152 F. 955 | 3rd Cir. | 1907
The provision in a building or working contract that the contractor or builder shall be paid as the work progresses according to the amount of materials furnished or work performed, upon estimates to be made by the supervising architect or engineer, whether a percentage is to be retained therefrom, until the whole is done or not, redounds to the benefit of a surety or guarantor of the party who is to fulfill the contract; and, upon payment being made in disregard of it, there is such a departure from the contract upon which the undertaking of the surety or guarantor is based that he is released. The purpose of'such a stipulation is to guard against the consequences of a default, in case the principal contract proves a losing one, or the contracting party for-any reason fails to comply, the percentage retained, where that is provided for, affording additional security, as well as holding out an incentive; and when it is not observed, and advance or overpayments are made, it is so obviously to the prejudice of the surety that it operates as a discharge as matter of law. Steam Navigation Co. v. Bolt, 6 Com. Bench N. S. 550; Calvert v. London Dock Co., 2 Keen, 639; Prairie State Bank v. U. S., 164 U. S. 227, 17 Sup. Ct. 142, 41 L. Ed. 412; Shelton v. American Surety Co. (C. C.) 127 Fed. 736, affirmed 131 Fed. 210, 66 C. C. A. 94; Welch v. Hubschmitt, 61 N. J. Law, 57, 38 Atl. 824; Village of Chester v. Leonard, 37 Atl. 397, 68 Conn. 495; Fitzpatrick v. McAndrews, 12 Pa. Co. Ct. Rep. 353. This is too well established to be controverted, and the only question is how far it applies here.
The bond upon which suit is brought was given by the Avondale Marble Company, as principal, with the Fidelity & Deposit Company
The question whether estimates were in fact made was for the jury under proper instructions, provided there was evidence upon which to predicate it. But, unfortunately, all that there was upon this subject was that Mr. Reed, the supervising architect, approved the invoices, on which the material was billed from the quarry by the marble company, after going over them at the end of each month with the contractor or his son, who had charge of this part of his father’s business. This was clearly not a compliance with the agreement. An estimate such as .is there spoken of necessarily involved, not only an approximate judgment, upon inspection by the architect or, his representative,
No doubt the_ contractor was not chargeable with the inefficiency or mistakes of the architect, provided an attempt at an estimate was really made; and, in the absence of notice to the contrary, an approval of the invoices may have been sufficient for him to act upon without a' formal certificate, nothing being said about that' in the agreement. But not only were the deficiencies in the deliveries so gross as tó put him upon inquiry, but the only basis for the architect’s approval, to his certain knowledge, being the invoices on which the material was' shipped, and the representations made at the time by himself and his son, one or both, with regard to them, he was fully advised as to how the approvals were obtained, and just what they amounted to, and they are only available to him here, in consequence, for what they stand. That Mr.'Van Houten was also aware, at least in a general way, from the. outstart, of the discrepancy in deliveries, is shown by his letters — one of January 5, 1898, complaining that not a hundredth-part of the material had been furnished, which would only have entitled the marble company to about $1,000, ‘after deducting the percentage, although bills to the extent of $4,450 had been already approved and paid; and another of August 4th, declaring that not quite a quarter was on the ground, at which time $30,311 had been paid, as against $24,750 due, an advancement of'some $5,000. It is not necessary to consider whether, even though no estimates were made, Mr. Van Houten would have been within the terms of the agreement and the surety have no cause to complain, if the payments for material delivered did not in fact exceed 90 per cent, of its relative value. The jury were so instructed, it is true, but the evidence was so overwhelmingly the other way, that, if the case turned upon that, a verdict for the defendant was inevitable, and should have beeii directed. But, passing that by, it could not be successfully contended, in view of what has been referred to, either that estimates were really made or that the contractor was without knowledge, and, relying upon thd apparent action of the architect in approving invoices, was therefore protected. One or the other, however, was vital to be shown, and in the absence of it the surety was released by the overpayments made in disregard of
This disposes of the case; but it is further contended that, entirely aside from whether estimates were made, the delivery of material was anticipated by advances of money, equally in contravention of and prejudicial to the rights of the surety, which also operated to release it. The facts upon which this is based are as follows': In the spring of 1898, when comparatively little material had been delivered, the marble company being short of funds, Mr. Hepburn, the'manager, went to Mr. Van Houten to see whether he could not get some money for the company, asking for a lump sum, to be paid back by the shipment of material. Mr. Van Houten was willing to accommodate him, but, not having the money himself, it was suggested that they should see whether it could not be obtained elsewhere. He and Mr. Hepburn and Mr. Shaw accordingly went to the Paterson National Bank, where Mr. Van Iiouton did business, and, after discussing the matter there with the cashier, it was arranged that the marble company should give its note, which Mr. Van Houten would indorse and the bank discount for him, the marble company receiving the proceeds. This was carried out, a two months’ note for $10,000, bearing date May 10, 1898, being made and discounted, the proceeds being credited to Mr. Van Houten, who turned the money over to the marble company. This note was subsequently paid oft, as arranged, with two months’ shipments ; no payments being made to the marble company on these deliveries, but the value of the material being turned into the bank by Mr. Van Plouten and there credited. This first note came due in July, when another note of like amount at three months’ time was given and discounted; the money on this occasion being turned over to the marble company direct, against which it made payment by deliveries of material as before,' through August and September, the whole being taken care of in that way. Before the second note came due, however, still another was given and discounted, September 16th, for three months, also for 810,000, overlapping the other. This one came due December 16th, and certain payments were made on it by material as before, but not enough' to fully meet it, by some $6,410, which being still unpaid at its maturity was renewed by a further note for that amount at three months’ time, not however by the Avondale Marble Company, whose quarry had been sold out meantime by the sheriff, but by certain individual members, who succeeded that company and organized another — the Pennsylvania Marble & Granite Company— which took over the quarry and continued the delivery of material under the existing agreement. The last-named note came due in March, 1899, and was extended by another due in May, which was itself succeeded by still another for the increased sum .of $10,000, on which $3,000 was paid July 14th; a renewal for the balance, made in August, being finally paid when it came due.
The learned trial judge was of the opinion that these note transactions were merely accommodation loans having no other significance; Mr. Van Plouten simply lending the security of his name by indorsing the notes of the marble company and the parties who succeeded it, which with the several renewals and extensions the bank discounted for
There are other questions which might require discussion, if the case were going back for a retrial, such as the deduction of freight bills before the calculation of the percentages to be withheld, instead of afterwards, and whether, upon a default by the marble company, the surety was liable to the extent contended for at the trial. But the case is to stop here, and it is not material. The point now made for the first time that the contract in the bond was something more than one of mere surety, the final clause of the condition being to indemnify and save harmless from all damages in the premises, is not only open to the objection that it was not raised in the court below and so its influence upon the disposition of the case cannot be determined; but there is no force to it, in our judgment, if it had been. It may have imposed on the surety, as argued, something more than the mere obligation to see to the fulfilment of the agreement so far as the delivery of material was concerned, but itmone the less made the obligation one of suretyship, imposing the reciprocal duty on the opposite party of not departing from it to the detriment of the surety in respect of. what is involved in this issue, as was clearly done.
The judgment is reversed.