State ex rel. Hagquist v. U.S. Fidelity & Guar. Co.

• Decision Date: 27 March 1928
• Citation: 265 P. 775,125 Or. 13
• Parties: STATE EX REL. HAGQUIST v. UNITED STATES FIDELITY & GUARANTY CO. ET AL.
• Court: Oregon Supreme Court

265 P. 775

125 Or. 13

STATE EX REL. HAGQUIST v. UNITED STATES FIDELITY & GUARANTY CO. ET AL.

Supreme Court of Oregon

March 27, 1928

Department 1.

Appeal from Circuit Court, Coos County; John C. Kendall, Judge.

Action by the State, on the relation of William Hagquist, against the United States Fidelity & Guaranty Company and another. From a judgment for the defendants, plaintiff appeals. Affirmed.

This is an action brought by the state on the relation of the use plaintiff, William Hagquist, to recover upon a bond given by the defendant United States Fidelity & Guaranty Company, a corporation, surety company, to secure the faithful performance by the Scandia Shipbuilding Company of a contract entered into by said company and the state of Oregon acting by and through the state highway commission for the construction of a section of a state highway known as the Pacific Highway, said section being designated as the "Halsey-Harrisburg section of the Pacific Highway in Linn county." The work on this section is referred to in the pleadings as Job No. 15 so as to distinguish it from another contract by the same company designated as Job No 14. Hereinafter the defendant contracting company will be designated as the Scandia Company and the defendant bonding company as the surety company.

The bond is as follows:

"Know all men by these presents that we, Scandia Shipbuilding Company, as principal, and United States Fidelity &amp Guaranty Company of Baltimore, Maryland, as surety, are jointly and severally held and bound unto the state of Oregon, in the sum of ninety-three thousand, one hundred and forty-one dollars ($93,141.00), for the payment of which we jointly and severally bind ourselves, our heirs executors, administrators and assigns, and successors and assigns, firmly and by these presents.

"The condition of the bond is such that, whereas on the 9th day of May, 1922, the said Scandia Shipbuilding Company principal herein, made and entered into a certain contract copy of which is hereto annexed, with the state of Oregon, and which contract, together with the plans and specifications, general and special provisions, is hereby made a part hereof, by the terms, conditions and provisions of which the said Scandia Shipbuilding Company, principal herein, agrees to pave, with cement concrete, the Halsey-Harrisburg section of the Pacific Highway in Linn county, to furnish all necessary machinery, tools, apparatus, material, and labor, and to complete the work in the most substantial and workmanlike manner according to said plans and specifications, and such modifications to the same as may be made, and other directions as may be given, in accordance with the terms of the contract, to repair and correct without delay all defects which may appear in the hard surfacing or pavement on the highway constructed under this agreement, within one year from date of the completion and acceptance of said highway construction, and to maintain said hard surfacing and pavement for a period of one year after completion and acceptance of the same:

"Now, therefore, if the principal herein shall faithfully and truly observe and comply with the terms, conditions, and provisions of the said contract, in all respects, and shall well and truly and fully do and perform all matters and things by him undertaken to be performed under said contract, upon the terms proposed therein and within the time prescribed therein, or as extended as provided in the general provisions; and shall indemnify and save harmless the state of Oregon, the state highway commission, its officers and agents, against any direct or indirect damages that shall be suffered or claimed, or injuries to persons or property during the construction of said work, and until the same is accepted, and shall promptly pay all laborers, mechanics, subcontractors and materialmen, and all persons who shall supply such laborers, mechanics or subcontractors with material, supplies or provisions for carrying on such work, and all just debts, dues and demands incurred in the performance of such work, and shall pay said state of Oregon such liquidated damages as may accrue to said state under said contract, and shall in all respects faithfully perform said contract according to law, then this obligation is to be void, otherwise to remain in full force and effect.

"Witness our hands this 2d day of June, 1922."

