J.F. Tolton Inv. Co. v. Maryland Casualty Co. , 77 Utah 226 ( 1930 )

These actions are to recover upon certain accounts incurred by the subcontractor during the course of certain highway construction work which it failed to pay and for which the plaintiffs seek to charge the surety upon the subcontractor's bond. Below the plaintiffs had judgment, from which the surety has appealed. There are two actions tried together in this court by stipulation of the parties.

Farr, Lashus Farr subcontracted with the general contractor for the construction of about eight miles of public highway in Beaver and Millard counties for $26,620.50. To secure the performance of the contract, etc., the appellant Maryland Casualty Company, as surety, for compensation, executed a bond conditioned that the subcontractor "shall well and truly pay all and every person furnishing material or performing labor in and about the construction of said roadway all and every sum or sums of money due him, them or any of them for all such labor and materials for which the subcontractor is liable."

The appeals present the questions whether certain disputed items for which plaintiffs had judgment against the surety are within the obligation of the surety's undertaking. These disputed items are grouped as follows: (1) Food and supplies furnished and used in a boarding house conducted by the subcontractor for the benefit of laborers on the work; (2) money and merchandise paid and delivered to workmen in payment of their wages on the order of the subcontractor; (3) labor and repairs and sundry small parts and accessories for autos and trucks used in the work; bolts, nuts, belt, wire rope, steel bars, etc., used in the work; (4) gasoline, oil, and grease used on the subcontractor's machinery; (5) hauling coal from railroad to construction camp, and drayage on oil and grease; (6) rental for engine use on job.

The extent of the surety's liability in cases of this kind has been before the American courts in many cases. The decisions are conflicting and are too numerous to be reviewed here. A recent case in the Supreme Court of Wyoming contains an able and exhaustive review of the cases on the subject with conclusions that meet with our approval. Franzen v. Southern Surety Co.,35 Wyo. 15, 246 P. 30, 46 A.L.R. 496. It may be added that the conflict of opinion in a great measure is due to the different standards of interpretation applied to the contract of the surety. Some courts have construed the contract strictly in favor of the surety, others have applied the rule appropriate to mechanic's lien statutes, while a greater number, especially in later cases, have adopted the rule that such contracts should be liberally construed in favor of the persons for whose benefit the bond was given. United States, for Use of Hill, v. AmericanSurety Co., 200 U.S. 197, 26 S. Ct. 168, 50 L. Ed. 437; Brogan v. National Surety Co., 246 U.S. 257, 38 S. Ct. 250,62 L. Ed. 703, L.R.A. 1918D, 776; Illinois Surety Co. v. John DavisCo., 244 U.S. 376, 37 S. Ct. 614, 61 L. Ed. 1206; United StatesF. G. Co. v. California-Arizona Const. Co., 21 Ariz. 172,186 P. 502; Wiseman v. Lacy, 193 N.C. 751, 138 S.E. 121;United States F. G. Co. v. Henderson County (Tex.Com.App.) 276 S.W. 203; Franzen v. Southern Surety Co., supra;Clatsop County v. Fidelity Deposit Co., 96 Or. 2,189 P. 207.

Our own court is committed to the rule that the contract of a surety, for hire, is to be strictly construed against the surety.Walker Realty Co. v. American Surety Co., 60 Utah 435,211 P. 998; Murray City v. Banks, 62 Utah 296, 219 P. 246.

The obligation of the bond in question is that the subcontractor "shall well and truly pay * * * every person furnishing material or performing labor in and about the construction of said roadway * * * for which the subcontractor is liable." The questions to be decided 1 are whether persons furnishing particular articles in connection with the construction of the roadway are within the obligation of the bond. The language of the bond clearly imports more than payment for the materials and labor which go directly into the completed work. Its essential representation is that all persons furnishing labor or materials to the subcontractor in connection with the performance of its contract shall be paid. And this contemplates a performance of the contract according to customary practices. Modern construction work is accomplished largely by the use of machinery and mechanical power. In the larger undertakings elaborate organization is required involving much preliminary preparation and expenditure. It is often necessary to construct lines of communication and travel and to establish camps. The assembling of equipment and its maintenance is a common necessity. When engines and motors are employed, fuel and lubrication are indispensable. These and other incidentals go but indirectly into the finished job, but they are all necessary, and are commonly understood to be involved in the usual method of doing such work. And, when men contract concerning the labor and materials furnished "in and about" the construction of particular work, it is vain to say that they did not mean to include all of the preliminary and incidental work necessary to the finished job.

