Hasbrouck ex rel. Clow v. Carr

OPINION. ROBERTS, C. J. The bond or contract to enforce which this suit was filed, is a combined application for a contract bond and an indemnity agreement, usually, it is evident, only intended to be signed by the applicant for such bond. It is designated, on the face of the paper, “Application for a contract bond.” This is followed by a blank space for the place and date of execution, and eighteen questions to be answered by the applicant for the bond. None of these questions have any relation whatever to any other signer of the bond, save the applicant. These questions are immediately followed by the following printed paragraph: “Should the Empire State Surety Company, hereafter called the surety, execute or procure the execution of the bond hereinbefore applied for, the undersigned, hereinafter called the indemnitor, do in consideration thereof, jointly and severally undertake and agree.” This is followed by thirteen numbered paragraphs, setting forth the agreements of the indemnitor, and so designating him, practically all of which only refer to the applicant. The fourth paragraph, upon which appellant’s liability rests, if at all, reads as follows: “That the indemnitor will perform all the conditions of said bond on the part of the indemitor to be performed and HE will at all times indemnify and save the surety harmless from and against every claim, demand, liability, cost, charge, expense, suit, order, judgment and adjudication -whatsoever, and will plate the surety in funds to meet every claim, demand, liability, cost, charge, expense, suit, order, judgment or adjudication against it by reason of such suretyship and before it shall be required to pay thereunder.” The bond was signed by Anson, the contractor, his wife and Clark M. Carr, the appellant. Appellant contends that paragraph four, of the indemnity agreement, quoted supra, has no relation whatever to him, but refers solely to Anson, the contractor. But in view of the fact that the undertaking was a joint and several one, it might reasonably be held that the undertakings and promises contained in such paragraph were joint and several, and applied to and bound all the signers of the contract. Assuming that Carr was bound by the provisions of said paragraph, we will pass to a consideration of his liability to the use of plaintiff in this case. This liability depends upon whether the agreement signed by him was intended solely for the indemnification of the Empire State Surety Company, and was personal to it, or whether it was an agreement, by Carr, to pay the debts contracted by Anson, the payment of which were secured by the bond signed by the Empire State Surety Company. The rule is well stated in Brandt Suretyship Guaranty (3rd Ed.) Sec. 362, as follows: “Where the security is merely personal to the surety, and cannot be construed as a pledge for the security of the debt, if the surety is discharged from liability the creditor cannot afterwards take anything by subrogation to his rights. The obvious reason for this rule is that the surety being discharged cannot be damnified, and the creditor claiming only through the surety, and occupying his place, can have no greater rights than he. If, on the other hand, the' security is a pledge for the payment of the debt as well as a personal indemnity for the surety, the discharge of the surely will not deprive the creditor of a claim on the security of the payment of the debt.” 1 It will be noted that Carr did not undertake to pay the claims, judgments, etc., but only to place the Empire State Surety Company in funds to meet such claims and judgments, before it should be required to pay the same. Was this covenant intended only for the protection of- the surety, or was it a direct undertaking on the part of Carr to pay the creditors? Obviously this provision was inserted to secure the Empire State Surety Company against loss by reason of its suretyship for Anson. This is more manifest when we consider the situation of the parties to the contract at the time the agreement was entered into, and examine the entire contract. Anson had been awarded the contract for constructing certain extensions and additions to the Albuquerque postoffice. His answers to the questions contained in the application showed that he was solvent. The Empire State Surety Company was also solvent and authorized to transact business in New Mexico. The insolvency of neither Anson nor the Empire State Surety Company was contemplated. The company, as is usually the case, was desirious of protecting itself against loss by reason of such suretyship. It knew that Anson might default in some of the conditions of the bond, in which event it would be called upon to respond, under the bond which it proposed to execute for him, in damages. In order to protect itself against such liability it required Carr to join in the indemnity agreement with Anson, before it would execute the bond. The only object which the company had in view was its. protection against the payment of judgments which might be obtained against it by reason of its suretyship for Anson, and costs, charges and expenses 'which it might incur. To better insure this protection the clause was inserted requiring the indemnitors to' place it in funds to meet every such claim, judgment, ete., by reason of its suretyship “and before it shall be required to pay thereunder.” This clause was evidently not inserted for the benefit of the creditors and claimants under the surety bond, but solely for the indemnification of the surety. It did not require the surety company to apply thismonejq so paid by the indemnitors, to the liquidation of such claims and judgments. There is no promise on the part of Carr that he will, in discharge of his obligation, pay any money to the creditors of Anson, who might b& able to resort to the surety bond. He simply agreed that he would place the surety company in funds, to pay any claim, judgment, etc., before it should be required to pay the same. Both the complaint and answer in this case show conclusively that the Empire State Surety Company is insolvent; that it has not paid the judgments, for which a recovery is sought in this case; that it has no assets whatever, and cannot pay any part of such judgments-; that it has been dissolved and has ceased to exercise any