Title: Gibbs v. Hartford Accident & Indemnity Co.

State: florida

Issuer: Florida Supreme Court

Document:

62 So. 2d 599 (1952)
GIBBS
v.
HARTFORD ACCIDENT & INDEMNITY CO.

Supreme Court of Florida, Division A.
December 19, 1952.
Rehearing Denied February 5, 1953.
Turnbull & Pepper, Tallahassee, for appellant.
LeRoy Collins, of Ausley, Collins & Truett, Tallahassee, for appellee.
HOBSON, Justice.
Appellant, Robert Louis Gibbs, being desirous of building a home on a lot which he owned in Betton Hills, Tallahassee, Florida, entered into a contract with one Boyd L. Jones, Jr., a building contractor. Jones agreed, for a consideration of $27,000, to construct a dwelling house for Gibbs according to certain designated plans and specifications and Gibbs agreed to make payment to Jones for his services under the contract in the following manner:
The contract between the owner and the contractor further provides:
Upon Gibbs' demand, Jones furnished appellant with a contract performance bond. Hartford Accident & Indemnity Company, appellee herein, is the compensated surety upon said bond. The bond expressly provides that the building contract is a part thereof by reference.
The obligation of said performance bond is,
Within less than a month after Jones had started construction of the one-family dwelling he reported to Gibbs that he was unable to proceed with the construction unless he were given financial assistance, whereupon Gibbs secured a loan of $20,000 from the Lewis State Bank of Tallahassee and executed a mortgage in which he pledged the property, upon which construction of the dwelling house was in progress, as security for the repayment of said loan. Thereafter, as work progressed on the building disbursements were made by the Bank to Jones. The Bank made such investigation and inspection of the progress of construction as it deemed necessary for its own protection. Payments were made by the Bank at the following times and in the amounts stated:
Jones was paid by Gibbs $4,000 in addition to the above sums of money.
Subsequently, after Jones had failed properly to perform the contract and correct the work which allegedly was not properly done, Gibbs paid out $10,863 to laborers and materialmen who had liens against his home and then completed the construction of the building without the services of Jones.
Extras amounting to $1,428.25 were agreed upon by Jones and Gibbs after construction had been commenced and in accordance with the provisions of the construction contract. Before the owner took over and completed the construction he expended $23,937.20. It became necessary for the owner to pay out an additional $22,812 which made the total cost, in order to make the building conform with the contract, the sum of $46,749.20. Thus it may be seen that a loss was sustained either by appellant or appellee of $18,320.85.
*601 Appellant sued appellee and as a basis for such suit alleged that the principal (Jones) failed properly to perform the contract. Appellee defended upon the ground that appellant's failure to make payments as provided for in the construction contract and in making a new arrangement whereby he made prepayments departed so materially from the original contract as to completely relieve and discharge appellant as surety on the performance bond.
Defendant filed a motion for summary judgment. Affidavits were filed by both parties litigant. After a hearing upon the motion the learned Circuit Judge decided:
He further determined that he should, and he did, enter a judgment in favor of appellee.
In a scholarly thesis the able Circuit Judge traced the history of the law, as it has been applied to sureties under circumstances similar to those in the instant case, from the early days of the common law down to the current period of modernity. It is true that under the common law a surety was considered to be a favorite of the law and even minor changes in, or departures from, the principal contract were held to discharge the surety. We need not dwell at length upon the rule of strictissimi juris because it has been discarded by most American Courts and certainly it is no longer applied in this jurisdiction. Moreover, counsel for appellee state in their brief, "We do not need or seek the shelter of a rule of strictissimi juris in the denial of liability * * *." It appears that the theory underlying this strict rule of construction was primarily the fact that in olden days a compensated surety was almost unknown. Consequently, the law was lenient toward and inclined to favor a surety who was an accommodation party.
However, along about the turn of the century, individuals, and later corporations formed for profit, began the business of becoming compensated sureties. Because of such mutation it became advisable, if not necessary, to change the philosophy of the law in order to keep pace with ever-changing conditions and thereby accomplish substantial justice.
There is a lack of unanimity of opinion, however, among the courts of today with reference to the question what conditions and circumstances attendant upon premature payment to the contractor will discharge the surety upon the latter's performance bond. Some courts hold to the out-moded view that a premature payment amounts under any and all circumstances to such departure from the contract as will operate to release and discharge the surety in toto. Such courts customarily reach this conclusion upon two premises: (1) that if payments are not made to the contractor in accordance with the terms of the construction contract the fund to which the surety would otherwise be entitled, should the contractor default, would be beyond reach and consequently lost to the surety to his injury; (2) that a construction contract which provides that the owner shall retain the funds in his hands until the contractor has fulfilled his obligations operates as an incentive to said contractor to complete and fulfill the contract in accordance with his obligations thereunder in order that he may receive these funds. It is likewise suggested that "The greater amount so retained the stronger the incentive." In this case the matter of withholding payment until completion of the work operating as an incentive may be disposed of readily. It cannot be said that the contractor could have had any incentive to complete this job since it is clear that because of lack of funds he could do no more than begin it.