What we think is the correct rule, supported by the great weight of authority, is that such contracts are to be construed with great liberality in favor of the persons dealing with contractors, and that sureties should be held for labor and materials furnished the contractor which proximately relate to the performance of the contract and contribute to, and are reasonably appropriate or necessary to, its completion, even though such labor or materials are not applied directly to the finished job. This does not include liability for money loaned the contractor, nor materials furnished which from their nature and use will not be consumed in the work. But it does include a wide range of incidentals which form no component part of the finished structure, but are commonly understood to be appropriate and necessary when such construction work is carried on according to customary and approved practices.

The first class of items in dispute is groceries and supplies furnished for a boarding house conducted by the subcontractor for which judgment was rendered against the surety. It was stipulated that the construction work referred to in the bond was conducted at a point twenty-two miles distant from any 2 boarding house accommodations and that the subcontractor established and conducted at its camp a boarding house for the use and benefit of the men employed by it on the work; that the groceries and supplies in question were delivered to the subcontractor at the boarding house, where the same were prepared and served to the laborers employed on the work.

There is some conflict in the cases, but the great weight of authority is that such claims are chargeable against the surety.Brogan v. National Surety Co., 246 U.S. 257, 38 S. Ct. 250,62 L. Ed. 703, L.R.A. 1918D, 776; Overman Co. v. MarylandCasualty Co., 193 N.C. 86, 136 S.E. 250; National Surety Co. v. Arizona Grocery Co., 32 Ariz. 399, 259 P. 404; Fidelity Deposit Co. v. Bailey-Pleasants Co., 145 Va. 126,133 S.E. 797; Clatsop County v. Fidelity Deposit Co., 96 Or. 2,189 P. 207; Southern Surety Co. v. Guaranty State Bank (Tex.Civ.App.) 275 S.W. 436; McPhee v. United States, 64 Colo. 421,174 P. 808; Bricker v. Rollins Jarecki, 178 Cal. 347, 173 P. 592; Franzen v.Southern Surety Co., 35 Wyo. 15, 246 P. 30, 46 A.L.R. 496;Union Indemnity Co. v. State (Fla.) 127 So. 307.

In most of the cases cited it appeared that it was necessary for the contractor to maintain a boarding house for his workmen, and that the cost of their board was deducted from their wages. It is contended by the surety here that, admitting the liberal rule of construction of its liability in favor of the plaintiffs and the validity of the authorities cited, the claim in question for groceries and supplies was not sufficiently proved to establish the liability of the surety. Attention is called to a statement of the court in Brogan v. National Surety Co., supra, to the effect that groceries and supplies furnished to a contractor who operates a commissary or boarding house as an independent enterprise for separate and additional profit would be a matter independent of the contract, and not covered by the bond. And Watkins v. United States F. G. Co., 138 Miss. 388,103 So. 224, to the same effect is cited. We agree that a charge for supplies so furnished could not be sustained against the surety. But that is not the case here. The facts stipulated concerning the matter are that there were no boarding house accommodations within less than twenty-two miles from the work, that the subcontractor established and conducted boarding house and other accommodations for the use and benefit of its workmen, and that the supplies furnished were actually consumed by the workmen employed. In one of several references to the boarding house the stipulation describes it as "their boarding house necessarily conducted by them in connection with and as a part of the construction work carried on by them."

We think the stipulation negatives the conducting of a boarding house as an independent enterprise for profit. Whether the subcontractor made a specified charge against its workmen for board which was deducted from their wages, or whether it employed them upon the basis of wages with board furnished, does not appear, and in our opinion is immaterial. We think from the facts stipulated it is a reasonable inference that one or the other was done. At any rate, the stipulated facts were sufficient to prima facie establish the fact that the maintenance of the boarding house, under the circumstances, was reasonably appropriate and necessary to the prosecution of the work, and that groceries and supplies furnished for and used therein were materials furnished "in and about the construction of said roadway," and therefore within the obligation of the bond.

The next item of dispute is a claim for money and merchandise advanced to workmen for which the surety was held liable. It was stipulated that the subcontractor agreed with one of the plaintiffs that the latter should advance to the workmen employed in the job money and merchandise from 3, 4 time to time to apply on their wages, which was to be charged by the plaintiff against the subcontractor, and by the latter deducted from the amount due such workmen for their wages for the current month; that pursuant to the agreement the plaintiff did make advances to workmen between April 1, 1925, and October 17, 1925, the amounts of which were by the subcontractor deducted from the wages due the respective workmen for the monthly periods during which the advances were made; that all of the advances so made by the plaintiff up to September 1, 1925, were repaid by the subcontractor, but that the sum of $907.11 so advanced between September 1 and October 17, 1925, had not been paid.

