De Witt v. Itasca-Mantrap Co-Op. Electrical Ass'n

• Decision Date: 09 July 1943
• Docket Number: No. 33505.,33505.
• Citation: 10 N.W.2d 715,215 Minn. 551
• Parties: DE WITT v. ITASCA-MANTRAP CO-OP. ELECTRICAL ASS'N et al.
• Court: Minnesota Supreme Court

10 N.W.2d 715

215 Minn. 551

DE WITT v. ITASCA-MANTRAP CO-OP. ELECTRICAL ASS'N et al.

No. 33505.

Supreme Court of Minnesota.

July 9, 1943.

Appeal from District Court, Hubbard County; Alfred L. Thwing, Judge.

Action by H. J. De Witt against Itasca-Mantrap Cooperative Electrical Association for a balance due under contract for the sale and delivery of poles, wherein the defendant interposed counterclaims for breach of contract and impleaded the Maryland Casualty Company, surety on plaintiff's performance bond, as an additional defendant. From an order sustaining demurrers to defendant's counterclaims, the defendant appeals.

Affirmed and case remanded for further proceedings.

DeLury & Peterson, of Walker, for appellant.

Howard W. Anderson, of Grand Rapids, for respondent.

Abbott, MacPherran, Dancer, Zuger & Montague, of Duluth, for impleaded defendant-respondent.

THOMAS GALLAGHER, Justice.

Plaintiff brought action against the Itasca-Mantrap Cooperative Electrical Association (hereinafter called the association) for a balance due him under a contract for the sale and delivery of poles for the latter's rural electric distribution system. The association answered, claiming that certain of the poles delivered did not comply with agreed specifications, and interposed counterclaims for the cost of replacing them. Defendant Maryland Casualty Company, surety on plaintiff's performance bond (hereinafter called the surety), was impleaded as an additional defendant by the association.

The United States Rural Electrification Administration (hereinafter called REA) provided funds for the electric system, and its administrator had the right to supervise the performance of the contract and to inspect all materials furnished thereunder. He was required to approve invoices for materials before payment therefor by the association.

Plaintiff and the surety demurred to the answers and counterclaims of the association. The demurrers were sustained, and the association was granted leave to amend its answers and counterclaims subsequent to the determination of this appeal.

The complaint in substance alleged that between March 12, 1941, and December 5, 1941, plaintiff sold and delivered to the association under the terms of a written contract dated February 25, 1941, which was made a part of the complaint, certain poles described in the complaint, which were accepted by the association, removed from the agreed delivery point, and thereafter incorporated into its electric system, and upon which there was due and owing a balance of $2,342.90, plus interest.

The answers and counterclaims of the association in substance alleged the following defenses and counterclaims to plaintiff's action:

First, that plaintiff, knowing the purpose for which said poles were intended and the dimensions and specifications called for by the terms of the contract in connection therewith, nevertheless failed to deliver poles of the specifications required by said contract, and caused some of the poles which were delivered by him to be marked with brands which incorrectly indicated their length and class; that the association relied upon said brands and warranties, accepted delivery of the poles, and caused such improperly branded poles to be installed in its electric system; that in consequence it will be necessary for the association to replace the defective poles, to its damage in the sum of $19,513.73.

Second, that plaintiff caused certain brands to be placed on said poles, well knowing such brands to be false and fraudulent, with the intention of deceiving and inducing the association to accept delivery of said poles and to use them in its electric distribution system; that it relied upon such brands and believed them to be correct, and in consequence accepted delivery of said poles and incorporated them into its electric system, to its damage as alleged in the first defense.

Third, that plaintiff employed a pole inspector to examine said poles for compliance with dimensions and specifications set forth in the contract and directed said inspector to pass and approve poles which said inspector and plaintiff knew, or ought to have known, did not conform in length and class to the length and class indicated by the brands placed thereon; that plaintiff intended and knew that the association would rely upon said inspection and would not make an independent inspection of said poles prior to their incorporation into the association's electric system; that the latter did rely upon said inspection, believing it to have been honestly and competently performed, whereas it was not, and that in consequence the association suffered damages as alleged in its first answer.

