Alexandria Water Co. v. National Surety Co.

Opinion by Mr. Justice Mestrezat, We need not restate in detail the facts of this case, as the learned trial judge has correctly found and fully stated them in the exhaustive opinion he filed in refusing judgment for the defendant. We think the court below was right in directing a verdict for the plaintiff and, subsequently, in refusing to enter judgment for the defendant. There is but a single question in the case and that is whether the plaintiff, the Alexandria Water Company, deviated or departed from its contract with William M. Powell & Company, the contractors, so as to release the defendant, the National Surety Company, from the obligations of its contract. Powell & Company entered into a written agreement with the Alexandria Water Company in September, 1903, to construct a gravity water system for the borough of Alexandria, Huntingdon county. One of the provisions of the agreement required the contractors to furnish a bond with security for the faithful performance of the contract and for indemnifying the water company against loss, costs or damages for or by reason of any liens, claims or demands for material, etc. In compliance with this stipulation of the contract, Powell & Company delivered a bond to the water company with the — 13 — National Surety Company, the defendant, as surety thereon. Recovery on this bond against the surety was made subject to certain conditions precedent, and the defense in this action which is on the bond is that the water company did not comply with some of these conditions, thereby relieving the surety company from its obligation. The American Car & Foundry Company furnished certain material to the contractors for which they filed a mechanic’s lien which was prosecuted to judgment, and the water company was compelled to pay it. The plaintiff is seeking in this action to recover on the bond what it was compelled to pay on the judgment. The first reason assigned in support of the defense is that the water company made payments to the contractors without any estimate from the engineer as provided in the contract, which required the engineer on the first of each month to make an estimate of the quantity of work done during the month previous. Payments were to be made within ten days after the estimate. Phillips, the treasurer of the water company, testifies that he paid on two estimates, one on October 10, 1903, for the work done in September, and one on November 10, 1903, for the October work. He testifies, and there is nothing in contradiction of his testimony, that the work was completed in strict compliance with the contract on November 30, 1903. The complaint of the defendant is that the engineer made no estimate for the November work. It will be observed that the contract did not require the estimate to be in writing or in any specific form. The total balance unpaid on the contract at the completion of the work was payable by its terms on or before December 10, 1903, except five per cent which was to be held “until the work was tested satisfactorily to the engineer,” and also five per cent which was to be retained as a guaranty that the contractors would repair any imperfections in the work. The water system was completed to the satisfaction of the water company within the time provided in the agreement, and hence the company was relieved from the necessity of retaining five per cent of the final estimate until the work was tested. It seems from the evidence that there was some difficulty in determining the balance due — 14 — on the contract, but it was finally adjusted between the parties. Part of this balance was paid December 4, and the residue on December 11, 1903. It appears that the engineer had made some mistakes, and as soon as they were corrected the balance due on the contract was paid. Mr. Phillips testified: “I change the word to addition instead of modifications. Q. Then you made certain additions to the estimate furnished by the engineer, and settled on that basis, made the final payment? A. We did.” This settlement was made by the treasurer of the water company with a representative of Powell & Company, the contractors, and a check was given to the order of the contractors for the balance found to be due on the contract. While Mr. Phillips calls this a final statement and not an estimate yet it is apparent, from his own testimony, that the settlement was made on an estimate of the engineer. In fact, we are at a loss to see how the balance due could have been otherwise ascertained. Under the terms of the contract, a simple oral declaration by the engineer as to the amount due would have been an “estimate,” and this manifestly was furnished to the representatives of the water company and the contractors. The balance as shown by this estimate would have been paid at once on the completion of the contract had not an error been discovered in the engineer’s estimate, the correction of which required a few days’ delay. Had the water company paid to the contractors on December 1, what the engineer regarded as the balance due, we apprehend that the defendant in this action could not have successfully invoked as a defense the failure of the engineer to have made a formal estimate of the amount due for November. The contention here has no better basis to support it. There is no allegation of fraud or collusion between the water company and the contractors concerning any matter arising out of the contract. Nor is there any allegation that the water company did not pay Powell & Company the balance in full due on the contract. It is not claimed that the surety company was prejudiced or injured by any act of commission or omission on the part of the Alexandria Water Company. We think the plaintiff complied with its agreement with the contractors in — 15 — securing estimates from its engineer, and that, therefore, there was no breach of this covenant which will avail the defendant in this suit. There is no merit in the contention of the defendant that the work was not completed on November 30, 1903, as required in the agreement. The only witness testifying on the subject says that it was completed on that date. He was the treasurer of the water company, paid the money due the contractors, and it was his duty to know when the work was finished. There was another contract between the water company and the contractors for some additional work, the laying of a pipe to carry the water to the Pennsylvania Railroad station. The only evidence on the question conclusively shows that this contract was separate and distinct from the written contract between the parties, that it was made without the knowledge of the water company’s engineer and that he had nothing to do with or control over the work to be done under it. The loss sought to be recovered in this action does not arise out of that contract. The American Car & Foundry Company’s claim which the plaintiff paid and which it seeks to recover here was not for work done and materials furnished in pursuance of the supplemental or additional contract. It is provided in the construction contract that on completion of the work to the satisfaction of the water company’s engineer and before final payment of the balance due, the contractors “shall give satisfactory evidence, if called for, that all bills and claims against the said party of the second part that in any way might remain as a lien against the work are fully paid and discharged.” No inquiry was made by the water company prior to the final payment to the contractors about unpaid claims or liens, and it is contended by the defendant that this was a breach of the contract which relieves the surety company from liability in this action. It will be observed that the bond given by the defendant was to protect the plaintiff, inter alia, from loss by reason of such claims and liens. If, therefore, the defendant’s contention is sustained the very purpose of the bond is nullified and the plaintiff is in the same position as though no bond had been given. The defendant — 16 — should make out a very strong case and show conclusively that its interpretation of the contract is correct before a court should give a construction to the agreement which would result in such consequences. The position taken by the defendant practically relieves it from all liability upon the bond and makes the plaintiff become its own surety for claims and liens which it was compelled to pay by reason of the default of the contractors. The condition precedent with which the plaintiff was required to comply before it could maintain an action on the bond against the surety was that it should observe the terms of its contract with the contractors. The stipulation of the agreement just quoted requires the contractors to furnish satisfactory evidence of the payment of claims and liens, but it does not impose upon the water company the obligation to require satisfactory evidence of the absence of such claims and liens. The stipulation was for the protection of the water company and is a covenant on the part of the contractors that they would furnish information if called for. It was optional with the water company whether it should call for the evidence of payment and discharge of claims and liens, and, therefore, the failure to call for such evidence was no violation of the agreement. It may well be, and presumably is, the fact that the water company had evidence satisfactory to itself that all bills and claims against the contractors were paid when it made the final payment due under the contract. Though the evidence was satisfactory to it, the company was evidently misinformed or misled, as it was subsequently compelled to pay a claim which was a lien against its property. . The very purpose of the bond in suit was to protect it against such loss. It was liable to err in its judgment or in its action with the contractors, and to sustain a loss by their noncompliance with the agreement, and the purpose of requiring the bond was to protect it from loss caused by any default of the contractors which was not attributable to its own violation of duty to the surety company. If the contract required the water company to be absolutely certain of the discharge of all claims and liens prior to making the final payment due on the contract, as a condition precedent to a recovery on the bond, there was no — 17 — reason or necessity for the company requiring a bond at all. The construction placed upon this stipulation of the contract by the defendant deprives the plaintiff of the protection which it was manifestly the purpose of the bond to afford. The judgment of the court below is affirmed.