Title: Sproul Const. Co. v. St. Paul Fire & Marine Ins. Co.

State: new-mexico

Issuer: New Mexico Supreme Court

Document:

392 P.2d 339 (1964) 74 N.M. 189 SPROUL CONSTRUCTION COMPANY, Sproul Brothers, Inc., Sproul-Brozo Construction Corp., Plaintiffs-Appellees, v. ST. PAUL FIRE & MARINE INSURANCE COMPANY, Defendant-Appellant. No. 7323. Supreme Court of New Mexico. May 18, 1964. Rehearing Denied May 18, 1964. Keleher & McLeod, Russell Moore, Albuquerque, for appellant. Rodey, Dickason, Sloan, Akin & Robb, Robert D. Taichert, John P. Eastham, Albuquerque, for appellees. PER CURIAM: Leave of the court has been granted for the filing of a second motion for rehearing by defendant-appellant. § 21-2-1(18) (7), N.M.S.A. 1953. Upon consideration of the same, the former opinion, reported at 73 N.M. 421, 389 P.2d 194, is withdrawn and the following substituted therefor: MOISE, Justice. This action was commenced as a suit to foreclose materialmen's liens. The plaintiffs, Air Service, Inc., and Air Conditioning Equipment Company, furnished labor and materials to the defendant, Associated Roofing and Supply Company, Inc., hereinafter referred to as "Associated," in connection with the performance by Associated of a sub-contract between it and defendants, Sproul Construction Company, Sproul Brothers, Inc., and Sproul-Brozo Construction Corp., hereinafter referred to as "Sproul." Upon failure of Associated to pay plaintiffs as agreed, liens were duly filed and this suit commenced to foreclose the same. Additional suppliers, who had also filed liens, intervened. Sproul, the contractor, filed a third-party action against St. Paul Fire & Marine Insurance Company, hereinafter referred to as "St. Paul" or "insurer," alleging the execution by St. Paul of a "performance and payment bond" guaranteeing the performance by Associated of its sub-contract with Sproul. St. *340 Paul, by answer, pleaded a number of defenses, only two of which are material to this appeal. St. Paul, in its brief, states its "principal defense" to be "that after notice to Sproul that Associated was insolvent and that liens had been filed" in connection with the construction, Sproul continued to make progress payments to Associated, prejudicing the rights of St. Paul and thus voiding the bond. All issues of fact having been settled by agreement between the parties, judgments were duly entered. It was understood that the issues raised by the defenses of St. Paul to the third-party complaint of Sproul were not to be prejudiced thereby. The issues of law raised by the answer of St. Paul were in turn decided by the trial court in favor of Sproul, and this appeal followed. The contract between the parties contained the following language: and the following additional sections: The condition of the bond executed by Associated Roofing and Supply Company, Inc., as principal, and St. Paul Fire and Marine Insurance Company, as surety, to Sproul Construction Company, as obligee, reads as follows: Although St. Paul pleaded numerous defenses, we need notice only those that are argued here on appeal, all others being considered abandoned. Hendrix v. Dominguez, 58 N.M. 216, 269 P.2d 1099. *341 Did the trial court err in sustaining Sproul's motion for summary judgment? By so ruling, the legal defenses presented were held ineffective. These defenses asserted that the bond was voided by virtue of Sproul's acts in continuing to make payments to Associated after mechanics' liens had been filed, knowing Associated was insolvent, and also because of Sproul's failure to retain 10% of the contract price. St. Paul places principal reliance on the early cases of Lyons v. Kitchell, 18 N.M. 82, 134 P. 213, Ann.Cas. 1915C, 671, and Morgan v. Salmon, 18 N.M. 72, 135 P. 553, L.R.A. 1915B, 407. Lyons v. Kitchell, supra, is distinguishable. Payment without retaining 20% was held to be a deviation from the contract and to operate to discharge the surety. The surety there was an accommodation or non-compensated surety, whereas here, St. Paul was paid for the obligation it undertook. That this makes a difference is recognized by the court in its decision. See also, Southwestern Portland Cement Co. v. Williams, 32 N.M. 68, 251 P. 380, 49 A.L.R. 525; note in 94 A.L.R. 876. Morgan v. Salmon, supra, was a case of a paid surety and, even so, a failure to retain a percentage of the value of labor and materials furnished as provided in the contract was held to be a substantial deviation and operate to discharge the surety. However, the bond there being sued upon was conditioned as follows: The surety bound itself only on condition that 15% should be retained by the obligor and breach of this agreement resulted in discharge of the surety. In the instant case no such agreement is present. True, Sproul was not obligated to pay more than 90% of any estimate, but neither was it required not to do so, and nowhere was the bond liability of St. Paul made contingent thereon. That this difference in obligation between the bond and contract in the instant case and that considered in Morgan v. Salmon, supra, should require a different result is to our minds quite reasonable and proper. It was so recognized in Southwestern Sash & Door Co. v. American Employers' Ins. Co., 37 N.M. 212, 217, 20 P.2d 928. Also no agreement to withhold being specifically contained in the contract documents, or as a condition of its obligation, the surety, St. Paul, should not be heard to complain. Its liability is not strictissimi juris. This was stated in Southwestern Portland Cement Co. v. Williams supra, from which we quote the following: We also call attention to the following which we quote from Monte Rico Mill & Min. Co. v. United States Fidelity & Guaranty Co., 35 N.M. 616, 5 P.2d 195: See, also, note 127 A.L.R. 10, 62, 69. There is nothing in Pacific National Agricultural Credit Corporation v. Hagerman, 39 N.M. 549, 51 P.2d 857, 101 A.L.R. 1301, or in J.R. Watkins Co. v. Eaker, 56 N.M. 385, 244 P.2d 540, which in any way alters our conclusion. Both are cases involving non-compensated sureties. Both cite Morgan v. Salmon, supra, in support of the rule that "a surety is liable only for the performance of the contract for which he becomes surety, and that any alteration thereof discharges such surety." To our minds, Lyons v. Kitchell, supra, was better authority for the proposition under discussion in those cases than was Morgan v. Salmon, supra, and nothing that was said in either case could be understood as announcing a rule of construction in compensated surety cases at variance from that stated in Southwestern Portland Cement Co. v. Williams, supra. St. Paul cites Restatement of the Law, Security, § 132; 72 C.J.S. Principal and Surety § 197 P. 664, and 2 A.L.R.2d 260, all of which recognize pro tanto release of surety obligations when an obligee departs from the terms of the contract to the prejudice of the surety. However, the trial court understood St. Paul to be asserting under authority of Morgan v. Salmon, supra, its surety agreement to be void and unenforceable under the facts here present and regardless of any showing of prejudice. We *343 likewise so understand its position on this appeal. St. Paul does not claim that it proved loss or prejudice because of Sproul's action. Rather it argues that, as a matter of law, by paying under the contract after liens had been filed and by failing to retain 10% of the contract price, Sproul deviated from the contract in such a material way as to accomplish a total discharge of St. Paul's obligation. For the reasons, and under the authorities discussed above, we do not agree with this position. It follows that the judgment of the trial court was correct and should be affirmed, and that the mandate issue forthwith. It is so ordered. COMPTON, C.J., and CARMODY, J., concur.