Case Title: ROYAL INDEMNITY CO. OF NY v. Business Factors, Inc.

Citation: 393 P.2d 261, 96 Ariz. 165

Docket Number: 

State: arizona

Court: Arizona Supreme Court

Date: 1964-06-10T00:00:00Z

Document:
96 Ariz. 165 (1964) 393 P.2d 261 ROYAL INDEMNITY COMPANY OF NEW YORK, a corporation, Appellant, v. BUSINESS FACTORS, INCORPORATED, a corporation, Appellee, Aweco Supply Company, Division of Savage Industries, Inc., a corporation, Intervenor-Appellee. No. 7234. Supreme Court of Arizona. In Division. June 10, 1964. *166 Chandler, Tullar, Udall & Richmond, Tucson, for appellant. Wilson & Books, Tucson, by Sophie Silverstone, Tucson, for appellees. BERNSTEIN, Justice. Appellant bonding company was defendant in the superior court in an action to impose liability arising out of the issuance of two contractor's license bonds. Summary judgment was granted against the bonding company and it appeals that judgment. This action was begun by Business Factors, Inc., a materialman, against Royal Indemnity Company which had issued two bonds in connection with the licenses of Austad Steel Co., Inc. Aweco Supply Company, another materialman, intervened in the action as an additional plaintiff to protect its claim. Austad held two contractor's licenses, Class A, General Engineering, and Class B, General Building, Heavy Construction. The bonds were required by A.R.S. § 32-1152 as a condition precedent to the issuance of the licenses by the Registrar of Contractors, and were accepted by him. Both bonds were originally issued on July 1, 1958, and were renewed on July 1, 1959, when the licenses were also renewed. Materialmen's claims are covered by these bonds. United States Fidelity and Guaranty Co. v. Hirsch, 94 Ariz. 331, 385 P.2d 211. Austad was adjudicated a bankrupt in federal court on May 3, 1960. Materialmen's *167 claims, in excess of the amount of the bonds were unpaid. Business Factors' claim is based on the 1958 bonds, and Aweco's on the 1959 bonds. A.R.S. § 32-1152 was amended in 1961, but we are not concerned with the present section, since all the transactions relevant to this case took place before the effective date of the amendment. The two bonds are for $2,000, and they both contain the following provisions: Summary judgment was granted by the trial court against the bonding company in favor of both plaintiffs for $4,000 each for the liability accruing for the two years 1958 and 1959 for a total judgment of $8,000. The bonding company contends that the limit of its liability under both bonds is $4,000, or $2,000 for each bond, regardless of the fact that they had been renewed and were both in force for two years. The only issue in this case is: Was the trial court correct in holding that the liability of the bonding company on its bonds was a new and independent obligation beginning and ending with each year of issuance at the effective date of a contractor's license to the principal, and was not a continuing single obligation relating back to the original issuance of the bonds? The language of the bonds themselves would appear to support the bonding company's view. In the case of a bond required by statute, however, the obligation of a bonding company is determined by the statute, and not by the wording of the bond. Commercial Standard Insurance Co. v. West, 74 Ariz. 359, 249 P.2d 830; Porter v. Eyer, 80 Ariz. 169, 294 P.2d 661; Employers Liability Assurance Corporation v. Lunt, 82 Ariz. 320, 313 P.2d 393. Prior to the 1961 amendment A.R.S. § 32-1152 provided: The statute contemplates an original license for one year with annual renewals, with a bond to accompany each original license and each renewal. The statute may be complied with either by furnishing a new bond on renewal of the license or renewing an existing bond. The fact that Austad, the bankrupt contractor, chose to continue to do business with his original bonding company does not decrease the protection to the public for each year as required by the statute. Where the state sets up an annual licensing system, and requires a bond for the protection of the public, the bonds must be construed as giving protection for their full face amount for each year that they are in force, and any provision in the bond attempting to limit this liability is a nullity. Jaeger Mfg. Co. v. Massachusetts Bonding & Ins. Co., 229 Iowa 158, 294 N.W. 268; United States Fidelity & Guaranty Co. v. Long, 214 F. Supp. 307, 318 (D.C.Ore. 1963); Metropolitan Casualty Co. of New York v. Billings, 150 Conn. 603, 192 A.2d 541 (1963). On the precise point Chief Justice Baldwin said in Metropolitan Casualty Co. of New York, supra: The judgment is affirmed. LOCKWOOD, V.C.J., and STRUCKMEYER, J., concurring.