Title: Nelson v. Hagen
Citation: 146 N.W.2d 873
Docket Number: 8348
State: north-dakota
Issuer: north-dakota Supreme Court
Date: December 8, 1966

146 N.W.2d 873 (1966) George NELSON, Plaintiff and Respondent, v. Lawrence HAGEN, d.b.a. Hagen Construction Company, Defendant, and Tri-State Insurance Company of Tulsa, Oklahoma, Defendant and Appellant. No. 8348. Supreme Court of North Dakota. December 8, 1966. *874 McGee, Van Sickle, Hankla &amp; Backes, Minot, for appellant. Walter O. Burk, Williston, for respondent. ERICKSTAD, Judge. This is an appeal by the defendant Tri-State Insurance Company of Tulsa, Oklahoma, a foreign corporation, from a judgment of the District Court of Williams County entered on October 6, 1965, in favor of the plaintiff, George Nelson, against the defendants, Lawrence Hagen, d.b.a. Hagen Construction Company, and Tri-State, in the amount of $3,235.74. Trial de novo is demanded. Mr. Nelson initiated this action against his employer, Mr. Hagen, and Tri-State, which was the bondsman on three North Dakota highway construction projects on which Mr. Hagen was a subcontractor. The dates of the contracts, the names of the prime contractors, and the locations of the projects are as follows: On July 22, 1959, Struksnes Construction Company of Minot, North Dakota, and David &amp; Rix of Bismarck, North Dakota, entered into a contract with the State of North Dakota for the construction and completion of certain federal aid projects on U.S. Highways 2 and 52 in Ward County. On September 29, 1959, Coghlan Construction Company, Inc., of Minot, North Dakota, entered into a contract with the State of North Dakota, for construction and improvement in connection with a federal aid secondary highway project in Sheridan and Burleigh Counties. On July 2, 1960, Arne Anderson &amp; Company of Ada, Minnesota, entered into a contract with the State of North Dakota for construction and completion of a federal *875 aid secondary project on State Highway 30 in Wells County. Tri-State executed three separate contract bonds whereby it bound itself in connection with each of the three projects. We have before us a copy of the subcontractor's bond for the Ward and Wells Counties projects and a copy of the prime contractor's bond for the Sheridan and Burleigh Counties project. The pertinent part of the prime contractor's bond executed in connection with the Sheridan and Burleigh Counties project obligated the bonding company, if the principal or any subcontractor failed, to "pay or cause to be paid all bills and claims against the Principal or any subcontractor on account of labor or services performed and all materials, equipment or supplies furnished, whether directly or indirectly arising out of the performance of said contract." Mr. Nelson was employed by Mr. Hagen in 1959 as a mechanic in repairing Mr. Hagen's heavy-duty construction equipment. In October 1959 Mr. Hagen commenced work on the project near Denhoff in Sheridan County. The work continued for only three weeks, when it became necessary because of the freeze-up to shut down for the winter. When this happened, all but Mr. Nelson and a helper were laid off. After the shut-down the machines were taken to a hill northeast of Denhoff, where Mr. Nelson and his helper did repair work on them. Mr. Nelson's Exhibit 3 received in evidence indicates that between January 10 and April 9, 1960, he worked a total of 391½ hours at $2.25 per hour on "general overhaul before starting season." He testified that the general overhaul included, if necessary, the grinding of valves and the installation of rings, and in one instance involved installing a new crankshaft. Some pertinent testimony concerning this work was as follows: Mr. Nelson's claims for this period total $880.88. On or about April 10, 1960, Mr. Hagen recommenced work on the Sheridan County project. Mr. Nelson then worked as a mechanic in keeping the equipment in operating condition. From April 10 through July 15, 1960, he worked on the Sheridan County project at a weekly wage of $150 and was paid that amount for each week except for the two-week period of April 10 through April 23, 1960. *876 Between July 15 and August 17, 1960, Mr. Nelson worked with Mr. Hagen on the Ward County project. He was paid $150 for each week's work on this project. Between August 17 and October 29, 1960, Mr. Nelson worked on the project in Wells County. He was paid $150 each week on that project except for the last two weeks, for which he received no pay. On February 8, 1960, Mr. Nelson made a personal loan to Mr. Hagen of $1,000. At the time this loan was made Mr. Hagen was not performing construction work on any of the projects bonded by Tri-State. Mr. Nelson does not know what Mr. Hagen used the money for, but he understood it was to be used in the business. He testified that he requested Mr. Hagen at the time he lent him the $1,000 to apply the first money paid to him as payment on the loan, and that Mr. Hagen said that he would do so. It should be noted, however, that when Mr. Nelson wrote to the State Highway Department after the completion of the projects, setting forth his claim against Mr. Hagen, he included in his claim an item entitled "Cash advanced February 8, $1,000." Mr. Nelson also claims the sum of $169.60 for parts he purchased for Mr. Hagen's equipment between March 31, 1960, and September 30, 1960. These parts included various small items, such as spark plugs, gaskets, and fan belts, which he used in making the repairs necessary to keep the equipment going during the construction season. The total of all claims is $2,650.48, which is the amount of the judgment, not including interest and costs, that the trial court awarded Mr. Nelson. The first issue with which we are confronted is whether Mr. Nelson is entitled to the $880.88 for labor performed in general overhaul of Mr. Hagen's equipment between the shut-down in 1959 of the Sheridan County project and the starting of the construction season again with that project in 1960 under Tri-State's bond. Our statute on contractors' bonds reads as follows: North Dakota Century Code. In support of its contentions on appeal Tri-State refers us to a 1927 case in which a plaintiff sought to recover on a