Opinion
No. 5091.
Argued December 4, 1962.
Decided January 31, 1963.
1. Where a surety furnished a bond in connection with a construction contract and subsequently issued an addendure which expressly referred to the bond and dealt with the same subject matter, it was held that the bond and its addendure should be construed together.
2. So also, where the bond referred to the construction contract and was conditioned upon the principal's performance of that contract, the bond, the addendure and the contract are to be construed together to determine the intent of the parties.
3. The interpretation of a bond furnished in connection with, and conditioned upon the principal's performance of, a construction contract is primarily one of fact to be determined in accordance with the intent of the parties, and in determining their intent the language of the instruments and the facts surrounding the undertakings including conversations in preliminary negotiations are admissible.
4. Where a surety furnished a bond guaranteeing performance of a construction contract between the general contractor and the owner and the contract expressly bound the general contractor to pay all subcontractors for labor and materials used in carrying out the contract the surety's agreement, construed together with the contract and in accordance with the intent of the parties as found by the Trial Court, was held to be a bond guaranteeing performance by the contractor of his obligation to pay the subcontractors.
5. In the construction of a contract all parts of the agreement are to be given a meaning whenever reasonably possible.
Interpleader by Rivier College against the defendant St. Paul Fire and Marine Insurance Company and numerous other parties. This bill of interpleader was consolidated with two other petitions in equity, also against the defendant insurance company, and a hearing was held, by order of the Court, on the sole issue of whether or not a contract of insurance between the plaintiff and the insurance company "is an indemnity or a performance bond."
The Court decreed that the contract was a performance bond. During the hearing, exceptions were taken to the admission and exclusion of evidence, to rulings by the Court, and to the denial of motions for nonsuits and directed verdicts. After the hearing, exceptions were also taken to the refusal of the Court to Set aside the decree.
The matter arose out of the failure of the general contractor, who is now in bankruptcy and who was erecting certain buildings for the plaintiff, to pay numerous subcontractors. Upon the refusal of the defendant insurance company to satisfy these subcontractors, they instituted suits against the plaintiff, as a result of which it brought the present bill of interpleader.
The Court made the following findings of fact:
"1. John McGranahan, doing business as J. M. Construction Co., entered into a contract with Rivier College on June 9, 1958, which contract called for the construction of certain buildings on the Rivier College campus.
"2. Said contract included the advertisement for bids, bid proposals and information for bidders, general and specific conditions of the contract, and the form of contract (general contract).
"3. The general conditions of the contract included by reference `the general conditions of the contract for the construction of buildings, Standard Form of the American Institute of Architects, Fifth Edition.' Said contract was subsequently assigned by said John McGranahan, doing business as J. M. Construction Co., to J. M. Construction Co., Inc. . . .
"4. Said contract called for the contractor to furnish a performance bond for the payment of all persons performing labor or furnishing materials used or employed in carrying out the contract. The said contract also provided that the general contractor would pay all subcontractors and agreed to do so.
"5. On June 9, 1958, J. M. Construction Co., Inc. furnished a bond . . . written by the St. Paul Fire and Marine Insurance Company. . . .
"6. Said bond was not acceptable to Rivier College since it did not comply with the said contract in that it was not a performance bond but rather an indemnity bond. In compliance with the contract, J. M. Construction Co., Inc. furnished an addendum to said bond written by said St. Paul Fire and Marine Insurance Company and dated July 21, 1958 . . . Said addendum set out that `the St. Paul Fire and Marine Insurance Company does hereby agree that the bond . . . issued by it to Rivier College, guaranteeing a certain contract for the construction of a library building . . . to Rivier College . . . is a bond which guarantees the performance of a contract between Rivier College and John McGranahan, doing business as J. M. Construction Co., dated June 9, 1958, which contract has been assigned to J. M. Construction Co., Inc. by John McGranahan, doing business as J. M. Construction Co., and the obligations of the performance of said contract having been assigned and guaranteed by the J.M. Construction Co., Inc.'
