City of Bristol v. Bostwick

Mr. Justice Bachman

delivered the opinion of the Court.

This cause was before the court upon the bill, demurrer thereto, and cross-bills of creditors at the September term at Knoxville, 1917, and the action of the court thereon is reported in 139 Tenn., 304 et seq., 202 S. W., 61. Upon remand extensive proof was taken, upon which an advisory reference to a special master was ordered by the chancellor. The master reported that the contractor, Bostwick, was in default at the time the building commission took over the contract, and that he was entitled to no recovery thereon save for extra work in the sum of $160.90. It was further reported that Bostwick was liable to complainants under contractual provision for delay $4,125, as liquidated damages, leaving a balance of $1,959.35 due the city, it having in its possession $2,165.65 belonging to Bostwick. The identity of creditors was fixed, and the aggregate of their claims was found to be $21,271.87, for which the surety was held proportionately liable to the extent of $20,000, the amount of its bond. The master found that the surety was not released from its undertaking because of the payment of certain estimates, after notice, to the contractor and his assignees, but that it was liable for the claims of the creditors for labor and material, as well as for the costs and expenses of the suit, together with attorneys’- fees, fixed at $2,500. By the report the surety was held not liable for the city’s claim for liquidated damages on account of delay, no notice thereof having been given it, as provided under the indemnity phase of its bond.

Exceptions to the import were taken by both parties, all of which were overruled, with the exception of the reduction of the city’s claim for liquidated damages to the sum of $2,000; the report was in all things confirmed by the chancellor, and a decree in conformity thereto was entered.

The case is before us upon appeals by both parties, and numerous errors are assigned, in support of which counsel present exhaustive briefs.

In the case of the Kingsport Improvement Corporation v. W. H. Bostwick and United States Fidelity & Guaranty Co. et al., a number of the questions here made have been adjudicated, and any discussion other than their enumeration is deemed unnecessary. The refusal of the chancellor to stay proceedings on account of military service of the defendant Bostwick, the payment of earned estimates to Bostwick, and his assignees, as well as the authority of the chancellor to order an advisory reference, upon questions of law and fact, and the authority to fix compensation for the special master, were passed upon, and need not here be further considered. Also the decision of this court upon the former appeal in this case is the law applicable, and is conclusive of certain other questions here made. That the defendant Bostwick Avas in default upon his contract and the city warranted in giving notice and subsequently assuming charge of the work is clearly shown in the proof. The dual obligation of the surety has been heretofore determined, and the record does not disclose any proof warranting the conclusion that, in the execution of the bond, the surety was in any wise deceived or misled; certainly to one engaged in the business of professional suretyship the insistence of the building commission that the bond be made to comply with the statutory requirements and the citation of authority for the necessity therefor was an unambiguous request, the effect of compliance with which could not have been misunderstood.

The allegations of the bill as to the delay and default of the contractor in the performance of his contract are fully sustained by the proof, and the city was warranted in giving the required notice and assuming charge of the work. The contract entered into April 14, 1916, called for the completion of the main school building in October following, and the auditorium in January. In February there after neither of the buildings were finished, the contractor was insolvent, and it was apparent that he was wholly unable to complete his undertaking. While it may be admitted that conditions with reference to labor and construction material prevailing during the period within which the work was to be done were such as to impede the progress of the work, yet the delay, as shown by the record, is not attributable to causes exculpating the contractor, but rather to his personal inability to further the con-, struetion, as agreed upon. The contractor contends that he should not be held liable in any amount upon the provision in the contract stipulating an agreed per diem payment for delay, for the reason that the same is to be considered a penalty, and solely for the purpose of enforcing the completion of the contract, and for the further reason that the delay Avas the result of conditions over which he had no control. Considering the nature of the contract, the purpose for which the building was to be used, the public detriment to be contemplated by delay, with the difficulty of approximating the damage thereon, we think the stipulation complained of is a reasonable pre-ascertainment by the parties of the liquidated damages and is not to be regarded as a penalty. Vaulx v. Buntin, 127 Tenn., 118, 153 S. W., 481; Wise v. United States, 249 U. S., 361, 39 Sup. Ct., 303, 63 L. Ed., 647.

