Opinion
38142.
DECIDED MARCH 9, 1960. REHEARING DENIED MARCH 24, 1960.
Complaint. Fulton Civil Court. Before Judge Wright. December 4, 1959.
Moise, Post Gardner, Allen Post, J. William Gibson, Albert G. Norman, Jr., for plaintiff in error.
Robert E. Hicks, Alex McLennan, James W. Dorsey, Nall, Miller, Cadenhead Dennis, contra.
The court committed reversible errors for the reasons set out in the body of the opinion.
DECIDED MARCH 9, 1960 — REHEARING DENIED MARCH 24, 1960.
This is an appeal from orders of the Civil Court of Fulton County sustaining general demurrers and certain special demurrers to the petition of Peachtree Roxboro Corporation, hereinafter called the plaintiff. We shall hereinafter designate United States Casualty Company as the defendant casualty company, and Ivey Brothers Construction Company, Inc., as the defendant construction company.
A simple statement of the facts is that on August 7, 1958, the plaintiff brought a petition in two counts against the defendants. The petition, which was later twice amended, adding two additional counts, alleges in each count that on August 7, 1956, the defendant construction company entered into a written agreement with the plaintiff for the construction of an apartment building and that the defendant construction company contracted to furnish all the materials and perform the work in the construction of the building for a price not to exceed $400,000.
Counts I and II allege that the defendant construction company breached the contract in that it did not complete the building for $400,000, which the plaintiff paid, but that in addition the plaintiff was required to pay and did pay $165,244.09 to subcontractors, laborers and material men who furnished labor and material to the defendant construction company, in the construction of the building in order to prevent liens being filed.
Count I alleges that the defendant casualty company, as surety, along with the defendant construction company, as principal, executed in favor of the plaintiff, as obligee, a "Performance Bond" which is attached as an exhibit. The performance bond is conditioned on the faithful performance of the contract by the defendant construction company and provides that whenever the defendant construction company should be, and declared by the plaintiff to be, in default under the contract, the defendant casualty company may "promptly remedy the default" or shall promptly complete the contract or arrange for others to complete the contract for the plaintiff.
Count II alleges that the defendant casualty company, as surety, along with the defendant construction company, as principal, executed in favor of the plaintiff, as obligee, a "Labor and Material Payment Bond" which is attached as an exhibit. The labor and material payment bond is conditioned on the prompt payment by the defendant construction company to all claimants for all labor and material used or reasonably required for use in performance of the contract. A claimant, under the bond, must have a direct contract with the defendant construction company or one of its subcontractors. The bond gives the claimants the right to sue if they have not been paid in full within 90 days of the furnishing by them of their last labor or material, providing any two of the principals, surety and obligee are given written notice of the claim, by registered mail, within such 90 days period. It is alleged that these conditions were fulfilled, that the plaintiff paid such claimants $165,244.09 to prevent the filing of liens, and that, therefore, the plaintiff is subrogated to the rights of such claimants under the labor and material payment bond.
Count III is an action on the labor and material payment bond. It is alleged that the plaintiff had a direct contractual relationship with the defendant construction company to furnish, and did furnish to such defendant, labor and material used or reasonably required for use in the performance of the contract, and that such defendant has not paid the plaintiff for labor and material thus furnished of a value of at least $165,244.09. Count III further alleges that all of such labor and material were furnished at least 90 days prior to the filing of this action and that the plaintiff gave written notice of its claim to the principal and owner of the bond.
Count IV is an action on the performance bond, and sets forth the following allegations: Before the work was commenced the plaintiff and the defendant construction company mutually agreed that the plaintiff, as agent for the defendant construction company, and at its direction, would contract with subcontractors for the performance of the work on the building, and that the plaintiff would deposit into a construction account such sums not to exceed $400,000 as the defendant construction company would direct, in lieu of making payments under the contract to such defendant construction company, and would cause to be paid from such account, bills of laborers, material men and subcontractors incurred in the construction of the building. The defendant casualty company knew of their arrangement, and acquiesced therein and assented thereto, and has waived its right to rely upon, and is estopped from relying upon, a strict performance of the terms of the original contract. After $400,000 was so deposited by the plaintiff, and so paid out to subcontractors, laborers and material men at the direction of the defendant construction company the building was not completed according to the contract, and the plaintiff was required to, and did enter into contracts with subcontractors, and hired laborers and furnished material, and paid $165,244.09 therefor, in order to complete the building. The defendant casualty company had notice of such breach by the defendant construction company and has not performed any of its obligations under the performance bond. The reasonable cost of completing the building after the defendant construction company so defaulted, was $165,244.09, and had such defendant completed the building according to the contract, its market value would have been at least $565,244.09.
