State Ex Rel. Pegan v. American Surety Co.

This action was prosecuted under section 2991, Oregon Laws, 1920, in the name of the state of Oregon for the use and benefit of Albert Pegan and Joseph Gassman, plaintiffs, against American Surety Company of New York, a corporation, and J.W. Sweeney and Fred Sparth, individuals, and as copartners, doing business under the firm name and style of J.W. Sweeney Construction Company, defendants.

Among other things, the plaintiffs alleged that they "were joint adventurers doing business under the firm name and style of Pegan and Gassman," and that the defendant, American Surety Company of New York, was a New York bonding corporation, duly authorized and licensed to transact a surety business in the state of Oregon; that theretofore, and on August 11, 1925, the defendant J.W. Sweeney Construction Company had entered into a contract with the state of Oregon for the construction of Unit No. 3 of the Roosevelt highway in Curry county, and, in the performance thereof, had sublet the culvert work and the masonry to the plaintiffs, the subcontract being referred to in the complaint and set out as "Exhibit A"; that, upon the execution of this subcontract, plaintiffs entered upon the performance thereof and proceeded in accordance with its terms and performed the conditions thereof until November 17, 1926, when all of the work to be performed under the contract was completed "except putting in two or three pipe culverts and a few odds and ends, which could not be done or completed until several weeks or months thereafter"; whereupon it was mutually agreed between the plaintiffs and Sweeney Construction Company that the company would, for value, and it thereafter did, complete and charge to them the work yet to be done under the contract; that the plaintiffs have fully and faithfully performed all the terms and conditions of their contract, and complied with the orders of the state highway commission with relation thereto; that, prior to the commencement of the action, payment of the sums due under their contract with the construction company was demanded of that company and of the American Surety Company of New York, but that these defendants have not paid the same or any part thereof, except the sum of $28,342.77, paid by the construction company, and that there is now due and owing to plaintiffs under the contract the sum of $5,212.80, with interest thereon at 6 per cent from August 29, 1927; that, within one year immediately following the completion of the contract and the acceptance of the work by the state of Oregon, the plaintiffs filed with the secretary of state a notice of claim for services performed and labor and material furnished by them on Unit No. 3 of the Roosevelt highway, in Curry county, Oregon, pursuant to the contract hereinabove described, and for extra work and materials. Plaintiffs demanded judgment in the amount of $5,212.80, with interest thereon at 6 per cent per annum from August 29, 1927, and for attorney's fees.

The defendant, American Surety Company of New York, denied that any sum was due to the plaintiffs from the Sweeney Construction Company, and alleged that that company had paid to plaintiffs the sum of $28,342.77, together with other sums of money the exact amount being to the surety company unknown, and demanded that the action be dismissed.

Defendant Sweeney Construction Company, by answer, admitted that the plaintiffs performed some work under the alleged contract, and alleged that the terms of the contract were not completed by plaintiffs as agreed therein, or at all, and that it was necessary for the company to complete the work prescribed therein. This defendant denied the right of plaintiffs to recover attorney's fees in any sum whatsoever. It then filed five further and separate answers and defenses, and concluded by demanding judgment against the plaintiffs in the sum of $1,753.83, and costs and disbursements.

The respective parties having waived their right to trial by jury, the case was tried to the court.

The court found that, on September 26, 1925, the plaintiffs entered into the written agreement with the defendants as set out in the pleadings, which agreement was subject to all the terms and specifications of a certain contract theretofore entered into by and between the state highway commission and the defendant construction company, and subject to any and all changes deemed necessary by state engineers in charge of the work; that, after the execution of the contract, the plaintiffs entered upon the performance thereof in accordance with its terms, and duly performed all the conditions therein set forth until about November 17, 1926, when the work agreed to be performed by plaintiffs was completed "except putting in two or three pipe culverts and a few odds and ends, which could not be done or completed until several weeks or months thereafter, whereupon it was mutually agreed between said Pegan and Gassman and said J.W. Sweeney Construction Company that said * * * construction company would, and thereafter did, complete it, and charge them for the expense and give them credit for the work to be done and performed by said Pegan and Gassman under their said contract, and said Pegan and Gassman have fully and faithfully performed all the terms and conditions of their said contract in strict compliance therewith and with the orders of the state highway commission and its engineers in charge of said work, except as modified as hereinbefore set out, and said work was performed satisfactorily to, and accepted by, the said state highway commission and its engineers."

The court found that, under the contract between the plaintiffs and the defendant construction company, payments were to be made by the company to plaintiffs when the work done by them was completed and accepted by the state highway commission, and that the plaintiffs had earned, and that there was due them under the contract, for work performed and labor provided by them, $32,677.18; that the plaintiffs had not abandoned the performance of their contract, and that they were entitled to recover reasonable attorney's fees.