It was the opinion of the learned chancellor that notice given within thirty days after abandonment by the principal contractor, or within thirty days after the completion of the contract by the city, or at any time after the debts became due, and within thirty days after the completion of the work to be done under the contract, was a sufficient compliance with the provision of the statute. With due respect to the holding of the chancellor, for whose opinion we entertain the highest regard, it is manifest that he misconstrued -the' holding of this court on the former appeal as to when effective notice must be given by claimants to secure the benefits of chapter 182 of the Acts of 1899, in cases of default, as here shown. The court there held that, to avail laborers or furnishers of material, notice of claims must be given within thirty days after the time the contract was abandoned by the original contractor. By the terms of the statute (section 4) the completion of the contract is the beginning of the period in which liability may be fixed by notice, and the contract contemplated is necessarily, that of the principal, whose faithful performance of his obligation is under-written, and with whom dealings have been had, and by whom the debts of claimants are owed. The language of the section referred to is plain, unambiguous, and, in our opinion, alone susceptible to the construction heretofore placed thereon; the definition of the word “within” is properly found by the chancellor as denoting “before the expiration of,” “in advance of,” “before,” “not beyond or more than;” but it is to be noted that the period of action is prospective and limited to a time subsequent by the immediate use of the word “after.” The performance of an act “within thirty days after” a given event must take place before the limitation of the time succeeding the event. The pronouncement on the former appeal is the law of the case, and must determine the validity of the claims presented. It was insisted before the chancellor, and again here, that in the former opinion the court determined a fixed date as the time of abandonment or completion of the principal’s contract, namely, the date of the receivership proceedings against the contractor, and that the filing of claims was limited to thirty days from such time. This is an erroneous conception of what was said upon this question. The former hearing was upon the hill and demurrer, and it was alleged that receivers had been appointed for the contractor, and the work had thereupon been abandoned by him. Accepting the allegations as true, the date of receivership and abandonment would mark the completion of the principal’s contract and the beginning of the thirty days given by the statute. However the proof shows that receivership for the defendant Bostwick was never effectuated, nor was there any abandonment by him until the city took over the work pursuant to notice provided for under the terms of the contract. The abandonment or default of the contractor to constitute the expiration or completion of his contract must be such as to be legally binding upon him; temporary cessation of or interference with the work, not acquiesced in by the contractor, will not work a forfeiture, for only the existence of legal causes will terminate his rights under the contract. The defendant and his surety cannot here insist that any particular time is to be taken as fixing the completion of the contract, for the reason that it is their contention that the defendant Bostwick has never relinquished nor abandoned his contract, but that he was illegally deprived thereof fey the city. We therefore hold that the legal termination of the contract occurred on March 26,1917, when the work was taken over by the city, and that only snch claims as were properly filed within thirty days after snch date come within the executed bond.

The bond has been determined one in compliance with the provisions of both the Act of 1915 (Priv. Acts 1915, chapter 192), under the authority of which the- contract was entered into, and the Act of 1899, for the protection of laborers and furnishers of material. The provision for notice by the terms of the instrument is applicable to the same in its character first mentioned. The Acts 1899, chapter 182, section 1, specifies that the contractor “shall first execute a good and solvent bond to the effect that he will pay for all the materials and labor used in said contract, in lawful money of the United States.” Notice of claims to the contractor’s surety is neither required nor provided for in the act, and by no construction will- the bond be held to impose requirements in addition to those designated in the statute, the effect of which in the case here would be to destroy the very protection which the act was intended to afford. The insistence of the defendant surety that it is released from all liability on its bond' because of unauthorized payments to the contractor or his assignees cannot be maintained. There is ample evidence in the record sustaining the finding of the master and the chancellor on this question. Under article 8 of the contract payment on earned estimates were to be made to the contractor; his right of assignment was in no wise restricted by the terms of the bond or the contract, and it is shown that all payments made were upon estimates for labor and material actually employed in the construction of the building — in fact, it is shown by the testimony of the contractor — that all moneys paid him on the contract were used in furtherance of the work, and that in addition he expended several thousand dollars thereon.- Upon such showing the surety is in no position to raise the question of a diversion of the funds paid or that, its rights were at all prejudiced.

