U.S. Fidelity & Guaranty Co. v. Borden Metal Products Co., 7841

• Decision Date: 08 July 1976
• Docket Number: No. 7841,7841
• Citation: 539 S.W.2d 170
• Parties: UNITED STATES FIDELITY & GUARANTY COMPANY, Appellant, v. BORDEN METAL PRODUCTS COMPANY, Appellee.
• Court: Texas Court of Appeals

Page 170

539 S.W.2d 170

UNITED STATES FIDELITY & GUARANTY COMPANY, Appellant, v. BORDEN METAL PRODUCTS COMPANY, Appellee.

No. 7841.

Court of Civil Appeals of Texas Beaumont.

July 8, 1976.

Rehearing Denied July 29, 1976.

D. W. Garrett, Houston, for appellant.

W. C. McClain, Conroe, Ralph S. Carrigan, Houston, for appellee.

KEITH, Justice.

This is an appeal by the surety cast in judgment in a suit by a materialman suing upon a construction payment bond. The trial was to the court and extensive findings of fact and conclusions of law were filed. We affirm.

Central Louisiana Electric Company needed a generating plant constructed at Boyce, Rapides Parish, Louisiana. It contracted with Babcock and Wilcox Company ('B&W') to construct and erect the steam boilers in the plant; and, for the purposes of this appeal, B&W is to be considered the general contractor. ¹ B&W entered into a subcontract with National Fabricating Company ('National Fab') for the fabrication, but not the erection, of the metal walkways and stairways, called gallery work, around the boilers.

B&W required National Fab to be bonded and it paid the premium on the bonds as a part of the subcontract price. It received two bonds on forms provided by our appellant, United States Fidelity & Guaranty Company ('Surety') which were titled 'Subcontract Performance Bond' and 'Subcontract Labor and Material Bond', respectively.

Thereafter, National Fab entered into an oral subcontract with Borden Metal Products Company ('Borden') for the fabrication of the metal grating portion of the gallery work. National Fab failed to complete its contract with B&W and left the job owing Borden $24,913.45. Borden sued B&W and Surety upon the material bond. ² B&W answered by a general denial and filed an action over against Surety insisting upon the payment by Surety of the indebtedness due Borden. Surety answered by pleading numerous policy defenses, some of which will be discussed herein. In a nonjury trial, judgment was entered in favor of Borden against Surety for its indebtedness and a take nothing judgment was entered as to B&W.

As noted earlier, the trial court filed extensive findings of fact. In considering the contentions advanced by Surety we do so under the rule enunciated in Commercial Union Assurance Company v. Foster, 379 S.W.2d 320, 322 (Tex.1964). If there is some evidence of a substantial and probative character to support the trial court's findings of fact, they are controlling upon this court and will not be disturbed, even though this court may have reached a different conclusion.

It is well to recognize at this point another rule of equal importance in passing upon Surety's complaints as to factual insufficiency of the evidence. The surety has the burden of establishing the defense of discharge by reason of an extension or alteration, or similar defenses. Hester v. Ross, Banks, May, Cron & Cavin, 492 S.W.2d 378, 379 (Tex.Civ.App.--Waco 1973, no writ), and authorities therein cited.

The court's findings of fact are analogous to jury findings in response to special issues submitted in the court's charge. Nathan v. Hudson, 376 S.W.2d 856, 862 (Tex.Civ.App.--Dallas 1964, writ ref'd n.r.e.). In the article entitled 'Evidence Points on Appeal,' 37 Tex.B.J. 839, 840 (September, 1974), the author speaks to the burden of one challenging jury findings using this language:

'When a party has the burden of proof on an issue and the jury fails to answer his special issue in his favor, on appeal he maintains that he carried his burden of proof. The purpose of his complaint is twofold: (1) to neutralize the jury's adverse answer, which in effect held that he did not carry his burden, and (2) to show that he did carry his burden. He has a conceptually more difficult task on this kind of issue because he has to first disprove the finding, then prove the reverse.'

