fact plaintiff paid the contractor a substantial portion of the contract price, without the surety's consent, by the transfer of other real estate to him constitutes such a departure from the provision of the contract for payment 'in current funds' as to release the surety from liability under the bond without any proof of prejudice to it by reason of such manner of payment.
The third law point was stated to be whether the fact plaintiff made premature payment in a substantial amount on the construction contract, without the surety's consent, constitutes such a departure from the contract as to release the surety without any proof of prejudice to it by reason thereof.
The remaining law question was whether if no one of the three matters heretofore referred to releases the surety a combination of two or more of them has that effect.
As the statement of the second law point indicates, the construction contract provides for payment 'in current funds' of $31,105.40. In fact $23,000 of this sum was paid by the transfer to the contractor of plaintiff's former residence in Ottumwa. There can be no doubt this last amount was not paid 'in current funds.' The construction contract also provides for monthly payments as the work progresses of 90 per cent of the value of labor and materials incorporated in the work and of materials stored at the site, as estimated by the architect, less the aggregate of previous payments.
The trial court ruled that failure to pay the contractor in current funds or making payments to him prematurely would not discharge the surety from liability on the bond unless prejudice to it is shown on account thereof. We affirm this adjudication.
The annotation in 127 A.L.R. 10, 62, cites many decisions in support of the statement: 'There is at the present day almost no dissent from the view that a departure from the terms of a construction contract with respect to payments will not have the effect of discharging a compensated surety on the contractor's bond, unless it appears that such departure has resulted in injury, loss, or prejudice to the surety.'
The same annotation at page 69 also cites many precedents for the statement that as to 'deviations from the provisions of the contract with respect to the time, manner, amount or conditions of payments made to the contractor * * * the great weight of authority supports the view that such an unauthorized payment has the effect of releasing a compensated surety only pro tanto, to the extent of the injury or prejudice suffered by the surety, and not necessarily to the full extent of the surety's obligation.'
Restatement, Security, section 128, drawing a distinction between a gratuitous surety and a compensated one, states the latter is discharged only if a modification of the contract, without the surety's consent, materially increases its risk and is not discharged if its risk is not materially increased, but its obligations is reduced to the extent of loss due to the...
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