Westinghouse Elec. Supply Co. v. B. L. Allen, Inc., 147-78

• Decision Date: 05 February 1980
• Docket Number: No. 147-78,147-78
• Citation: 138 Vt. 84,413 A.2d 122
• Court: Vermont Supreme Court
• Parties: WESTINGHOUSE ELECTRIC SUPPLY COMPANY v. B. L. ALLEN, INC., and The Travelers Indemnity Company.

Page 122

413 A.2d 122

138 Vt. 84

WESTINGHOUSE ELECTRIC SUPPLY COMPANY v. B. L. ALLEN, INC., and The Travelers Indemnity Company.

No. 147-78.

Supreme Court of Vermont.

Feb. 5, 1980.

Harry A. Black of Black & Plante, Inc., White River Junction, for plaintiff.

Frank G. Mahady, White River Junction, for defendant Travelers Indem. Co.

Before BARNEY, C. J., DALEY, BILLINGS and HILL, JJ., and SMITH, J. (Ret.), Specially Assigned.

BILLINGS, Justice.

This case arises out of debts incurred in the construction of a performing arts center at Bennington College. In order to meet its construction obligation, the general contractor for the arts center, Granger Construction Corporation (Granger), subcontracted with B. L. Allen, Inc. (Allen) for certain electrical work. Allen's electrical supplier for this and other jobs was the plaintiff-appellee, Westinghouse Electric Supply Company (Westinghouse). The appellant, The Travelers Indemnity Company (Travelers), was the surety on a payment bond with Granger and Bennington College.

In the course of performance, Allen did the electrical work and was paid by Granger. Allen, however, came into financial difficulties during this time. In May of 1974, Westinghouse was alerted to the fact that Allen, which owed the plaintiff about one quarter of a million dollars for supplies used in several jobs including that at Bennington College, was having difficulty collecting money owed it. Westinghouse's credit manager met with Allen's principal on three occasions May 13, June 5, and July 3, 1974 to discuss a payment schedule for Allen. The transcript reveals that they also "reviewed the financial condition of the company with the accountant" for Allen, but there is no evidence drawn to our attention which reveals that Westinghouse was ever informed of the terms or nature of the Travelers bond, that the bond covered Allen's obligations to Westinghouse, or that amounts forwarded to Westinghouse had been paid by Granger to Allen.

The agreed payment schedule called for a series of payments to be applied on a first-in, first-out basis against Allen's oldest outstanding debts with Westinghouse. From the date of the first meeting to the commencement of this action, $130,000.00 of Allen's checks to Westinghouse were dishonored by drawee banks. However, on June 30, 1974, a district sales agent for Westinghouse executed a document captioned "WAIVER OF LIEN," which purports to release Allen from any claims for materials supplied and used on the Bennington College job in consideration for $36,003.53. No original of this document was ever found, but Westinghouse did produce a copy. The signing agent testified that he had on occasion filled out such waiver forms upon receipt of checks in payment of his customer's debts, and then forwarded the form with the checks to the credit office. There was evidence that if the checks cleared, the credit office would deliver the waiver form by way of a receipt to the customer, but if the checks were dishonored the waiver form was generally destroyed. One of the checks sent to the credit department at the time the waiver form was apparently executed was not honored. There was no evidence that the waiver was ever delivered to the debtor. Furthermore, there was no evidence that the sales agent had the authority to settle or manage accounts, that the sales agent knew of the outstanding balance due from Allen, or that the credit department ever received the original waiver form.

The case was heard below against Travelers only, because Allen made no appearance. Westinghouse obtained a judgment for $69,948.82 plus interest and costs, from which Travelers appeals. It contends that the trial court erred in (1) admitting the payment bond into evidence; (2) conditioning the use of the waiver as an admission upon proof of its delivery to Allen; (3) instructing the jury about Westinghouse's duty and manner of allocation of Allen's payments to the Bennington College job, and (4) admitting as a Westinghouse exhibit a computer printout listing Allen's debts on the Bennington College job.

The payment bond sets forth the liability of Granger, principal, and Travelers, surety, jointly and severally. They are bound to pay as follows:

(I)f the principal shall promptly make payment to all . . . corporations furnishing materials for . . . the prosecution of the work provided for in such contract . . . including all amounts due for materials . . . consumed or used in connection with the construction of such work . . . whether performed by subcontractor or otherwise . . . then this obligation shall be void; otherwise to remain in full force and effect. (Emphasis added.)

