Long v. American Surety Co.

137 N.W. 41 | N.D. | 1912

Lead Opinion

Bruce, J.

(after stating the facts as above). Although there are many assignments of error in this case, they nearly all revolve around one question of damages, and a determination of that question is conclusive of most of them. The question of damages is presented by the defendant, and appellant’s exception to the instruction of the court which peremptorily told the jury that the damages to be found by them if they found the issues for the plaintiff must be the sum of $1,392.49 and interest at 7 per cent per annum from January 1, 1909. This instruction was evidently based upon the assumption that the plaintiff was entitled to recover the difference between the 13-J cents which by the subcontract he had agreed to pay the subcontractor, Gentry, and the 17 cents which he was entitled to recover from the drainage board under the principal contract; and added to this, the court evidently allowed him to recover the sum of 35 cents per cubic yard for the estimated cost of the completion of the work, or 18 cents per cubic yard, the difference between the 17 cents provided for in the principal contract and the 35 cents per cubic yard which the witness, Baker, testified would be the cost of completing the work. The defendant insists that, on account of the fact that Long did not enter and complete the work, he is entitled to no damages for the cost of completion. He also insists, in the alternative, that even if the court should find that a personal entry and completion was not necessary to a recovery, the plaintiff cannot recover damages based on an assumed cost of completion which might be charged up to him by his principals, the drainage board, when it was within his power to positively prove the cost of such completion. He insists that plaintiff’s damages should, at any rate, be confined to the loss of the profits on the principal contract, i. e., to the difference between the amount agreed to be paid to him by the drainage board and the amount he agreed to pay to his subcontractor, and that against this sum may be set off the 20 per cent on the 59,840 yards, at 13-| cents per yard, removed by Gentry before the default, and which sum Long was entitled to withhold under the subcontract with Gentry until the completion of the work, and which the terms of the bond required to be applied to the reduction of damages against the surety.

The rule is well established that where an obligator, under a collateral or subcontract, fails to perform his agreement within the stipulated time, knowing at the time that the obligee, depending upon such performance, must carry out his agreement with a third person within a certain time or be liable in damages therefor, and there is proof in the record that such obligee has been compelled to pay or account for such damages, such obligor will be liable to the obligee for the damages occurring through his default, as well as for the loss of the profits of the transaction. Such damages are deemed to have been within the contemplation of the parties. Shurter v. Butler, 43 Tex. Civ. App. 353, 93 S. W. 1084; Halstead Lumber Co. v. Sutton, 46 Kan. 192, 26 Pac. 444; Feland v. Berry, 130 Ky. 328, 113 S. W. 425; Sutton v. Wanamaker, 95 N. Y. Supp. 525; Illinois C. R. Co. v. Southern Seating & Cabinet Co. 104 Tenn. 568, 50 L.R.A. 729, 78 Am. St. Rep. 933, 58 S. W. 303; O. H. Perry Tie & Lumber Co. v. Reynolds, 100 Va. 264, 40 S. E. 919; Ledgerwood v. Bushnell, 128 Ill. App. 555; Murdock v. Jones, 3 App. Div. 221, 38 N. Y. Supp. 461; Modern Steel Structural Co. v. English Constr. Co. 129 Wis. 31, 108 N. W. 70. We are unable to find any authorities, however, and our attention has been called to none, which permit the recovery of damages based upon the cost of completion, where the obligeé has not been compelled to pay the same, or actually incurred any liability therefor, and when the question as to whether he will incur them or not is a matter which is entirely problematical. Much less have we been able to find authorities which allow their recovery when the cost of completion is merely estimated and there is a positive and definite method of ascertaining their amount, which has not been taken advantage of. What the law aims at is to extend a fair measure of compensation for wrong sustained. What it desires is certainty, and what it most abhors is speculation and oppression. To allow the plaintiff to recover against the defendant for the 3¿ cents’ loss of profits on the principal contract, and in addition thereto for the 35 cents a yard estimated cost of completion, when he did not complete, and, as far as the evidence shows, was not required to complete by his principal, the drainage board, and when the drainage board itself completed the work, and there is no evidence whatever that the cost to it of such completion exceeded the 17 cents per cubic yard agreed to be paid to the plaintiff under the principal contract, would be to open the door to speculation and in many cases allow a plaintiff to recover a greater profit on the breach of a subcontract than he would have recovered if his subcontractor had performed the same. This the law will not, and should not, tolerate. American Surety Co. v. Woods, 45 C. C. A. 282, 105 Fed. 741; Hunt v. Oregon P. R. Co. 1 L.R.A. 842, 36 Fed. 481.

