261 F. 929 | 6th Cir. | 1920
The surety company became surety upon the construction company’s bond given to the town of Greene-ville under a contract for certain public work. The construction company’s application to the surety company to sign- the bond contained an assignment of certain personal property as, security. The surety company contended that this security was intended to protect it from liability, not only on account of the bond given under this application, but on account of other bonds which it had given to other municipalities for the construction company’s benefit, under at least one of which the surety company seems to have incurred liability through
The construction company’s application to the surety company for bond to secure the Greeneville contract contained 11 covenants. By the second covenant the construction company agreed to indemnify the surety company against, and to save it harmless from, liability and loss of every nature which the surety company might at any “time sustain or incur,”- not only by virtue of the bond then and there applied for, but by reason of tire surety company’s execution for the construction company “of any and all other bonds” executed for the construction company at its “instance and request.” By the fourth covenant the surety company (in case of the construction company’s failure to comply with or perform “any covenant hereof, or of the contract which the [surety] company is hereby requested to guarantee”) was authorized to take such steps as it might “deem necessary or proper to obtain due performance” of the contract referred to, “or its release from all liability under any and every such bond and contract, and to secure and further indemnify itself against loss.” Then follows what is here called the second bracket or paragraph of this fourth covenant, by which the construction company in terms assigned, transferred, and conveyed to the surety company for its “better protection” all the -former’s interest in “all the tools, plant equipment, and materials of every nature and description that we may now or hereafter have upon said work, or in, on or about the site thereof, including as well materials purchased for or chargeable to said contract, which may be in process of construction, in storage elsewhere, or in transportation to said site,” as well as “all payments, funds, moneys, or property due or to become due to the undersigned, as provided in said contract,” together with all the construction company’s rights in all subcontracts incident thereto and “all materials embraced therein,” with authority in the surety company, in case the construction company should fail to complete “said work in accordance with the terms of the contract covered by such bond, or in event of any default on the part of [the construction company] under the said contract” to take possession of “said tools, plant equipment, materials, and subcontracts, and enforce, use, and employ such possession.” The concluding sentence of this fourth covenant reads thus: “In the event the [surety] company be released from liability on account of said bond and suffer no loss thereunder, then this assignment
“Seventh. That these covenants and also all collateral security, if any, at any time deposited with the company concerning the said bond, or any other former or subsequent bonds executed for us or at our instance, shall, at the option of the company, be available in its behalf and for its benefit as well concerning the bond or undertaking hereby applied for, as also concerning all other former or subsequent bonds and undertakings executed for us or for others at our request”
If the seventh covenant controls, the surety company was entitled to the $5,500 in question, and the decree must be reversed. If, however, the concluding sentence of the second paragraph or bracket of the fourth covenant dominates, the decree is right, and must be affirmed. The two provisions a.re plainly inconsistent.
It will be seen that the second covenant, while containing an agreement of indemnity cove' ‘ng, not only the bond then being applied for, but others as well, contains no provision for security by way of pledge or mortgage; also that the first paragraph of the fourth covenant, while authorizing the surety company (on the construction company’s failure to perform “any covenant hereof” or of the construction contract) to “secure and further indemnify itself against loss,” likewise omits any mention of property pledged or mortgaged. And the second paragraph of the fourth covenant, which contains the assignment of the “tools, plant equipment, and materials” relating to the Greeneville contract, and of the proceeds derivable therefrom, nowhere suggests that the security thereby created shall extend to any other obligation; while, on the contrary, as already shown, its concluding paragraph expressly makes the assignment void if the surety company shall sustain no loss on the specific bond then being applied for, viz. that relating to the Greeneville contract.
The District Judge based his construction of the meaning of the contract upon this reasoning:
“However, the assignment clause, commencing with the words ‘and for the better protection' and ending with the words ‘null and void’ although inserted as a separate paragraph between the fourth and fifth covenants in the application, is not, in itself, in any sense a covenant, but purports to be a present assignment taking effect, as specified, without more, and not containing the word ‘covenant’ or any equivalent thereof. The application contains various specific covenants, which are in the form of future agreements preceded by the word ‘that.’ The language of the seventh covenant making all covenants of the stipulation available at the option of the surety company in case of the asphalt company’s default tinder other bonds, is fully satisfied by this rendering applicable, according to its own terminology, the several specific covenants contained in the application, without more. To construe the seventh covenant, as also rendering available to the surety company not merely the covenants contained in the application, but also the assignment clause contained in a separate paragraph, not in any way referred to or constituting a covenant would not only be to go beyond the letter of the seventh covenant, but would also be in direct conflict with the concluding clause of the assignment clause itself, reading: ‘In the event the [surety] company be released from liability on account of said bond and suffer no loss thereunder, then, this assignment shall become at once null and void.’
*932 “Ás the construction of the seventh covenant for which the surety company contends, would [not (?)] only be direct conflict with this provision in the assignment clause and render the same nugatory, but as the application is executed on- a printed blank of the surety company itself, and must hence, tinder well-settled rules, be construed in case , of doubt' most strongly against it, I hence conclude that it did not operate to render available to the surety company the assignment of the payments under the Greeneville contract for the purpose of securing any liability to it from the asphalt company by reason of the execution of bonds in reference to contracts at other places.”
We find nothing in the action of the town, following the service upon it by the surety .company of the notice of assignment, which could give the surety company a prior lien for its protection from losses under other bonds.
The decree of the District Court is affirmed.
All italics in this opinion are ours.