Case ID: ad_170/html/0261-01.html
Source: Caselaw Access Project
Author: {"author": "Scott, J.: \n      McLaughlin, J. (dissenting):", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Terence McKegney, Appellant, v. Illinois Surety Company, Respondent.
    First Department,
    December 3, 1915.
    Guaranty and suretyship — provision as to notice of default by principal — service upon foreign corporation at office maintained in this State — construction of contract of incorporated surety company.
    Although a bond given by a foreign corporation to assure the performance of a building contract in terms provided that, as a condition precedent to any right to recover thereon, the surety shall be notified in writing of any default on the part of the principal, said notice to be mailed by a registered letter to the surety at its principal office in the foreign State within a specified time after the default, a notice of a default of the principal served on the surety company at an office maintained by it for the transaction of business in this State, at which office the bond was executed, is a sufficient compliance with the contract to warrant a recovery thereon.
    
      It seems, that the ancient doctrine that a claim against a surety is always strietissimi juris does not apply, at least so far as non-essentials are concerned, where the bond or undertaking is executed for a consideration by a corporation organized for the purpose of acting as surety.
    McLaughlin and Dowling, JJ., dissented, with memorandum.
    Appeal by the plaintiff, Terence McKegney, from a judgment of the Supreme Court in favor of the defendant, entered in the office of the clerk of the county of New York on the 13th day of November, 1914, upon a dismissal of the complaint by direction of the court at the close of plaintiff’s case.
    
      
      Cornelius Huth, for the appellant.
    
      L. Laflin Kellogg, for the respondent.
   Scott, J.:

This action is upon a surety bond given to assure the performance of a building contract. The defendant is a surety company organized under the laws of the State of Illinois, and having an office in Chicago. It also does business in this State and has an office for the transaction of its business in the city of New Y ork, where the bond sued upon was executed.

The point upon which the motion to dismiss the complaint was granted and the only point which it is necessary to discuss upon this appeal is the sufficiency of the service upon the surety of the notice of its principal’s default.

Upon this subject the bond reads as follows: “This bond is issued and accepted subject to the following conditions, which shall be conditions precedent to any right to recover hereunder.

“ 1. That said Surety shall be notified in writing of any act, omission or default on the part of the said Principal, or his, their or its Agents, or employees, which may involve a claim or loss for which the said Surety is or may be responsible hereunder, within forty-eight hours after the occurrence of such act, omission or default shall have come to the knowledge of the Owner or his, its or their agents, officers or representatives; said notification must be given by a United States post office registered letter mailed to the said Surety at its principal office in Chicago, Illinois; and in any event, not later than 30 days after the occurrence of any such default, the Owner shall file with the Surety at its principal office in the City of Chicago, Illinois, written proofs of the principal facts showing such default and the date thereof.”

What happened was that the contractor for whom defendant had become surety became so dilatory in his work that it was evident that he could not complete it within the contract term, and on December 16, 1912, plaintiff so notified the defendant by a letter delivered to it at its New York office. On December 20, 1912, plaintiff addressed to defendant and delivered to it at its New York office two letters, one of which was a further notification of the failure of the contractor to perform his contract and the other of which was a formal notice that in consequence of such failure of the contractor, the plaintiff, as authorized by the contract, had elected to and did declare the contract void and forfeited.

On December 27, 1912, plaintiff again notified defendant, by a registered letter sent to its office in Chicago, of the default of the contractor.

The point upon which the complaint was dismissed, and which is sought to be sustained by the respondent, is that plaintiff failed to give defendant notice of the default of the contractor within the time and in the manner prescribed in that clause of the contract quoted above.

The letter of December twenty-seventh sent to defendant at its Chicago office, in strict conformity with the terms of the contract, is said to have been sent too late, because it was sent more than forty-eight hours after the plaintiff had become aware of the contractor’s default, and had actually canceled the contract on account of such default.

The two letters of December twentieth, which fulfill all the requirements of notice under the contract, and were delivered in due time, are said to have been ineffectual, because delivered to defendant at its New York office, and not “given by a United States post office registered letter mailed to the said surety at its principal office in Chicago, Illinois.”

This ruling, we consider, pushed the rule of strictissimi.juris too far. The purpose of the clause which we have quoted from the surety bond is to insure prompt notice to the surety of a default on the part of the contractor. Just how that notice is given is immaterial, so long as it is given and is received by the surety within the time specified in the contract. If the notice had been delivered to the surety in Chicago by the hand of a special messenger instead of being sent through the mail the surety certainly would not have been heard to object that the notice was ineffective because of the manner of delivery to it. Such an objection would have been too meticulous and frivolous to warrant serious consideration.

No less frivolous, in our opinion, is the objection that it was delivered to defendant in one of its offices, rather than in another. The important fact is that it was delivered in due time, and, as to the notice of December twentieth, this is admitted by the amended answer and was clearly proved upon the trial. Thereby the defendant obtained the opportunity to protect itself for which it had provided in the undertaking.

It has frequently been held in other jurisdictions, and with good reason, that the ancient doctrine that a surety is a favorite in the law and that a claim against him is always strictissimi juris does not apply, at least so far as non-essentials are concerned, when the bond or undertaking is executed for a consideration by a corporation organized for the purpose of acting as surety. (New Haven v. Eastern Paving Brick Co., 78 Conn. 689, 702; Supreme Council Catholic K. of A. v. Fidelity & Casualty Co., 63 Fed. Rep. 48, 58.)

In Guaranty Co. v. Pressed Brick Co. (191 U. S. 416) it was said: “The rule of strictissimi juris is a stringent one, and is liable at times to work a practical injustice. It is one which ought not to be extended to contracts not within the reason of the rule, particularly when the bond is underwritten by a corporation, which has undertaken for a profit to insure the obligee against a failure of performance on the part of the principal obligor.”

Of course a corporation surety like any other is entitled to insist, in all matters of substance, upon a strict compliance with the terms and conditions upon which it assumed the obligation, and if this were a case of an entire failure of notice of the contractor’s default or an undue delay in giving such notice a very different question would be presented. (Whiteside v. North American Accident Ins. Co., 200 N. Y. 320; National Surety Co. v. Long, 125 Fed. Rep. 887.)

That, however, is not the case. Here the notice was given in due time and admittedly was received by the defendant. That it was not transmitted to defendant in the precise manner stipulated in the bond is immaterial.

The judgment appealed from must be reversed and a new trial granted, with costs to appellant to abide the event.

Ingraham, P. J., and Laughlin, J., concurred; McLaughlin and Dowling, JJ., dissented.

McLaughlin, J. (dissenting):

In case of the principal’s default, the bond expressly provided that notice thereof was to be given to the surety company within forty-eight hours after knowledge came to the owner. It also provided the place where, and the manner in which such notice was to be given. It was to be by registered letter mailed to the surety company at its principal office in Chicago, HI. It was not so given within the time specified. The surety company had a right to contract when, where and in what manner the notice Should be given, and to hold that a notice given in a different way and at a different place is sufficient, is, in effect, to make a new contract for the parties.

I am unable to concur in the opinion of Mr. Justice Scott that a notice given to the surety company’s branch office in New York city is equivalent to a notice given in the manner provided in the contract, addressed to the general office in Chicago. I think the judgment is right and should be affirmed, with costs.

Dowling, J., concurred.

Judgment reversed, new trial ordered, costs to appellant to abide event.