Joint School District No. 4 v. Bailey-Marsh Co.

181 Wis. 202 | Wis. | 1923

Lead Opinion

Rosenberry, J.

The defendants earnestly contend that the plaintiff breached the contract by failing and refusing to pay the February and March, 1918, estimates. That part of the specifications material is as follows:

“Once in each and every month during the progress of the work the owners shall pay to the contractor a sum equal to ninety per cent, of the value of the work done and material furnished during the preceding month as assessed by the architects, and the balance thirty days after the completion and acceptance of the building according to this specification.”

The question is, Was the material which had been specially made up for this building and was then stored in Minneapolis “furnished” within the meaning of the contract? In this connection the case of Smith v. Molleson, 148 N. Y. 241, 42 N. E. 669, is cited to our attention. The contest in that case was between the surety and the owner, and it was held that payments made by the owner on account of material which had been acquired in Nova Scotia, transported to Connecticut, there dressed, and then transported to New York, where it was set in the building, were properly made, since all of the material on which payments were made had in fact gone into the building, although the payments were made prior to the time that the material had actually been incorporated into the structure. It does not apply here, where the material was neither shipped nor incorporated into the building.

Tomlinson v. Ashland Co. 170 Wis. 58, 173 N. W. 300, which holds that the architect has power to construe and define the intent and meaning of plans and specifications, does not authorize the architect to construe the contract itself, and is also cited by the company.

Necessarily, the architect in issuing his certificates had to determine what material was in fact furnished. He could not do this arbitrarily, nor was his determination conclusive so far as it involved the interpretation of the terms of the contract. It is considered that material, although manufactured expressly for the building, which has not been delivered upon the premises and is in no way subject to the control of the owner but is stored in a warehouse in a distant city in another state, is not “furnished” within the meaning of tlrat term as used in the specifications.

It is further contended that the plaintiff did not prove the reasonable and necessary cost of completing the building. The amount disbursed by the district for the purpose of completing the building was stipulated. While the testimony as to the reasonableness of the various items is rather meager, it is in our opinion sufficient to sustain the finding of the trial court.

It is the further contention of the company that, the school board having elected to taire possession of the premises and complete the work, the plaintiff is not entitled to recover the sum stipulated as liquidated damages'. The contract contained a clause to the effect that if the contractor, (the company) should refuse or neglect to furnish sufficient material and workmen or fail to comply with its contract in certain enumerated respects, the proprietor or its agent shall have the right and power to enter upon and take possession of the premises and may at once terminate the contract, whereupon all claims of the contractor, his executors, administrators or assigns, shall cease.”

It is the general rule that where the owner elects to take possession of and complete the work himself pursuant to a stipulation contained in the contract, he may not recover the sum stipulated as liquidated damages. Moore v. School Dist. No. 2, 215 Mo. 705, 115 S. W. 6; Gilette v. Young, 45 Colo. 562, 101 Pac. 766; 9 Corp. Jur. p. 794, § 135.

The record in this case, however, discloses that the plaintiff did not assert its right to. take possession of the premises and complete the contract under the clause referred to. After the default of the company on March 30, 1918, the plaintiff continued the completion of the building by agreement between the parties, the company giving orders to cover each particular portion of the work that was done down to August 17, 1918, when a general order was given pursuant to an arrangement entered into between the parties with the consent of the surety company. It is considered that the trial court correctly allowed the sum stipulated as liquidated damages under the circumstances of this case, the amount allowed being for 140 days, from March 30, 1918, to August 17, 1918. The plaintiff was not, as claimed under its cross-assignment of error, entitled to liquidated damages after it took over the entire control and management of the work on August 17, 1918. Prior to that time the company had a right to resume work and the plaintiff controlled only such parts of the work as were covered by special orders given by the company. It is also held that the trial court correctly allowed interest for the amount lawfully paid in excess of the contract price from the date of the last payment, which was April 21, 1920.

The company further contends that the plaintiff is not entitled to recover the amount of the superintendent’s fee of $1,215 paid by it after the company quit work on March 30, 1918. The employment of the superintendent was made necessary by reason of the abandonment of the work by the company. It was a proper and necessary item. The amount found by the trial court appears reasonable.