In each of the counts it is alleged that the bond sued on was executed by the defendant casualty company in consideration of a premium paid by the plaintiff. In each count it is alleged that the plaintiff has performed all of its obligations under the contract.
In each count it is alleged that on April 2, 1958, the plaintiff made a written claim upon both the defendants and on May 14, 1958, a written demand upon the defendant casualty company, for the payment of $165,244.09, which claim and demand the defendants have ignored and have failed and refused to honor, and that such refusal by the defendant casualty company was in bad faith.
In each count the plaintiff prays for recovery of $165,244.09, plus interest and costs of court, against the defendants, jointly and severally, and of $41,311.03, plus reasonable attorney's fees, against the defendant casualty company.
In addition to sustaining the general demurrers of the defendant casualty company to Counts I, II and III, and an oral motion of the defendant casualty company to dismiss Count IV, and dismissing all of the counts, the trial court sustained grounds 4 and 5 of the defendant casualty company's "additional demurrers," filed on December 17, 1958, the latter two being special demurrers directed to paragraphs 4 and 5 of Count III and overruled certain of the plaintiff's special demurrers to the answers of the defendant casualty company. It is on these judgments of the trial court that the case is here for review.
As has been stated hereinabove, Count I of the petition alleges that the defendant construction company agreed, by contract with the plaintiff, to build for the plaintiff a building for a stipulated price, and to furnish all labor and materials for the building of the same, and that after the plaintiff had paid to such principal the amount due under the terms of the contract, the plaintiff was required to pay, and did pay $165,244.09 to subcontractors, laborers and material men who furnished material and performed work on the construction of the building, in order to prevent the filing of liens on the building.
On page 2 of the performance bond it is provided that the defendant casualty company, as surety, on default of the principal "may promptly remedy the default" or shall promptly complete the contract, or obtain bids for submission to the owner for completing the contract, and arrange for a contract between such bidder and the owner to complete the building.
Code § 20-704 states: "Rules of interpretation. — The following rules, among others, may aid in arriving at the true interpretation of contracts: . . . 5. If the construction is doubtful, that which goes most strongly against the party executing the instrument, or undertaking the obligation, is generally to be preferred."
In State Mutual Life Ins. Co. v. Forrest, 19 Ga. App. 296 (1) ( 91 S.E. 428) this court said: "Insurance policies are prepared and proposed by the insurers; and, where such a contract is capable of being construed in two ways, that interpretation must be placed upon it which is most favorable to the insured. Especially is this true where, as in this case, the construction insisted upon by the company would work a forfeiture of the policy, while the other will preserve the obligations of both the company and the insurer." See also Johnson v. U.S. Fidelity c. Co., 93 Ga. App. 336, 341 ( 91 S.E.2d 779) and Johnson v. Mutual Life Ins. Co., 154 Ga. 653 (1) ( 115 S.E. 14).
In Wilson-Weesner-Wilkinson Co. v. Collier, 62 Ga. App. 457, 464 ( 8 S.E.2d 171), this court said: "The word `may' has frequently been held to mean `must'. The use of the permissive word `may' is always to be considered in connection with its context and the subject-matter."
It is obvious that after the plaintiff has performed all of its obligations under the contract, and has made the periodic and final payments required therein, and when subcontractors, laborers and material men have brought to light certain claims against the building, the only remedy which is available to anyone is simply to pay such claims. At that point it is too late to complete the contract in accordance with its terms, and it is too late to obtain bids to complete the building. Certainly the defendant casualty company cannot argue that the contract gives it an option, which cannot, under such circumstances, be exercised. The only course left to the defendant under the facts of this case is to promptly remedy the default by the payment to the plaintiff of those sums which the plaintiff was required to pay, and did pay, to such claimants in order to prevent the filing and foreclosure of liens on the building. It is clear that under these circumstances the plaintiff had the right to pay laborers, material men and subcontractors. See Massachusetts Bonding c. Co. v. Realty Trust Co., 142 Ga. 499, 508 ( 83 S.E. 210).
It follows that under the allegations of Count I, the payments to subcontractors, laborers and material men were not premature payments. However, even were such payments premature, the surety in this case would not be discharged.