"7. Said addendum went on to say, `It is the understanding and agreement of the St. Paul Fire and Marine Insurance Company that the said bond . . . dated July 3, 1958, in which bond Rivier College is the obligee will guarantee the compliance of the contracts hereby referred to, by J. M. Construction Co., Inc.'
"8. Said addendum was properly executed by a duly authorized representative of St. Paul Fire and Marine Insurance Company.
"9. The bond . . . standing alone is an indemnity bond, but the said bond and said addendum, taken together, constitute a guarantee of compliance with the contract and performance of the contract.
"10. The contract called for a performance and payment bond.
"11. In the contract the general contractor agreed to pay all subcontractors.
"12. The contractor, J. M. Construction Co., Inc., defaulted and certain subcontractors and materialmen were owed sums of money for labor and materials furnished under said contract.
"13. A subcontractor can sue the bonding company directly on this bond which guarantees the performance of the contract and compliance of the contract when the contract calls for the payment of subcontractors by the contractor."
Further facts appear in the opinion.
Reserved and transferred by Sullivan, J.
Guertin Widener (Mr. Antoine A. Guertin orally), for the plaintiff Rivier College.
Boynton, Waldron Dill (Mr. Wyman P. Boynton orally), for the defendant St. Paul Fire and Marine Insurance Company.
Booth, Wadleigh, Langdell, Starr Peters and Richard C. Kohls (Mr. Kohls orally), for Peabody Co.
Wiggin, Nourie, Sundeen, Nassikas Pingree and T. William Bigelow (Mr. Bigelow orally), for United Glass Aluminum Company, Inc.
The other creditor defendants furnished no briefs.
The main issue transferred to this court is whether the contract between the plaintiff Rivier College and the defendant St. Paul Fire and Marine Insurance Company is an indemnity or a performance bond.
It appears there are two types of agreement commonly drawn in such situations as the present. The first is called an indemnity bond, the purpose of which is for the sole benefit of the owner, to secure for him the completion of the building within the terms of the contract and without extra cost to him, because of liens for unpaid subcontractors, labor and material for which he might otherwise be liable. Mason v. Company, 85 N.H. 487. The second is a performance bond, where the surety guarantees not only that the building will be completed within the contract price without extra cost to the owner, but also that payment will be made by the contractor to subcontractors and to those who furnish labor and materials. Toner v. Long, 79 N.H. 458.
The bond agreement here was executed in two parts. The first, dated July 3, 1958, standing alone, indisputably is an indemnity bond, and all counsel so agree. However, the Court has construed this agreement, together with a subsequent addendum dated July 21 following, as constituting a performance bond. No question is raised as to the proper execution of either of these instruments, and the question of their meaning becomes one of interpretation for this court. Pettee v. Chapter, 86 N.H. 419. In such cases, it is elementary that where the second agreement expressly refers to the first and deals with the same subject matter, the two should be construed together. Bogosian v. Fine, 99 N.H. 340, 344; Hill v. Huntress, 43 N.H. 480; 17 C.J.S., Contracts, s. 299. Also, the law is well established that when a bond refers, as here, to a specific. contract and is conditioned upon the principal's performance of that contract, both bond and contract must also be read together. Paisner v. Renaud, 102 N.H. 27, 29; Kenney v. Barry, 86 N.H. 35; 9 Appleman, Insurance Law and Practice, s. 5276, p. 70. It is thus our duty to consider together the original bond and addendum agreement between the plaintiff and the defendant insurance company with the contract between the plaintiff and J. M. Construction Co., to which the bond agreements expressly refer. The interpretation of these instruments resolves itself into one of the intent of the parties, and in determining this intent we consider not only the language of the instruments, but all relevant circumstances, including the facts found by the Trial Court. Pettee v. Chapter, 86 N.H. 419.
