City of New Haven v. National Steam Economizer Co.

Confessedly the defendant Surety Company, as the surety upon the bond in suit, which is one conditioned upon the faithful performance by the defendant Economizer Company of a certain contract entered into between it and the plaintiff, is liable to the plaintiff in the amount for which judgment was rendered, unless it be that, by reason of some conduct on the part of the plaintiff in its dealings with the Economizer Company with respect to the subject-matter of the contract between them, the surety's obligation became discharged either wholly or protanto. The question here involved thus brings under review two contracts. The first or principal one is a construction contract to which the plaintiff and the Economizer Company, hereinafter called the contractor, are alone parties. This instrument defines their undertakings. To the second contract, the Surety Company is a party together with the two parties to the construction contract. It is this contract, therefore, which creates and defines its obligation and liability, which proves to be that of a surety for the faithful performance by the contractor of its undertakings as set out in the construction contract. This latter contract is thus made to assume an importance which it would not otherwise have, as determining the nature and scope of the duty whose performance is secured by the former, and in the determination of any question as to whether or not there has been any breach of the condition of the former through a breach of the provisions of the construction contract. New Haven v. Eastern PavingBrick Co., 78 Conn. 689, 698, 63 A. 517. Thus the Surety Company becomes indirectly concerned with the provisions of the latter instrument. This concern while in one sense vital, is in another limited. It is vital, in that having by the bond assumed a liability measured and determined in part by the terms of the contract whose performance it has guaranteed, it is important to it that this liability should not be changed by the substitution, by whatever means, of a different contract; and it has the clear right to insist that such a substitution should not be made, if it is the purpose of the obligee in the bond to look to its security. This substitution may be accomplished, in legal effect, either by material changes in the terms of the contract, or by material departures from its terms in its execution and enforcement. Immaterial changes and departures, however, or, as otherwise expressed, changes which are not in matters of substance, do not amount to a change in the identity of the contract. Rowan v. Sharps Rifle Mfg. Co.,33 Conn. 1, 23; Chester v. Leonard, 68 id. 495, 508, 37 A. 397; United States v. Freel, 186 U.S. 309, 318,22 Sup. Ct. Rep. 875. Whenever it is self-evident that the alteration or departure is neither a substantial one nor one which can be prejudicial to the surety, it is regarded as an immaterial one. Holme v. Brunskill, L. R. 3 Q. B. Div. 495, 505. But while the concern of the surety in the principal contract is thus a vital one, it is only in its relation to the surety's liability under another contract, its contract of suretyship, that it exists at all. Beyond the point where this liability is touched, the Surety Company, being a stranger to the construction contract, has no interest in it. For these reasons it follows that the defendant Surety Company cannot found a defense upon any conduct of the parties to the principal contract which is either conformable to its provisions, or, being a departure from its letter, was not a material one.

The defendant Surety Company in its reasons of appeal points out only two incidents of the plaintiff's dealings with the contractor as supporting its contention that there had been such a material departure from the terms of the construction contract as accomplished a discharge of its surety obligation. The first of these is the fact that payments on account of the contract price were made to the contractor on dates other than the fifteenth day of each month and on architects' certificates made out after the fifth day of that month. The second, and the one most emphasized, is the fact that the payments made exceeded in amount eighty-five per cent. of the value of the labor and materials actually in place, as determined by the ratio of their value to the value of the entire amount of labor and materials required for the completion of the whole contract upon the basis of the contract price.

The variations from the letter of the contract, arising from payments to the contractor having been made upon other days of the month than the fifteenth, and upon certificates bearing dates subsequent to the previous fifth day of the month, clearly were not material ones. It is easy to conceive of such variations in the matter of time, involving an unwarranted anticipation of payments not due, or unfair dealing, as might be of serious consequence to the surety. Here, however, no such situation, nor the possibility of one, is disclosed. All that appears is that some other dates than the fifteenth happened to be those upon which all the payments save one were made, and that the plaintiff did not insist upon refusing to honor a certificate which was not delivered to it by the preceding fifth of the month. The facts found go no further. The subject is left with a simple disclosure of a variance in dates. It is possible to imagine, or even to suspect, that one or more payments may have been made at an earlier date than would have been the case had the letter of the contract been strictly complied with. Such, however, is not found to have been the fact, and we are not entitled to assume it for the purpose of working a complete or partial forfeiture of this bond. Whatever force, therefore, be given to the provision in question, and however much it be regarded as of the essence of the construction contract, it appears that the departures therefrom, in so far as they are disclosed, were purely technical ones and such as were in the fullest sense immaterial and unsubstantial.

