George v. Hartford Accident & Indemnity Co.

ORR, Judge.

Defendant contends that the trial court erred in granting plaintiff’s motion for partial summary judgment and denying defendant’s cross-motion for summary judgment. “Review of summary judgment on appeal is limited to whether the trial court’s conclusions are correct as to the questions of whether there is a genuine issue of material fact and whether the movant is entitled to judgment.” Vernon v. Barrow, 95 N.C. App. 642, 643, 383 S.E.2d 441, 442 (1989).

Defendant first assigns as error the failure of the trial court to hold the statute of limitations had run on plaintiff’s claims against defendant. Liens of mechanics, laborers, and materialmen may be discharged in several ways including the following:

Whenever a corporate surety bond, in a sum equal to one and one-fourth times the amount of the lien or liens claimed and conditioned upon the payment of the amount finally determined to be due in satisfaction of said lien or liens, is deposited with the clerk of court, whereupon the clerk of superior court shall cancel the lien or liens of record.

N.C. Gen. Stat. § 44A-16(6) (1984).

Here plaintiff’s lien was discharged pursuant to the above statute. The bond discharging the lien stated in relevant part:

Know all men BY THESE PRESENTS: That the undersigned Burke Engineering, Inc.. as Principal, and Hartford Accident and Indemnity Company, . . ., as Surety, are held and firmly bound unto Frank George Electric, Inc. (“Lien Claimant”) in the sum of $23,080.28, the same being one and one-fourth times the amount claimed in the Mechanic and Materialman’s lien (“Lien Claim”) hereinafter referred to for the payment of which the undersigned bind themselves ....

The condition of the above obligation is:

Burke Engineering, Inc., as Principal, and Hartford Accident and Indemnity Company, as Surety, will pay the full amount of the Lien Claim as established in any appropriate court proceeding, plus any court costs and attorneys’ fees awarded the Lien Claimant, but in no event shall the liability of the Principal or Surety under this Bond exceed the bond penalty of $23,080.28.

The liabilities of the parties hereunder shall be binding until the Lien Claim of the Lien Claimant shall have been fully discharged by final judgment of a court of competent jurisdiction or voluntarily released by Lien Claimant, its successors or assigns, or until the Lien Claim is barred by applicable statute of limitations.

N.C. Gen. Stat. § 1-52(1) (1983), which provides for a three year statute of limitations, applies. Adams v. Bass, 88 N.C. App. 599, 364 S.E.2d 194 (1988), cert. denied, 326 N.C. 363, 389 S.E.2d 810 (1990); Bernard v. Ohio Casualty Ins. Co., 79 N.C. App. 306, 339 S.E.2d 20 (1986).

Defendant argues that the three year statute of limitations began to run upon defendant’s filing of the bond discharging the lien on 23 April 1985, and therefore plaintiff’s complaint which was filed 13 February 1989 was not timely. Plaintiff argues that because the bond states that Burke as principal and defendant as surety “will pay the full amount of the Lien Claim as established in any appropriate court proceeding . . . ,” the defendant was not under any obligation to pay until an amount was established. The earliest date that an amount was established was the date of the award of the arbitrator, 25 May 1988, and the award did not become a judgment until 26 August 1988. Therefore, plaintiff contends 26 August 1988 is the appropriate date for commencement of the running of the three year statute of limitations, and plaintiff’s claim is timely.

A cause of action on a bond accrues immediately on the breach of any of its conditions. The liability of a surety, as a general rule, accrues at the same time as that of the principal; a breach of the bond is essential to bind the surety. If the parties have stipulated that the surety’s liability is contingent on the performance of some act or the happening of some event, their agreement will, of course, control. Thus, where a demand or a judgment against the principal is necessary to fix the liability of the surety, the cause of action does not accrue until the making of a demand or the rendition of a judgment in accordance with the agreement.

74 Am. Jur. 2d Suretyship § 141 at 101 (1974).

In Bernard we stated:

Although the surety’s obligation depends upon a valid obligation of the principal, the surety may be sued immediately when the principal becomes liable to a third party on an obligation covered by the suretyship contract, unless the suretyship contract or a statute provides otherwise. ... It is also recognized that “the statute of limitations begins to run in favor of a surety from the time that he is subject to suit.”

79 N.C. App. at 310, 339 S.E.2d at 23 (citations omitted and emphasis added).

Here the bond obligates defendant to “pay the full amount of the Lien Claim as established in any appropriate court proceeding.” Therefore, under the clear wording of the bond, the defendant’s liability did not accrue until the amount was “established in any appropriate court proceeding.” The amount was established in the award of the arbitrator on 25 May 1988 and became a final judgment 26 August 1988. Thus plaintiff’s claim filed 13 February 1989 is timely.

Next defendant contends that the judgment obtained against the principal in a separate action to which the surety was not a party was not conclusive and binding upon the surety and that the surety was entitled to raise its own defenses or impeach the judgment rendered against its principal.

Where the very condition of the bond is the performance of a judgment against the principal, or that the surety will pay all damages that may be awarded in an action brought against the principal, or will answer for the principal in respect to some charge which the law lays on him, there is no question as to the conclusiveness, as against the surety, of a judgment against the principal, if binding upon the latter and free from fraud and collusion, assuming, of course, that it is the kind of judgment contemplated by the surety’s undertaking. It has been said that there is no reason why parties should not be allowed to obligate themselves to abide by the result of a suit between others; and if the contract can be fairly construed as imposing such an obligation, there is no hardship in enforcing it.

74 Am. Jur. 2d Suretyship § 153 at 109-10.

Here the bond clearly obligates the surety to pay the amount of the lien claim as established. We conclude that the trial court did not err in granting summary judgment.

Affirmed.

Judge JOHNSON concurs. Judge PARKER dissents.