Burr v. Gardella

The plaintiff, in the month of June, 1914, entered into a contract with the state of California, through and by its department of engineering, whereby the former agreed to construct a portion of a state highway in Butte County, “between Lindo Channel, one and one-half miles north of Chico, and the northerly county boundary—Division 3, Route 3, Section D.” On the fifteenth day of April, 1915, the plaintiff and the defendant Keith made and entered into a written agreement, by the terms of which said Keith, for a certain specified consideration, was to haul and transport or carry from Cana or “any other point on the

The sureties on the bond given by defendant Keith for the performance of said contract are the defendants L. Gardella, Ames Vaughan, and J. R. Vaughan. The sum to which said sureties bound themselves on said bond was $2,000, and the condition of the obligation was that the party of the second part would faithfully perform all the terms of the contract.

The action here is against said Keith for $2,036 and against the sureties on said bond for $2,000, the sum in which the sureties became bound on their bond.

The complaint alleges that for a valuable consideration the said defendants, Gar della, the two Vaughans, and Keith, executed as sureties the bond in question here.

The defendants filed separate answers—that is, the defendant Keith filed an answer and the other defendants filed a joint answer as sureties on said bond.

“$1500.00. Chico, California, May 24, 1915.

“For value - received I promise to pay to the order of P. L. Burr the sum of Fifteen Hundred and No-100 Dollars in installments of Two Hundred and Fifty and No-100 Dollars, each, due on the 25th day of each month, commencing on, and the first payment due June 25th, 1915, and a like amount due on the 25th day of each month thereafter until the principal sum is fully paid, all principal, to bear interest at the rate of 7 per cent per annum, payable monthly. Should the interest not be so paid, it shall become a part of the principal and thereafter bear interest at the same rate. Should default be made in payment of any installment of the principal or interest when due, then the whole sum of principal and interest shall become immediately due and payable at the option of the holder of this note. Principal and interest payable in Gold Coin of the U. S. at Chico, California.

“F. M. Keith.

“The consideration expressed in the foregoing promissory note, is the value of the following property leased and delivered to the maker thereof, by payee, to wit :

“1 Knox Auto Track, Truck No. 4337.

“Upon the payment of said note as provided, the lessors agree upon the receipt of one dollar, to sell, and to deliver a bill of sale of said property to said lessee, and until such payment, then the title and ownership thereof remain in the lessors and assigns. Upon failure to pay said note as provided, said lessors may take possession of said property without process of law, and the amount paid on said note shall be retained by them as and for the rent of said property. In the event of destruction of the property herein

referred to lessee agrees to pay any balance remaining due upon the above note in full.”

The answer alleges that the “defendant was not able to pay and made no payments of the installment of purchase price provided_ for in said agreement or promissory note and that thereafter, and on or about the first day of September, 1915, plaintiff, exercising the option provided for in said agreement, took possession of said truck and ever since has had and now has possession thereof.”

In their joint answer, the sureties, Gardella and Ames and J. R. Vaughan, admitted the execution of the bond by them and the execution of the subcontract between Burr and Keith, but denied, on want of information and belief, that there was anything due Burr from Keith under said bond or said subcontract. As to the claim of plaintiff of rental for the use of the Knox truck, they set up as a defense thereto the agreement for the purchase of said truck, the allegations of their answer in that respect being the same as those contained in the answer of Keith. They set up the further special defense that the bond was drawn in compliance with the terms of the said subcontract and executed for the purpose of guaranteeing or assuring the full and faithful performance by. Keith of the terms of said subcontract, and alleged that the plaintiff violated the terms of said contract in that he paid to said Keith, or on his account, prior to the expiration of the period of thirty-five days after the completion of said contract more than seventy-five per cent of the payments due from him (plaintiff) to said Keith under said contract, “and that the said P. L. Burr did not retain twenty-five per cent of said respective payments for the period of thirty-five days after the completion of said contract, or for any part or portion of said period.” The court found that the special defenses set up in each answer were sustained by the proofs, and that there was nothing due from the defendant Keith under any of the counts of his complaint.

Besides the findings on the issues submitted by the pleadings the court made the following finding, the subject matter thereof not having been pleaded or made an issue:

“That since the above entitled action was commenced, the defendant, F. M. Keith, has been adjudged a bankrupt and

discharged from the payment of his debts, in the United States District Court in and for the Northern District of California; that the order declaring said F. M. Keith a bankrupt was made on the 11th day of January, 1918, and that a duly certified copy of said order is filed in this court.”

