Manufacturing Co. v. Bonding and Ins. Co. , 103 S.C. 55 ( 1915 )

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] November 15, 1915. The opinion of the Court was delivered by We repeat here what was said in McLendon v. Columbia,101 S.C. 52, 85 S.E. 234, with reference to the practice of appealing immediately from an order like that in the instant case. It is true, the legality of the practice has been sustained, but the bar ought to promote one trial of a case.

The sole issue made by the appeal is the construction of a paving contract between the city of Greenville and Bowe Page, together with the construction of a bond contract about the same subject between the city of Greenville and the Massachusetts Bonding and Insurance Company.

History: The city of Greenville made a written contract with Bowe Page to pave the city's streets; Bowe Page were to furnish all labor and material thereabout; the city was to pay Bowe Page a specified sum, in monthly installments; the contract provided that Bowe Page should execute a bond for $28,000 "for the faithful performance of the contract;" the bond was made; the plaintiffs sold Bowe Page one and a quarter million of brick used in the paving, worth some $40,000; the plaintiffs have received as payment on the brick $27,000, and are yet due to be paid some $13,000; Bowe Page are due to plaintiffs and other creditors in like plight some $20,000; the work of paving is completed and the city has accounted to Bowe Page and their assigns for all moneys due under the contract; the city has no further interest in the contract, and is only made a party to the action because the bond runs to it; the action is brought for all creditors of Bowe Page, who have suffered like the plaintiffs; the action is in effect on the contract between the city and Bowe Page, and on the bond contract between the city and the Massachusetts Bonding and Insurance Company.

The Massachusetts Bonding and Insurance Company demurred upon the ground the complaint does not state facts to make a cause of action; and it specifies seven reasons why it should be sustained. The Circuit Court, in apro forma order, simply overruled the demurrer and the Massachusetts Bonding and Insurance Company has appealed from the order.

There are seven exceptions, all in the language of the specifications.

The appellant's brief, however, presents but three subjects, and all these need not be discussed, for the first and second postulates are manifestly true.

The three subjects are:

(1) A stranger to a contract between two other persons cannot recover upon it, unless it appears, not only that it confers a benefit upon him, but that it was made for his benefit.

(2) A stranger to a contract between two other persons cannot recover upon it, unless it appears, not only that it was made for his benefit, but also that there was some obligation or duty from the promisees to him, which supplies the consideration of the contract.

(3) The entire transaction shows that the bond was taken for the benefit of the city and not primarily or directly for the benefit of materialmen; that, if any benefit at all thereunder accrued to the plaintiff, it was incidental only. The real and only controversy is about that last stated. So the issue is this: Do the words of the paving contract and the bond contract manifest an intent to protect those parties who sold material to Bowe Page? The affirmative of that issue is on the respondent.

We think the respondent has met the issue, and we are, therefore, of the opinion that the demurrer ought to have been overruled.

The Reporter will include those words of (1) the proposal; (2) of the acceptance or contract; (3) of the specifications, and (4) of the bond, all which appear in the "case."

1. Those are the words which manifest the intent of the parties, and which bind the surety company, if it be bound.

The four papers, the proposal, the acceptance or contract, the specification and the bond are interdependent. The "proposal" makes express reference to the contract and to the bond, and it declares that the form of the bond is attached to the proposal.

The acceptance or contract refers expressly to the bond, and declares that it is attached to the contract; and the contract expressly refers also to the specifications, and to the proposal, both of which it declares are annexed to the contract as a part of it.

The specifications refer expressly to the obligations of the contract, and to a bond to be made for the faithful performance of the contract.

One of the express terms of the contract is, that Bowe Page shall furnish, at their own cost, all the material necessary to do the work. And this carried the implied promise that material shall be paid for by Bowe Page.

The bond refers to the contract, to the proposal and to the specifications, all identified by the signatures of the principals, and all expressly made a part of the bond.

It recites that Bowe Page had assumed certain obligations to the city with respect to the construction of pavements.

One of their express obligations, as before stated, was to furnish, at their own expense, all the material necessary to do the work. And that carried, as before stated, the implied promise by Bowe Page to pay the materialmen.

The effect of such cross-reference by each paper to the others, both expressly and impliedly makes them synchronous and constitutes them one transaction. There is, therefore, no room to conclude that the terms of the bond are broader than the parties intended it to be, or broader than the transaction it was executed to indemnify made it necessary to be.