The plaintiff was under no obligation to inform the defendants of the outstanding claims of the laborers, material men and subcontractors. The bond requires no notice of any default to be given by the plaintiff. In McMullan v. Community Acceptance Corp., 78 Ga. App. 616, 618 ( 51 S.E.2d 575), this court held: "We know of no provision of the law which would require the plaintiff to notify the defendant of such default. There seems to be required of a surety some sort of diligence on his part to ascertain whether his principal or creditor is complying with the contract on which he is surety." We do not see how the surety company was prejudiced and its risk increased. See also, Georgian Co. v. Jones, 154 Ga. 762 (1) ( 115 S.E. 490), Hunnicutt v. Perot, 100 Ga. 312 (2) ( 27 S.E. 787), and Connor v. Hodges, 7 Ga. App. 153 ( 66 S.E. 546).
The plaintiff was entitled to pay the claims of laborers and material men although it had already paid to the defendant construction company the full guaranteed contract price. The contract, attached as an exhibit to the original petition, obligated the plaintiff to make progress payments. Furthermore, there is an allegation, not specially demurred to, in paragraph 5 of Count I of the petition as follows: "Plaintiff has performed all of its obligations arising under said contract."
Even if the payment by the plaintiff of the guaranteed contract price, before the payment to laborers and material men was improper (which is specifically denied), the defendant casualty company is required to show that its risk was increased thereby in order to receive a discharge from its obligations under the bond. A compensated surety is not a favorite of the law. A departure from the terms of a construction contract must be such as to prejudice a paid surety before it may be discharged. See 127 A.L.R. 62.
It is our opinion that Count I of the petition does state a cause of action, and the demurrers thereto should not have been sustained.
The question raised by the general demurrers to Count II of the petition is whether the plaintiff, by paying the laborers, material men, and subcontractors, amounts which the principal under the bond should have paid but did not pay, may sue in this action for recovery of such amounts from the defendants under the labor and material payment bond, which is attached as an exhibit to the original petition. The plaintiff has a right to recover from the bonding company for such payments, even in the Civil Court of Fulton County. See Sasser v. Service Motor Sales, 76 Ga. App. 609 ( 46 S.E.2d 628).
Count II of the petition does state a cause of action, and the court should not have sustained the general demurrers thereto.
As to Count III, under the bond now before us, notice need be given only to two of the following: The principal, the owner, or the surety. The defendant casualty company, in its bond, did not require any notice whatsoever to be given to it. If the notice was inadequate, the defendant casualty company certainly could have provided for what it would consider adequate notice by including such within the provisions of the bond. It had ample opportunity to protect itself, if it feels it needs protection.
Under the allegations of Count III of the petition, the plaintiff was a claimant as defined in the bond, and did furnish labor and material used or reasonably required for use in the performance of the contract, and the plaintiff was not paid for the same, and is entitled to recover as against the defendant casualty company under the labor and material payment bond. The general demurrers to Count III should not have been sustained.
Count IV of the petition alleges a cause of action against the defendants under the performance bond, and not under the labor and material payment bond. Paragraph 4 of Count IV alleges as follows: "Defendant United States Casualty Company had knowledge of such departure from the terms of the contract by the plaintiff and the defendant Ivey Brothers Construction Company, Inc., and acquiesced therein and assented thereto, and has waived its right to rely upon, and is estopped from relying upon, a strict performance of the terms of the original contract insofar as those terms were varied by the said mutual departure therefrom. The plaintiff has performed all of the said contract, as varied and assented to according to paragraph 4 of this Count IV."
A surety which assents to a method and manner of payment by the owner may not complain of the same. It is particularly important to note that the plaintiff, in the language from paragraph 4 above quoted, has alleged that the defendant casualty company had knowledge of the departure and acquiesced therein and assented thereto and has waived its right to rely upon, and is estopped from relying upon a strict performance of the terms of the original contract. The plaintiff has therefore alleged more than mere knowledge, and more than mere silence. The plaintiff has affirmatively alleged acquiescence, waiver, and estoppel.
Count IV of the petition does set forth a cause of action, and the motion to dismiss should not have been sustained.
The trial court sustained grounds 3 and 4 of the special demurrers of the defendant casualty company which were directed to paragraphs 4 and 5 of Count III of the petition. It is our opinion that these demurrers should have been overruled. It is our opinion also that the court erred in overruling grounds 3, 7, 8, 9 and 10 of the plaintiff's demurrers to the defendant casualty company's answers to Counts I, II and III of the petition. See Jones v. Robinson, 172 Ga. 746, 760 ( 158 S.E. 752), Budget Charge Accounts v. Peters, 213 Ga. 17, 18 ( 96 S.E.2d 887), and Collins v. Lambert, 59 Ga. App. 651 ( 2 S.E.2d 165).
For the reasons set out hereinabove the case is reversed.
Judgment reversed. Townsend and Carlisle, JJ., concur.