corporate functions. In other words, the pleadings show that it cannot be required to pay the whole or any part of any such judgments. This being true, no recovery can be had in this case. By paragraph four Carr undertakes to place the company in funds to meet every “claim, demand, liability, cost, charge, expense, suit, order, judgment and adjudication whatsoever,” and “before it shall be required to pay thereunder.” Suppose, for illustration, that the Empire State Surety Company was insolvent; that “A”, a creditor of Anson, should file a claim with the surety company; that Anson was insolvent; that the surety company should file suit against Carr, to compel him to place the surety company in funds to pay such claim. Would it not be a complete defense for Carr, if he should allege and prove that there was no liability on the part of the company? Most assuredly, and if this be true, has he not plead a complete defense in this case, when he shows that the compan}r, by reason of its insolvency, cannot be required to pay any money on the judgments in question? In the case of McArthur Bros. Co., vs. Kerr, 140 N. Y. S. 527, the court was called upon to construe the provisions of an indemnity agreement, very similar to that now under consideration. In that case the provision was: “That said Mary Grage shall and will at all times indemnify and keep indemnified and save harmless the said company from and against all Joss, damage, cost, charges, counsel fees and expense whatsoever which said company shall or may for anjr cause, at any time, sustain or incur by reason or in consequence of said company having executed or agreed to execute said instrument; and do furtlier covenant and agree to pay to said company or its representatives all damages for which said company or its representatives shall become responsible upon the said bond or undertaking before said company, or its representatives shall be compelled to pay the same, any sum so paid, however, to' be applied to the payment of such damages.” The court said: “If this agreement is simply one or indemnity, then the nonsuit was right, as there is no proof in the record that the surety company has suffered any loss whatever, and it affirmatively appears that there now remains no further liability against it upon this judgment. If, on the other hand, the agreement goes further and is an absolute promise to pay, dependent only upon the arising of the liability against the surety company by the rendition of the judgment, such an agreement is valid and enforcible. See Maloney vs. Nelson, 144 N. Y. 182; 39 N. E. 82. The determination of the question depends upon the meaning given to the wording of the last phrase of the above question. It is to be noted that the obligation to pay is by the express wording limited to payment preceding the time when the surety company is compelled to pay. IJp to this time the surety company has not been compelled to pay anything, and so far as appears from the record has not paid a dollar. It is further to be noted that all that is paid to the surety company is to be devoted to the payment of the damages, which the Surety Company was obligated to pay. This further evidences to me that the real purpose of the clause was to compel the indemnitor, Mary Grage, to furnish to the surety' company in advance the necessary funds with which to liquidate such damages as it might be compelled to pay under its bond. If I am right in this construction, then the contract ivas purely one of indemnity, and, until such time as loss occurred to the surety company, there were no damages arising under the Grage agreement.” 2 3 Where a stranger undertakes to indemnify a surety, such undertaking does not create a trust in favor of creditors, nor can they be subrogated to the surety’s rights, and, likewise, where a stranger undertakes to iTHlp.rn.nify a surety and the surety thereafter becomes bankrupt so that it cannot pay any of its suretyship obligations and is dissolved and its corporate capacity and right to do business terminated, the legal representative of such surety cannot enforce the indemnity, because such surety lost nothing and was not damaged, and cannot be damnified by such judgment. Hampton vs. Phipps, 108 U. S. 260; Seward vs. Huntington, 94 N. Y. 104; Taylor vs. Farmer’s Bank, 9 S. W. 241 (Ky.); Leggett vs. McClelland, 39 Ohio St. 625; Macklin et al., vs. Northern Bank of Ky. 83 Ky. 314; Stearns on Suretyship, Sec. 272. 4 That this was simply a contract of indemnity is made more evident by the designation of the parties. Throughout the contract Anson, his wife and Carr are referred to-as indemnitors. Webster’s International Dictionary defines “indemnitor” as “a person who indemnifies.” The-same authority defines the verb “indemnify” as follows: “1. To save harmless, to secure against loss, damage or penalty. 2. To make good to; to reimburse; to compensate,” and the same authority defines “indemnitee” as “a-person who receives or is to receive indemnity.” It is therefore clear under these definitions that the indemnity was to protect the surety, that is to say, the debtor, and not the-creditors, of Anson; consequently, unless there is some express language in the agreement signed by Carr as indemnitor, by which he binds himself to pay the' creditors-of Anson, we may reasonably suppose that the word “indemnitor” as descriptive of Carr was used in its natural' sense, and that his undertaking was only for the benefit of the party with whom the contract was made. Appellee quotes, in his brief, a statute of the United States, (33 Stat. C. 778, p. 811) which gives to creditors-of a contractor, entering into a formal contract with the United States for the construction of public buildings, etc.,, a right to resort to the bond given the United States by the contractor, to recover for materials furnished and work done on such building, etc., and argues that' this statute applies to the indemnity agreement executed by Carr to the surety company. As we view it, this statute-has no relation whatever to this ease. This is not a suit on the bond referred to in the statute, and it is not pointed •out in what particular, if' any, it could affect Carr. For the reasons stated, the judgment of the district court will be reversed, and the Cause remanded, with instructions to dismiss the complaint, and, IT IS SO ORDERED.