Massachusetts Bonding & Insurance v. Phillips Co.

Mr. Presiding Justice McSurely delivered the opinion of the court. Plaintiff brought suit to recover the premium for a surety bond pursuant to the terms of a bond of indemnity executed by defendant.- Certain defenses were presented by an amended affidavit of merits which, upon motion, the court struck from the files. Defendant elected to stand by its affidavit and judgment for $1,400 followed. This appeal seeks a reversal, alleging that the defenses presented were sufficient to raise issues of fact to be tried and that the court erroneously’struck the affidavit. The statement of claim alleged that October 17, 1919, Seymour Standish and William S. Allan, of the State of Hlinois, copartners, having their principal office and business in Chicago, Illinois, submitted to the Paris Hugo Bridge Company of Paris, Texas, a written bid to construct a bridge across the Red river between Paris, Texas, and Hugo, Oklahoma, which was accepted, conditioned on Standish & Allan furnishing the bridge company a surety bond in the penal sum of $89,292, for the faithful performance of the contract for the construction of the bridge; that Standish & Allan requested plaintiff to become surety on the bond, and as a further inducement therefor The Phillips Company, a corporation, the defendant herein, executed a bond of indemnity, whereby it undertook to save plaintiff harmless from all damages and loss which it might sustain by reason of having executed the surety bond and also “to pay or cause to be paid to the Company the premium on said,bond promptly upon the execution thereof.” The statement of claim further alleges the execution of said bond, its delivery to the bridge company, the execution of a formal written contract between the bridge company and Standish & Allan for the construction of the bridge, and the complete performance of this contract in accordance with its terms. This suit is for the premium on the surety bond, which plaintiff asserts defendant is obligated to pay by virtue of its undertaking above quoted. Defendant argues that this is an action in debt on a bond, of which the municipal court does not have jurisdiction, citing People v. Dummer, 274 Ill. 637. This case has been distinguished in Strassheim v. Barnes, 212 Ill. App. 299, where it is held that the municipal court has jurisdiction in an action of debt, which is one of the forms of action ex contractu. Furthermore, the instant case is essentially in assumpsit upon an express contract. Pursuant to an order plaintiff filed a copy of the surety bond it executed, which is dated November 17, 1919. Defendant alleges that this is not the surety bond which was in force, but that a materially different bond was substituted for it January 4, 1920, at the request of plaintiff and without the assent of defendant, in which the obligation was for a larger amount. The well-known rule is invoked that a material alteration in a contract made without the assent of the surety discharges the guarantor. Plaintiff is not seeking to be indemnified under the bond of defendant, but is seeking the payment of the premium for its surety bond, which defendant agreed in its bond of indemnity to pay, not as a collateral, but as an original promise. Where the agreement is an original undertaking to pay, a recovery may be had as soon as a breach of the promise exists, and the measure of damages is the full amount agreed to be paid. This rule is well established and supported by many decisions. In re H. L. Herbert & Co., 262 Fed. 682; Mills v. Allen, 133 U. S. 423; Wicker v. Hoppock, 6 Wall. (U. S.) 94; Resseter v. Waterman, 151 Ill. 169; Illinois Surety Co. v. Munro, 209 Ill. App. 407; 22 Cyc. 80. The undertaking of defendant in its bond was to pay the premium upon the surety bond executed by plaintiff for Standish & Allan “promptly upon the execution thereof.” The obligation of defendant, as an original promisor to pay the .premium, was complete when the bond referred to was executed. It would not be just to relieve defendant of this promise because the penalty in the surety bond for the construction of the bridge was subsequently increased. The premium was not increased and defendant pays no more than it promised to pay. It would be unreasonable to deprive plaintiff of the premium agreed upon solely because it assumed a larger liability in its surety bond than first contemplated, and defendant should not be relieved of its promise because the parties for whose benefit the surety bond was executed by plaintiff received more than they first bargained for. This applies also to the claim that the premium should be prorated with reference to the time of the substituted surety bond; but there was no cancellation of the surety obligation but only an increase in the amount of the penalty in the bond. Defendant’s obligation to pay