As a conclusion from the findings the court adjudged that plaintiff was not entitled to judgment as against any of the defendants, and accordingly rendered judgment “that plaintiff take nothing by his action as against defendants or any of them,” etc.

This appeal is brought here by the plaintiff from said judgment.

The bond executed to plaintiff by defendants contains this provision:

“The condition of this obligation is such that if the above bounden F. M. Keith, . . . shall pay or satisfactorily secure the payment of all labor, materials and supplies furnished for hauling and transporting . . . , mineral aggregate to points designated, in connection with the contract of P. L. Burr, in Butte County, Cal., in accordance with the terms and conditions of the contract, dated the 15th day of April, 1915, a copy of which is or may be hereto attached as forming a part hereof, and as required by the provisions of an act of the legislature, approved March 27th, 1897, entitled ‘An act to secure the payment of the claims of materialmen, mechanics, or laborers employed ;by contractors upon state, municipal or other public works’, and the acts amendatory thereof, and shall, in all things stand to and abide by, and well and truly keep and perform the covenants and agreements contained in the said contract and any alteration thereof made as therein provided, on part to be kept and performed, at the time and in the manner therein specified, and in all respects according to their true intent and meaning, and shall indemnify and save harmless the said P. L. Burr, . . . , as therein stipulated then this obligation shall become and be null and void; otherwise to remain in full force and virtue.”

The said bond and the scope of the obligations of the bondsmen thereunder must be considered and construed by the light both of the agreement between the plaintiff and

The agreement between the plaintiff and Keith, immediately following a reference in the preamble to the contract between the plaintiff and the state, reads, in part, as follows: “Now, therefore, subject to the terms and provisions of said contract and pursuant to the terms and provisions thereof, and in order to comply therewith, it is agreed by and between the parties hereto as follows”: and then follows a specification and description of the work to be done thereunder by Keith. The contract between plaintiff and the state, among other things, provides, as of course the law requires, that plaintiff “will pay all bills for labor, material and supplies contracted for by him, on account of the work herein contemplated, when same become due and payableetc. It is further provided in said contract that the state, by and through its engineering department, may at its option and at any time retain out of any amounts due the'contractor sums sufficient to cover any unpaid claims arising against the contract by reason of the contract, and, furthermore, may at its option and at any time pay any such unpaid claims out of the amounts so retained, upon sworn statements of such claims filed with the engineering department.

Said contract also contains a. provision to the effect that unless the work called for thereby is in all respects finished or completed before the expiration of 250 consecutive days, Sundays excepted, from the date of approval of said contract by the attorney-general, damage will be sustained by the state of California, and that it is and will be difficult and impossible to ascertain and determine the actual damage which the state will sustain by reason of such delay, and it is, therefore, “agreed that said contractor will pay to the said Department of Engineering the sum of $50 per day for each and every day’s delay beyond the time herein prescribed, in finishing the said work”; and it was further agreed by the contractor that the “department of engineering might deduct the aggregate amount of such penalty from any money due or that may become due said contractor under this contract.”

“Under no circumstances shall said second party remove any equipment from said work until he shall have fully performed all work to be done hereunder and fully performed all the terms hereof and any and all equipment of said second party may be used by said first party free of cost in carrying out the terms and provisions hereof, and the work to be done hereunder.”

As stated, the above provisions of the two contracts involved herein became and are essential parts and of the very essence of the obligation to which the sureties by their bond subscribed and so bound themselves.

From the answer of said sureties and the findings of the court it becomes readily manifest that the ground upon which the sureties claim to be exempt from liability upon their bond is that the plaintiff, in violation of the requirement of his contract in that particular, failed to retain, for a period of thirty-five days after the completion of said contract, twenty-five per cent of all payments becoming due to Keith thereunder, it being the contention that the result of such failure was to impair the rights of said sureties as such.

[1] Under the authorities, there can be no doubt but that a subcontractor in cases of contracts for the performance of public work may be required by the contractor to execute to him the bond provided for in the statute of 1897. (Stats. 1897, p. 201; French v. Powell, 135 Cal. 636 , [ 68 Pac. 92 ]; Associated Oil Co. v. Commary-Peterson Co., 32 Cal. App. 589 , [ 163 Pac. 702 ].) This the contractor may require as a matter of protection to his own bondsmen as well as to himself and to the end that the work to be done by the subcontractor will be according to the plans, specifications, and conditions upon which the original contract was let and accepted.