The court denied the plaintiffs' claim for $102.50 for "hauling groceries," and likewise denied their right to recover on their claim for $450 for "tools and machinery converted."

The court further found that, prior to the expiration of one year immediately following the completion of the contract and an acceptance of the work by the state of Oregon through its duly authorized representatives, the plaintiffs filed with the secretary of state notices in writing, duly verified by them, as provided by statute; that, prior to commencing action, the plaintiffs made application to the state of Oregon, through its highway commission under whose direction the work had been prosecuted, by furnishing to that commission an affidavit that labor and materials for the performance of the work had been supplied by them and that payment therefor had not been made, for certified copies of the contract and bond of Sweeney Construction Company under which the work was being prosecuted, and the highway commission furnished the plaintiffs with such certified copies as required by law.

With reference to counterclaims made by the Sweeney Construction Company, the court found:

That there was no agreement between plaintiffs and the defendant construction company regarding the building of any roads on the project covered by defendant's contract, or in connection therewith, and that the plaintiffs were not indebted to defendant in any amount on such account; that the counterclaim relating to a contract for the building of the rock crusher was without merit; that, during the course of their work plaintiffs used and consumed tools belonging to the defendant company of the reasonable value of $25, and that the company was entitled to recover that sum from the plaintiffs therefor; that the construction company supervised the laying of some culverts in connection with plaintiffs' job, and that its services thus rendered to plaintiffs were of the value of $100, which amount it was entitled to recover; that the defendants advanced and paid to the Englehart Company on account of hauling done by that company for the use and benefit of plaintiffs the sum of $57, which remained wholly unpaid, and that the defendants were entitled to collect that sum therefor; that the defendants installed 237 feet of 12-inch pipe for plaintiffs, the reasonable price for such installation being 10 cents per foot, and that the defendants were entitled to recover from plaintiffs therefor the sum of $23.70; that defendants were entitled to recover from the plaintiffs $20.63 for hauling oats and hay; that defendants paid to plaintiff Pegan $385 in cash, on account of which payment they were entitled to an additional credit of $175, being the difference between the amount of $385 so charged by defendants to plaintiffs, and $210, the amount admitted by the plaintiffs to have been received by them.

Summarizing, the court found that plaintiffs were entitled to recover from defendant J.W. Sweeney Construction Company the sum of $32,677.18, against which this defendant was entitled to credits as follows:

Credits admitted by plaintiffs in their amended complaint ______ $28,147.14 Hauling oats and hay ___________________________________________ 20.63 Supervision ____________________________________________________ 100.00 Rental of tools (used and consumed) ____________________________ 25.00 Englehart hauling ______________________________________________ 57.00 Add credit a/c cash (called over-charges of cash in Opinion) ___ 175.00 Installing 237 feet of 12" pipe at 10c per foot ________________ 23.70 ___________ Making total credits due defendants ____________________________ $28,548.47

Leaving a balance in favor of plaintiffs of $4,128.71 with interest and attorney fees as herein mentioned.

The court further found that, prior to the commencement of the action payment of the sums claimed to be due to plaintiffs from the defendant construction company was demanded of the company and of their surety, but that no part of the same had been paid by them except the sum of $28,548.47 paid by the defendant construction company, and "there is now due and owing from said defendants, * * * Sweeney Construction Company, and the American Surety Company of New York, and each of them, the full sum of $4,128.71, together with interest thereon at the rate of 6 per cent per annum from August 29, 1927, and $750 attorney's fees," in which amount the court found as a conclusion of law the plaintiffs were entitled to a joint and several judgment against the named defendants.

From the judgment entered in accordance with the foregoing findings and conclusions, the defendants have appealed to this court. Section 2991, Oregon Laws 1920 (§ 67-1101, Oregon Code 1930), upon which this prosecution is based, in so far as the same is applicable to this cause was enacted by the Legislative Assembly of 1903 as House Bill 213, and was entitled:

"An act to protect subcontractors, materialmen, and laborers furnishing material for doing work upon public buildings, structures, superstructures, or other public works."

Section 1 thereof reads:

"Hereafter any person or persons, firm or corporation entering into a formal contract with the state of Oregon, or any municipality, county, or school district within said state, for the construction of any buildings, or the prosecution and completion of any work, or for repairs upon any building or work, shall be required, before commencing such work, to execute the usual penal bond with good and sufficient sureties, with the additional obligations that such contractor or contractors shall promptly make payments to all persons supplying him or them labor or materials for any prosecution of the work provided for in such contracts; and any person or persons making application therefor, and furnishing affidavit to the proper officer of such state, county, municipality, or school district, under the direction of whom said work is being or has been prosecuted, that labor or materials for the prosecution of such work has been supplied by him or them, and payment for the same has not been made, shall be furnished with a certified copy of said contract and bond, upon which said person or persons supplying such labor or materials shall have a right of action, and shall be authorized to bring such in the name of the state of Oregon, or any county, municipality, or school district within such state, for his or their use and benefit against said contractor and sureties, and to prosecute the same to final judgment and execution."

