67 Minn. 463 | Minn. | 1897
Lead Opinion
This is an appeal by the defendant Eaton from an order of the district court for the county of Bamsey denying his motion for a new trial. The cause was tried by the court without a jury, and judgment ordered upon the findings of fact for the plaintiff against the defendants in the sum of $2,397.02. The findings of fact are supported by the evidence. The facts are these: July 13, 1893, the plaintiff enters into a written contract with the defendant Merrill, whereby the latter agrees to furnish all labor and materials and build a dwelling house for the plaintiff, according to certain plans and specifications, for the agreed price of $16,109.45, to be paid in instalments as the work progresses, on the certificate of the architect in charge, in amounts not exceeding 85 per cent, of the total amount of materials and labor furnished at the building at the time the certificate is issued; the balance of 15 per cent, to be withheld until the contract is entirely finished and accepted, when the amount thereof will be incorporated in the amount of the final certificate, the condition being that, prior to first payment being made, the contractor should furnish a satisfactory bond to protect the plaintiff against liens to the extent of $25,000. The contract further provided that before each payment, if required, the contractor should give to the architect sufficient evidence that the premises were free from liens chargeable to the contractor.
Pursuant to this contract, the contractor gave to the plaintiff a bond, with the defendants Eaton and Bodger as sureties, in the sum of $25,000, conditioned that the contractor should promptly pay for
The defendant Eaton answered, alleging, among other matters, that the plaintiff and the contractor Merrill, without the knowledge of the defendant, failed to observe and perform the terms of the building contract in respect to the payments to be made thereon; that instead of paying to the contractor only 85 per cent, of the total amount of material and labor furnished at the building, and withholding 15 per cent, thereof, the plaintiff paid to him a sum exceeding 85 per cent, of such material and labor, and did not retain 15 per cent, of the contract price thereof, by reason of which violation of the terms of the contract the liens were made larger than they otherwise would have been. These allegations were in issue, and the trial court’s findings of fact as to them were as follows:
“Defendant Merrill performed the work provided for .in said contract, and the same was completed, save in some unimportant particulars, on April 14, 1894. * * * The plaintiff paid said Merrill at various times during the progress of the work, on account of said contract price and upon the certificate of the architect, various sums, amounting in all to fourteen thousand eight hundred forty-seven 55-100 (14.847.55) dollars; the last payment being made upon said April 14, amounting to one hundred forty-five 72-100 (145.72) dollars. The last eleven payments, made at divers times from February 7 to April 14, inclusive, amounting to two thousand four hundred sixty-six 55-100 (2.466.55) dollars, were applied by said Merrill in payment for labor and material furnished him for use in, and used in, constructing said building under said contract. Plaintiff has not made other or further payments to said Merrill. It does not appear that the plaintiff knew at any time, until after the last payment was made to said Merrill, as aforesaid, that any of the material or. labor used in or furnished for the erection of said building had not been paid for.”
It is apparent from these findings that more than 85 per cent, of the contract price was paid by plaintiff to the contractor during the progress of the work, but there is neither finding nor evidence that
The claim of the surety Eaton, stated in the exact words of his counsel, is this:
“There is but one question in this case. The building contract provided that not more than 85 per cent, of the price of the building should be paid before its completion. The defendant Eaton became surety for the builder against liens. The owner violated the contract, by paying $1,154.52 more than the 85 per cent, before building was completed; liens accrued; and instead of having in his hands 15 per cent., being $2,410.41, to pay them with, he had only $1,276.90. Did this violation of the original contract discharge the sureties? There is no question about the facts; they stand conceded.”
Now, if the assumption of facts which counsel accepts as the premises of his proposition is correct, his conclusion that the surety was released may be conceded. But his premises are unsupported by either finding or evidence. The contract was not that no more than 85 per cent, of the contract price of the building should be paid during the progress of the work, but that such payments should not exceed 85 per cent, of the “total amount of materials and labor furnished at the building at the time said certificate is issued.” Such is the plain reading of the contract, and such is the construction placed upon the language of the contract by the defendant in his answer. There is no room for construction or argument. The simple statement of the facts of this case is the argument of the case. It by no means follows that 85 per cent, of the contract price would equal or exceed 85 per cent, of the amount of materials and labor furnished. As the only breach of the building contract here claimed is that payments were made by the plaintiff in violation of the contract, and as there is no evidence in the record to support the claim, it follows that the order appealed from must be affirmed.
So ordered.
Dissenting Opinion
I dissent. It may be unusual to state the facts fully in a dissenting opinion, but, at the risk of criticism, I feel impelled to do so in this case.