[2] It is true that the rule is that a surety is favored in law, and that any act by the obligee which is injurious to his rights will operate as an exoneration of his obligations as such surety. (Civ. Code, sec. 2840, subd. 2; Bateman Brothers v. Mapel, 145 Cal. 241 , [ 78 Pac. 734 ]; 3 Sutherland on Damages, 3d ed., sec. 735; Dunne Inv. Co. v. Em

“A surety is exonerated—

“1. In like manner with a guarantor;

“2. To the extent-to which he is prejudiced by any act of the creditor which would naturally prove injurious to the remedies of the surety or inconsistent with his rights, or which lessens his security.”

Section 2819 reads:

“A guarantor is exonerated, except so far as he may be indemnified by the principal, if by any act of the creditor, without the consent of the guarantor, the original obligation of the principal is altered in any respect, or the remedies or rights of the creditor against the principal, in respect thereto, are in any way impaired or suspended.”

[3] It may first be observed that if there were premature payments made by Burr, the effect thereof would not necessarily be to release the sureties from their entire obligation as such but only from that part of the subcontractor’s default that may be made up of such premature payments. (Siegel v. Hechler and Southwestern Ins. Co., 181 Cal. 187 , [ 183 Pac. 664 ].) But we are unable to perceive from the evidence where premature payments were made by the plaintiff in this case. The subcontract provides that, “as full compensation for all services rendered by said second party under the terms hereof, the said second party shall receive from said first party the sum of one and fifty one-hundredths dollars for each unit of said mineral aggregate sufficient to construct one concrete cubic yard. Said payment shall be made according to the estimates of the engineers of said Highway Commission.” The contract then provides, as we have already shown, that “said payment shall be made five days after said first party shall receive from said Highway Commission his respective payments

It will be observed that the precise total amount to become due Keith could not be foretold or specified in the contract, for the reason that what that amount might be was contingent upon the amount of work that he performed under the contract. But it is undoubtedly true that what the contract intended to say with respect to the retention of the twenty-five per cent was that that percentage of the payments made from time to time as they became due by plaintiff to defendant should be retained. Of course, it cannot be said that that provision does not involve a vital element of the agreement, the arbitrary or unnecessary violation of which would have the effect of producing a material deviation from the contract, either pro tanto, amounting only to a departure therefrom, or in toto, amounting to an alteration thereof, according to the extent of such violation; yet, a contract such as we have here, founded as it is upon the statute, is supposed always to intend, as the statute clearly contemplates, that claims accruing against the contractor in the performance of the contract must be paid whenever they fall due and so become payable/ whether prior or subsequent to the expiration of the thirty-five day period after the completion of the contract. Indeed, the contracts involved herein, as we have shown, contain in express language such a provision, and the provision is only in harmony with the proposition that those that become the creditors of a contractor under such a contract as we have here are not bound by the contract and cannot be compelled to postpone the enforcement of their claims beyond the time at which they may agree with the contractor that they shall be paid. [4] Of course, sureties upon a bond given for the proper execution of the terms of such a contract undertake their obligation with full knowledge of this proposition, and their obligation as such no less requires them to stand good for the faithful execution of the terms of the contract in that particular than for any other vital provision thereof. Therefore, where, as we think the uncontradicted testimony of the plaintiff shows to be so in this case, the payments made were according to the requirement of the contract as to when certain payments should be made and were within the

The testimony respecting the payments by plaintiff and the times at which they were made comes entirely from him, and, while it is not altogether clear and satisfactory as to the time and extent of all the payments made, it sufficiently shows, we think, that payments or advancements made by him on the contract prior to the completion of the work or while it was in progress were not only within the terms of the contract, but were in extinguishment, by actual payment or by guaranteeing payment, of claims accruing against Keith in the performance of the contract. His testimony discloses this situation: That both the contract with the state and the subcontract were practically completed about the first day of December, 1915; that Keith, a short time prior to the completion of the subcontract (it is not made to appear precisely how long before) abandoned it, and that plaintiff, in pursuance of the stipulation to that effect in said contract, himself took charge of the work and completed the contract; that, while Keith was still actually engaged in the performance of the contract, it became necessary, in order that the performance of the contract might be proceeded with, for plaintiff to pay, and he did pay, certain claims arising against Keith in the performance of the