It is true that the witness Baker testified that the cost to complete the ditch would have been 35 cents a cubic yard. This, however, was merely an estimate, and as the ditch was completed in the summer of 1909, and several months before the trial, there was a positive means of arriving at the cost. There, too, was no proof of any claim or demand of damages on the part of the drainage board, or that the cost of completion by them exceeded the cost of the original contract price. It is true that the bond required the action to be commenced by February 1, 1909 and that, although there is a serious question as to the validity of this provision, there is also a serious question as to whether the bond company could assert its invalidity. The case, however, did not come up for trial until January 1, 1910, and on the trial at least two of the drainage commissioners were present as witnesses, as well as the secretary of the board. The plaintiff could easily have proved, upon the trial, this question of the cost of completion. Instead of doing so, he relies upon speculative estimates. This is not a definite way of proving damages, and such as the law approves. The provisions in the contracts, also, that if the obligor in the contracts did not proceed with the work with reasonable diligence, the obligees might enter and complete the same, “holding the said obligors liable for all costs and expenses in finishing said ditch, over and above the amount of the contract price,” were evidence, and in many courts have been held to be conclusive evidence, of an understanding that entry and completion by someone and at some time was a prerequisite to a recovery of damages, and was the agreed basis of the estimate thereof. Ibid.

The measure of damages under the evidence in the case at bar should have been the loss of the profits of the transaction, or the difference between the price per yard agreed to be paid by the board to the principal contractor, Long, and the price agreed to be paid by Long to the subcontractor, Gentry, and against this the defendant was entitled to an offset of 20 per cent on the yardage removed by Gentry, at 13-J cents a yard, which the bond required should be reserved for the protection of the surety. This credit largely exceeds the loss sustained by the plaintiff, even if we estimate his damages at 3% cents a yard profit, as provided for under the principal contract, or at 2 cents a yard as contended for by the defendant. ■ We are of the opinion that the court erred not only in instructing the jury upon the question of damages, but also in denying the motion for a directed verdict, and in denying the motion for a judgment non obstante veredicto.

This view of the case makes it unnecessary for us to consider the other errors assigned by the appellant. The judgment of the district court is reversed and the case is remanded with directions to said court to enter judgment in favor of ’the defendant and against the plaintiff.

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Rehearing

On Rehearing.

Bruce, J.

It is urged on motion for rehearing that this case should be sent back for a retrial, rather than that a judgment non obstante veredicto should be ordered. This should be done if it appears, “from the nature of the case and the circumstances connected with it, that there is no reasonable probability that upon another trial the defects in, or objections to, the proof . . . may be remedied.” Meehan v. Great Northern R. Co. 13 N. D. 432, 441, 101 N. W. 183; Richmire v. Andrews & G. Elevator Co. 11 N. D. 453, 92 N. W. 819; Houghton Implement Co. v. Vavrosky, 15 N. D. 308, 109 N. W. 1024; Kerr v. Anderson, 16 N. D. 36, 111 N. W. 614; Welch v. Northern P. R. Co. 14 N. D. 25, 103 N. W. 396. As far as the question of damages is concerned, we think it possible that the missing proof might be furnished, and if this were the only question in the case we would be inclined to order a new trial.

In addition to the reasons given in the principal opinion for ordering a judgment non obstante veredicto, there are, however, two others which, in themselves, appear to us to be conclusive, and which were not mentioned before, as the question of damages appeared to us to be the main and controlling feature of the case. These are furnished by the fact that plaintiff himself undoubtedly defaulted in the terms of his contract with the surety company to such an extent as to release them from their liability. The bond required that “notice of any default in the performance of any of the terms, covenants, and conditions of said contract shall be given to the surety company.” Though it is true that there was no specific covenant, term, or condition to proceed with the work with reasonable diligence, there certainly was a covenant and agreement to complete the work by January 1st, and to enter upon and proceed with the work in some manner. It seems to be undisputed that early in the month of November the subcontractor, Gentry, abandoned the work. It is true that he left, in the ditch, a subcontractor, Twitchell, but it is also clear, from the evidence, that this subcontractor had no authority from Gentry to complete the remainder of the work, except the particular job on which he was working, and that, in order to induce him to do so, a separate and new contract would have had to be made between him and Long. There was, therefore, to all intents and purposes, an abandonment of the work by Gentry, which occurred early in November, and within fifteen days of which no notice was given to the surety company as required by the terms of the bond. It is true that the contract was not required to be completed until January 1st, but surely a complete abandonment may be considered as a refusal to complete by such date. A distinction, indeed, must be made between an abandonment as a basis of a suit for a breach of a contract, and abandonment which would require a notice to the surety company. It is well established that provisions in bonds for notice to the surety are inserted for the protection of both parties, and to give the surety an opportunity for self-protection. “The object of requiring notice to be given of a contractor’s default which may involve loss,” said the supreme court of Minnesota in the case of George A. Hormal & Co. v. American Bonding Co. 112 Minn. 288, 33 L.R.A. (N.S.) 513, 128 N. W. 12, “was to enable the surety company seasonably to take such practicable action as might prevent or minimize the loss by reason of the default; and it is not to be strictly construed for or against either party, but reasonably as to both. So construing it, it is clear that the provision for immediate notice does not require notice to be given instantly upon learning of the default, but that it should be given within a reasonable time in view of all the circumstances.” In that case the bond required that “immediate” notice should be given, and the court construed that word to mean within a reasonable time. The rule certainly should operate both ways, and a bond which required a notice of default should certainly be construed to require a notice of an abandonment, even though the time for the completion of the contract had not expired.