The plaintiff paid to the First National Bank of Platte-ville, under the circumstances quoted in the finding of the court in the statement of facts, the sum of $5,000 which the company had borrowed from the bank on January 8, 1918, upon its promissory note. The order given by the company upon the plaintiff for the payment of this amount was given on April 8, 1918, but was dated January 8, 1918. The first payment was made April 8, 1918, and the last payment was made on August 8, 1918. All of the $5,000 except the first payment was included in the disbursements made by the school board in completing the building after April 10, 1918. It is well settled that whenever a creditor has a right and opportunity to apply property of the principal to the satisfaction or security of his debt, he owes to the surety a duty to do so, and release or waiver of that right to the prejudice of the surety and without his consent will discharge the surety, at least pro tanto. Pauly Jail B. & M. Co. v. Collins, 138 Wis. 494, 120 N. W. 225.

It is contended by the plaintiff, however, that this money became due to the company and that under the terms of the contract it was payable to the company or its assigns, and that payment made pursuant to the order given by the company was a payment to the assigns of the company, and, being a payment in accordance with the terms of the contract, the surety cannot object thereto. The difficulty with this argument is that it rests upon a false premise. As has already been pointed out, the company did no work under the contract after March 30, 1918. It abandoned the work, and such work as was thereafter done was done by and under the direction of the plaintiff. The company being in default, performing no further service or furnishing no material, no sum could become due it until, upon the completion of the building, it appeared that the amount reasonably expended in the .completion of the building was less than the remainder of the contract price. The surety, under the principle of law stated, had a right to require the plaintiff to apply the remainder of the building fund to the completion of the building, and the plaintiff had no right, by the acceptance and payment of the order of April 8, 1918, to divert any part of the contract fund to the payment of a general obligation of the company without the consent of the surety. It is immaterial that all or some part of the money loaned by the bank to the company upon its note was used; by the company for paying off the claims of laborers or material-men. The bank having accepted the note of the company, its relation to the company was that of a general creditor. This principle is well stated in Henningsen v. U. S. F. & G. Co. 143 Fed. 810, affirmed 208 U. S. 404, 28 Sup. Ct. 389, where it is said, under circumstances quite similar to those in this case:

“Whatever equity, if any, the bank had to the fund in question arose solely by reason of the loans it made to' Hen-ningsen. Henningsen’s surety was, upon elementary principles, entitled to assert the equitable doctrine of subrogation; but it is equally clear that the bank was not, for it was a mere volunteer, and under no legal obligation to loan its money.”

So long as the company was not in default and continued to perform its contract, the plaintiff was under no obligation to see that the amounts paid to the company were applied to the extinguishment of claims for which the surety might thereafter become liable; but when the company defaulted and refused to further perform, the surety had a right to have the remainder of the building fund applied to the completion of the building and to^ the discharge of claims for which it might thereafter become liable. The indebtedness due to the bank upon the company’s note was not such a claim. By the payment of the note the sum of $5,000 .was diverted from the building fund to the prejudice of the surety, and the surety was thereby released pro tanto..

The plaintiff cannot claim in this case that there was any amount due to the Bailey-Marsh Company on the 8th day of April, 1918, when this order was given. It consistently maintained the position throughout that there was nothing due, and refused to pay the February and March estimates for that reason. The company abandoned the work on March 30, 1918, because of the refusal of the district to pay what the company claimed was justly due it under the February and March estimates. The trial court sustained the position of the plaintiff and held that there was nothing due it, and the decision of the trial court in that respect is sustained here. There remains then no basis for an argument that the payment of the $5,000 note was out of funds due to the company, there being nothing due at the time it abandoned the work. It having performed no work and delivered no material thereafter, and being in default as already pointed out, nothing could be due it or its assigns until the building was completed.

The case of Royal Ind. Co. v. Northern G. & S. Co. 100 Ohio St. 373, 126 N. E. 405, 12 A. L. R. 378, and cases cited in the note appended thereto, are called to our attention in support of the proposition that the rule of strict construction ordinarily applied in favor of private voluntary sureties does not apply to that class of sureties which, for ü pecuniary consideration, undertakes to indemnify an owner of a construction against the defaults of the principal contractor. The rule invoked has no application to the facts in this case. We are not concerned here with the construction of the contract between the surety and the beneficiary. We are concerned with the application of the general principles of law which apply to the relation of suretyship, which is admittedly established. The right to have the building fund applied to the completion of the building is a right which may be asserted by a surety for compensation as well as a gratuitous surety, and, as already stated, the rule rests upon sound equitable principles. The surety does not agree to perform the contract. The surety agrees to indemnify the obligee with whom his principal has contracted in the event of the principal’s default. The measure of the surety’s liability, therefore, was the difference between the amount reasonably and necessarily expended in completion of the contract by the plaintiff and the unexpended remainder of the contract price. The plaintiff could not, by diverting a part of the unexpended balance of the contract price to purposes other than completion of the building, in effect require the surety to become liable for the obligations of the company to a general creditor.

