83 So. 448 | La. | 1919
Lead Opinion
This is a suit upon a builder’s bond given by one E. R. Darrow, contractor, -in favor of plaintiff for the proper performance of the terms of a contract to erect and remodel certain buildings in the city of Shreveport, La., which contract was re
The defense is that defendant surety was released from its obligation under the bond because of the failure to comply with certain provisions of the contract by which all alterations and changes in the work should be preceded by a written order of the architect specifying the nature and price thereof. In the alternative, defendant pleads the prescription of 90 days, as for a failure to bring the action within that period after the completion of the work.
Prom a judgment in favor of plaintiff for the full amount claimed, defendant prosecutes this appeal. .
The Pacts.
Plaintiff and the contractor entered into a written contract, under the terms of which, for the total price and sum of $23,000, he was to erect a certain two-story apartment house, and to move and remodel a certain dwelling, in the city of Shreveport, all in accordance with plans and specifications furnished by plaintiff’s architect. To insure the performance of this contract, the contractor executed two bonds, with the defendant as surety, each in the sum of $23,000, one in favor of plaintiff for her own benefit, and the other in her favor and for the benefit of laborers and materialmen. The one sued on herein, is that in favor of plaintiff individually. It reads as follows:
“I, E. R. Darrow, builder and contractor, and Fidelity & Deposit Company of Maryland, as surety, are held and firmly bound to Mrs. Kate H. Wells, in-the sum.of twenty-three thousand and ’no/100 dollars,' for the payment of which we hereby bind ourselves firmly and in solido by these presents.
“Dated at Shreveport, La., ■ this 5th day of October, 1911.
“The condition of the above obligation is such that whereas if the said E. R. Darrow, builder and contractor, shall well and truly perform all of the obligations assumed by him in the above contract, then this obligation to be null and void, otherwise to remain in full force and effect.”
The two articles of the contract, which it is claimed were violated, are as follows:
“Art. III. No alterations shall be made in the work except upon written order of the architect the amount to be paid by the owner or allowed by the contractor by virtue of such alterations to be stated in said order. Should the owner and contractor not agree as to amount to bo paid or allowed, the work shall go on under the order required above, and in case of failure to agree, the determination of said amount shall be referred to arbitration as provided for in article XII.”
“Art. XII. In case the owner and contractor fail to agree in relation to matters of payment, allowance or loss referred to in articles III or VIII of this contract, or should either of them dissent from the decision of the architects referred to in article VIII of this contract, which dissent shall have been filed in writing with the architect within ten days of the announcement of such decisions, then such matter shall be referred to a board of arbitration to consist of one person selected by the owner and one person selected by the contractor, these two to select a third. The decision of any two of this board shall be final and binding on both parties hereto; each party hereto shall pay one-half of thé expense of such reference.”
Article VIII, mentioned in the last article quoted above, provides that each shall reimburse the other for loss resulting from delays caused by the other; but, since there is no such claim made in this case, we deem it unnecessary to quote it.
Work commenced shortly after the execution of the bond and contract, but there seems to be nothing in the record to show just when It was completed. Numerous changes and alterations were made, as the work pro-, gressed, but very few of these were preceded.
Opinion.
It is not disputed that the changes were made, that is, the greater part of them, without following the1 method provided in the contract, and the question is as to whether or not this had the effect of releasing the surety. Defendant is a corporation engaged in the execution of such bonds for a compensation, and its liability is to be determined in the light of the nature and purposes for which such bonds are given. Unless there is something in the Louisiana law different to the general law, as fixed by the jurisprudence of the country, defendant’s liability is not to be determined according to the strict rules applicable to an uncompensated surety. The contention is made that the very statute which first empowered surety companies to do business in this state expressly reserves to them all of the rights and obligations of personal sureties. And so it does. Act No. 41 of 1894. But it is rather with the nature of the contract or undertaking that the jurisprudence has dealt, than the mere technical relation of surety. In practically all jurisdictions, as far as we have been able to ascertain, the uncompensated ofi^personal surety is the “favorite of the law,” and his obligations are strictly . construed; while, in cases.where persons or corporations are engaged in the business of professional surety for a profit, in which the very purpose and nature of the contract is to guarantee the performance of work, etc., as stipulated in the case before us, they have been uniformly held as insurers, and their contracts have been construed most strongly against them. Cyc. vol. 32, p. 306; A. & E. Ency. of L. vol. 27, p. 452; Joyce on Insurance, vol. 1, p. 818 et seq., § 339 et seq.; Hormel v. American Bonding Co., 112 Minn. 288, 128 N. W. 12, 33 L. R. A. (N. S.) 513, and extended note; Victoria Lbr. Co. v. Wells et al., 139 La. 500, 71 South. 781, L. R. A. 1916E, 1110, Ann. Cas. 1917E, 1083.
