Carolina Builders Corp. v. New Amsterdam Casualty Co., 236 N.C. 513 (1952)

Nov. 19, 1952 · Supreme Court of North Carolina

236 N.C. 513

CAROLINA BUILDERS CORPORATION, a North Carolina Corporation, v. NEW AMSTERDAM CASUALTY COMPANY, a Maryland Corporation.

(Filed 19 November, 1952.)

1. Principal and Surety § 8—

Tbe fact tbat a contractor’s performance bond, executed in favor of tbe owner by tbe contractor as principal and a corporation as surety, stipulates that all persons furnishing labor or material for the job should have a direct right of action on -the bond, does not change the status of the surety or make it a principal debtor.

2. Same—

A contractor's performance bond must be construed with tbe building contract to wbicb it refers and relates since tbe obligations of tbe surety are to be measured by tbe terms of tbe principal’s agreement with tbe owner, and therefore complaint in an action by a material furnisher against tbe surety wbicb fails to attach the contract between tbe builder and tbe contractor or allege tbe material terms thereof so that tbe liability of tbe contractor to tbe owner may be ascertained, is demurrable notwithstanding tbat the bond gives material furnishers right of direct action on the bond.

3. Pleadings § 23—

Upon sustaining demurrer to the complaint for its failure to state a cause of action, plaintiff may move to amend within tbe time allowed by G.S. 1-131. Upon its failure to do so, tbe cause will be dismissed.

Appeal by defendant from Oarr, J., June Term, 1952, Wake.

Reversed.

Civil action on contractor’s performance bond to recover for materials furnished, beard on demurrer.

Plaintiff alleges in its complaint tbat: (1) on 16 August 1950 defendant executed and issued its owner’s protective bond in tbe sum of $70,000, “reciting tbat K. R. Benfield, Contractor, bad executed a contract with W. A. Harris, Owner, for tbe construction of 14 bouses on Hickory Road and Pecan Road for $5,000 eacb, said bond being conditioned upon tbe faithful performance of tbe contract by said Benfield and tbe payment of all persons who have furnished labor or material,” and providing further tbat laborers and materialmen shall have a direct right of action on tbe bond; (2) Benfield^began tbe erection of said buildings and in connection therewith purchased from plaintiff materials of tbe value of $22,822; (3) Benfield became financially involved and was unable to complete tbe contract, and defendant was notified of said default; (4) defendant failed to complete tbe contract as it was obligated to do, whereupon plaintiff and other creditors, after notice to defendant, completed tbe construction of said dwellings, and tbat tbe buildings, after completion, were sold for tbe highest available prices but it was necessary to apply all tbe proceeds of said sales to a prior mortgage so tbat nothing was left to be applied to tbe payment of tbe claims of plaintiff and other creditors; and (5) tbe full amount of $22,822 is still due plaintiff for materials furnished for tbe payment of wbicb demand has been made of defendant, but defendant has failed and refused to pay tbe same as it is by its policy obligated to do.

A copy of tbe compliance bond is attached to tbe complaint and is by reference made a part thereof. However, tbe alleged contract between Benfield and Harris is by reference made a part of tbe bond. A copy of this contract, a material part of the bond, is not attached.

The bond was executed by Benfield as principal and defendant as surety for the protection of Harris, owner, as the indemnitee, and is conditioned substantially as alleged in the complaint. It is stipulated therein that: “All persons who have furnished labor or material for use in or about the improvement shall have a direct right of action under the bond, subject to the Owner’s priority.”

The defendant demurred in writing for that the complaint of the plaintiff does not state facts sr^fficient to constitute a cause of action against the defendant, specifying five separate alleged deficiencies therein. The demurrer was overruled and defendant appealed.

Harris, Poe <fi Cheshire for plaintiff appellee.

Biclcett ■& Banks for defendant appellant.

Bahuhill, J.

While the bond in question grants laborers and mate-rialmen the right to maintain an action against defendant, this does not change the status of defendant as a surety and make it a principal debtor. To entitle a materialman to recover from the surety on a performance bond, he must allege and prove a debt due by the contractor for material furnished him for use in the performance of his contract with the owner.

The liability of the surety does not rest solely upon the terms of its bond. It grows out of and is dependent upon the terms of the contract executed by its principal. If there has been no default by the principal, there can be no enforceable debt against the surety.

The obligation of the bond is to be read in the light of the contract it is given to secure. The extent of the engagement entered into by the surety is to be measured by the terms of the principal’s agreement. Of necessity, therefore, to determine the surety’s liability to third persons on its bond given for their benefit and to secure the faithful performance of a building contract as it relates to them, the contract and the bond must be construed together. Pearson v. Simon, 207 N.C. 351, 177 S.E. 124; Brick Co. v. Gentry, 191 N.C. 636, 132 S.E. 800; Mfg. Co. v. Blaylock, 192 N.C. 407, 135 S.E. 136; Dixon v. Horne, 180 N.C. 585, 105 S.E. 270; McCausland v. Construction Co., 172 N.C. 708, 90 S.E. 1010.

The plaintiff does not plead the contract between Benfield and Harris nor does it set forth in its complaint the material terms thereof. It is true the complaint contains the allegation that the defendant executed its bond “reciting” certain facts in respect to a supposed contract between Benfield and Harris. But this will not suffice. The complaint must make it appear that Benfield, by virtue of his contract with Harris, is now indebted to it and the terms of the contract must be pleaded, certainly to the extent necessary to enable the court to determine that, upon the facts alleged, such indebtedness does exist so as to render defendant liable for the payment thereof. These allegations are essential to the cause of action plain tiff seeks to enforce.

Only a part of the bond itself on which plaintiff relies is by reference made a part of the complaint. The builder’s contract is a material part thereof. This contract is not attached either as such or as a part of the performance bond.

Moreover, so far as the complaint discloses, the owner still has on hand a sufficient part of the contract price to satisfy the claim of plaintiff. There is no allegation that any part thereof has been paid by the owner to the contractor or expended by him in the completion of the building project. It is alleged that the creditors — not the owner — completed the erection of the buildings after Benfield’s default, and that the proceeds derived from the sale of the property were consumed, not by the cost incurred in the completion of the contract but in the payment of a prior mortgage. What part of plaintiff’s claim, if any, was incurred in the completion of Benfield’s contract is not made to appear.

Furthermore, plaintiff’s right to recover is subject to the owner’s priority. What is that priority? Is it of such nature as to foreclose plaintiff’s action? The court can answer only upon a consideration of both contracts. Hence it is essential that plaintiff plead both contracts as a part of its cause of action.

The rule of liberal construction does not require or permit us to read into the complaint allegations which are not there.

For the reasons stated we are of the opinion the complaint fails to state a cause of action. Therefore, the cause will be remanded to the end that plaintiff may move to amend as provided by G.-S. 1-131. Upon its failure so to do within the time allowed by statute, the cause will be dismissed.

Reversed.