As is pointed out in Spencer on Suretyship, § 90, the statement that the undertaking of a surety is strictissimi ¡taris and that a strict construction in favor of the surety of the language employed should be adopted and all doubts resolved in his favor, is scarcely a correct statement of the modern rule. See 1 Brandt, Suretyship (3d ed.) § 103 and cases cited; Builders L. & S. Co. v. Chicago B. & S. Co. 167 Wis. 167, 166 N. W. 320.

Due to the fact that modern corporations have undertaken the business of becoming sureties and indemnitors, that under such circumstances the applications and bonds are usually prepared by the surety, the same rule of law is applied to those contracts that is applied to other contracts which are prepared by and for the benefit of a party. While it is stated in many opinions that the rules of interpretation applicable to contracts of a gratuitous surety are not to be applied in a case of a surety for compensation, it is meant that a different rule of law is applicable because the changed situation malees it applicable. This court has held that where a bond is given for a money consideration it has all the essential features of an insurance contract and is therefore not to be construed according to the rules of law applicable to the contract of an ordinary accommodation surety. Builders L. & S. Co. v. Chicago B. & S. Co. 167 Wis. 167, 166 N. W. 320.

Such contracts are to be interpreted as are other contracts, with a view to ascertaining and giving effect to the true meaning and intention of the parties. 1 Brandt, Suretyship (3d ed.) § 103 and cases cited; Spencer, Suretyship, § 90 and cases cited.

It is also contended that the plaintiff failed to require certificates that there were no' outstanding claims before the payment of estimates. It is not shown, however, that the surety was in any way prejudiced by the failure of the architect to require such certificates. We have already considered the question of whether or not the plaintiff was in default by reason of the refusal to pay the February and March estimates.

By the Court.—Upon the appeal of the defendant Bailey-Marsh Company the judgment of the circuit court is affirmed. Upon the appeal of the defendant New Amsterdam Casualty Company the judgment is modified by striking therefrom the sum of $5,000 and interest from the date of the last .payment, and as so modified the judgment is affirmed ; the appellants to recover their costs in this court.

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Dissenting Opinion

Crownhart, J.

(dissenting). The surety contract was for pay, and the old rules of gratuitous surety do not apply. A surety for a consideration is held to be an insurer of the performance of the principal contract. Milwaukee B. S. Co. v. Illinois S. Co. 163 Wis. 48, 157 N. W. 545; Builders L. & S. Co. v. Chicago B. & S. Co. 167 Wis. 167, 166 N. W. 320.

The principal contract here called for the building of a school house according to specifications of the architect within a given time, payments to be made to the contractor or his assigns on the certificates of -the architect.

The building was not completed on time, but the contractor continued work on the building through its superintendent and subcontractors four and a half months from the date of the expiration of the contract, and then with the consent of the surety turned the building over to the school district for completion. On January 8, 1918, the contractor made a short-time loan of the First National Bank of Platteville to meet its payrolls and other bills incurred under its building contract. The money so borrowed was for the benefit of the surety as well as the school district plaintiff. On April 8th following, the contractor gave an order on the plaintiff to pay the bank out of any moneys due or to become due it under the contract. The plaintiff accepted the order and thereafter, upon certificates of the architect, it paid the bank just as provided under the terms of its contract. This court now holds that the plaintiff should have withheld that money for the benefit of the surety. Why? The contracts of the principal and surety did not so provide.

The plaintiff acted with patience and the utmost good faith with the contractor and the surety. Neither the contractor nor surety in good faith complied with their contracts after it became apparent that the contracts would be unprofitable. They laid down on the job and went begging to the plaintiff for charity amounting to from $7,000 to $10,000. The surety now insists that the plaintiff should stand the loss that it has assumed for pay. As I see it, the court relieves the surety from its contract without warrant of law, and places the burden of loss upon the plaintiff contrary to its contract with the surety. See 9 Corp. Jur. 861.

For these reasons I respectfully dissent.