Treating the defendant, therefore, as an insurer (and it should be borne in mind that in so doing we are not making, but merely construing, the contract in the light of the purpose and object for which it was entered into), we must determine whether or not the provisions of the contract which were violated were conditions precedent or warranties as to the surety, or mere promises or representations, or were they stipulations, for the benefit of one or the other parties to the original contract, which might be waived without affecting the liability of the surety. The object of the bond was to guarantee to the owner that the contractor would do the work and furnish the materials mentioned in the contract for a price which, together with his commissions of 5 per cent, should not exceed the sum of $23,000. That it was contemplated by all parties changes and alterations might be made is clearly indicated by the very provisions of articles III, VIII, and XII of the contract. In other words, under these provisions the owner and contractor were at liberty to make changes and alterations such as might double the price or cut it in half, without consulting the surety, but, of course, without' the power to Increase its liability beyond the amount of the bond, $23,-000. The purpose of requiring that a written order should be given- by the architect, in
We conclude, therefore, that the stipulations in question were not for the benefit of the surety, and that the failure to observe them has not prejudiced its rights under the bond.
There seems to be little dispute but that plaintiff has proven her case on the facts; that is, that she was compelled to expend the amount claimed, over and above the contract price for the performance of the work undertaken. We think the record fairly shows this to be true.
Nothing is said in the briefs about the plea of prescription of 90 days, and we are unable to find anything in the record to show when the work was completed. Regardless, therefore, as to whether or not the plea is applicable, there seems to be insufficient evidence to support it.
Eor the reasons assigned, the judgment appealed from.is affirmed, at the cost of appellant.
Rehearing
On Rehearing.
A further consideration of the issues herein presented having led to the adoption of conclusions differing from those heretofore reached, the following reasons are assigned:
Defendant is sued as the surety upon a bond which reads:
“Bond of Performance of Contract.
“I, E. R. Darrow, builder and contractor, and Fidelity & Deposit Co., of Maryland, are held and firmly bound to Mrs. líate H. Wells in the sum of $23,000.00, for the payment of which we hereby bind ourselves firmly and in solido by this presents.
“Dated at Shreveport, La., this 5th day of October, 1911.
“The condition of the above obligation is such that, whereas, if the said E. R. Darrow, builder and contractor, shall well and truly per*177 form all the obligations assumed by him in the above contract, then, this obligation to be null and void; otherwise to remain in full force and effect. [Signed] * * *
“Attest: * * *”
It is undisputed that the contract referred to is one bearing date September 30, 1911, whereby Darrow obligated himself to plaintiff to furnish the material and labor for the erection of an apartment house, and to change the position of a certain residence, all for the sum of $23,000, and all in-accordance with drawings and specifications identified with the contract. No one denies that it was competent for plaintiff and Darrow to add to, or subtract from, the obligations of the contract thus entered into, or utterly to abandon it, as they thought proper, but no one can reasonably deny that the particular contract referred to in the bond was the contract, and the only contract, for the performance of the obligations of which defendant became the surety, and it would seem inevitably to follow that, if by agreement between plaintiff and Darrow, and without the consent of defendant, the obligations of that contract, as thereafter executed, were changed or the contract abandoned, and another substituted in its stead, the matter became one to which the obligation of the bond was inapplicable, and defendant was discharged. It is said that the contract itself contemplates and provides for departures therefrom in the execution of the wort, and hence that such departures being within the conditions and obligations of the contract, were within the obligation of the bond; and it is, no doubt, true that departures contemplated and made in the manner authorized by the contract would be within that obligation. But, in that respect, the contract reads:
“Art. III. No alterations shall be made in the work except upon written order of the architect, the amount to be paid by the owner or allowed by the contractor, by virtue of such alterations, to be stated in said order. Should the owner and contractor not agree as to amount to be paid or allowed, the work shall go on, under the order required above, and, in case of failure to agree, the determination of said amount shall be referred to arbitration as provided for in article XII of this contract.”
Article XII provides for a board of arbitration ; and paragraph (f) of the subdivision of the specifications, entitled Preliminary, reads:
“(f) At any time during the progress of the work the architect may require any alteration, addition to, or omission from, the work stipulated by the contract, and the same shall be acceded to by the contractor, without in any manner affecting the validity of the contract, or of the bond executed for the due performaneo of the said contract, and the cost of such changes, either addition to or omission from, shall be added to, or deducted from, the contract price, after being computed by the architect; Ms order, given therefor, previous to the performance of the work, must he produced as final settlement.”, (Our italics.)