The sureties, as we have seen, bound themselves to stand for the faithful performance of the subcontract, not only according to its terms, but also according to the terms and conditions of the contract between plaintiff and the state. Time was of the essence of the latter contract. It had to be completed by the time designated therein and, as seen, default by the contractor (plaintiff) in so completing it meant the imposition upon him of a penalty of fifty dollars for each day of the period during which his contract remained uncompleted after the time specified for its completion. It was, therefore, a duty required’of him by his contract with the 'state, and a duty which the sureties bound themselves to stand sponsor for, to see that the subcontract was not so delayed in its completion as to result in the delay of the completion of the state’s contract beyond the appointed time; and if it became necessary, as it appears from the testimony to have become, to prevent delay in the completion of his contract with the state, that he should pay in full the claims against the subcontractor arising from the performance of the contract and which were due and payable when made, and prior to the expiration of the period of thirty-five days after the completion of said contract, such course was not only legally proper but was as much in the interest and to the benefit of the sureties as in his own interest and to his own benefit.

The conclusion following .from the foregoing considerations is that the advancements made by the plaintiff for the purpose of paying legitimate claims growing out of the per

The allegation of the complaint that the sureties entered into their undertaking for a valuable consideration, while not wholly sustained, was shown to be in part true. Moreover, it is a fair inference from the record that one of the sureties was responsible, through his own voluntary act, for. the payment by plaintiff of one of the claims accruing against Keith and arising out of the performance of the subcontract, and also that the same surety was likewise responsible for delaying to some extent the completion of said contract.

It was admitted by one of the sureties, Ames Vaughan, that, during the progress of the work by Keith under the subcontract, he received from Keith two motor-trucks which the latter was using at the time in the performance of the contract, and kept and used them for approximately four weeks. Although Ames declared that one of the trucks was turned over to him by Keith to secure a book account which the latter had with the former, he (Ames) admitted that he sold or traded in said truck for another, receiving or being allowed therefor the sum of $500, which amounted to $300 in excess of the total of said book account. He admitted, at the trial, that he still had that sum in his possession. He further admitted that the other truck was used by him in transporting goods or merchandise from one point to another, and that he derived therefrom considerable revenue. The exact amount does not appear. The ■ plaintiff testified that the taking of these trucks from the work delayed the prosecution and completion thereof, and that he so informed the sureties by letter, and requested a return of the trucks to the possession of Keith so that he might the better proceed with an expeditious execution of the terms of

Said Vaughan further admitted that he authorized and gave his consent to the payment by plaintiff before the contract was completed of a claim against Keith for $457 arising out of the latter’s performance of the contract.

It thus plainly appears that the sureties, all of whom are entitled to the benefit of any security for the performance of the principal obligation acquired by any one of his co-sureties at any time after they have entered into the contract of suretyship (Civ. Code, sec. 2849), had in their possession some security, and it is further clear that some delay in the prosecution of the contract to completion was occasioned by the act of Ames Vaughan in taking and so causing to be withheld from use for several weeks in the work required to be done by Keith under the contract the motor-trucks referred to. Moreover, it will be observed that in permitting said Vaughan to remove the trucks referred to from the work required to be done under his contract Keith violated an express provision of said contract forbidding the removal of any equipment from said work until he should have performed the same or all the terms of said contract. But waiving all these matters, we repeat that for the other reasons hereinabove expressed there was not effected by the advancements or payments made by plaintiff under the subcontract, above considered, a departure therefrom and much less an alteration thereof within the purview of its provisions or the contemplation of the law regulating the performance of the terms of such agreements.