Error is assigned by the city to the action of the chancellor reducing the amount of its claim for damages on account of delay from $4,125, as found by the master, to the sum of $2,000. While it is true that interest upon the amount invested by the city, as held by the chancellor, may not be the measure of damage, being but an element to be considered, yet the amount fixed is, in our opinion, an equitable adjustment between the parties, and will therefore not be disturbed. Computing the time for' which the stated amount should be allowed upon the number of working school days of which the city was deprived, exclusive of holidays, and the extension granted on account of unavoidable delays, together with the period in which the receivership proceedings were pending and that of notice given by the city of its intention to take over the work, the amount fixed by the chancellor is a reasonable approximation of the amount the city is entitled to recover.

It is contended that the chancellor erred in not sustaining the award to the city for delay as a liability for which the surety should be held upon its bond. The stipulation for notice, accompanied by a statement of the principal facts showing the claim for indemnity, is a reasonable one, with reference to which the parties were at full liberty to contract, and is binding upon the city in its demand against the surety. There is no proof in the record showing compliance Avith this provision, and it cannot be held that the institution of suit was effectual for this purpose for the reason-that it clearly appears that the city was well aware of the contractor’s default for several months before recovery was sought therefor.

It is contended by the surety that the decree is erroneous in so far as it authorizes the city to apply the funds of the contractor in its hands to the satisfaction of its damages awarded for delay. We are unable to see upon what principle this insistence can be sustained. That the surety is entitled to be subrogated to any rights available to its principal is not to be questioned, and, were the funds in the possession of the city without claim of right or the principal entitled thereto, there could be no doubt of the surety’s right to obtain and apply the same in diminution of its losses on the bond; but it must be manifest that any right or equity of the surety must arise through, and is only coextensive with, that of the principal; here the city completed the work and is found entitled to damages on account of the default of the contractor; the latter is entitled to funds retained by the city only to the extent that the sarnie exceed the amount of the city’s award; the rights of the surety are no greater.

We do not find the case here presented one for the application of chapter 141 of the Acts of 1901, providing for additional liability in cases where the- refusal of the insurer or indemnitor to make settlement after demand is not made in good faith; the proof does not warrant the finding that the surety company was prompted by improper motives in its refusal to settle upon the bond, or that its defense of the suit instituted by the city was not in good faith. This must appear before the discretion of the court can be invoked. Silliman v. Life Ins Co., 135 Tenn., 646, 188 S. W., 273.

A fee of $3,000 will he allowed the solicitors for the complainants for their services in this and the chancery court, one-half of the amount to be paid by the defendants and one-half out of the amount realized by the successful claimants. The language of the bond assuring the city indemnity is plain, broad, and unambiguous; it is an undertaking by the surety, for compensation, to hold the city harmless against claims of every description incurred in suits or otherwise growing out of the prosecution of the work. That the city rightfully brought suit to enforce the obligations of the defendants has been determined, and it is clear that the bond is sufficiently comprehensive to include the fees of counsel incurred by the city in good faith and made necessary by reason of the default of the contractor for whose faithful performance the surety stood bound. The efforts of counsel in sustaining liability upon the bond has inured to the benefit of the successful claimants, and it is just that they should bear their proportionate part of counsel fees, as heretofore indicated. The defendants will pay the costs of the appeal, with the exception of the costs incident to the cross-bill of the Citizens’ Savings Bank & Trust Company, which are chargeable to it; the costs of the chancery court will remain as decreed.

For the purpose of ascertaining enforceable claims in accordance with our findings herein, the case is remanded, and a reference therefor may be had in the discretion of the chancellor. Save as modified, the decree is affirmed.