Federal Union Surety Co. v. McGuire

McCulloch, C. J. This in an action instituted by appellee against appellant, a surety company, to recover on a bond executed by the latter to stand surety for one James Loveland for the performance of his contract with appellee for the construction of a building in the city of Helena, Arkansas. According to the terms of said contract, Loveland undertook to furnish material and build the house for appellee at the stipulated price of $4,132, to be paid as follows: When the foundation is in and the framing is up, . excepting the rafters.......................$1,000 When the storm sheathing and roof is on......... 800 When brick work is finished and the outside is finished, except paint......................... 1,000 When the windows are in and plastering is on---- 800 When the contract is completed, the balance of---- 532 $4,132 The contract contained the following stipulation: “In case there should be any disagreement between the two parties to this contract, each agrees to submit the same to arbitration, each to select a man, and if these fail to agree, they are to agree on a third man, and the decision of these three shall be final, should arbitration become necessary, it may be had at any time, before final settlement. The cost of arbitration, if any, to be paid by the parties deemed in fault.” The bond contained a stipulation to the effect that in case of default on the part of the principal, a written statement or notice thereof should be given by the obligee to the surety within ten days after such default, and that the surety should then have the right to complete the performance of the contract. It also contained the following, among other stipulations : “Fourth. That the obligee shall faithfully perform all the terms, covenants and conditions of such contract on the part of the obligee to be performed; and shall also retain that proportion, if any, which such contract specifies the obligee shall or may retain of the value of all work performed or materials furnished in the prosecution of such contract (not less, however, in any event, than 10 per centum of such value), until the complete performance by the principle of all the terms, covenants and conditions of said contract on the principal’s part to be performed. * * *” “Sixth. That the obligee shall retain 10 per cent (10%) of the value of the work done and material supplied in the execution of such contract, until the completion of the same by said principal, and until the expiration of the time within which liens or notices of liens may be filed, and until the legal cancellation and discharge of such liens, if any.” Loveland died before the building was completed, and due notice of the default was given to appellant in the manner specified. Appellant failed to respond to the notice and appellee proceeded to complete the building. He sued for the sum of $1,308.11 and recovered ,the sum of $1,176.01, with interest. The items of appellee’s claims consisted of unpaid bills for material and labor incurred by Loveland, which constituted liens on the building, and of cost of completing the building after Loveland’s - death. The principal contention of appellant is that appellee violated the terms of the bond with respect to payments made to Loveland. Appellee testified that he paid to Loveland all of the contract except the sum of $444.35, which he said he retained in compliance, as he understood it, with the provisions of the bond requiring him to retain “ten per cent. (10%) of the value of the work done and material supplied in the execution of such contract. ’ ’ Appellant insists that the fourth section of the bond required the obligee to retain all of the last payment specified in the contract, in addition to “ten per cent, of the value of the work done and material supplied,” as specified in section 6. It is not so nominated in the bond. The fourth section has no application to the contract between appellee and Loveland, for it contained no provision for the retention of any portion -of “the value of all work performed or materials furnished in the prosecution of the work.” It merely specified when payments should be made, whereas the fourth section merely provided that the obligee must “retain that proportion, if any, which such contract specifies the obligee shall or may retain of the value of all work performed or material furnished in the prosecution of such contract.” In other words, that section of the bond fits a requirement which does not appear in the contract between appellee and Loveland and therefore has no application. The language of the bond is that selected by the insurer and must be given the strongest interpretation which it will reasonably bear in favor of the insured. American Bonding Co. v. Morrow, 80 Ark. 49-54. . The evidence does not show that the amount retained by appellee was less than 10 per cent, of the value of work done and material furnished, as specified in section 6 of the bond. The fact that he did not retain as much as the final payment specified in the contract does not necessarily establish a breach on his part of the agreement to retain the proportion specified in section 6. Another assignment of error is based on the admission of the following testimony adduced by appellee: He testified that shortly after he notified appellant of Loveland’s default, a gentleman (a stranger to him) called, and, pretending to act as appellant’s agent, instructed him to get a contractor to go over the incompleted building and to “go ahead and complete the work. ’ ’ This testimony was obviously inadmissible, for there is no evidence that the man in question was, in fact, the agent of appellant. But no prejudice could possibly have resulted from its admission, for the simple reason that after appellant had failed to respond to appellee’s notice of the default, the latter had the legal right to proceed with the completion of the building according to contract. The alleged agreement with the putative agent added nothing to appellee’s legal rights and therefore had no influence on the minds of the jury. The error was harmless. Again, it is insisted that appellee had no right to pay the bills incurred by Loveland and charge them to appellant on the bond, because liens were not filed by the claimants as the statute provides. The proof shows that the bills constituted liens on the building, and that the time for filing' same had not expired; therefore appellant had the legal right to discharge the liens in order to protect his property from incumbrances. Nor did the requirement in the bond for retention of part of the contract price have any application to payment made after Loveland’s default. Eureka Stone Co. v. First Christian Church, 86 Ark. 212-217. Appellee then had the legal right to pay the amount necessary to complete the building and discharge liens and charge the same against appellant’s bond. There are other assignments of error which we do not deem of sufficient importance to discuss. Affirmed. Smith, J., dissenting.