As to the defendant Keith it is to be remarked that his testimony in rebuttal of that of the plaintiff to the effect that he (Keith) was indebted to the plaintiff in the sum of $911.36 in excess of the total amount earned by Keith under the contract seems to be pregnant with an admission that he is indebted to plaintiff in some amount. When asked by Ms attorney whether he owed plaintiff the sum mentioned as a result of the subcontract, Keith replied: “No, sir, I don’t think there was that due him.” This was the only testimony offered by or received on behalf of the defendant upon that question, and it seems to us that his answer was tantamount to saying that while the precise amount stated

It appears from the record that there was pending at the time that the present action was called for trial, another action between Burr as plaintiff and Keith as defendant, which action was numbered 7630. On the calling of this case for trial, counsel for defendants stated to the court that Keith had filed a petition in voluntary bankruptcy in the federal court for the northern district of California, to which counsel for plaintiff replied: “I understand in the petition he - does not recognize Mr. Burr as a creditor. ’ ’ Mr. Jones, attorney for the defendants, then stated that he did not have the petition or a copy thereof in his possession and that if the plaintiff was not included in the schedule in the petition naming the creditors of Keith it was an oversight, whereupon counsel for the plaintiff said: “I suppose, as long as he is a bankrupt, a continuance is good.” Thereupon the case of Burr v. Keith, No. 7630, was continued and the present case proceeded with. The trial of the present action commenced on the twenty-sixth day of October, 1917. The answer did not set up the alleged bankruptcy of Keith as a defense to this action. There was, therefore no issue upon that proposition submitted by the pleadings. It appears, however, that on May 13, 1918, long after the trial of this action was concluded and before findings were made and judgment rendered and entered, the defendants filed with the record of this action two certain papers, copies of which are incorporated into the record here. One of these papers purports to be an order of the United States district court for the northern district of California, made on the eleventh day of January, 1918, upon a petition previously filed by the defendant Keith to be adjudged a bank

Section 17 of the Federal Bankruptcy Act, as it existed on the eleventh day of January, 1917, provided as follows: “A discharge in bankruptcy shall release a bankrupt from all of his provable debts except such as ... 3. Have not been duly scheduled in time for proof and allowance, with the name of the creditor, if known to the bankrupt, unless such creditor had notice or actual knowledge of the proceedings in bankruptcy.” (1 Fed. Stats. Ann., 2d ed., p. 708; U. S. Comp. Stats., sec. 9601.)

The counsel for the defendants declares that the failure to include the claim of Burr in the schedule of debts of Keith was due to the fact that Keith did not recognize himself as a debtor of Burr, or, in other words, that he did not consider that he was indebted to Burr in any sum whatsoever. There is no evidence in the record to support that

[7] We think that the plaintiff was entitled to some compensation for the Knox motor-truck which he let the defendant Keith have to be used in the work to be done under the subcontract. There is some discussion in the briefs as to whether the instrument whereby said truck was transferred to the possession of Keith involved a conditional sale or only a lease of the property. Our own opinion is that the transaction as evidenced by the written instrument constituted a conditional sale, also possessing, however, the characteristic of a lease. The intention of the vendor undoubtedly was that it should be a sale to Keith, and to protect his rights in the transaction Burr caused to be inserted in the agreement a provision to the effect that, in the event that the installments provided for in the agreement were not all paid, the possession of the property, the title to which remained in him at all times, should be returned to or taken by him, and that any installments which might in the meantime have been paid should be treated as rentals for the use of the truck. But, whatever the proper technical characterization or the legal nature of the instrument may be, it is certainly true that at least morally the plaintiff was entitled to compensation for the use of the truck, and we know of no reason why he should not be legally entitled to such compensation. While the right to retain the installments, should any have been paid, was in the nature of a forfeiture, we, nevertheless, think that, since there was

In the footnotes of said volume, page 786, a number of cases are cited supporting the text. Of course, it is true, as the defendant, Keith, contends, that, in such a transaction, the vendor is not entitled to both the return of the property conditionally sold and the full price at which it was agreed to be sold. But it does not follow from that proposition that where, as here, there has been a violation by the vendee of the provision for the payment of installments, the vendee having used the property to his own advantage and benefit, the vendor should not be entitled to compensation by way of damages for the breach of the agreement.

For the reasons herein stated, the judgment is reversed and the cause remanded.

Finch, P. J., and Burnett, J., concurred.

A petition to have the cause heard in the supreme court, after judgment in the district court of appeal, was denied by the supreme court on August 29, 1921, and the following opinion then rendered thereon:

THE COURT.—The petition for rehearing is denied.

We think it proper to say, in addition to what is said by the district court in its discussion of the point last mentioned in its decision, that the compensation which Burr is entitled to recover of the sureties for the use of the truck in' question is limited to the reasonable value of its use during the time Keith was actually using it in the performance of the sub

All the Justices concurred.