On July 13, 1893, the plaintiff, Graves, entered into a building contract with Merrill, one of the defendants, by which Merrill agreed to build a dwelling for plaintiff for the sum of $16,109.45, to be paid
“The condition of the above obligation is such that whereas, the said G.. W. Merrill has, by written contract of even date herewith, undertaken and agreed with the said William F. Graves, in consideration of the sum of $16,109.45, to construct for him upon lots five (5) and six (6) of Bryant’s subdivision of block four of Palace addition to St. Paul a frame dwelling house, according to plans and specifications made by C. H. Johnston, the architect, and to furnish and pay for all labor and material required in the performance of his said contract: Now, therefore, if the said G. W. Merrill shall promptly pay for, or cause to be paid for, all labor and material which shah be furnished for the construction of said dwelling house under or pursuant to said contract, or' in the performance thereof, before any mechanic’s lien therefor is filed in the office of the register of deeds of Ramsey county, Minnesota, against said premises, and shall also fully indemnify and hold harmless the said Graves from any and all such liens, and fully protect said premises therefrom, then the above obligation to be void; otherwise, to remain in full force and virtue.
“G. W. Merrill. [Seal.]
“Wm. Rodger. [Seal.]
“Chas. Eaton. [Seal.]”
The contractor completed the building, save in some unimportant particulars, on April 14, 1894, on which day Graves moved into it. He made the first payment to Merrill August 21, 1893, and continued to make further payments from time to time until March 5, 1894, when he made a payment of $425, which, added to former payments, aggregated the sum of $13,971, paid up to that date; and he continued to make six more payments before the house was finished, amounting to $876.55, the last payment being $145.72, which he made on the day he took possession of the premises, April 14, 1894, the entire payment amounting to $14,847.55. Eighty-five per cent, upon the contract price, $16,109.45, is $13,693.03, which amount had been paid by Graves to Merrill up to and including March 3, 1894, more than one month before the contract was completed. The
Before stating the law which I deem applicable to this case, a further reference to some of the provisions of the contract is necessary: (1) The architect is made the agent of the owner of the premises. (2) The payments were all to be made under the certificate of the architect. (3) The final payment, including the 15 per cent., was to be paid within 30 days after the contract was completely finished. (4) The contractor was to perform and finish under the direction and to the satisfaction of the architect. (5) Before each payment the architect was authorized to require of the contractor good and sufficient evidence that the premises were free from all liens and claims chargeable to him. (6) The owner of the premises was authorized to retain out of any payment an amount sufficient to indemnify himself against any lien or claim for which he would be liable and chargeable to the contractor until such lien or claim should be effectually satisfied and discharged or canceled. (7) One of the paragraphs of said contract is as follows:
“And the said owner hereby promises and agrees with the said contractor to employ, and does hereby employ, him to provide the materials and to do the said work according to the terms and conditions herein contained and referred to, for the price aforesaid, and hereby contracts to pay the same, at the time and in the manner and upon the conditions above set forth.”
“It does not appear that the plaintiff knew at any time until after the last payment was made to said Merrill, as aforesaid, that any of the material or labor used in or furnished for the erection of said building had not been paid for.”
Whether this was the sole ground or not upon which the learned trial court found against the sureties, I am of the opinion that the ruling upon the entire case was erroneous. The stipulation in the building contract for the retention of the 15 per cent, until the completion and acceptance of the work was as much for the indemnity of Eodger and Eaton as for Graves, the owner of the premises, and raises an equity in the fund thus reserved, and a disregard of such stipulation by the voluntary act of Graves operated to discharge the sureties. It is true that the bond was not given for the full performance of the original contract, but for indemnity against liens; yet it must be read and construed in the light and relation which it bears to that part of the .contract to which, by its terms, it has reference. It expressly refers to the building contract, the name of the parties, the kind of building to be constructed, and the cost thereof, and that Merrill was to furnish and pay for the labor required in the performance of the contract.
The bond runs to the plaintiff, .Graves, the owner of the premises, and the party to the original building contract; and while, by its terms, the sureties are obliged to save him harmless, and indemnify him against liens, he cannot be permitted to violate those terms himself,
If I concede that if the contractor had furnished the architect, before each payment, good and sufficient evidence that the premises were free from all liens and claims chargeable to the contractor, and he had done so, and that the sureties would have been bound thereby, yet no such evidence was required or furnished, and Graves made no attempt to learn whether any such liens existed, although, under the explicit terms of the building contract, he had the right to retain out of any payment-due or to become due an amount sufficient to completely indemnify him against any such liens. The architect did furnish to Graves a certificate showing that Graves was paying to the contractor various sums greatly in excess of the 85 per cent., but he did not require of tlie contractor any evidence that the premises were free from liens, nor furnish Graves a certificate to that effect.