Called as a witness for plaintiff, the architect was asked (on cross-examination):
“Q. Mr. Nield, * * * I will ask you now whether the changes in the plans and specifications during the construction of the building were made as provided in the contract which is on record?”
—to which after some objections and rulings thereon, the witness answered:
“A. No written orders were given for the extra work.”
He further testified as follows:
“Total extras were $7,393.00. * * * Q. Now, I will ask you to state if there were not a great many changes made in that building. A. Yes, sir. Q. Made with your consent? A. Not all of them. Q. Now, I will ask you if it is not a fact that there were so many changes made by Mrs. Wells, on the specifications, that you resigned from the job. A. Well, I lost my head one day and made some statement of that sort, and then apologized to Mrs. Wells. My resignation only lasted for several minutes. * * * Q. Now who exercised the most supervision over the building, you or Mrs. Wells? A. Well, that is pretty hard to say. Of course, I was there every day, but Mrs. Wells lived on*179 the premises, and, of course, she could see more of it than I could. Q. Did she ever overrule any of your work — your supervision of the work there? A. Well, a number of minor changes that did not amount to anything at all.”
By supplemental petition, plaintiff states the building account as follows:
Total amount expended by lier... $34,420 87
Amount called for by contract....$23,000 00
Expended for extras. 7,418 72 30,418 72
Balance here claimed.$4,002 15
“That she has not in her possession the accounts made by Darrow for material and labor used by him in the execution of his contract with her, and has been unable to find or obtain same after exercising due diligence.”
And the rule taken by defendant was thereupon discharged, and defendant was compelled, on January 15, 1915, to make answer to a demand for $4,002.02, as representing the difference between an alleged actual expenditure of $34,420.87, less $7,418.72 (admitted to have been the cost of changes and extras) and the price ($23,000) as fixed by the contract, although plaintiff herself, after a delay of a year and the several attempts mentioned, had been unable to distinguish between the items composing the aggregate for which she admitted liability and those for which as included within the call of the contract, but not within the price, she denied liability. The trial judge, referring in his carefully considered opinion to that feature of the case as it appeared to him, even after the trial, says:
“It is apparent that it is an impossibility to ascertain whether the loss [meaning the amount which plaintiff here seeks to recover] was sustained in doing that portion of the work included in the plans and specifications. No separate account appears to have been kept, or pretended to have been kept, by means of which any distinction could be made between the cost of the work, as between the extras and the specifications. It being an impossibility to apportion the loss to any specific portion of the work, it must be that the surety was obligated, under its contract, for all, or that, by reason of such changes, it was released.”
Our learned brother, however, goes on to say:
“The stipulation [referring to the stipulation concerning “alterations” contained in article III of the contract], indicating that the parties contemplated material changes would be made, but not limiting the extent of the changes, it is reasonable to consider that they did not contemplate such changes as would affect a novation of the contract, or the substitution of an entirely different object, but that, within such limit, any change could be made. We have found that the changes made did not effect a novation of the contract, as between the owner and the contractor, and their interpreta*181 tion of the extent of the changes which could he made, within such limit, is the best interpretation of their intent.”
“It appearing that this stipulation was valid, as between the contractor and the owner, and that the changes did not go beyond those contemplated by the parties, the surety was not released.”
We are unable to concur in that view. As we see the case, it is undisputed, that, by agreement between plaintiff and the contractor, the contract, as originally drawn, was not executed; and, though it was part of the contract that in its execution there might be departures from the specifications, and though any such agreement would be valid as between those parties, we do not think that, as between them and the surety on the bond, departures involving an admitted increase of, say $14,000 of expenditure in a contract calling for $23,000, can reasonably be held to have been within the contemplation of the surety. But conceding (merely for the purposes of the argument) that, by virtue of a negative pregnant, stipulations authorizing alterations in the work, under a contract calling for the erection of a 4-story office building at a cost of $20,-000, a 20-story building may be erected at a cost of $100,000, and the surety still be bound as though that were the contract for which he bound himself, it appears to us that in reaching that conclusion it would be necessary to inquire whether the stipulation had been complied with; that is to say, where, as in this instance, a building contract contains the stipulations that “no alterations shall be made in the work except upon written order of the architect, the amount to be paid by the owner or allowed by the contractor by virtue of such alterations to be stated in said order”; and where, as in this instance, that • condition is affirmed in the .specifications by a provision to the effect that “the cost of such changes . * * * shall be added to, or deducted from, ..the contract price after being computed by the architect, his orders given therefor previous to the performance of the work must be produced as final settlement,” and it is admitted that no such written orders (or but few as compared with the many alterations) were given; that in no instance was the amount to be paid on account of an alteration stated, or agreed on, or disagreed about, or referred to arbitration, or “produced as final settlement” — we are “unable to see how the stipulation can" be given effect against the surety. It is said that it was not put into the contract for the benefit of the surety and the same would be true of all the other stipulations, for no one pretends that the contract was made for the benefit of the surety. But the surety took cognizance of the contract as written, and guaranteed the plaintiff that the contractor would execute it as written, and not in some other way thereafter directed or agreed on by plaintiff and involving heavier responsibility and a greater expenditure.
