269 Mass. 75 | Mass. | 1929
These two actions, involving the same parties, were tried together before a judge of the Superior Court sitting without a jury. The first is an action of contract brought by the plaintiff as obligee of a bond against the defendant as surety on the bond, which was given for the completion of a building on which the plaintiff held a mortgage. The principal defence relied on is that the defendant was induced to execute the bond by the fraud of the plaintiff. Judgment was entered in the plaintiff’s favor in the penal sum of $75,000 and execution was ordered to issue for $53,248.36 with interest at six per cent from July 15, 1927. In the second action, which is in tort and was brought by the surety company against' the obligee, it is alleged that the bond was procured to be signed by the surety through the wrongful failure of the obligee to disclose certain facts which it was its duty to disclose to the surety, and that by reason
Many of the facts involved in the trial were undisputed. In order fully to understand the questions of law presented it will be necessary to recite certain findings made by the trial judge. The Province Securities Corporation will be referred to as the plaintiff and the Maryland Casualty Company as the defendant. He found that the capital stock of the plaintiff was $5,000, all of which, except two shares, was at the time of the transactions in issue owned by one Benjamin Rudnick who for some years had been engaged in the business of making construction loans and dealing in real estate. Since 1925 his construction loan business has been transacted through the plaintiff. Carl Rudnick, a brother of Benjamin, was the president and a director of the corporation.
William W. Cherney and David Carlin, the principals on the bond here in suit, are builders doing business as the Kilsyth Realty Trust, of which they are, and were throughout the transactions in issue, the trustees, and so far as appears by the evidence they were the chief if not the sole beneficiaries under the trust. Before 1926 they had engaged in several extensive building operations in and about Boston, largely financed by a firm consisting of Benjamin Snyder and John Druker, who were well known as men of substantial financial responsibility. In September, 1925, Joseph M. Druker, a brother of John, as trustee of the Matthew Realty Trust, purchased the land and buildings numbered 39-49 Portland Street, Boston, subject to mortgages aggregating $57,500. Simultaneously with this purchase he gave the firm of Snyder and Druker a six months’ mortgage for $200,000 subject to outstanding mortgages. The consideration for this purchase actually paid or in mortgages assumed was $87,000.
Pursuant to an agreement entered into on or about January 30, 1926, Joseph M. Druker, as trustee, conveyed the premises on Portland Street to the Kilsyth Realty Trust by
The principals decided to erect a lóft building on the Portland Street premises, and applied to Snyder and Druker for a construction loan, which the latter declined to make. Through Carl Rudnick they obtained a construction loan of $200,000 from Benjamin Rudnick upon the terms set forth in the construction loan agreement. The mortgage was made in the sum of $325,000 in case the plaintiff should desire permanently to loan that sum or any part thereof above $200,000 upon the security of the completed building, or the mortgage should be used in securing a permanent loan thereon. The mortgage note was payable six months after date “with interest monthly in advance at the rate of one per cent, per month.” Thereafter the principals removed the buildings, which took from four to six weeks, but did not begin the erection of a new building until about the middle of May, 1926. About July 20 following, the foundation was completed and the first floor laid. During that month Benjamin Rudnick complained to the principals of the slow progress of the work. They urged him to make further advances because they could not proceed any faster under the schedule of payments provided for in the construction loan agreement. He refused, electing to stand on the terms of the agreement. The principals then asked him if he would ma.TrP! more frequent advances if they would give him a
The principals, upon receipt of the $10,000, paid the plaintiff $6,000, the balance then due it for interest on the construction loan including the monthly interest payment due August 1, 1926. Thereafter from August 20, 1926, to and including April 7, 1927, advances amounting to $84,150 were made by the plaintiff by checks payable to the principals and surety jointly and indorsed by the latter. All these advances were turned over to and collected by the principals, with the exception of five amounting to $9,000 which were collected by the plaintiff on account of interest. No further advances on account of the mortgage loan were made after April 7, 1927. The total advances at that time by the plaintiff to the principals aggregated $191,150. No further interest was paid by the principals to the plaintiff after April 7, 1927. The principals desiring faster payments than were provided for in the schedule of August 4, the advances after November 5, 1926, were made more frequently by the plaintiff with the consent of the defendant.