It is therefore self-evident that two causes tended to create that which plaintiff claims to constitute his cause of action against the sureties. These causes are neglect of the architect to require satisfactory evidence of no liens, and the omission of the plaintiff to ascertain if any lien existed, and his neglect to retain a sufficient sum out of any payment then due or to become due as against any such lien. Upon whom rested the responsibility or liability for this negligence? Cer
It cannot be said in this case that the sureties were not prejudiced by the payment of the sums in excess of the 85 per cent. The sum so paid withdrew the fund agreed upon as security, without the sureties’ consent; and it was done by the principal, when he had the .express authority, by the explicit terms of the contract, to retain it, not only for his own benefit, but, in so doing, it would have operated for the protection of his sureties. There are very eminent authoritiés holding that in such cases the sureties are released, no matter how trivial the change, or even if it be to the advantage of the sureties, and that they have a right to stand upon the very terms of their express engagements and undertaking. If the original contract is changed, the sureties are not bound by it in the changed form. They have a right to insist upon the strict terms of the contract, and cannot be forced to stand upon any new ones, and a variation from the original terms to which they do not consent is fatal.
That a disregard of such stipulations in a contract by the voluntary acts of the principal or creditor operates to release the sureties is fully sustained by authorities. Thus, in Calvert v. London Dock Co. (1838).
“The argument, however, that the advances beyond the stipulations of the contract were calculated to be beneficial to the sureties, can be of no avail. In almost every case where the surety has been released, either in consequence of time being given to the principal debtor, or of a compromise being made with him, it has been contended that what was done was beneficial to the surety, and the answer has always been that the surety himself was the proper judge of that, and that no arrangement different from that contained in his contract is to be forced upon him; and bearing in mind that the surety, if he pays the debt, ought to have the benefit of all the securities possessed by the creditor, the question always is whether what has been done lessens that security. In this case the company were to pay for three-fourths of the work done every two months. The remaining one-fourth was to remain unpaid for till tiie whole was completed; and the effect of this stipulation was, at the same time, to urge ¡Streather to perform the work, and to leave in the hands of the company a fund wherewith to complete the work if he did not; and thus it materially tended to protect the sureties. What the company did was perhaps calculated to make it easier for Streather to complete the work if he acted with prudence and good faith; but it also took away that particular sort of pressure which, by the contract, was intended to be applied to him. And the company, instead of keeping themselves in the situation of debtors, having in their hands one-fourth of the value of the work done, became creditors to a large amount, without any security; and, under the circumstances, I think that their situation with respect to Streather was so far altered that the sureties must be considered to be discharged from their suretyship.”
In General S. N. Co. v. Rolt (1859) 6 C. B. (N. S.) 550, upon a second appeal of the case, the exchequer chamber held that a plea by a surety to an action to recover from him the excess of cost in completing a ship after the contractor had made default, and also a stipulated sum by way of damages for delay, to the effect that the owner, without the consent of the surety, had allowed the builder to anticipate a greater portion of the last two instalments specified in the contract, and thus materially
“Now, certainly, prima facie, the withdrawal of a fund which is a securitj' for the thing in respect of the not doing of which he is now called upon to pay damages, is a prejudice to the surety. He is not in the same situation with regard to his principal in which he ought to be placed. He is deprived of the security of the fund out of which the company might, in the first instance, have indemnified themselves. With regard to the point that there was constructive notice, that has very properly been abandoned by Mr. Welsby. It is clearly not tenable. Prima facie, the surety was prejudiced by the existing state of things. Whether there could have been any proof to show that, notwithstanding the appearance of prejudice, in reality none was or could be sustained, it is not at all necessary to inquire. It is, however, exceedingly difficult to conceive any state of things in which it must not to a considerable extent be a prejudice to a surety to have a fund withdrawn which would be in reality the security to the company with whom he is contracting, and to the surety who guaranties.”
Holme v. Brunskill (1877) L. R. 3 Q. B. Div. 495, substantially reiterated the principle decided in the earlier cases. Cotton, L. J., with whom concurred Lord Justice Thesiger, said (page 505):
“The true rule, in my opinion, is that, if there is any agreement between the principals with reference to the contract guarantied, the surety ought to be consulted, and that if he has not consented to the alteration, although in cases where it is, without inquiry, evident that the alteration is unsubstantial, or that it cannot be otherwise than beneficial to the surety, the surety may not be discharged, yet that, if it is not self-evident that the alteration is unsubstantial or one which cannot be prejudicial to the surety, the court will not, in an action against the surety, go into an inquiry as to the effect of the alteration, or allow the question whether the surety is discharged or not to be determined by the finding of a jury as to the materiality of the alteration, or on the question whether it is to the prejudice of the surety, but will hold that in such a case, the surety himself must be the sole judge whether or*474 not he will consent to remain liable, notwithstanding the alteration; and that, if he has not so consented, he will be discharged.”