public contractor's bond for materials supplied by the plaintiff which were used in the construction of sheds and bunkhouses and of barns to shelter horses, in making and repairing dump boxes for hauling gravel, and in building structures, some of which *877 were placed upon skids so that they could be moved from place to place as the work progressed or as they might be required on some other job. In denying recovery under the bond this court said: The bond in that case "was conditioned for faithful compliance with and performance of the contract, for the protection of the State and any person or persons performing any labor or services or furnishing material to be used against any loss, for the payment of the wages of laborers, and payment for any and all material for which payment under the terms of this contract is to be made by him (the contractor)." The statute then in effect read as follows: Compiled Laws of North Dakota 1913. It is to be noted that the only material difference relative to the issues of this case between the 1913 law and the present law is the provision in § 48-01-01 which permits recovery for supplies. In Piper-Howe this court said that it had previously held that a contractor's bond did not obligate the bondsman for premiums owing to the Workmen's Compensation Fund. However, under this contractor's bond (wherein Coghlan Construction Company, Inc., of Minot, North Dakota, was the principal) for the work in Sheridan and Burleigh Counties, the bonding company obligated itself to pay such premiums. In Piper-Howe it was also stated that a contractor's bond does not cover obligations incurred for gasoline and oil used in motor vehicles employed in carrying on work of construction. We are inclined to believe, however, that under the amendment to the statute such items would be included under supplies. When one considers the differences in the bond in Piper-Howe and the bond of the prime contractor in the Sheridan and Burleigh Counties project (in which the surety company is obligated to pay or cause to be paid all bills and claims against the principal or any subcontractor on account of labor or services performed and all materials, equipment, or supplies furnished, whether directly or indirectly arising out of the performance of said contract) and the changes in the statute, Piper-Howe is of very little value as a precedent in this case. *878 The provision in that bond making the surety company liable for such items, whether directly or indirectly arising out of the performance of the contract, places an obligation on the surety company to pay for labor and material, even though it is "merely incidental." In light of the provision which obligates the surety company to pay all bills and claims on account of labor or services performed and all materials, equipment, or supplies furnished, whether directly or indirectly arising out of the performance of the contract, we are convinced that the charges of $2.25 per hour for the repair work done by Mr. Nelson in the interim between the fall of 1959 and the spring of 1960 come within the terms of that contractor's bond. We say this, fully cognizant of the often quoted rules laid down in the Minnesota case of Clifton v. Norden. In that case the court said: Even without the provision in the prime contractor's bond which obligated the bonding company in the event of the contractor's default to pay claims whether directly or indirectly arising out of the performance of the contract, we believe that the part of the claim for labor for the interim repairs which was for minor repairs comes within the situation described in the following quotation from Clifton: Although some of the interim repairs involved replacement of major parts, as the claim for labor performed during the shut-down was for the most part for repair or replacement of inexpensive minor parts which ordinarily wear out quickly and thus would normally be substantially consumed in projects of this sort, and as the prime contractor's bond obligated the bonding company in the event of the contractor's default to pay claims whether directly or indirectly arising out of the performance of the contract, we find that this claim was one which indirectly arose out of the performance of the contract, and that it is therefore recoverable under the provisions of the prime contractor's bond. Tri-State apparently was not the surety on the prime contractors' bonds for the Wells County and Ward County projects. It is nevertheless obligated under the terms of separate subcontractor's bonds for the $169.60 claim for parts and the $600 claim for labor performed. This we believe to be so even though the subcontractor's bonds did not include the provision making the bonding company responsible for the claims indirectly arising out of the performance of the contract. As the claim of $169.60 was for miscellaneous small and inexpensive parts used on the subcontractor's equipment and thus was for material substantially consumed in the performance of the contract, it is within the subcontractor's bond. The $600 claim for the daily labor performed in minor repair of the subcontractor's equipment to keep it operating also comes within the terms of the subcontractor's bond and is therefore an obligation of the surety company. As the repairs made during the progress of the work were only minor, inexpensive, and incidental, so that they were substantially exhausted in the performance of the contract, they are within the subcontractor's bond. We are convinced, however, that Tri-State is not obligated to repay the $1,000 loan. A person does not by the mere act of loaning money to a public contractor for *880 the purpose of paying labor become subrogated to the rights of the laborer. See: Newport Trust Company v. Susi, 153 Me. 51, 134 A.2d 543. In American Jurisprudence it is stated: See also: First National Bank of Chisholm v. O'Neil, 176 Minn. 258, 223 N.W. 298; Carr Hardware Co. v. Chicago Bonding &amp; Surety Co., 190 Iowa 1320, 181 N.W. 680; Annot., 127 A.L.R. 992, 993 (1940). The case is therefore remanded with instructions to the trial court to modify the judgment in accordance with this opinion. TEIGEN, C.J., and STRUTZ, MURRAY and KNUDSON, JJ., concur.