In its first point of error, Surety contends that the trial court's finding that B&W did not grossly or materially deviate from its contractual payment obligations with National Fab is against the great weight of the evidence; in its second point, Surety contends that the evidence shows conclusively that B&W did deviate grossly and materially from its contractual payment obligations. These evidentiary points are submitted with an argument proceeding along these lines:

1. A material departure from the express requirements of a contract for which a bond has been issued, with regard to the times and amounts of payments, without the surety's consent, operates to discharge the surety from liability.

2. Overpayment by the obligee of a bond will release the surety.

3. A surety is only bound by the strict terms of the contract. 'It is often said that the liability of a surety is strictissimi juris, that is, held to the letter of the contract.'

4. '(T)he surety is 'deemed a favorite of the law . . ."

Surety cites one or more Texas cases which it asserts support each of the several positions noted above.

Before we enter into our discussion of the authorities, it is well to express our reluctance to continue following the cases cited by Surety. More than thirty years ago, Justice Critz noted that the Texas decisions were 'out of harmony with the great weight of authority in this country.' Standard Acc. Ins. Co. v. Knox, 144 Tex. 296, 184 S.W.2d 612, 615 (1945). Yet, we have in this case a corporate surety which has entered into a contract of suretyship for profit, contending that it is 'a favorite of the law' and that it is entitled to have its liability determined under the rule of Strictissimi juris, 'meaning that the guarantor is entitled to have his agreement strictly construed and that it may not be extended by construction or implication beyond the precise terms of his contract.' McKnight v. Virginia Mirror Company, 463 S.W.2d 428, 430 (Tex.1971). ³

This surety prepared its own printed form of bond for use in this transaction and collected a premium from B&W for the risk it undertook as surety upon the bond. Our record shows that it is a compensated corporate surety ⁴ and should be held liable as such.

We recognize that the question was reserved by the Supreme Court in Standard Acc. v. Knox, supra, and that it is our duty, as an intermediate court, to follow the decisions of the Supreme Court and to leave changes to the court of last resort. See Wilkinson v. Stevison, 514 S.W.2d 895, 897 (Tex.1974). However, we consider it our duty to point out to the Supreme Court the desirability of reconsidering the rule with reference to compensated corporate sureties.

If we were free to adopt the rule prevailing in the majority of the jurisdictions in this country, we could and would follow the rule enunciated in the Restatement of the Law of Security, § 82, Comment i (1941):

'It is important to distinguish between compensated and other sureties because the rules of suretyship, Notably those relating to the defenses of the surety, are not in all respects alike for the two classes. The basis for the distinction is that one engaged in the business of executing surety contracts can be expected to have contemplated and taken account of, in the premium charged, certain elements of risk which are not considered to have been assumed by other sureties.' (emphasis supplied)

However, considering the broad and extensive findings of fact and conclusions of law filed by the trial court, we arrive at what we consider to be the correct result following the Texas minority rule about which we complain.

The trial court found as a fact (No. 19) that the contract between B&W and National Fab was not 'substantially or materially changed, modified or altered.' Other findings are summarized: The purchase order contract required B&W to make installment payments to National Fab (No. 20) on the basis of 90% Of the invoice amount for work actually completed and approved by buyer; shipments were made by National Fab to the job site (No. 21) where the material was stored in the field; in September, 1973 (No. 22) National Fab was maintaining that the original contract had been completed and was requesting retainage; it was not until November, 1973 (No. 23) that B&W discovered material discrepancies in the material stored along with many missing and defective pieces; the previous payments made by B&W to National Fab (No. 24) 'were made in good faith and without knowledge that the shipments . . . were subject to missing pieces and defective pieces'; B&W did not grossly or materially deviate (No. 27) from its contractual payments with National Fab. Similar and supporting conclusions of law were filed.

We accept these findings of the trial court since Surety does not challenge them, taking the position that the findings are irrelevant. ⁵

In essence, it is Surety's position that because its...