The phrases "shall promptly make payment to all . . . corporations" and "whether performed by subcontractor or otherwise" indicate an intent by the signatories that the obligation of the surety should extend to remote creditors of the principal insofar as the underlying debts arise in connection with the Bennington College job. In an agreed statement of facts, the parties state that Allen was a subcontractor on this job and that Allen owes Westinghouse for materials supplied for the Bennington College job. Clearly then, the language of the bond binds Travelers as surety for the payment of any materialman supplying the principal or the subcontractor, Allen.

This interpretation is in accord with Mankin v. United States ex rel. Ludowici-Celadon Co., 215 U.S. 533, 539, 30 S.Ct. 174, 176, 54 L.Ed. 315 (1910), in which a general contractor was held liable for the debts of the subcontractor to a materialman on the basis of a bond requiring the general contractor to "promptly make payments to all persons supplying . . . materials in the prosecution of the work (contemplated)." The Court interpreted the bond in light of the federal statute pursuant to which it was obtained and rejected the contention that the bond should run to the benefit of only those suppliers who deal directly with the general contractor, noting that the purpose of the bond was to facilitate the supply of goods and labor necessary to the prompt completion of the construction by providing those supplying goods and labor with security in advance. Id. at 537-38, 30 S.Ct. at 175, 176. See also, Moyer v. United States ex rel. Trane Co., 206 F.2d 57, 60 (4th Cir. 1953). This reasoning is readily applicable to the instant case, where Bennington College required that Granger be bonded in order to ensure the orderly fulfillment of its contractual obligations.

Moreover, this Court has interpreted bond language identical to that quoted from the Mankin case in light of federal and common law, in an action by a materialman against a general contractor. With respect to this language, this Court stated that "(i)t was not necessary that persons should have been named in the bond; it was sufficient that any person subsequently furnished the contractors labor or materials to entitle him to the benefit of the covenant." United States ex rel. Stanstead Granite Quarries Co. v. United States Fidelity & Guaranty Co., 78 Vt. 445, 452, 63 A. 581, 583 (1906). While this case dealt with the question of liability to a direct supplier of the general contractor, the reasoning quoted is equally applicable to liability to a remote supplier and consistent with the reasoning in Mankin, supra. The remote materialman has an enforceable right, where, as here, the surety promises, either by express words or by reasonable implication, to pay him. Central Surety & Insurance Corp. v. American Employers' Insurance Co., 150 Colo. 6, 9, 370 P.2d 455, 457 (1962).

The appellant contends that Westinghouse failed to show that the bond was ever delivered to and accepted by Bennington College, and therefore, that the court below erred in admitting the bond into evidence. The appellee maintains that the terms of the instruments and circumstantial evidence below make out a prima facie case for delivery and acceptance of the bond by Bennington College.

Delivery is essential to the validity of a bond. In re Moffitt Estate, 116 Vt. 286, 289, 75 A.2d 698, 699 (1950). However, formal delivery need not be proved by direct evidence, but it may be inferred from the acts of the parties. Udick v. United States Fidelity & Guaranty Co., 37 Idaho 181, 186, 215 P. 838, 840 (1923). See also St. Louis Brewing Ass'n v. Hayes, 97 F. 859, 862 (5th Cir. 1899). Moreover, where a bond and contract are executed at the same time between the same parties as obligee and principal obligor relative to the same subject matter, they are taken in connection as forming several parts of one agreement. Central Surety & Insurance Corp. v. American Employer's Insurance Co., supra, 150 Colo. at 9-10, 370 P.2d at 457. See also Peerless Casualty Co. v. Housing Authority, 228 F.2d 376, 381 (5th Cir. 1955). By an agreed statement of facts, Travelers admits it joined with Granger in executing "a Payment bond relative to the (Bennington College) project on April 5, 1973." The bond and Granger's contract with Bennington College are both dated April 5, 1973. Moreover, the bond recites that the contract was executed the same day, and attached and made part of the bond. The contract was executed by the president of Bennington College. A Granger official admitted purchase of the bond and stated that it was the usual business practice of the construction company to deliver the bond no later than during the early stages of the contract period. There was no controverting evidence on the question of delivery. Construing the bond and contract as a part of one agreement under all the circumstances, we cannot say, as a matter of law, that the trial court abused its discretion in finding sufficient evidence from which to infer delivery of the bond.

Moreover, "(t)he delivery of the bond depends upon the intent of the principal or obligor to perfect the instrument and to make it at once the absolute property of the obligee." San Angelo Tank Car...