Union Trust Co. v. Citizens' Trust & Surety Co.

Opinion by

Mr. Justice Williams,

The building contract that gives rise to this litigation was a little outside of the customary form, but it is by no means difficult to understand. The Union Trust Company, the plaintiff, was the guardian of several minors who were owners of land in Luzerne county which had been laid out in village lots in a projected village called Heidelburg. As such guardian, and with the leave of the orphans’ court of Luzerne county, it entered into a contract with H. E. Klein for the building of five dwelling houses upon five of these lots. The purport of the contract was that Klein should furnish the materials and labor necessary to complete the five houses in a good and workmanlike manner for the price of $1,200 for each house. The trust company was to advance to Klein $1,000 of the price of each house, in its own bond, which was to be secured by a separate mortgage covering the lot on which the house was to be erected. The remaining $200 of the price of each house was to be paid when the contract was fully performed by Klein. But as the $1,000 on each house was to be paid in advance of any work done upon it, the propriety of securing the trust company against any default upon the part of Klein was recognized in the contract, and provision was made for this purpose, under and in pursuance of which the contract or policy now sued on was made by the defendant, the Citizens’ Trust and Surety Company, and delivered to the plaintiff. Two of the bonds provided for in the building contract were then delivered to Klein as an advance payment of $1,000 upon each of two of the contemplated houses. This advance was made to enable Klein to provide means for doing the work under his contract, and had the same effect upon the Union Trust Company, guardian, as a certificate of no set-off would have done. This contract or policy of insurance undertook explicitly to insure and protect the Union Trust Company against all loss by reason of mechanics’ liens for work or material furnished to Klein “ in and about the erection of the buildings ” provided for in the building contract, and also to “ guarantee the completion of the buildings to be erected on the said lots under the said contract.”

After all this was done Klein began work upon the cellars for the two dwelling houses, and continued until the excavations therefor were finished. He then, for some reason that does not appear abandoned his contract and has made no effort since that time to build either of the houses, and they have never been built by the defendant who was surety for his performance. Meantime he has assigned both of the bonds received by him as an advance payment upon his contract from the Union Trust Company. He does not appear to have disposed of either of them for its full value, but to have pledged them for sums of money received by him amounting in the aggregate to about nine hundred dollars. This would have been all right, and perfectly fair, if he had gone on and built the houses, but he did not do this. He did nothing in the way of performance except to dig the cellars. • How now shall the Union Trust Co. protect itself from loss ? Clearly by resorting to the contract or policy of the defendant in which the full performance of his contract by Klein is expressly guaranteed. This it will be noticed is not a guaranty of the ability of Klein to do the work, or of his solvency, but a “ guarantee ” that he will complete the work as he had contracted to do. When he did not complete it a right of action accrued. The defendant can be called upon to meet its own engagement whenever the fact that Klein has failed to meet his becomes apparent. If Klein had built the houses and liens were being enforced against them the defendant could not be called upon to pay, under its policy until the amount of such liens had been ascertained, for until then the extent of its liability upon its own covenants could not be fixed. But the covenant on which the plaintiff rests this action is that in which the defendant undertakes to be liable to the extent of two thousand dollars for the performance of the building contract by Klein. The breach alleged is the total failure on his part to build at all. The damages claimed are the two thousand dollars paid in advance for which the plaintiff has received nothing. The learned judge of the uourt below lielcl correctly that as the case stood at the close of the evidence the plaintiff was entitled to recover. The rejection of the offer to show the value of the lots upon which these houses were to be erected, furnishes no ground for reversal. The value of the lots was not a relevant subject. The plaintiff was suing’ to recover its advance payment made upon the security of the defendant’s undertaking, guaranteeing full performance by Klein of his contract. It was conceded that he did not perform. The value of the lots was unimportant and immaterial therefore to the defense, and the evidence offered was properly rejected. The plaintiff is entitled to have its bonds returned to it, or if that cannot be done, to be reimbursed for its loss. The order made by the learned judge of the court below fixing the amounts due to the persons now in possession of said bonds and providing for their assignment was equitable, and should have been accepted by the defendant. It may yet furnish a basis upon which the rights of the respective parties may be adjusted.

The assignments of error are overruled and the judgment is affirmed.