Salway v. Maryland Cas. Co.

• Decision Date: 25 April 1935
• Docket Number: 14049.
• Citation: 179 S.E. 787,176 S.C. 215
• Parties: SALWAY v. MARYLAND CASUALTY CO.
• Court: South Carolina Supreme Court

179 S.E. 787

176 S.C. 215

SALWAY v. MARYLAND CASUALTY CO.

No. 14049.

Supreme Court of South Carolina

April 25, 1935

Appeal from Florence County Court; R. W. Sharkey, Judge.

Action by Fred Salway against the Maryland Casualty Company. From an order overruling defendant's motion to dismiss the complaint and from the final decree awarding judgment for plaintiff, defendant appeals.

Reversed and complaint dismissed.

Herbert & Dial, of Columbia, for appellant.

Royall & Wright, of Florence, for respondent.

BONHAM Justice.

The Bryce Plumbing & Heating Company is a South Carolina corporation with its principal place of business at Florence S.C. It obtained from the United States government a contract to do certain work to be performed in the erection of a government hospital at Batavia, N.Y. By the terms of its contract, and the United States statute, it was required to execute a bond in favor of the government to secure the performance of the contract. The bond was duly executed with Standard Accident Insurance Company as surety. The Bryce Plumbing & Heating Company sublet certain of the work covered by its contract with the government to Wm. R. McLoughlin, Inc., which is a Massachusetts corporation, which is not domesticated in South Carolina, and not licensed to carry on business here, and not engaged in doing business in this state. The contract between Bryce Plumbing & Heating Company, which we shall call the Bryce Company, and the McLoughlin Company, was executed at Florence, S. C., September 2, 1932. By its terms McLoughlin Company, was obligated to secure its performance of the contract by the proper bond if required to do so by the Bryce Company. In pursuance of such demand, it executed its bond to the Bryce Plumbing & Heating Company in the sum of $30,000 with Maryland Casualty Company as surety. This bond was executed at Boston, Mass., and delivered to the principal, Wm. R. McLoughlin, Inc., at Worcester, Mass., its principal place of business. McLoughlin sent it to Bryce Company, at Florence, S. C., where it was received October 25, 1932. McLoughlin defaulted in the completion of his contract leaving owing to the plaintiff in this action the sum of $1,263.73, for electrical supplies furnished McLoughlin Company, and used by it in work on the government hospital at Batavia, N. Y., and in performance of McLoughlin's contract with Bryce Company.

This action was begun in the county court of Florence county in this state by the plaintiff, a citizen and resident of the state of New York, against Maryland Casualty Company, a corporation under and by the laws of the state of Maryland, by service of the summons and complaint on the insurance commissioner of South Carolina.

The defendant's attorneys, after due notice to plaintiff's attorneys that it appeared solely for the purpose of making the motion and without submitting to the jurisdiction of this court, moved for the dismissal of the action on the grounds:

1. That there is and was pending, at the commencement of this action, in the court of common pleas for Florence county an action by Bryce Plumbing & Heating Company for the full penalty of the identical bond, alleged in plaintiff's complaint, viz., $30,000.

2. That the sole beneficiary named in the bond alleged in the within complaint is the Bryce Plumbing & Heating Company, and plaintiff has no cause of action thereunder.

3. That, under the provisions of the United States Code, title 40, section 270 [40 USCA § 270] commonly known as the Heard (Hurd?) Act, all persons furnishing labor or material for the construction of any public building under a contract with the United States are given a right of action against the bond of the contractor prosecuting such work, being Bryce Plumbing & Heating Company, such bond being required under the provisions of such section and the protection of such bond extending to all persons shown to have supplied material or labor entering into the work, and who have not been paid therefor.

4. That the materials alleged to have been furnished by the plaintiff were furnished in the state of New York, wherein the work was prosecuted, and under the provisions of the Heard (Hurd?) Act hereinabove referred to the District Court of the United States in the district in which the said contract was performed has exclusive jurisdiction, and, further, no suit shall be brought on said bond within a period of six months from the final settlement of the contract.

