Southern Surety Co. v. Nalle & Co.

On Motion for Rehearing. As the Supreme Court, since our original opinion herein was written, has held that Rev.St. art. 5623a, as added by Laws 1915, c. 143, § 2 (Vernon's Ann.Civ.St.Supp. 1918, art. 5623a), is unconstitutional, we withdraw that opinion, and substitute the opinion herein for same, and also for our opinion on rehearing, which will be incorporated herein. Findings of Fact. On March 23, 1917, Howard Bland, T. W. Marse, and A. J. Zilker, hereinafter called the "owners," entered into a contract with John W. Hood, John W. Hood, Jr., F. J. Strassel, and F. Greenwell, composing the Capital City Building Company, hereinafter *Page 403 referred to as the contractors, for the erection of a three-story fireproof hotel building, on certain lots in the town of Taylor, Williamson county, in accordance with plans and specifications drawn by Henry T. Phelps, architect, for the sum of $47,825. The contractors were to provide and pay for all material and work done, and complete the building in 125 days. Payments to the amount of 85 per cent. of the work done and material placed on the ground were to be made on the 1st and 15th days of each month, as the work progressed. Of even date with the contractor, the contractors executed to the owners a bond, in the sum of $23,912.50, with the Southern Surety Company, hereinafter referred to as the "surety company," as surety, conditioned for the faithful performance of the contract, and specially that those who furnish material for or performed labor thereon should be paid for same, and might bring suit thereon as though specially mentioned therein. F. M. Coleman, of San Antonio, was the general agent of the surety company. The contractors entered at once upon the performance of their contract. On May 10, 1917, the owners formed a corporation, under the name of the Blazilmar Hotel Company, hereinafter called the "hotel company," and subscribed for all of the stock of said hotel company, and thereafter remained the sole owners of such stock. On the 10th day of May, 1917, the owners conveyed the lots upon which the hotel was to be built, and the contract for building the same, to the hotel company. On August 3, 1917, the hotel company entered into a contract with the contractors wherein it was agreed that they should build a fourth story to the hotel, and receive for the walls thereof $8,211.55, with the option of the hotel company to have the same finished in accordance with the specifications for the third story; for which, if so finished, the contractors were to be paid the further sum of $6,740.45. This contract declared that it was a part of the original contract, and the work was to be done as therein provided, and the time for the completion of the building was extended 45 days. The surety company had no knowledge of the execution of the contract for the fourth story at the time of its execution. It did, however, learn that a fourth story was being added, and received additional pay, by reason of the increased cost of the fourth story. On or about the _______ day of _______, 1917, the contractors assigned to the surety company all funds and estimates due or to become due for work done or material furnished, or to be furnished or done in the performance of their contract; and on April 20, 1917, the contractors and the surety company notified the owners of such assignment, and that thereafter all money due on said contract should be paid to the surety company, which was done, including work and material for the fourth story. The contractors abandoned work on the hotel, and the same was finished by the hotel company at a loss of $1,343.69. The following parties intervened in this cause, and there was due them by the contractors, at the time of the trial hereof, the amounts set opposite their respective names, to wit: The Blazilmar Hotel Company, $1,343.69; Nalle Co., $5,107.25; James A. Thompson, $2,954.62; F. B. Seward, $239.13; Fairchild Lumber Company, $454.31; Prewitt Hardware Company, $345.60; Elgin Standard Brick Company, $518; J. Desco Son, $1,499.85; Torbett Germond Company, $410.06; C. M. Gossett, $464.33; K. J. Peterson, $48.10; Federal Glass Paint Company, $828.15; Mosher Manufacturing Company, $350; Southern Architectural Cement Stone Company, $165; Austin Builders Supply Company, $160.85. For which sums the court rendered judgment against the contractors, in favor of said respective parties. Judgment was also rendered in favor of said parties for said respective amounts against the surety company. The case was tried before the court without a jury. The court filed findings of fact and conclusions of law. Opinion. On authority of Williams v. Baldwin, 228 S.W. 557, not yet officially published, we sustain appellant's assignments to the effect that the following portion of the Act of March 31, 1915, art. 5623a, is unconstitutional, to wit: "No change or alteration in the plans, building, construction or method of payment shall in any way avoid or affect the liability on said bond, and the sureties on said bond shall be limited to such defenses only as the principal on said bond could make." R.S. art. 