At the threshold of this inquiry we are met by the defendant insurance company's objection that the Trial Court erred in admitting the testimony of the attorney for the plaintiff as to his intent on insisting on the addendum to the original contract between the plaintiff and the defendant insurance company. There was evidence, however, that he had communicated his intent to the representative of the defendant prior to the execution of the addendum agreement. "In accordance with the modern tendency (9 Wig. Ev. (3d ed.) s. 2465) it has long been the rule here that the facts surrounding an undertaking including conversations in preliminary negotiations are admissible to aid in interpreting an agreement." Lefebvre v. Waldstein, 101 N.H. 451, 456; see also, Perry v. Company, 99 N.H. 451, 454; see Berke Co. v. Bridge Co., 98 N.H. 261, 266. The parol evidence was properly admitted, and therefore we overrule the defendant's exception to its admission. Perry v. Company, supra.
The Trial Court found that the first bond, signed on July 3, 1958, "was not acceptable to Rivier College . . . in that it was not a performance bond but rather an indemnity bond." The existence of this fact, explaining why the plaintiff's attorney requested the addendum, is supported by the record and is binding upon us. Pettee v. Chapter, 86 N.H. 419, 423. The Trial Court also found it was the intention of the parties that a performance bond be furnished and construed the obligation of the defendant to be such. It is true that the question of intention is ultimately for this court, although in a true sense it is a question of fact. Sylvester v. Newhall, 97 N.H. 267, 272. Nevertheless, the determination of this fact is initially for the Trial Court (NewComb v. Ray, 99 N.H. 463, 465), and such is entitled to weight.
In reaching its conclusion, it was the duty of that Court to consider, among other circumstances, the familiar principle that all parts of an agreement are to be given a meaning whenever reasonably possible. McGinley v. Insurance Co., 88 N.H. 108, 111; Dover v. Insurance Company, 92 N.H. 59, 61. In this connection, it is significant that the first. paragraph of the body of the addendum reads as follows: "The St. Paul Fire and Marine insurance Company does hereby agree that the bond . . . is a bond which guarantees the performance of a contract. . . ." We believe that the Trial Court properly construed this addendum as meaning that the defendant guaranteed the compliance of the contract between the plaintiff and McGranahan which had been assigned to the J. M. Construction Co., Inc. This contract between McGranahan and the plaintiff, in turn, expressly bound the construction company to pay all subcontractors for labor and materials used in carrying out the agreement between the construction company and the college. In such a situation, our law is established that the surety is obligated to pay the subcontractors. Toner v. Long, 79 N.H. 458. Such, too, we believe, represents the better view. Restatement, Security, s. 165, ill. 2. See 4 Corbin, Contracts, s. 800.
The situation before us is clearly distinguishable from cases cited as authority for the defendant, such as Mason v. Company, 85 N.H. 487, Fleck-Atlantic Co. v. Indemnity Ins. Co., 326 Pa. 15, and Morse Bros. Electrical Co. v. Martin Shore Realty Co., 181 N.E.2d 549 (Mass. 1962). In the Mason opinion the Court was careful to point out that the principal contractor had not agreed with the owner to pay subcontractors, but it made it clear that had there been such an agreement, the surety would have been liable. Id., 488. The same situation existed in the Fleck-Atlantic Co. case, and in addition to this there were other distinguishing circumstances. In the Morse Bros. opinion, the court said that no facts were in evidence sufficient to show that the parties intended a performance bond to benefit subcontractors. This is contrary to the facts in the present case.
It is also true, as urged by the defendant, that the source of the surety's obligation lies within the bond and that the original instrument standing alone, as found by the Court, was a mere indemnity agreement which would not have obligated the surety to pay the subcontractors. However, here the original bond does not stand alone, but must be construed together with the addendum agreement, as previously stated. Bogosian v. Fine, 99 N.H. 340, 344.
In summary, the Trial Court has found in all the circumstances that the intent of the plaintiff college and the defendant insurance company in making their agreement was that the defendant company should be bound to pay the subcontractors of the general contractor and that it failed to do so. We believe the record supports this conclusion.
This appears to dispose of all questions transferred, and the order is
Remanded.
LAMPRON, J., did not sit; the others concurred.