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Massachusetts Bonding & Insurance Company v. Lentz

Supreme Court of Arizona

March 30, 1932


APPEAL from a judgment of the Superior Court of the County of Maricopa. M. T. Phelps, Judge. Judgment affirmed.

Messrs. Baker & Whitney and Mr. Lawrence L. Howe, for Appellant.

Messrs. Cunningham, Carson & Gibbsons for Appellee.


[40 Ariz. 48] LOCKWOOD, J.

William G. Lentz, hereinafter called appellee, filed suit against Alton B. Carter, hereinafter called the contractor, and Massachusetts Bonding and Insurance Company, a corporation, hereinafter called appellant, to recover upon a bond given by the latter to secure the performance of a contract entered into between the contractor and appellee.

Appellant was duly served, and answered, but the contractor, although made a party

Page 409

to the suit, was never served and never appeared therein, the sheriff's return on the summons showing that he was unable to find the contractor "in Maricopa County." The case was tried before a jury, and in the opening statement on behalf of appellee his counsel stated that judgment was sought only against appellant. Counsel for appellant thereupon called the attention of the court and opposing counsel to the fact that the contractor was present in court at the time under a subpoena duces tecum, but not as defendant, but made no suggestion that he be served. Judgment was rendered on a verdict in favor of appellee in the sum of $12,000, and after the usual motion for a new trial had been overruled appellant brought the case before us for review.

There are some sixteen assignments of error, which we will consider as seems advisable, but upon the legal propositions presented thereby rather than on the formal assignments. The facts of the case, as shown by the evidence presented on the trial, are as follows:

In May, 1929, appellee and the contractor entered into a written agreement by the terms of which the [40 Ariz. 49] latter was to construct a building on certain land of appellee for the sum of $23,810. The building was to be constructed according to plans and specifications made by one Edward A. Nolan, who acted as architect and superintendent of construction, and pursuant to one of the requirements of the contract the contractor executed a construction bond with appellant as surety therein in the sum of $12,000, and commenced work on the building. Along in August full payment of the contract price had been made to the contractor with the exception of fifteen per cent. which was to be reserved until the building was completed free of all claims for liens, and it then appeared there were lienable claims outstanding, amounting to about $20,000, while the building was incomplete. The contractor failed to pay the claims or to finish the building, whereupon appellee, about the 15th of August, called upon appellant to complete the job according to contract, and on its refusal took over the work and carried it on to completion. This cost appellee over $2,000, and in addition thereto he was compelled to tear out and rebuild certain parts of the work which had not been done in accordance with the contract. The various claimants of liens for labor and materials filed their liens in due form, and thereafter brought suit in the superior court to foreclose the liens. Appellant was duly notified of all these proceedings, but took no steps to resist the claims, and appellee therefore employed counsel and defended them himself. Judgments were entered upon these various claims, and in order to protect the premises from foreclosure appellee paid the judgments. The total amount of the judgments so paid and the extra expense caused appellee by reason of the branch of the contract, after deducting therefrom the fifteen per cent. of the contract price which he had retained, was considerably in excess of $12,000, the penalty of the bond.

[40 Ariz. 50] During the course of the trial appellant attempted to show that many changes which departed from the original plans and specifications had been made by the contractor in the construction of the building under the oral orders of Nolan, the architect and superintendent, and that such changes had increased the cost of construction over seven thousand dollars. All oral evidence thereof was rejected by the court on the ground that the contract limited changes for which appellee should be responsible to those made in writing, and the principal assignments of error are based on appellant's claim, first, that these changes so far altered the original contract as to release it from any liability as surety therefor, and, second, that if it was not so released, it was entitled to set off as against appellee's claim for damages the reasonable value of the changes made under the orders of Nolan.

In former times when sureties were practically invariably unpaid and became such merely for the accommodation of the principal obligor, the rule of strictissimi juris was applied to the relationship, and it was generally held that any material change in the contract without the consent of the surety released the latter. Of recent years, however, the situation has greatly changed, and many corporations are organized which make a business of becoming sureties on bonds of the character in question in this suit, for compensation. We have had this matter before us in the case of Lassetter v. Becker, 26 Ariz. 224, 224 P. 810, and held therein that contracts of this nature may be more properly termed contracts of insurance than of sureties, and the legislature has approved this holding by classifying such companies as insurance companies and subjecting them to regulation as such. Chapter 36, Rev. Code 1928 (§ 1773 et seq.). The rule of strictissimi juris therefore does not obtain, but the contract will be construed most strongly against the [40 Ariz. 51] surety and in favor of the indemnitee as are other contracts of insurance. New York Indemnity Co. v. May, 37 Ariz. 462, 295 P. 314.

By the terms of the bond the contract and specifications must be construed with it in determining the rights and liabilities of the parties. The conditions of the contract, bond, and specifications necessary for us to construe in determining the nature of the obligation of appellant read as follows:

"Whereas, the Principal and the said Ailliam G. Lentz have entered into a certain written contract dated May 6th, 1929, for the construction of a ...

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