In connection with these defenses and counterclaims, the association in substance alleged that plaintiff, as principal, and the impleaded defendant, as surety, on March 13, 1941, had duly executed and delivered to the association a bond, which was made a part of said answers and counterclaims, conditioned that the association would be held harmless from costs and damages by reason of any failure on plaintiff's part fully to perform said contract; that said surety had been notified of the default of plaintiff and that demand had been made upon it for the sum of $17,399.60, the face amount of its bond, which sum the surety had failed and refused to pay.

The material portions of the contract are as follows:

"Inspection.

"All poles and anchor logs shall be inspected for full compliance with these Specifications, by a pole inspector employed by the Owner [the association] and satisfactory to the Administrator. The owner reserves the right to reject at the point of delivery such poles as do not conform to these Specifications, if such condition is demonstrated by examination and pole borings at said location or locations.

* * * * *

"4. The prices of Materials set forth herein include the cost of delivery to Deer River, together with all sums which are or may be payable by the Bidder [plaintiff] or the Owner on account of taxes imposed by any taxing authority upon the sale, purchase or use of the Materials.

* * * * * "7. All materials furnished hereunder shall be subject to the inspection, tests and approval of the Engineer or Inspector of the Owner and the Administrator, and the Bidder shall furnish all information required concerning the nature or source of any Materials. All Materials furnished hereunder shall become the property of the Owner when delivered at the point where delivery is to be made; provided, however, that the Owner or the Administrator may reject any such Materials as do not comply with the Specifications for Materials, before incorporation of such Materials into the Owner's electric system. Upon any such rejection, the Bidder shall remove the rejected Materials and immediately replace them with materials complying with the Specifications for Materials.

* * * * *

"14. The Bidder will frame all poles in accordance with drawing M20 of the standard REA specifications except class 7 and class 7X poles shall not be gained. All poles shall be branded with length and class in manner satisfactory to the owner's engineer.

"15. The Bidder shall furnish a pole inspector satisfactory to the owner who shall work under the supervision of the owner's engineer. The owner shall have the right to terminate the inspector's services without cause should the owner deem necessary for his best interest, whereupon the Bidder shall then be required to furnish a successor or successors as may be required." (Italics supplied.)

The material portions of the bond are as follows:

"1. Know all men that we, H. J. DeWitt, as Principal, and Maryland Casualty Company, as Surety, are held and firmly bound unto Itasca-Mantrap Cooperative Electrical Association (hereinafter called the `Owner') and unto the United States of America (hereinafter called the `Government') * * * and to their successors and assigns, in the penal sum of Seventeen Thousand three hundred ninety-nine and 60-100 dollars ($17,399.60) as hereinafter set forth and for the payment of which sum well and truly to be made we bind ourselves, our executors, administrators, successors and assigns jointly and severally by these presents. * * *

"2. The condition of this obligation is such that if the Principal shall well and truly perform and fulfill all the undertakings, covenants, terms, conditions and agreements of the Contract and any amendments thereto, * * * and shall well and truly reimburse the Owner and Government, as their respective interests may appear, for any excess in the cost of preparing and transporting of materials over the cost of such preparing and transporting of the materials as provided in the Contract and any amendments thereto, occasioned by any default of the Principal under the Contract and any amendments thereto, then this obligation shall be null and void, but otherwise shall remain in full force and effect.

"3. It is expressly agreed that this bond shall be deemed amended automatically and immediately, without formal and separate amendment hereto, upon any amendment to the contract, so as to bind the Principal and the Surety to the full and faithful performance of the Contract as so amended, provided only that the total amount of all increases shall not exceed 20 percent of the amount of the total price set forth in that part of the Contract entitled Proposal. The term `amendment', wherever used in this bond, and whether referring to this bond, the Contract or the Loan Contract, shall include any alteration, addition, extension, modification, amendment, rescission, waiver, release or annulment, of any character whatsoever.

"4. It is expressly agreed that any amendment which may be made by agreement or otherwise between the Principal and the Owner in the terms, provisions, covenants and conditions of the Contract, or in the terms, provisions, covenants and conditions of the Loan Contract (including,...