The other reason for ordering a judgment non obstante veredicto is even more conclusive. It is that plaintiff absolutely failed to either allege or prove compliance on his part with the terms and conditions of the bond. The bond required that “the obligee (Long) shall retain not less than 15 per cent of the value of all work performed and materials furnished in the performance of such contract until the complete performance by said principal of all the terms, covenants, and conditions thereof on said principal’s part to be performed, and that the obligee shall faithfully perform all the terms, covenants, and conditions of said contract on the part of the said obligee to be performed.” There is no pretense in the evidence that Long retained this 15 per cent, but it is candidly admitted that he paid the subcontractor, Gentry, in full for what work he had performed, so that when Gentry abandoned the work he lost nothing except the profits which he might have made by the completion of the remainder. If plaintiff’s evidence as to the cost of completion is to be relied upon, there would have been no profits, but rather a loss, so that there was every incentive for Gentry to abandon the work. If, on the other hand, the balance required by the contract and the bond had been retained by Long, he might have hesitated in abandoning the job for fear of losing the amounts so reserved. That such payments in violation of the conditions of a bond will release the surety is abundantly sustained by the authorities. Simonson v. Grant, 36 Minn. 439, 31 N. E. 861; George A. Hormal & Co. v. American Bonding Co. 112 Minn. 288, 33 L.R.A.(N.S.) 513, 128 N. W. 12; Brandt, Suretyship, § 245; Leeds v. Dunn, 10 N. T. 469; Farmers’ & M. Bank v. Evans, 4 Barb. 487; Miller v. Stewart, 9 Wheat. 681, 6 L. ed. 190; Morgan County v. Branham, 57 Fed. 179; United States use of Heise, B. & Co. v. American Bonding & T. Co. 32 C. C. A. 420, 61 U. S. App. 584, 89 Fed. 925; First Nat. Bank v. Fidelity & D. Co. 145 Ala. 335, 5 L.R.A.(N.S.) 418, 117 Am. St. Rep. 45, 40 So. 415, 8 Ann. Cas. 241; International Cement Co. v. Beifield, 173 Ill. 179, 50 N. E. 716; United States Fidelity & G. Co. v. Thaggard, 130 Ga. 701, 61 S. E. 726; Cowdery v. Hahn, 105 Wis. 455, 76 Am. St. Rep. 921, 81 N. W. 882; Backus v. Archer, 109 Mich. 666, 67 N. W. 913; Shelton v. American Surety Co. 66 C. C. A. 94, 131 Fed. 210; Welch v. Hubschmitt Bldg. & Woodworking Co. 61 N. J. L. 57, 38 Atl. 824; National Surety Co. v. Long, 79 Ark. 523, 96 S. W. 745, 107 S. W. 384; Bragg v. Shain, 49 Cal. 131; Taylor v. Jeter, 23 Mo. 244.

We are not unmindful of the fact that a paid surety or bonding company is treated rather as an insurer than as a surety. 32 Cyc. 303. Bank of Tarboro v. Fidelity & D. Co. 126 N. C. 320, 83 Am. St. Rep. 682, 35 S. E. 588, 128 N. C. 366, 83 Am. St. Rep. 682, 38 S. E. 908. This fact, however, does make it less obligatory on the part of the beneficiary to perform his part of the contract.

We have also examined the case of Stanford v. McGill, 6 N. D. 536, 38 L.R.A. 760, 72 N. W. 938, and § 6105 and § 6092 of the Revised Codes, which have been called to our attention by counsel for respondent. As far as the case of Stanford v. McGill is concerned, we make a distinction between a state of facts which would justify the immediate bringing of an action, and one which would make it obligatory to give a warning notice to the surety. The sections of the Code referred to appear to have been construed adversely to the contention of the respondent in the case of the McCormick Harvesting Mach. Co. v. Rae, 9 N. D. 482, 84 N. W. 346, and seem to be hardly applicable to the case at bar.

The petition for rehearing is denied, and the order heretofore entered will stand.