The financial difficulties of the principals increased; they became unable to meet payments due on other real estate owned by them and subject to mortgage; they had difficulty in meeting their pay rolls, and the claims of subcontractors who refused to proceed without security. Between December 28, 1926, and March 14, 1927, at the solicitation of the principals, the defendant entered into nine different
He further found that the plaintiff had no part in the negotiations with the defendant for the bond in issue; that such negotiations were between the principals and the defendant; that before becoming surety the latter caused inquiry to be made of the then condition of the building and the probable cost thereof and, through certain bankers and others, of the financial standing and responsibility of the principals; that by reasonable inference from the facts in evidence it knew of the mortgage and the note secured thereby, and of the construction loan agreement; and that the defendant made no inquiries of the plaintiff as to the principals, their resources, and their handling of this particular undertaking. He states that the evidence was conflicting as to whether or not the defendant knew that of the $10,000 advanced by the plaintiff when the bond and supplementary agreement were signed, $6,000 was repaid to the plaintiff to cover overdue interest, and upon this conflicting testimony, he was not satisfied that this fact was known to the defendant at the time of or immediately prior
The trial judge further found that Carl Rudnick knew that the principals had borrowed the money necessary to make the cash payment in the purchase of the property and Benjamin Rudnick knew that their outward appearance of financial responsibility was not due to their own resources; that the building had progressed slowly in the latter part of June and July, 1926, because of lack of funds, and the plaintiff had advanced at the solicitation of the principals $7,000 when but $3,000 was due under the construction loan agreement; that the principals had failed to pay the interest on the mortgage loan promptly when due as provided in the note; and that the building could not be completed by October 1, 1926, the date of the maturity of the mortgage. In this connection the judge states: “I am not satisfied from the evidence, however, that the plaintiff then knew or had reasonable cause to believe that the principals’ financial responsibility rested solely on the backing of Snyder and Druker and that they were then at the end of their resources.” He found and ruled that the execution of the bond by the defendant was not obtained or procured by the fraud and misrepresentations of the plaintiff; that at the time of the execution of the bond the plaintiff did not have knowledge of facts unknown to the defendant and material to the risk to be assumed by it, which in good faith the plaintiff should have communicated to the defendant prior to the execution of the bond but failed to do. Upon the question of liability in the first action the judge states that “Upon all of the evidence, I find and rule that the bond declared on in the first suit was a subsisting obligation binding upon the defendant at the time when said suit was begun, and that there has been a breach of the condition of said bond.”
In the action on the bond the material issues raised at the trial were: (1) Was there such concealment of material facts by the plaintiff in connection with the giving of the
In the consideration of the first question it is necessary to have regard to the facts found by the judge which the defendant contends amounted to a fraudulent concealment and nondisclosure sufficient to discharge the surety from liability on the bond. The facts so found and relied on by the defendant are (a) that the principals Cherney and Carlin borrowed $5,000 which they paid toward the purchase price of the land; (b) that the work on the building progressed slowly in the latter part of June and July because of lack of funds; (c) that the plaintiff had advanced at the solicitation of the principals $7,000 when but $3,000 was due under the contract; (d) that the principals had failed to pay the interest on the mortgage loan promptly when due; (e) that they paid interest due on the mortgage mainly out 'of advances which they received from the plaintiff, and that of the first advance after the giving of the bond and the amendment of the schedule of payments, $6,000 was repaid as interest due the plaintiff. The defendant filed one hundred and eleven requests for rulings, and excepted to eleven rulings made or refusals to rule. Many of the requests for rulings have been waived; others have become immaterial as they <are requests for findings of fact or were in substance given.
It is settled that in certain circumstances a duty rests upon the obligee named in a bond to disclose to the prospective surety information which the former has and of which the latter is ignorant, even in the absence of inquiry by the surety. If material facts exist of a character which the surety may reasonably assume do not exist but are known to the obligee, the latter is required voluntarily to disclose them to the surety, otherwise not. . . where the nature of the contract or transaction is such that, as to certain material facts, one of the parties must necessarily have exclusive knowledge, and such material facts are not amongst those which the other party, having, regard again to the
The judge found that the defendant knew the terms of the mortgage, the note secured thereby, and the construction loan agreement. If it deemed the question material whether the interest on the mortgage note had been paid, or had desired other information respecting the relations between the plaintiff and the principals which was material to the risk, the burden was upon the defendant to make inquiry of the plaintiff. The evidence shows and the judge found that the defendant made no inquiry of the plaintiff as to the principals or their resources and responsibility, but made other investigation which there was evidence to show was its sole inducement to go on the bond. Generally, whether false representations were made and whether they were material are questions of fact for the court or jury. Phinney v. Friedman, 224 Mass. 531, 533. It is not contended by the defendant that the plaintiff made any false representations to the defendant, but that there was a concealment and nondisclosure of facts which constituted fraud. This also was a question of fact for the court. Fottler v. Moseley, 179 Mass. 295, 298. Loomis v. Pease, 234 Mass. 101, 105.