The advances in question were not made to the subcontractors, but to its workmen. If the claim is to be sustained, it must be on the theory of an assignment of the laborers' claims to the plaintiff. It is well-settled law that one who lends money to a contractor for the purpose of buying material or paying for labor employed in the performance of his contract, stands only in the position of a general creditor, and is not secured by the contractor's bond. It is contended by the surety here that the transaction between the plaintiff and the subcontractor amounted to no more than a loan of the money and merchandise advanced to the workmen by the plaintiff, and that the claim is not within the obligation of the bond. But we think there is a material difference between a case of lending money to a contractor to carry on his work and the arrangement of the parties as stipulated in this case. In the case of merely lending money, the materialmen or laborers are not parties to the transaction, and ordinarily have no knowledge of it. But the arrangement in the case at bar was such that the laborers knew of it and were participants in it. There is therefore a basis for the conclusion that the transaction results in an equitable assignment of the claims of the laborers to the plaintiff. This view is supported by numerous cases.

A claim based on facts similar to those of the present case was sustained against the surety in United States F. G. Co. v. United States, 231 U.S. 237, 34 S. Ct. 88, 58 L. Ed. 200. There the claimant, under arrangement with the contractor, maintained a commissary at the place of work from which the laborers were supplied with provisions and merchandise. An account of the articles furnished, approved by the workmen, was furnished the contractor who deducted the amount from the wages of the workmen with their consent and credited the claimant therewith. This was held to constitute an assignment of the laborers claims to the claimant, and the surety on the contractor's bond was held liable for the advances.

In Hansen v. Remer, 160 Minn. 453, 200 N.W. 839, where the contractors became indebted to their workmen and delivered to each of them a statement of the amount due in the form of a labor order which was deducted from his wages, and the orders were indorsed and transferred to certain merchants in exchange for goods pursuant to previous arrangements with the contractors, the court, held that the transaction operated as an assignment of the amount of the labor claims represented by the orders, and the holders of the orders were subrogated to the right of the laborers to recourse on the bond to secure the payment of their wages.

In Hess Skinner Eng. Co. v. Turney (Tex.Civ.App.)207 S.W. 171, the facts were that during the progress of the work certain local merchants, the contractors, and the laborers entered into an agreement whereby the merchants were to furnish the laborers goods, the contractors were to pay for the same out of wages due and to become due such laborers, and deduct the amount of such payments from the wages of the respective laborers. A judgment in favor of a merchant for goods so furnished was held valid upon the ground that the transaction amounted to an equitable assignment to the merchant of the claims of the laborers. In the same case a claim for money loaned by a bank to the contractors for the purpose of, and which was used for, paying wages due laborers, was denied upon the ground that the laborers were not parties to the transaction.

A contrary result was reached upon a similar state of facts inCarter County v. Oliver-Hill Const. Co., 143 Tenn. 649,228 S.W. 720.

For the reasons given, we conclude that there was no error in holding the surety liable for the claim mentioned.

The next group of items disputed by the appellant includes labor and repairs and sundry small parts and accessories for autos and trucks used in the work, also bolts, nuts, belt, wire rope, steel bars, etc., used in the work. One particular item included was a charge of $36 for labor in putting tires on trucks, and another was for bolts and nuts used on or about the contractor's machinery on said project, amounting to $34.25. Claims for tires furnished for a scraper, a wall tent, a coffee urn, and a bicycle were denied. The other items now questioned were stipulated to be various articles of hardware, machinery, machinery parts, accessories, and equipment such as iron bars, steel bars, belt lacing, water hose, check valves, injectors, drills, bolts, nuts, packing, rivets, tools, steel tape, blocks, feed glasses, gaskets, wire rope, belts, bushings, and iron single trees, amounting to $221.01, and that all were purchased by the subcontractor in connection with its work, and were actually used by it in its work under its subcontract.

The principal argument advanced against holding the surety for this class of items is that machinery, tools, and equipment furnished the contractor, unless consumed on the job, are not within the terms of the surety's undertaking. In other words, the obligation of the surety does not extend to liability for permanent equipment furnished the contractor which outlasts the job and is available for future use. And it is contended that the burden of proving that the materials furnished were consumed on the job in connection with which the bond was given is upon the claimant, which, in the present case, was not sustained.