The rulings of the United States supreme court have been equally emphatic in upholding the right of a surety to stand upon the agreement with reference to which he entered into his contract of suretyship, and to exact strict compliance with its stipulations. Thus, in the case of Miller v. Stewart, 9 Wheat. 680, Mr. Justice Story, in delivering the opinion of the court, said (page 702):
“Nothing can be clearer, both upon principle and authority, than the-doctrine that the liability of a surety is not to be extended by implication beyond the terms of his contract. To the extent and in the manner and under the circumstances pointed out in his obligation he is-bound, and no further. It is not sufficient that he may sustain no injury by a change in the contract, or that it may even be for his-benefit. He has a right to stand upon the very terms of his contract; and if he does not assent to any variation of it, and a variation is made, it is fatal.”
In Reese v. U. S., 9 Wall. 13, Justice Field, delivering the opinion of the court, said (page 21):
“It is true, the rights and liabilities of sureties on a recognizance are in many respects different from those of sureties on ordinary bonds, or commercial contracts. The former can at any time discharge themselves from liability by surrendering their principal, and they are discharged by his death. The latter can only be released by payment of the debt or performance of the act stipulated. But in respect to the-limitations of their liability to the precise terms of their contract, and the effect upon such liability of any change in those terms without their consent, their positions are similar. And the law upon these matters is perfectly well' settled. Any change in the contract on which they are sureties, made by the principal parties to it, without their assent,, discharges them, and for obvious reasons. When the change is made, they are not bound by the contract in its original form, for that has-ceased to exist. They are not bound by the contract in its altered form, for to that they have never assented. Nor does it matter how trivial the change, or even that it may be of advantage to the sureties. They have a right to stand upon the very terms of their undertaking.”’
Finney v. Condon, 86 Ill. 78, was a dispute over a building contract, and, although it was there held that the surety was bound by the estimate of the architect, yet the rule applicable to obligation of sureties in cases of the kind under consideration was that enunciated by Justice-Scott, who said (page 80):
“The point relied on most confidently in the defense is that the sureties for the performance of the contract are released from all liability*475 thereon on account of payment exceeding 85 per cent, of the work done having been made to the contractor, without their consent, before the ■ completion of the work. The law upon this subject seems to be, the reserved per cent, to be withheld until the completion of the work to be done is as much for the indemnity of him who may be a guarantor of the performance of the contract as for him for whom it is to be performed. And there is great justness in the rule adopted. Equitably, therefore, the sureties in such cases are entitled to have the sum agreed upon held as a fund out of which they may be indemnified, and, if the principal releases it without their consent, it discharges them from their undertaking. The principle is, the withdrawal of the fund agreed upon as security for the performance of the contract without his consent is a prejudice to the surety or guarantor. Sureties and guarantors are not to be made liable beyond the express terms of their engagements. They have the right to prescribe the terms and conditions on which they will assume responsibility, and neither of the principals can change those terms without the consent of the sureties, even with a view to avoid ultimate liability.”
Bragg v. Shain, 49 Cal. 131, was a building contract, and payments were to be made in monthly instalments, of 75 per cent, of the value of the materials furnished and work done, and remainder when work was completed. A surety agreed that the building should be delivered free from all liens. There was default by the contractor in paying for material and labor, and liens were filed and paid by the owner of the building, who also had paid the contractor during the progress of the work more than the 75 per cent.; and it was held that the surety was discharged from liability.
In Brandt, Sur. § 345, the rule laid down is that:
“A surety for the completion of work to be performed by the principal, where, by the terms of the contract, the principal is to be paid by instalments, is discharged if the principal is paid faster than the contract provides. The surety is thereby deprived of the inducement which the principal would have to perform the contract in due time. There must be an assent by the surety to the creditors dealing with .the principal debtor otherwise than in the manner pointed out by the contract, and it is- no answer to say that it is for the advantage of the surety; or that he has sustained no prejudice.”
In Simonson v. Grant, 36 Minn. 439, 31 N. W. 861, substantially the same rule is applied.
As the owner, according to the terms of the contract, was entitled to retain in his own hands an amount sufficient to completely indemnify him against liens until they were satisfied, and also obligated himself to retain 15 per cent, of the contract price until the building was com