The finding that there was no fraud on the part of the plaintiff was warranted by the evidence. The findings upon which the defendant relies fall far short of requiring the ultimate finding that the plaintiff failed to disclose to the defendant material facts which would release it from liability. The cases cited by the defendant are not pertinent to the facts found. The case at bar is governed by the principles stated in Hudson v. Miles, 185 Mass. 582, 585. In Magee v. Manhattan Life Ins. Co. 92 U. S. 93, 99, 100, it was said: “The mere relation of principal and surety does not require the voluntary disclosure of all the material facts in all cases. The same rule as to disclosures does not apply in cases of principal and surety as in cases of insurance on
It follows that the exceptions based upon the failure of the plaintiff voluntarily to inform the defendant of certain facts hereinbefore referred to must be overruled. The finding that the defendant is liable for a breach of the condition of the bond was well warranted by the evidence and must stand.
The question remains, whether the judge applied the correct rule as to damages. In an action for a breach of a condition of a bond, if it is found that the condition has been broken, judgment is to be entered for the penal sum, and execution should issue “for so much of the penal sum as is then due and payable in equity and good conscience for the breach of the condition.” G. L. c. 235, §§ 9, 10. Respecting the plaintiff’s loss by reason of the breach of
The judge stated in his findings that if there had been “no breach of the condition of the mortgage, the plaintiff would have been limited to his right either to recover from the defendant the damages suffered by reason of the default of the principals, measured by the difference between the value of the land and building as it then was and its value if built as agreed or so much thereof as would have been necessary with the value of the building as it then was to have paid the mortgage debt and the interest then due thereon, or to have taken possession of the premises, completed the building, and charged the defendant the excess cost less the balance of the loan remaining unadvanced when the default occurred. The plaintiff did not elect either of these alternatives, but, there being also a breach of the condition of the mortgage, chose rather to foreclose the same. I rule that thereby the plaintiff is charged with the amount realized at such foreclosure sale
It is a- general rule that the measure of damages in a case of this kind is the difference between the value of the premises at the date of the breach of the bond, and their value if the building had been constructed as agreed, or so much thereof as would have been necessary with the value of the building as it was left to have paid the mortgage debt with interest thereon. It is plain that the judge did not apply this general rule and only found that the value of the building at the date of the foreclosure was the same as the amount of the bid at the foreclosure sale. It is a settled rule that the measure of damages where a contractor has failed to perform a contract for the construction of a building for business uses is the difference between the value of the building as left by the contractor and its value had it been finished according to contract. In other words the question is how much less was the building worth than it would have been worth if the contract had been fully performed. Powell v. Howard, 109 Mass. 192. White v. McLaren, 151 Mass. 553. Norcross Brothers Co. v. Vose, 199 Mass. 81, 95, 96. Pelatowski v. Black, 213 Mass. 428.
Generally the loss of the use of a building by reason of the failure of a contractor to complete it in accordance with the terms of an agreement may be considered as an element of damages, but in the case at bar it does not appear that any loss of rent was incurred as it was found that no tenants were available. The rule as to damages in case of a breach of an agreement to erect a building where
We are of opinion that in the first case the measure of damages adopted by the trial judge was erroneous, and the defendant’s exceptions relating thereto must be sustained.
The exceptions in the second case relate only to the alleged fraud of the obligee in failing to disclose certain facts to the surety. The decision reached in the first case upon that question is conclusive against the right of the surety to recover in the second case. It follows that the defendant’s exceptions in the first case which relate to damages are sustained. All others are overruled. The findings relating to damages in the first case are reversed, and the case is remanded to the Superior Court to determine the damages in accordance with the rule herein stated. The exceptions in the second case are overruled.
So ordered.