Indemnity bonds, written for a premium by corporations engaged in that business, are of somewhat modern device. And in the construction of them, not much help may be had from cases of indemnity arising out of transactions of another character.

We shall defer to the last a consideration of the real question in the case, and that is what did the parties intend by the words of the contract, or more exactly, did they have in mind the plaintiff.

There are some minor issues made by the arguments about particular features of the contract, and these we shall first consider.

2. It is argued under the second ground of demurrer, that the sealed contract and the sealed bond are invalid to bind the defendant, because when the city made them it did so as the agent of the plaintiff, if the plaintiff was at all considered, and such agency was not constituted by a sealed instrument.

The second ground of demurrer is hardly suggestive of that issue, but if it is, the argument is not sound.

It is true that "authority to an agent to execute an instrument under seal, in the absence of the principal, must in all instances be itself under seal."

But the relationship of contract which exists betwixt the plaintiff and the bonding company, if any, is not dependent upon whether the city was agent for the plaintiff when the contract was made.

If, however, that be so, yet the seal to the contract and bond, which are in no manner necessary to their validity, may be regarded as surplusage, and the instruments will take effect as simple contracts.

3. In one of the appellant's arguments it is said: "It must be kept in mind that this suit is one in which it is sought to subject the surety to liability, and the general doctrine of suretyship, namely, that a surety liability cannot be extended by implication, must also be kept in mind."

The liability of the bonding company, is not that of a surety, though the bonding company refers to itself as "surety" in the bond. Its contract is to save persons from possible harm in a transaction into which those persons are about to enter. A surety's contract is to pay a person that which a third person is first liable to pay to the second. 22 Cyc. 80.

The issue in the case at bar is what has the bonding company agreed to do; and like any other contract that must be judged of by a fair consideration of the words the parties have used.

4. It was argued at the bar, and in one of the printed briefs, that the amount of the bond as compared with the total cost of the work undertaken, is a circumstance to show the bond had no relevancy to the entire cost of the work.

It is a matter of common knowledge that if a city shall contract with a person to do a piece of work for $80,000, it is not reasonably probable that in the performance of the contract the city will lose all of $80,000. The utmost that could be reasonably apprehended is, that there should be a partial loss; and bonds are made in the light of that experience, and the amount of the bond is fixed with reference to that reasonable outcome. In the case at bar the work was to cost $80,000 and the bond was fixed at $28,000. From that it may not be reasonably concluded that the parties to the contract did not have in mind any possible failure to pay for part of the material to be used in the work.

5. One of the arguments made reference to the case ofBank v. Greenville, 97 S.C. 291, 81 S.E. 634. The suggestion is that the bond in issue was therein construed to be only an undertaking to assure to the city that the pavement would remain in tact for five years after its completion.

The full meaning of the bond was not up for consideration in that case.

It was there only held, that the city might not keep back a part of the price of the work to make good any repair that might be found necessary in five years, because the city had a bond to that end.

6. The real question in the case is that we shall now consider, and that made by the third head discussed by appellant, and before quoted.

It is conceded by appellant that if the bond was taken for the benefit of the plaintiff, not incidentally but really, then the plaintiff has the right to sue and to recover upon it.

That must be judged of by the words of the entire agreement, — proposal, contract, specifications and bond, before adverted to. And as before stated, the proposal and the contract recite that the bond was attached to them when they were signed. It is true the appellant says, "the exact bond attached to the pamphlet was not used." The "case," however, does not show that, but the contrary.

The bond, therefore, is the instrument which must decide the rights and obligations of the parties, for it was written into the proposal and into the contract and they into it.

The bond was the last and completed and inclusive expression of that which the parties intended.

There are three parties to the bond contract, Bowe Page and the bonding company, the promisers, and the city, the promisee, though the city did not sign. Thereby it was in effect stipulated that Bowe Page should "well and truly comply with all the agreements of their contract and proposal."

Referring back to such proposal, Bowe Page therein agreed with the city to furnish all material and equipment * * * necessary for the * * * work;" and by the contract, at their "own cost and expense to do all the work, furnishing all material equipment and labor necessary."

The contractors, Bowe Page, therefore (1) were expressly bound to furnish the material at their own expense; and (2) were impliedly bound to pay to those who supplied them with material the price of it.

The bond recites that if the contractors do that and more, "and shall fully and promptly pay all claims of all persons who furnish material and supplies used in the construction of said works," then the bond should be void, otherwise of full force.