With respect to the second matter relied upon as causing a substitution of contracts, it appears that when the construction contract was terminated, from thirty-three to fifty per cent. only of the total work required by it had been completed, while approximately sixty-five per cent. of the contract price had been paid, and that too, notwithstanding that only eighty-five per cent. of the value of the labor and material furnished was to be paid during the progress of the work. This is charged against the plaintiff as conduct without authority in the contract. The contract provides for payments during the progress of the work, the same to be made monthly to the amount of "eighty-five per cent. of labor and materials actually in place," and upon certificates of the architects stating that the work had been done in accordance with the contract and that the payments had become due. The finding discloses that all the payments were made upon such certificates and made in good faith. It also discloses that the architects gave these certificates for eighty-five per cent. only of their estimates of the value of the labor done and materials furnished upon work in place, and that in making said estimates and giving said certificates they acted in good faith and in the belief that the several sums allowed and certified to by them were no more than the contractor was entitled to receive under the terms of the contract.

The Surety Company contends that the progress-payments thus made, at the time that the plaintiff assumed charge of the work, amounted to a considerable overpayment on the contract price. It says that in determining the amounts which were from time to time due and payable, an important factor was entirely overlooked and no regard had, as there should have been, to the ratio of the value of the work in place to the entire work, as showing what proportion of the contract price was fairly due for that proportion of the work which had been completed. The question thus presented, as to the proper method of arriving at amounts payable in such a case, does not call for our present consideration, since, whatever importance it might have as bearing upon the duty of the architects, it is without importance as bearing upon the rights of the plaintiff in this action. The contract between the plaintiff and the Economizer Company provided for progress-payments upon the certificates of the architects as to the amounts due. It is unnecessary to inquire whether under the terms of the instrument, when such certificates were given, the plaintiff, in the absence of collusion and unfair dealing, was or was not under a present legal duty enforceable at law to pay to the contractor the amounts so certified. He was at least entitled to make the payments and was under no duty to review or revise the work which the parties had committed to the architects. McAvoy v.Long, 13 Ill. 147; Chapman v. Kansas City, C. S. R.Co., 114 Mo. 542, 549, 21 S.W. 858; Chapman v. Eneberg,95 Mo. App. 127, 68 S.W. 974. So it is that the plaintiff, when in entire good faith it accepted and honored the several progress-certificates made out by the architects, acted entirely within and not without the provisions of the construction contract. It did that which the contract justified it in doing, and the surety, therefore, cannot complain of its conduct in that regard.

The plaintiff appeals from the refusal of the court to award it any sum as liquidated damages for the non-completion of the work within the stipulated time. It appears that the plaintiff, before this time had expired, in the exercise of its rights under the contract, elected to terminate the contractor's employment, to deprive it of all further control of the work and to itself assume that control. The plaintiff in the contract reserved to itself two special remedies against the contractor's defaults and delays. Under article V. it was given the power to terminate the employment and take charge of the work. Certain consequences were made to attend upon that course of action. Under article VI. it was accorded the right, under prescribed conditions, to receive from the contractor, as liquidated damages, an agreed sum per day for delay in completion. The election which it made as between these two remedies, to avail itself of the former, deprived it of the right to resort to the latter. Article V. is framed with no little elaboration and a careful attention to detail which plainly indicates the intention to meet the whole of any situation which might be developed through a resort to its provisions. The rights of the parties in settlement are dealt with in language which is not only general and comprehensive, but which also unmistakably indicates a purpose to establish a basis for a full and complete adjustment of claims through the authoritative and final arbitrament by the architects. It is provided that not alone the expense of completion, but also any damage incurred through the contractor's default, should be audited and certified by the architects, whose certificate should be conclusive upon the parties. This provision for the inclusion in the award of the architects, of compensation for any damage suffered by the plaintiff through the contractor's default, whatever be the basis to be employed for its ascertainment under possible conditions, is one which could leave nothing in the way of uncompensated injury to furnish the foundation for an additional recovery in the form of liquidated damages. Under such conditions any award under article VI., in the guise of liquidated damages, would inevitably resolve itself into the recovery of a penalty pure and simple, with nothing by way of actual damage behind it. Tingley v. Cutler, 7 Conn. 291,295; 1 Sutherland on Damages (3d Ed.), § 283.

There is no error.

In this opinion the other judges concurred.