This statute, being remedial in its nature, should be liberally construed to effectuate its purpose: Columbia Countyv. Consolidated Contract Co., 83 Or. 251 (163 P. 438); Portlandv. O'Neill, 98 Or. 162 (192 P. 909); Fitzgerald v. Neal,113 Or. 103 (231 P. 645); State ex rel. v. U.S. Fidelity GuarantyCo., 125 Or. 13 (265 P. 775).

The first assignment of error relates to the denial by the court of the defendant surety company's motion for judgment of nonsuit, which reads:

"If Your Honor please, the defendant, the American Surety Company of New York, at this time moves the court for a judgment of nonsuit herein, first, on the ground and for the reason that the plaintiff has failed to prove a case sufficient to be submitted to the court, sitting as a jury. This motion is made generally on the ground that this motion is based on the proposition that the case of the plaintiff here has proven, and it is undenied, that all of the laborers, materialmen or persons furnishing labor or material in the prosecution of this work had been paid, and as we read section 2991, Oregon Laws, there cannot be a recovery against the surety unless there is evidence before the court that the laborers or materialmen or persons furnishing labor or material in the prosecution of this work have not been paid."

We agree that, when a cause of action against the principal on a bond is barred, the right of action upon the bond ceases to exist: Oregon v. Davis, 42 Or. 34, 38 (71 P. 68, 72 P. 317); State ex rel. Sinclair Provision Co. v. WarrenConstruction Co., 129 Or. 58 (276 P. 260).

In the case at bar, the state highway commission exacted from the contractor such a bond as was authorized by sections 2991 and 6718, Oregon Laws 1920. Section 6718 provides:

"Every contract made with the state, county, school district, municipality, municipal corporation or subdivision shall contain a condition that the contractor shall promptly, as due, make payment to all persons supplying to such contractor labor or material for the prosecution of the work provided for in such contract, * * * and a penal bond, with good and sufficient sureties, shall be required of each and every such contractor, to secure the faithful performance of all of the * * * obligations of such contract."

This section was originally section 1 of an act adopted by the people at a general election held on November 5, 1912, and is entitled, "An Act to protect sub-contractors, materialmen and laborers * * *."

According to the findings of the trial court, and these findings are supported by the testimony, there is a balance due the subcontractors for labor and materials supplied to the general contractor under the contract at the contract price. The motion for nonsuit was properly denied: State ex rel. TrojanPowder Co. v. Johnson Contract Co. et al., 120 Or. 633 (253 P. 520);State ex rel. v. U.S. Fidelity Guaranty Co., supra; State exrel. Sinclair Provision Co. v. Warren Construction Co. et al.,129 Or. 58 (276 P. 260), and cases therein cited.

The defendants attacked the sufficiency of the complaint on the ground that it failed to state a cause of action. This contention is based upon the fact that the original contract was finally modified, in this: That, under the contract as modified, the general contractor completed some unfinished details of the subcontractors' work, and the defendants contend that the modified contract is invalid for want of a consideration therefor.

From 13 C.J., at page 592, section 607, we read:

"A modification of a contract being a new contract, a consideration is necessary to support the new agreement, as, for example, where it is to extend the time for performance * * *, or to release one of the parties from performance."

It is pleaded by the plaintiffs and established by the testimony that there was a valid consideration for the modified contract. The principal contractor was indebted to the subcontractors in the amount of several thousand dollars, an amount many times greater than the sum agreed to be paid by the subcontractor to the general contractor for the completion of the work, which was but putting in "two or three pipe culverts and a few odds and ends, which could not be done or completed until weeks or months thereafter" because the general contractor had not completed the grading. The consideration paid for the completion of the work was, in accord with the contract, deducted from the sum due the subcontractors from the general contractor.

The defendants object to the allowance of attorney fees. The law above referred to as adopted by the people was amended by the Legislative Assembly so as to provide for the recovery of attorney fees by the prevailing party. See chapter 342, General Laws of Oregon 1921, codified as section 49-702, Oregon Code 1930.

We have made no attempt to weigh the evidence submitted; for, in case a trial by jury is waived, the findings of fact by the court have the effect of a special verdict and cannot be set aside when there is some competent evidence to support each material allegation of the complaint: Cannon v. Farmers' UnionGrain Agency, 103 Or. 26, 40 (202 P. 725), and local citations;Maeder Steel Products Co. v. Zanello, 109 Or. 562 (220 P. 155). See, also, Or. Const. Art. 7, § 3c.

From a careful consideration of the questions brought here for review, we have discovered no reversible error. Hence we direct an affirmance of the judgment entered by the trial court, with interest from the date of entry thereof.

BEAN, C.J., BELT and CAMPBELL, JJ., concur.