The word "promptly" is significant; it was specified that materialmen should not only be paid, but paid "promptly," that is, as the work progressed from day to day. It was manifestly the primary business of the bond company to see that the pay rolls were met and the materialmen were paid, as the debts for them were contracted, else the public work could not progress. Indeed, the appellant suggests that "there was no occasion, reason or inducement for the city to insist upon a provision for the payment of the claims of materialmen; its contract was with Bowe Page, and it was a matter of legal indifference to the city where, from whom and how Bowe Page secured the material for their work; or whether, having secured it, they paid for it or not; the materialmen could not impose a lien upon the surety of the city."

It cannot be that a municipality about to engage in a great public work, with full knowledge that those who furnished labor and material therefor could not claim a lien for them on the streets, and so solicitous that the work should be faithfully done that a bond was exacted, was "indifferent" as to whether laborers or materialmen were paid.

And if they were indifferent, that state of mind arose only out of satisfaction in contemplation of the fact that they had provided a way of escape for laborers and materialmen, to wit, the bond of an insurance company. But that was not indifference.

Nor is there any force in appellant's suggestion that the entire agreement raised no promise by Bowe Page to pay for labor and material. As before stated, they bound themselves by the contract to supply all labor and material at their own cost; and there followed, of course, the legal obligation to pay for these necessities.

The agreement by the bond company that Bowe Page "shall deliver same to the city of Greenville free from all claims aforesaid" does not at all modify or conflict with the words next before those which bind the insurance company to see that materialmen are promptly paid.

If "same" refers to streets, the quoted words are in harmony with those preceding it; so that if the streets have been delivered to the city with claims (not liens) for unpaid material outstanding, then the bond has been violated. The city was rightly mindful that all such claims should be paid, and it provided by the bond that they should be paid.

Nor can these words of obligation to "pay all claims of all persons who furnish material and supplies used in the construction of said works," be "rejected as inconsistent with the plain and declared intention of the parties."

So much is suggested by the appellant, in view of the gravity to the bond company of the issue which the words make. As well might all the defeasance clause of the bond be rejected after the first clause of it.

There is no warrant for appellant's statement that "the apparent construction of the bond given by all the parties concerned indicate that there was no thought upon the part of any one that the materialmen were directly or even incidentally affected by it."

The four paper writings do not show that, and there is no testimony which shows it; that is the question now at issue, and the quoted argument merely assumes the question.

Finally, the brunt of the demurrer is that the intent of the parties was to save the city harmless. That is part of the truth, but not all. The intent of the parties is inferable from the words they have used, and from them it was to save the city, and to save others as well.

Nowhere has it been expressly written in the agreements that the intent was to save the city.

The bond was agreed to be given (in the proposal) for "the faithful fulfillment of the contract." A faithful fulfillment of the contract required that the contractors, Bowe Page, should furnish at their own expense the material, and by necessary implication, that they should honestly do so by paying for it.

One of the counsel suggests that the parties contemplated that "it is always possible for any person to sue, even though he cannot maintain successfully his suit;" and the inference was drawn that the bond was, therefore, exacted to protect the city in the event materialmen should sue it for goods sold to Bowe Page. We think the bond does not nearly so plainly show that as it shows for the plaintiff's view.

If the plaintiff had sued the city for the price of the brick and recovered, it may be that the bond could have protected the city. But in such a case there could confessedly be no such recovery, and, therefore, no office for the bond.

It is true that had Bowe Page failed, as they did; and had the city been obliged to complete the contract at a price greater than that agreed upon by Bowe Page, as they were not; then the bond would have protected the city.

The words of the agreements, however, do not show that the parties intended that to be the only office of the bond, but more. It cannot be doubted, that if Bowe Page, while the work was in progress, had refused to pay for material, and that fact had been reported to the bond company by the city, that it would have been the duty of the bond company to have intervened.

We think, therefore, that the parties expressly agreed, and intended to agree, and so wrote it: (1) That Bowe Page should furnish and promptly pay for the brick; (2) that the bond company should see to that; (3) that the bond company should also see that the laborers were promptly paid; (4) that the contractors, Bowe Page, should deliver the streets to the city free from any such claims, and (5) and free from claims of other specified sorts.

Mr. Dillon has suggested the reason and practice of this procedure in his great and standard work on Municipal Corporations; and into that we need not go further. Dillon, section 830, et seq. The cases upon the subject are divergent. 6 R.C.L., page 888. It would not be profitable to discuss them.

We are, therefore, of the opinion that the order of the Circuit Court must be affirmed; it is so directed.