the full amount of the initial premium became absolute and unconditional upon the execution of the first bond, and in the absence of any allegation of special damages we see no convincing reason why, under these circumstances, it should escape this obligation. It is further presented as a defense that the partnership of Standish & Allan consisted of them and also J. H. Wilhelm, a citizen of Oklahoma; that practically all the bridge to be completed was within the State of Oklahoma, and the contract was to be performed there, and that the surety bond issued by plaintiff guaranteed the performance of a contract for business in that State; that the obligee, the Paris Hugo Bridge Company, was a Texas corporation and had not complied with the laws of Oklahoma and had secured no license to do business there, and that under the laws of Oklahoma contracts between such foreign corporations and citizens of that State are null and void; that therefore plaintiff’s surety bond was tainted with the illegality of the unlawful contract, and there was no obligation which could be enforced against it by the bridge company. In plaintiff’s statement of claim it is alleged that Standish & Allan were residents of Hlinois. The contract was so executed by them and in any suit against them brought by the bridge company they would be estopped from claiming, citizenship in any other State. Stewart v. Metcalf, 68 Ill. 109. Further, the panties to the contract received the benefit of the surety bond and cannot now raise this point as a defense to a suit for the premium. Moses v. Royal Indemnity Co., 276 Ill. 177. The consideration for the execution of the indemnity bond by defendant was the execution by plaintiff of its surety bond. The only condition obligating defendant to pay the premium was the execution of the surety bond, and even were the original contract for the construction of the bridge void, this illegality would not extend to the promise of defendant in its bond to pay the premium on the surety bond. The test is that plaintiff can make out its case without reliance upon the contract, so that any possible illegality therein cannot affect the new and separate contract of defendant with reference to the premium. As has been elsewhere said, the moral turpitude involved in the original contract may be considered in fixing the degree of proximity necessary to taint the new contract. Defendant cannot taint its obligation under the new contract by a speculative charge of possible illegality in the original contract with respect to a penal statute, and especially after the bridge has been completed in compliance with the contract. Missouri Fidelity & Casualty Co. v. Art Metal Const. Co., 242 Fed. 630; Ramsay v. Crevlin, 254 Fed. 813; Mechanics’ Ins. Co. v. Hoover Distilling Co., 182 Fed. 590; Armstrong v. Toler, 11 Wheat. (U. S.) 258. Defendant asserts that the contract sued upon was ultra vires the defendant corporation. This is a Wisconsin corporation and its corporate powers must be determined by the laws of that State. The trial court considered the decision of the Supreme Court in Security Nat. Bank v. St. Croix Power Co., 117 Wis. 211. It is there held that the doctrine of ultra vires cannot be used by a corporation entering into business relations as a means of defeating obligations assumed, and that the State alone can invoke the doctrine of ultra vires. In Illinois it is the rule that while a corporation generally has no power to execute a bond of indemnity, if, however, this redounds to the financial benefit of the corporation, it may be a valid and enforcible obligation against such corporation; that such corporation may, for the purpose of advancing the objects and purposes for which it was created, do many acts which otherwise would be ultra vires. Midland Tel. Co. v. National Tel. News Co., 236 Ill. 476; Standard Brewery v. Creedon, 283 Ill. 474; Central Lumber Co. v. Kelter, 201 Ill. 503. It follows, therefore, that defendant to present the defense of ultra vires sufficiently under the Illinois law should have alleged that it had no beneficial interest in the execution of the indemnity bond, and that its execution would not redound to its financial benefit. Defendant’s corporate powers were to manufacture, sell and “deal in any supplies or articles of merchandise or commerce,” which is consistent with the fact that defendant was interested in making sales of merchandise to Standish & Allan for the purpose of the construction of the bridge, and that this was the consideration for the execution of the indemnity bond. A similar affidavit of defense was held had in Blue Island Brewing Co. v. Fraatz, 123 Ill. App. 26. We hold that no legalAefense was presented by the amended affidavit of merits and that it was properly stricken. The judgment is therefore affirmed. Affirmed. Hatchett and Johnston, JJ., concur.