The Scandia Company failed to pay many of its bills for materials and supplies, and the surety company was compelled, by reason of such failure, to pay them. During the progress of the work, the Scandia Company borrowed various sums of money from banks, not necessary to be mentioned here; and on November 20, 1922, presumably to assist the Scandia Company in its operations, William Hagquist, Conrad Hagquist, John Hillstrom, and Otto Edlund, stockholders in the Scandia Company, each borrowed $5,000 from the First National Bank of South Bend each giving his promissory note for said sum with approved surety; said notes being payable on demand, with 8 per cent. interest from date until paid. These notes were treated as cash deposited to the credit of each stockholder in his own name, and each thereafter drew his check in favor of the Scandia Company for $5,000, which sum was deposited in the bank to the credit of the Scandia Company, which already had a deposit of $2,258.04, making its total credit at the bank at the close of this transaction $22,258.04, which sum was all checked out and used by the company in its various operations, leaving it still a debtor for claims for material and supplies, and a debtor to the relator, William Hagquist, and Conrad Hagquist, John Hillstrom, and Otto Edlund in the sum of $5,000 each. All these claims were, after the default of the Scandia Company, assigned to the relator, who, in the name of the state, brings this action stated in four separate causes identical except as to the names of the assignors. Before assignment, the relator and each of the assignors gave notice as required by section 2991, Or. L., which notice is in all respects in the form required by said section, where material, labor, or supplies are furnished; and, if money loaned a contractor and used by him for the purpose of performing the work is to be deemed labor, material, or supplies, is sufficient in substance to authorize the claimant to bring action on the bond given by the surety company. That part of the notice which is of special importance here is as follows:

"To the state of Oregon and to the secretary of state thereof, and to the highway commission thereof:

"Notice is hereby given that the undersigned, William Hagquist, has a claim for labor, material, and provisions, performed and furnished, to wit, for money loaned by the undersigned to Scandia Shipbuilding Company in the amount of $5,000, which sum was lent to said Scandia Shipbuilding Company, and which was and is a just debt due and demand incurred by said Scandia Shipbuilding Company in the performance of the work under the hereinafter described contract, and said funds and all of the same were furnished to and used by said Scandia Shipbuilding Company for and in the supply to said company of labor, materials, and provisions actually performed and furnished on the work under said contract, and the undersigned did thereby supply labor, material, and provisions for the work under said contract.

"The said sum of money was so furnished and the said debt was so incurred by said company for the work of performing the requirements of that certain contract executed between the state highway commission of the state of Oregon, and the Scandia Shipbuilding Company relating to the construction of the Halsey-Harrisburg section of the Pacific Highway, Linn county, Or., being highway Job No. 535, and which work is described in said contract, which contract was dated May 9, 1922. That payment has not been made for any part of said claim, and that said claim is hereby made against the bond taken from the Scandia Shipbuilding Company, as principal, and United States Fidelity & Guaranty Company, as surety, which bond was conditioned for the performance of said contract, and for the prompt payment of all laborers, mechanics, subcontractors, and materialmen, and all such persons who shall supply all such laborers, mechanics, or subcontractors with material, supplies, or provisions for carrying on such work, and all just debts, dues, and demands incurred in the performance of such work. That said money was so loaned and advanced on or about the 20th day of November, 1922. That said sum and said debt so incurred is wholly due, owing and unpaid from the Scandia Shipbuilding Company to the undersigned.

[Signed] William Hagquist."

The complaint, which is too lengthy to be included here, states all the facts covered by the notice. If money loaned to a contractor, for the purpose of fulfilling his contract, is to be held to be material or labor or supplies, or if the phrase "and all just debts, dues, and demands incurred in the performance of such work" is to be construed as including money loaned to a contractor, and by him used to pay for labor, material, or provisions, and is to be construed as within the meaning and intent of the bond to the extent that the state is required by the statute to sue on the bond for the benefit of the person loaning the money, then the complaint is sufficient to cover such contention.

The defendant surety company answered, denying substantially the allegations of the complaint. This case was set down for trial, being consolidated, for that purpose with two other cases of a similar character. When the cases, as consolidated, came on for trial, the defendant surety company demurred on the ground that the complaint...