5. That the proper venue of the within action is the state of New York.

6. And upon such other grounds as to the court may seem just and proper.

The judge of the county court held that his court had jurisdiction of the parties and the subject-matter of the action, and overruled the motion with leave to defendant to answer.

Notice was given by defendant of its intention to rely upon the jurisdictional questions made in its motion, and that it reserved all of its rights thereunder. It then answered " reserving all rights to contest the jurisdiction of this Court and without waiving any of such rights."

The answer admitted formal allegations of the complaint, denied other allegations. Alleged the same things upon which its motion to dismiss had been made; alleged that Bryce Company did not adhere to the terms of the bond executed by defendant, but disregarded them without the knowledge and consent of defendant, in this: That both before and after the execution of the bond Bryce Company knew that McLoughlin was in precarious financial condition and did not bring the fact to the attention of defendant; that McLoughlin had failed to perform the conditions of the contract prior to the execution, which things were known to Bryce Company, but unknown to this defendant, and of which Bryce Company, failed to advise or inform defendant, to its detriment; that defendant's liability, if any, on the bond was thus nullified.

That the liability of the defendant, if any, and the rights of both parties are governed by and should be determined under the laws of the state of New York, which laws deny to the plaintiff any cause of action against the defendant on the grounds set out in the complaint.

The case was tried by Judge Sharkey of the county court of Florence county, upon the pleadings, exhibits, and statements of what G. T. Bryce would testify on behalf of plaintiff if he were present, and a statement of what Alfred C. Senecal would testify to on behalf of defendant, if he were present.

Judge Sharkey, under date of August 1, 1934, filed his decree giving judgment for plaintiff for the amount demanded in the complaint.

Defendant appeals, setting forth its grounds of appeal under twelve exceptions, and certain subdivisions. The appeal is from the order overruling the motion to dismiss the complaint, which motion challenged the jurisdiction of the Court, and from the final decree awarding judgment for plaintiff.

We may take it as settled in this state that under a contract secured by bond, where a third unnamed person has performed services or furnished supplies used in the performance of the contract, such third person is protected by the bond and may sue and recover thereon. It is needless to recite authorities.

That Maryland Casualty Company was domesticated in this state and doing business here, is conceded. If plaintiff had the right to bring his action in this state, and against this defendant, the service of process upon the insurance commissioner of this state gave jurisdiction of the action to the courts of this state.

It remains to be determined whether plaintiff had the right to sue defendant in this state on the bond executed by it in favor of the Bryce Plumbing & Heating Company.

We are confronted by an unusual situation:

Plaintiff, a resident and citizen of New York, brings action against defendant, a corporation created by and under the laws of the state of Maryland with its principal place of business in the city of Baltimore, Md., in the courts of South Carolina, on a bond executed in Massachusetts to secure the performance of a contract in the state of New York, the beneficiary of the bond being a South Carolina corporation with its place of business in this state. The bond was delivered to it at Florence, S.C. The plaintiff seeks to recover for materials furnished by it to a subcontractor, which were used in the construction of a United States government building in Batavia in the state of New York.

As we have analyzed this anomalous situation, the three controlling questions with which we are concerned are these:

1. Did the cause of action arise in this state?

2. Is this action controlled by the federal law which regulates the place where, the time when, and the forum in which such actions may be brought?

3. Did the beneficiary of the bond breach the bond and thereby release the surety from liability thereunder?

Section 826, vol. 1, Code 1932, under the head of "Actions Against Foreign Corporations," provides that such action may be brought:

"(1) By any resident of this State, for any cause of action.

(2) By a plaintiff not a resident of this State, when the cause of action shall have arisen, or the subject of the action shall be situated, within this State."

It is necessary to determine, then, whether plaintiff's cause of action arose in this state, or whether the subject of the action is situated in this state.

What is the cause of action?

This court, in the case of Ophuls & Hill v. Carolina Ice & Fuel Co., 160 S.C. 441, 158 S.E. 824, 827, said this "Many attempts to differentiate the meaning of the terms 'cause of action' and 'subject of action' occur in the law books. None of them more clearly states that difference than does Bliss on Code Pleading (3rd Ed.)...