As has been said by the Supreme Court of the United States:
“In an ordinary guaranty the guarantor understands perfectly the nature and extent of his obligation. If be becomes surety for the performance of a building contract, he is presumed to know the parties, the terms of their undertaking, the extent and feasibility of the work to be done, the character and responsibility of the principal obligor, and his ability to carry out the contract.” United F. & D. Co. v. United States, 191 U. S. 424, 24 Sup. Ct. 144, 48 L. Ed. 246.
And so the defendant here may be presumed to have understood the nature and extent of its obligations, and in becoming surety for the execution of the contract between plaintiff and Darrow to have acted upon its knowledge of the parties, of the terms of their contract, of the extent and feasibility of the work to be done, and of the ability of Darrow to do the work within the limits of the price agreed on; and no one has the right to assume that, because it was willing to guarantee the. execution. by. Darrow
“The rigid rule of strictissimi juris does not apply to compensated sureties, organized for the sole business of signing bonds, but such bonds, being in the nature of insurance contracts, will be construed liberally in favor of the insured, and so as to give protection to the insured.”
And inasmuch as the learned counsel have throughout argued in support of the theory thus propounded and of its controlling influence in the matter here presented, we have given it our earnest consideration, with the following result, to wit:
Our Civil Code contains the title 16 “Of Suretyship,” under which there are 36 articles upon the subject mentioned in the title, one of which reads:
“Art. 3039. * * * Suretyship cannot be presumed; it ought to be expressed, and is to be restrained within the limits intended by the’ contract.”
The article is significant, because exceptional, since the obligations of all contracts are presumably restrained within the limits thus mentioned. None of the articles distinguish between compensated and uncompensated sureties, and we find no authority vested in the courts for making such distinction. Moreover, during the 75 years which have elapsed since the original adoption of the present Code, i a jurisprudence, interpretative of the articles mentioned, has been established by this court, and up to a very recent period there is not the slightest recognition of any such distinction. As far back as 1834 (and probably farther) it was said by this court:
*185 “It is a settled rule that guaranties are to be construed strictly.” Bell v. Norwood, 7 La. 103.
And that doctrine has since been affirmed as follows (no effort being made to cite all of the cases) to wit:
“ * * * For it is a well-settled rule that the surety has a right to stand upon the very terms of his contract, even if he should be benefited by the change, and the creditor has no right to make any such change.” McGuire v. Wooldridge, 6 Rob. 50. “Suretyship is construed strictly. The law favors the surety”— quoting C. C. 3008, now 3039. Bank v. Hagan, 1 La. Ann. 66. “There are no presumptions against sureties. They can only be held to the contract as made — to the precise terms of their obligations.” Grieff v. Kirk, 17 La. Ann. 26. “It must be borne in mind, too, that the surety is entitled to a strict construction of his contract. He is protected from any interpretation of his contract not resting on clear expression or plain implication. The Code declares (quoting article 3039) etc. Lachman & Jacobi v. Block & Bro., 47 A. 508 117 South. 153, 28 L. R. A. 255]. “It is common learning that the contract cannot be changed without the consent of the surety.” Orleans, etc., Co. v. International & Co., 113 La. 413, 37 South. 11.
“Section 1. * * * That hereafter any corporation duly incorporated under the laws of this or any other state of the United States for the purpose of transacting the business of * * * guaranteeing the performance of contracts other than insurance policies, * * * and having a paid-up cash capital of not less than $250,000 and, which has complied with and is qualified under the provisions of this act, * * * may be accepted as sole and sufficient surety upon any bond * * * required, or permitted to be made, * * * with surety or sureties, by any law of this state, * * * in lieu of any surety or sureties now required by law; and such execution by such company of such bond * * * shall in all respects be a full and complete compliance with all the requirements of such laws, * * * that such bond * * * shall be executed by one or more sureties, or that such sureties shall be residents, * * * or possess any other qualifications. And such company shall be subject to all the liabilities and have all the rights of sureties under the provisions of law relating thereto, it being the true intent and meaning of this act to enable corporations created for the above purposes to become and be accepted as sole surety on all bonds, undertakings or obligations required or permitted by law or the rules, ordinances or regulations of any municipality, board, body, organization or public officer.”