5623a. The plans and specifications, which are referred to in the contract and made a part thereof, contain the following clause: "The owners reserve the right, by conferring with the superintending architect, to alter or modify the plans and this specification in any particular, and the architect shall be at liberty to make any deviation in the construction, detail or execution without in either case invalidating or rendering void the contract, and in case any such alteration shall increase or diminish the cost of doing the work, the amount to be allowed to the contractor or owner shall be such as may be equitable and just, and be determined by the architect." It has long been customary to insert similar provisions in builder's contracts. This, in part at least, has been occasioned by the rule of strictissimi juris, adopted by courts in reference to sureties, whereby the surety was released if "any" change was *Page 404 made in the contract, though the same may have been immaterial and in nowise to his detriment. By a provision in the contract similar to that above set out, the surety agrees in advance that "some" changes may be made in the contract. What changes? Not necessarily immaterial ones. They might be very material without avoiding the contract, as for instance in the cost of construction. Stocking v. Fouts (Wash.) 169 P. 595, in which the increase in the cost was 20 per cent., though, as said in Doyle v. Faust, 187 Mich. 108, 153 N.W. 725, "there is a * * * limit beyond which, if alterations are made, the surety will be released." The question in all such cases is: What alterations were in contemplation of the parties, as evidenced by the language used in the contract, read in the light of what changes are frequently found to be desirable during the construction of buildings? We think the test is: Do the changes "alter or modify the plans and specifications" of the building contracted to be erected, or do they amount to a contract for a different building? As has been said: Do the changes destroy the identity of the building? It was held in the following cases, in which the contracts provide for changes substantially as in the instant case, that the changes did not amount to a new contract, nor release the surety: Dorsey v. McGee,30 Neb. 657, 46 N.W. 1018 (the change was an addition of a stairway, a change in the character of the hardware, and the location of the cistern); Stocking v. Fouts, supra (the change was in the interior finish); Milavetz v. Oberg, 138 Minn. 215, 164 N.W. 912 (the contract required the changes to be ordered in writing; they were ordered orally); Doyle v. Faust, supra (the change was in the partition walls, windows, and chimney). In Stocking v. Fouts, supra, the court said: "There was no change in the outward appearance and design of the building, its size, main walls, foundations or floors." In Doyle v. Faust, supra, it is said: "There was no change in the character or exterior dimensions of the building." In the following cases it was held that the changes released the surety: House v. Surety Co., 21 Tex. Civ. App. 590, 54 S.W. 303 (the change was from a three to a four story building); Miller v. Ice Co.,66 Ark. 287, 50 S.W. 508 (the change was from a one-story to a two-story building); Rhodes v. Clute, 17 Utah, 137, 53 P. 990 (the change was from a frame to a brick building, nearly doubling the cost); Sweatt v. Bonne,60 Wn. 18, 110 P. 617 (a two-story building and a cellar were added); Contracting Co. v. Hudson River Co., 192 N.Y. 209, 84 N.E. 965 (the change was from a masonry to an earth dam with a masonry core). In House v. Surety Co., supra, the court said: "The identity of the building was destroyed." In Rhodes v. Clute, supra, the court said: They (the changes) were so variant, "both in price and construction, as to amount to an abandonment of the contract, and the creation of a new one." Many other cases in point might be cited, but these are sufficient to show the correctness of the test hereinbefore stated. Applying this test to the instant case, we do not think that a four-story building is a three-story building, with alterations and modifications in its plans and specifications, but that it is such a departure from the plans and specifications as to constitute it a different building. We are confirmed in this view by the fact that under the provision for changes, as herein set out, the owner could make the same without the consent of the contractor. Does this mean that the owner could compel the contractor to erect one or more additional stories, without the contractor having any voice as to the price to be paid for same? We think not. And if not, there was a limitation contemplated as to what changes could be made. This limitation we think was changes in the building described in the plans and specifications, and not a change to different building. However, if the appellant consented to or ratified such change, it is not released. If it received additional pay by reason of such change, this is proof, either that it consented to such change in advance, or ratified the same. The court found specifically that appellant received pay, by