As a general proposition, bonds of this kind do not secure payment for permanent equipment furnished the contractor. But there is a class of labor and material in connection with the maintenance and repair of equipment which is within the bond. The purpose and intent of the bond is to secure 5-7 payment for those things which go into the work or contribute to its completion. Hence it is held that minor and inexpensive repairs which do not in any true sense add to the value of the equipment, but which are incidental to the use of machinery, are within the obligation of such bonds. MarylandCasualty Co. v. Ohio River Gravel Co. (C.C.A.) 20 F.2d 514;Miller v. Bonner, 163 La. 332, 111 So. 776; Columbia County v. Con. Contract Co., 83 Or. 251, 163 P. 438; Stryker v.Tolliver K.M. Co., 77 Colo. 347, 236 P. 993; WesternMaterial Co. v. Enke (S.D.) 228 N.W. 385.

We think the items in dispute were correctly held by the trial court to be within the rule laid down in the cases cited. That the articles were consumed in the work was sufficiently proved by the general description and value of them and the stipulation that they were all purchased by the subcontractor in connection with its work, and were actually used by it under its subcontract. It is ordinarily enough for the plaintiff to prove in such a case that he furnished material reasonably fit and ordinarily required for the performance of the contract without further showing that it was actually used and consumed. Standard Sand Gravel Co. v.McClay, 191 N.C. 313, 131 S.E. 754.

Next to be considered are the items for gasoline, lubricating oil, and grease furnished the subcontractor and used by it in its engines, motors, and trucks employed in connection with the construction of the highway. A portion of the gasoline and oil furnished was used by the subcontractor in 8 hauling equipment from Ogden, Provo, Nephi, and Fillmore to the place of work, and the remainder was used for machinery, etc., employed at the place of work. The appellant surety disputes the entire claim and especially that part of it which includes the gasoline and oil furnished and used for transporting equipment to the place of use. There is no valid ground for distinction on account of the different purposes for which the materials were furnished and used. It was necessary to have equipment on the ground before it could be used. And to move machinery and equipment to the place of use is an expense proximate and appropriate to the completion of the work and necessarily involved in it.

Upon the question of whether the bond is liable for gasoline and oil furnished the contractor for use in the performance of his contract, there is some conflict in the cases, but the great weight of authority is that such claims are secured by the bond.Maryland Casualty Co. v. Ohio River Gravel Co. (C.C.A.)20 F.2d 514; Associated Oil Co. v. Commary-Peterson Co., 32 Cal. App. 582,163 P. 702; Acker v. Vanderboom, 235 Ill. App. 417;Smith v. Oosting, 230 Mich. 1, 203 N.W. 131; State ex rel.Penn Lubric. Oil Co. v. Lyle, 222 Mo. App. 676,5 S.W.2d 453; Bartles-Scott Oil Co. v. Western Surety Co., 161 Minn. 169,200 N.W. 937; Overman Co. v. Maryland Casualty Co.,193 N.C. 86, 136 S.E. 250; Eagle Oil Co. v. Altman,129 Okla. 98, 263 P. 666; Employers' Casualty Co. v. Rockwall County (Tex.Civ.App.) 300 S.W. 148; National Surety Co. v.Bratnober Lbr. Co., 67 Wash. 601, 122 P. 337; Franzen v.Southern Surety Co., 35 Wyo. 15, 246 P. 30, 46 A.L.R. 496.

The claims for hauling coal from the railroad to the construction camp, and for drayage on oil and grease, were also proper charges against the surety. London 9 Lancashire Ind. Co. v. State, 153 Md. 308,138 A. 231; Franzen v. Southern Surety Co., supra.

The last item in dispute is the plaintiff's claim amounting to $74.25, the balance due for rental for an engine used on the job. As in the case of most of the other items in dispute, there is a conflict in the decisions as to whether a charge of this kind is within the contractor's bond. There are 10 many cases upon the subject which are collected in an annotation found in 44 A.L.R. 381. Without further reference to the cases, it may be said that, under the liberal rule of interpretation to which we are committed, we conclude that the charge in question is within the obligation of the bond, and the surety was properly held liable therefor.

JUDGMENTS AFFIRMED.

ELIAS HANSEN, EPHRAIM HANSON, and FOLLAND, JJ., concur.