Counsel for plaintiff say that the provision above quoted, to the effect that surety companies are entitled to all the “rights of sureties,” under the provisions of law, “is too vague to convey any meaning, hut, if it means anything, it means the provisions of the law of this state.” We fail to see in what the vagueness consists, but concede that the reference is to the law of this state. We are, however, of opinion that it means the law of this state, as interpreted by the court of last resort, established for that purpose. The learned counsel also call attention to the fact that, by acts 167 of 1912 and 221 of 1914, the General Assembly has declared “that the surety shall have no defense that the principal could not make”; but, without pausing to consider the application to and effect of, that legislation upon contracts entered into since its enactment, it is enough for the present to say that the contract here in question was entered into in 1911, and that its obligations cannot be thereby affected. And in that connection it may be remarked that the same provision is to be found in Act 134 of 1906, which relates to building contracts in cities of over 50,000 inhabitants, and that it does not appear that the then population of Shreveport had attained those dimensions. Again it is alleged in the petition that the said Darrow executed a bond with defendant “as surety,” in accordance with Act 180 of 1894, guaranteeing
In California, where there appears to have been no such express provision, a case was presented to the Supreme Court involving the liability of the surety on a building contract, in the performance of which there was a departure from its terms, the cost of the extra work, agreed upon in advance by the owner and the contractor, having been $580, and it was contended, as here, that the surety should be held to the liability of an insurer, but the court declined to sustain that contention, saying:
“It is to be noted, then, that neither our statute law nor our decisions under it have ever recognized that there is any distinction between a compensated and uncompensated surety or guarantor, * * * nor between a corporation or an individual engaging in the business of suretyship * * * for compensation and a corporation or individual who enters into a like contract without compensation. To impose such distinctions, while sections 2819 and 2840, Civil Code, read as they now read, * * * would not be to interpret and enforce the written law, but to make new law in hostility to it. It is for the Legislature, and not the courts, to modify our statute law, if the lawmaking body shall believe that its former declarations touching the rights and liabilities of sureties and guarantors should be modified in respect to those sureties and guarantors who become such for compensation.” Congregational Church v. Lowry (1917) 176 Cal. 124, 165 Pac. 440.
In Oklahoma it appears that the Legislature has taken action upon the question thus referred to by incorporating in the law of that state the following provision:
“The rule of the common law requiring a strict construction of the obligations of a surety shall have no application to the obligations of a surety or guarantor or indemnitor for hire, but all such obligations shall be liberally construed in accordance with the rules of the general law applicable to policies of insurance.” Comp. Laws 1909, § 1569.
Referring to which the Supreme Court of that state has said:
“Many of the courts, in dealing with the obligation of a surety for hire, have, in the absence of a statute requiring it, adopted the rule of liberal construction. The statute under consideration prescribed a new rule of construction to guide the courts of this state in construing contracts of suretyship, but does not affect the rights of a surety, where there is no ambiguity in the contract.” Columbia Bank & T. Co. v. United States Fidelity & G. Co., 33 Okl. 535, 126 Pac. 556.
Neither the suit now being decided, nor the defense thereto, is predicated upon any ambiguity in the contract sued on. The bond, upon which defendant appears as surety, guaranteed plaintiff that the building contract would be executed by the contractor according to its terms. Plaintiff defeated such execution by a plain disregard and violation of those terms with respect to matters of substance, and highly material, and she would have no standing for the purposes of the claim here asserted, even though the liability of the defendant were held to be that of an insurer. But in signing the bond in question defendant ha-d the right to rely upon it that the obligation thus assumed would be most strictly construed, since that was the law applicable to sureties as recognized by the established jurisprudence of this court. Beyond which the act of 1894 had
“If this were a suit by the owner of the building against the surety of the contractor, a different question would he submitted for solution.”
It is evident, therefore, that the judgment, as therein rendered, cannot be regarded as an authority in this case.
For the reasons thus assigned:
It is ordered and decreed that the judgment heretofore handed down be set aside, and that there now be judgment in favor of defendant, reversing and annulling the judgment appealed from, rejecting plaintiff’s demand, and dismissing this suit at her cost in both courts.
