Sheard v. U.S. Fidelity & Guar. Co.

• Decision Date: 26 March 1910
• Citation: 107 P. 1024,58 Wash. 29
• Court: Washington Supreme Court
• Parties: SHEARD v. UNITED STATES FIDELITY & GUARANTY CO.

107 P. 1024

58 Wash. 29

SHEARD v. UNITED STATES FIDELITY & GUARANTY CO.

Supreme Court of Washington

March 26, 1910

Department 1. Appeal from Superior Court, Pierce County; John A Shackleford Judge.

Action by William F. Sheard against the United States Fidelity &amp Guaranty Company. From an order granting defendant's motion for a new trial, plaintiff appeals. Reversed.

F. S Blattner and L. B. Da Ponte, for appellant.

Frederick H. Murray, for respondent.

GOSE J.

On the 22d day of July, 1905, the appellant, the plaintiff below, entered into a contract with Depew & Overfield, whereby the latter agreed to erect for the former a residence and certain outbuildings, furnish all labor and material, and complete the contract within 120 days, according to plans and specifications referred to and made a part of the contract. The consideration agreed upon was $14,980, payable in installments as the work progessed. Contemporaneously with the execution of the building contract, the contractors and the respondent, as their surety, executed and delivered a bond in the sum of $15,000, conditioned 'that if the said principal shall well and truly indemnify and save harmless the said obligee from any pecuniary loss resulting from the breach of any of the terms, covenants, and conditions of said contract on the part of the said principal to be performed, then this obligation shall be void; otherwise to remain in full force and effect in law.' The bond also contained the provision 'that in no event shall the surety be liable for a greater sum than the penalty of this bond, or subject to any suit, action, or other proceeding thereto that is instituted later than the 22d day of February, 1906.' The contractors became insolvent in January, 1906, and a receiver was appointed for them who completed the buildings June 1st following. Numerous liens were filed against the property of the appellant, the first being filed March 28 and the last August 2, 1906. Actions were commenced in July, 1906, for the foreclosure of these liens, terminating in a judgment in this court on June 13, 1908 ( Jensen v. Sheard, 49 Wash. 593, 96 P. 2), the remittitur being filed in the lower court July 14, 1908. This suit was commenced August 6th following. In the lien foreclosures certain liens were established against the appellant's property by the decree of the trial court, and the appeal was dismissed in this court. This case was tried to a jury, which returned a verdict for the appellant for $3,234.35. The items making up the verdict were as follows: J. L. Todd, $573.65; St. Paul & Tacoma Lumber Co., $291.97; Savage-Scofield Company, $191.73; Washington Hardware Company, $212.42; interest, $48.67; demurrage for 190 days at $10 per day, $1,900; attorney's fees in lien case, $1,000; court expenses in lien cases, $1,494.93; total, $5,714.35; from which they deducted the amount unpaid on the contract and in the hands of the appellant, $2,480, leaving a balance as stated in the general verdict. Thereupon, on motion of the respondent, a new trial was granted. This appeal is prosecuted from the order granting a new trial.

The first and principal contention of the respondent is that the action is barred by the limitation period fixed in the bond. We have quoted the provision of the bond, to the effect that the respondents shall not be subject to any suit that is instituted later than the 22d day of February, 1906, and have stated that this action was commenced in August, 1908. The contract provided that the buildings should be completed and delivered within 120 days from July 22, 1905, and, as we have seen, the contractors became insolvent in January, 1906, and the contract was completed by their receiver June 1st following. The liens were filed after the time fixed in the bond for commencing suit.

The authorities generally agree that it is competent for the parties to an indemnity bond to fix a period of limitation different from that provided by statute, and we think the better rule is that the limitation, if reasonable--and there is no reasonable excuse for delay in the commencement of the action--is binding upon the parties. One of the terms of the bond is that the obligors 'shall well and truly indemnify and save harmless the said obligee from any pecuniary loss resulting from the breach of any of the terms, covenants, and conditions' of the bond. There are three elements to this stipulation, (1) there must be a breach of the contract before there is a liability; (2) that the indemnitors will protect the indemnitee against all breaches, and (3) the protection guaranteed is against any pecuniary loss resulting from a breach of the contract. Stated in another form, there must have been a breach of the contract and a pecuniary loss suffered therefrom before the right of action accrued. To determine whether the limitation upon the commencement of the action is reasonable, the bond, the contract, and the facts of the particular case must be considered together. The first breach of the contract occurred when the contractors failed to complete the building within the time agreed upon. This was a technical one, and there was no remedy upon the bond as no pecuniary loss had then occurred. The contractors not only undertook to complete the building within 120 days, but also to furnish the necessary material and labor with which to complete it. We have seen that the liens were not filed until after the bar became complete under the bond, if that condition be literally enforced. The actual, substantial breach did not occur until the liens became an established charge against the appellant's property. As was said in Ovington v. AEtna Indemnity Co., 36 Wash. 473, 78 P. 1021, the contract contemplates that the contractors shall furnish the labor and material, and the bond is not breached every time the contractor buys an article or employs a person to perform labor upon the building without paying for the particular article of service in advance; that the actual breach occurs when liens are filed and established by the judgment of a court of competent jurisdiction, on account of the failure of the contractor to perform his engagement. The same view is announced in Beebe v. Redward, 35 Wash. 615, 77 P. 1052. The view that the limitation is not controlling unless it is reasonable, or where there is a reasonable excuse for delying the suit beyond the time agreed upon, is supported by the following authorities: Wood on Limitations, § 42; Stearns, Law of Suretyship, § 258; Longhurst v. Star Ins. Co., 19 Iowa, 364; G. C. & S. F. Ry. Co. v. Gatewood, 79 Tex. 89, 14 S.W. 913, 10 L. R. A. 419. 'But such condition will not be enforced where the delay is unavoidable.' Stearns, Law of Suretyship, § 258. And it will not be enforced where a reasonable excuse for the delay is shown. G. C. & S. F. Ry. Co. v. Gatewood, supra.

What we deem the correct rule of...