Southwestern Surety Insurance Company v. Terry

• Decision Date: 21 February 1916
• Docket Number: 195
• Citation: 184 S.W. 54,122 Ark. 522
• Parties: SOUTHWESTERN SURETY INSURANCE COMPANY v. TERRY
• Court: Arkansas Supreme Court

184 S.W. 54

122 Ark. 522

SOUTHWESTERN SURETY INSURANCE COMPANY v. TERRY

No. 195

Supreme Court of Arkansas

February 21, 1916

Appeal from Pulaski Circuit Court; Guy Fulk, Judge; reversed.

STATEMENT BY THE COURT.

This appeal is from a judgment against it as surety upon a contractor's bond for the erection of a six story building for appellees, the owners, upon the northwest corner of Main and Fourth streets, in the city of Little Rock.

On the 7th day of December, 1911, Adolphine Fletcher Terry and Mary Fletcher Drennan, the owners of the property, entered into a contract with the Oklahoma City Construction Company to construct a modern six story fire-proof mercantile building in two sections or units thereon.

The portion of the building to be first constructed was known as the north three bays, being about sixty feet front on Main street, which was required to be completed within 200 working days from the delivery of the premises to the contractor. The second portion, the south two bays being about forty feet front on Main street and adjoining the first portion, was to be completed within 120 days. The owners had previously entered into a contract of lease, with the Gus Blass Dry Goods Company, and let to them for a period of years, the building they then occupied, which was on the site where the new building was to be erected and agreeing to erect a modern department store building on it and the adjacent forty feet to the south. At the time possession could not be obtained of the south forty feet occupied by the Pfeifer Clothing Company, necessitating the erection of the new building in two units, the first unit-- the north sixty feet being required completed without regard to whether possession could be obtained of the ground for the building of the second.

The Oklahoma City Construction Company on the 18th day of December, 1911, executed a bond to the owners in the sum of $ 95,000 for the faithful performance of its contract with the appellant, the Southwestern Surety Insurance Company, as surety thereon, the condition of the bond being as follows "Whereas, the said, The Oklahoma City Construction Company, has on the day of the date of these presents executed and entered into a certain contract for the erection of certain buildings in said contract described, which contract is hereto annexed;

"Now if the said The Oklahoma City Construction Company shall well and truly perform and fulfill all and every the covenants conditions, stipulations and agreements in said contract mentioned to be performed and fulfilled and any alterations and additions to said contract, provided such alterations and additions, if any such be made, shall not exceed in extra cost the sum of $ 15,000, we, the said surety, hereby expressly waiving all rights to be notified of, or by any further act to give our assent to, such alterations and additions, and acknowledging ourselves to be bound unconditionally for the faithful performance of said contract and of such alterations and additions within the limit of said contract price and of such extra cost aforesaid, and shall keep the said Adolphine Fletcher Terry and Mary Fletcher harmless and indemnified from and against all and every claim, etc. * * * then this obligation shall be void otherwise the same shall remain in full force and virtue."

After the contractor began work making the foundation for the north sixty feet of the building, he had to suspend because of litigation with the Pfeifer Clothing Company about possession of the site. The name of the contractor was changed to D. H. Shenk Construction Co.

The first unit or north sixty feet of the building was completed in January, 1913, and full settlement made with the contractor therefor, and for all extra work done during the month of March, 1913. Meanwhile possession had been obtained of the remainder of the site and work begun upon the construction of the second unit. In the early part of July, 1913, D. H. Shenk, the president of the construction company, contractor, was injured while engaged upon another building in the city and died on July 21. About that time the construction company suspended work on the building, being unable financially to proceed with it and the bond company was notified and requested to take charge and complete the work, which it declined to do and the owners thereupon completed same.

This suit is brought by the owners against the construction company and the bond company to recover the damages alleged to have been caused the owners by the contractor 's abandonment of the work and failure to complete the contract and pay off and discharge the claims for liens asserted against the building. The contractor did not answer, but the bond company answered denying that the contractor had abandoned the work before completion; that the owners made demand upon it to complete the building and that it had refused to do so and alleged it was discharged from liability as surety because the parties had changed the contract without notice to it from the construction of a six story building as contracted for and erected a seven story building instead; second, that substantial alterations were made in the work, changing the original contract in a material manner without a written order of the architect; third, because the Gus Blass Dry Goods Company without the surety's knowledge or assent was made a party to the contract; fourth, because the owners had paid the contractor more than 85 per cent of the value of the work as it progressed and did not retain the 15 per cent as required by the terms of the contract until the final completion of the work and; fifth, because the alterations and additions had been made to the original contract which were largely in excess in extra cost of the sum of $ 15,000 and the same were made without notice to the surety and without its consent.

It was not disputed that the contractor abandoned the work before the completion of the building, that the owners made demand upon the bond company to finish the building which it refused to do and thereupon the owners took possession and completed it and it was virtually undisputed that the contractor was not financially able to proceed with the work at the time of its abandonment. A vast amount of evidence was taken as to the kind, character, amount and value of extra work performed by the contractor and whether such work amounted to alterations and additions to the principal contract or was independent and additional thereto, and not contemplated by its terms, also as to whether certain work was solely for the benefit and convenience of the Gus Blass Dry Goods Co., the lessee and not included within alterations and additions to the building contract.

The bond company contended that all items of extra work were such in character as under the terms of the building contract and its bond, amounted to alterations and additions to the contract.

The owners contended that less than $ 15,000 of the extra work was of such character.

The evidence as to the correct classification of the extra work done by the contractor was conflicting as to many items. The original contract price of the building was $ 136,355 and the owners had paid the contractor to the time of Mr. Shenk's death and the abandonment of the work, $ 148,552.73, and had retained under the terms of the contract $ 6,705.30, making a total for the building of $ 155,258.03, showing a balance of $ 18,903.03, paid the construction company over and above the original contract price.

The testimony also shows that the Gus Blass Dry Goods Co., lessee of the building, took possession before it was completed directed a number of changes to be made by the contractor, independent of the owners, but with their assent, that other changes were made in the original plans under an agreement with the owners, whereby the Blass...