There are courts which have modified the common-law rule by holding that if there is a material, possibly substantial, departure from the construction contract the surety will be wholly exonerated. Other courts, which we believe enunciate the rule compatible with substantial justice, hold that prepayments such as the record shows were made in this case do not discharge a compensated surety except in those instances where it may appear that *602 such departure from the terms of the construction contract resulted in injury or prejudice to the surety, and then only to the extent of such injury.
It is more than difficult for us to understand why a compensated surety should be discharged from the obligation of the performance bond if in fact said surety has sustained no injury as the result of premature payments to the contractor. Nor can we see wherein the surety is injured or prejudiced if, as was established by the affidavit of the contractor, Jones, all of the money advanced by Gibbs was actually used in the construction of the subject house. Of course, appellant at the trial should be required to prove not only that all of the money went into the construction of the house but that the house was constructed in accordance with the original plans and specifications, except, of course, changes made as permitted by the contract. Moreover, the burden should be placed upon him to show that the cost of materials and the charges for labor were the usual, customary and prevailing, costs of materials and wages for labor during the period of construction.
It was the conclusion of the Circuit Judge that,
The trial judge likewise made the following statements which we consider epitomize his reasoning:
We do not fail to recognize the force of his logic. However, we are impelled toward a contrary view.
Although we have never directly passed upon the question presented on this appeal, we find that this Court at least envisaged it in the case of Standard Accident Insurance Co. v. Bear, 134 Fla. 523, 184 So. 97, 103, 127 A.L.R. 1. In that case we said:
Under the construction contract of which appellee had notice Gibbs had the right in the event the contractor neglected "to prosecute the work properly" or failed "to perform any provision of the contract" to "make good the deficiencies" and to "deduct the cost thereof from the payment then or thereafter due the Contractor." As we understand the facts of this case, that was, in effect, exactly what Gibbs did. It is true that he continued to use the services of Jones, at least for a time, but there was nothing in the contract which prevented him from doing so. Furthermore, the condition of the performance bond was to the effect that if Jones should fail to faithfully perform the contract and fully indemnify and save harmless the obligee (Gibbs) from all costs and damage which he might suffer by reason of such failure "and shall fully reimburse and repay the Obligee all outlay and expense which the Obligee may incur in making good any such default, and shall pay all persons who have contracts directly with the Principal [Jones] for labor or materials, then this obligation shall be null and void, otherwise it shall remain in full force and effect."
So it is that appellee recognized the right of Gibbs to incur expense in making good the default on Jones' part. Why then should appellee complain or be discharged from liability simply because it was denied the right to elect what course it would have pursued had it been given notice at the time of Jones' voluntary admission that he would be required to default because of lack of financial ability to continue? The loss to the appellee would have been the same had it been notified whatever course it might have pursued unless appellee upon the trial should prove otherwise or unless appellant should fail to establish the fact that all of the money which he paid to Jones went into materials and labor on this particular job and that the costs and expenses thereof were the usual, customary and prevailing costs and expenses during and at the time the work was in progress. If appellant should fail at a trial of this case to carry the burden of proof, then, and to the extent of such failure, injury to appellee would be shown as a matter of fact rather than assumed as a presumption of law.
We quote with approval from the case of Maryland Casualty Co. v. Eagle River Union Free High School Dist. of Vilas County, 188 Wis. 520, 205 N.W. 926, 928:
We further quote from the case of Maryland Casualty Co. v. Eagle River Union Free High School Dist. of Vilas County, supra, and adopt as the law of this State the following:
As we have previously observed, the authorities upon the question presented by this appeal are divided into three groups. The view expressed by one group is the strict rule which comes down from the old common law to the effect that even a minor or slight departure from the terms of the construction contract will relieve and discharge the surety from liability. Another of these groups is of the opinion that if there be a material departure from the construction contract the surety should be completely relieved and exonerated. The third group expresses the view to which we now commit this Court, that is to say, that if the departure from the construction contract results in injury to the surety then ipso facto such departure must be classified as material but the surety should be relieved and discharged only to the extent of the injury.
It follows that our judgment should be and is one of reversal.
Reversed.
SEBRING, C.J., and TERRELL and THOMAS, JJ., concur.