reason of the increased cost incurred in the erection of the fourth story. This finding is binding on us, unless it is unsupported by the testimony. In support of this finding, the following facts appear of record: F. M. Coleman was the general manager in Texas for appellant, and as such signed the bond herein sued on. He lived in the same city (San Antonio) with Hood, the contractor in charge of the work. He testified that their relations were close and confidential. He was informed by Hood of the contemplated change in the contract before the same was made. He knew of it after it was made, and never at any time objected thereto. Under the assignment of the contract to appellant, Coleman had the right to receive and disburse the payments made by the owners after the change in the contract, if he had agreed to such change; otherwise he had no such right. He did receive and disburse such payments, on the estimates of the architect, which showed upon their face that they were for a four-story building. The architect, Phelps, testified positively that Coleman told him that appellant received additional pay by reason of the *Page 405 addition of the fourth story. This, according to Phelps, was not a casual remark which might not have been understood or correctly remembered by the witness, but was stated in a conversation when the building was in course of construction, and when Coleman was discussing the change from a three to a four story building, and the custom of bonding companies in such cases. Coleman was equally positive in his denial of having made such statement, and denied, as did also Hood, that such additional payment had been made. This raised an issue of fact to be decided by the court. The court decided it in favor of appellee. Appellant contends that the statement of Coleman, that he received pay by reason of the addition of the fourth story, cannot be considered as legal evidence, for the reason that it was hearsay. It is true that the statement of an agent of limited authority, not a part of the res gestæ, is hearsay, and if objected to should not be admitted. It is also true that hearsay testimony, if not objected to, is evidence to be considered by the court or jury for what they may deem the same to be worth. In this, as in all other cases, the jury, or the court sitting as a jury, are the exclusive judges of the weight to be given to the evidence. Hearsay and secondary evidence are excluded, when seasonably objected to, not because they do not tend to prove the fact to which they relate, but because they presuppose the existence of better evidence. A party may, however, waive the production of the best evidence, by failing to object to that of an inferior grade. Schlemmer v. Ry. Co., 205 U.S. 9, 27 Sup.Ct. 407, 51 L.Ed. 683; Damon v. Carrol,163 Mass. 404, 40 N.E. 185; Yeager v. Wright, 112 Ind. 230, 13 N.E. 709, 710; State v. Cranney, 30 Wn. 594, 71 P. 50-53; Riehl v. Evansville Foundry Ass'n, 104 Ind. 70, 3 N.E. 635; Stern v. Freeman, 4 Metc. (Ky.) 315; Langworthy v. Coleman, 18 Nev. 440, 5 P. 67. The same is true as to the testimony of a witness disqualified by reason of interest. Heely v. Barnes, 4 Denio (N.Y.) 73, 74; Donelson v. Taylor, 8 Pick. (Mass.) 391. In the instant case, no objection was made to the testimony of the witness Phelps. In Henry v. Phillips, 105 Tex. 466, 151 S.W. 533, acts and declarations of Mr. Patillo, deceased, were proven without objection, which tended to show that in executing and delivering a deed to the land in controversy he did not intend thereby to convey title to the grantees. The court said: "For this purpose it was not admissible, being hearsay evidence and in disparagement of the grantor's deed duly executed." The fact that such testimony was hearsay added nothing to the fact stated by the court that "such incompetent testimony can never form the basis of a finding of facts." The same result would have followed had Patillo been present and testified, without objection, that he did not intend to convey title to the grantees. Public policy will not permit a grantor to say that he had a secret mental reservation contrary to the express terms of his deed, and should he so testify, without objection, such testimony would be no basis for a verdict or judgment. This case is not authority against the proposition that hear-say is competent evidence, if not objected to, as is held by the authorities above cited. We are also of the opinion that the testimony of Phelps would have been admissible even had it been objected to, for the reason that appellant is a corporation, and can speak only through its agents. Coleman was its general agent in Texas. The statement about which Phelps testified was made while the business of which he had control for appellant, namely, the erection of the building, was being transacted. We think, under the circumstances, he was the alter ego of appellant, and that his admission was its admission. For the reason that appellant consented to or ratified the change from a three-story to a four-story building, by receiving pay for the increased risk, the judgment of the trial court is affirmed. Motion overruled.