
    Hastings Land Improvement Company, Respondent, v. The Empire State Surety Company, Appellant.
    First Department,
    April 18, 1913.
    Guaranty and surety — paving contract — default of contractor — action upon undertaking—evidence.
    A paving contract provided for monthly payments upon proper certificate of the superintendent of the party of the first part of the amount of work done to the extent of eighty per cent of the amount of said certificate, and the party'of the second part, the contractor, agreed that twenty per cent of the amount due in any certificate should be retained by the party of the first part. It was further provided that if the con- . tractor should in any way violate the contract the party of the first part might complete the work at the expense of the contractor who bound itself and its sui-ety to pay the surplus cost. An undertaking by a surety company that the contractor would faithfully perform its contract provided that the party of the first part should retain not less than fifteen per centum of all payments for work performed and materials fmmished until the complete performance of the contract. The contractor being Unable to secure sufficient money to carry on the work, a supplementary agreement, to which the surety company assented, was entered into, whereby the party of the first part agreed to pay for labor and materials to he employed and furnished by the contractor, 'the amount so paid to be pro tanto in lieu of the monthly payments under the original contract. The party of the first part, after paying for labor and. materials under the supplementary agreement to the extent of eighty per cent of the value of the work done, notified the contractor that it could not pay for any more without exceeding the eighty per cent limit. The contractor thereupon failed to proceed with the work, and the party of the first part, after notifying the surety company of the ¡contractor’s default, completed the contract, expending, including the amounts paid under the original and supplementary contracts, an amount exceeding the agreed contract price by more than the penalty agreed to he paid by the surety company.
    In an action by the party of the first part against the surety company to recover upon its, undertaking, evidence examined, and held, that the plaintiff was entitled to the direction of a verdict for the amount named in the undertaking.
    Arpe at, by the defendant, The Empire State Surety Company, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 14th day of May, 1912, upon the verdict of a jury, and also from an order entered in said clerk’s' office on the 7th day of June, 1912, denying the defendant’s motion for a new trial made upon the minutes.
    
      Francis B. Wood, for the appellant.
    
      William E. Lowther of counsel [James Wheatland Smith with him on the brief], William R. Bayes, attorney, for the respondent.
   Scott, J.:

The plaintiff made a contract with the O’Connor-McIntire Company for certain work to be done by the latter in paving streets and constructing sidewalks and gutters. The work was to be fully performed for a lump sum of $11,000, and was to be completely finished by the 1st day of November, 1909. The contract contained the following clause: (4) Payments will be made monthly upon proper certificate of the Superintendent of the amount of work done to the extent of eighty per cent of the amount of said certificate, and the said party of the second part hereby agrees that the certificate of the said superintendent that the work has been faithfully performed in accordance with the requirements of the contract and these specifications herein contained,. shall be a condition precedent to the right of the said party of the second part to payment for the entire work or any part thereof due it under this agreement, and the said party of the second part further agrees that twenty per cent of the amount due under any certificate under this agreement shall be retained by the party of the first part from the amount due to the said party of the second part at the time of making such payment.”

It was provided that if the contractor should abandon the work or in any way violate any of the conditions of the contract, the plaintiff might notify said contractor to discontinue all work or any part thereof, and that thereupon the plaintiff might; complete the work itself at the expense of the contractor who bound itself and its bondsmen to pay to plaintiff the surplus cost, if any, incurred by said plaintiff over and above the amount agreed to be paid to said contractor for doing the work. The defendant entered upon an undertaking to plaintiff conditioned that the said contractor would faithfully perform the said contract on its part. There were certain conditions attached to the obligation of the surety, one of which was that plaintiff should “retain not less than fifteen per centum (15%) of all payments for work performed and materials furnished in the performance of said contract until the complete performance ” thereof by the contractor.

The contractor found some difficulty in obtaining sufficient money or credit to carry on the work according to the terms of the contract and on October 27, 1909, a supplementary or amendatory contract was entered into whereby plaintiff agreed to pay for labor and materials to be employed and furnished by the contractor, the amounts so paid to be pro tanto in lieu -of the monthly payments provided to be paid to the contractor under the original contract. It was further provided that these payments for labor and materials should be so limited that the total amount thereof per month, together with the payments to be made monthly upon the proper certificate of the superintendent, as provided for by the original contract should not exceed eighty per cent of the said certificate as therein provided. “The intention being (so reads; the contract) that the amount of the monthly payments may be reduced by the amount paid by the party of the . first part for necessary labor and materials as herein provided. ” This supplementary and amendatory contract was formally consented to by the defendant on October 29, 1909?. . The plaintiff continued to pay for labor and materials under this last agreement until December 7, 1909, when it found it could pay no more without paying in excess of eighty ;per cent of the value of the work done, whereupon it notified the contractor to this effect, and further notified him that he must place more men upon the job and push the work rapidly, and that failure to do so would be considered an abandonment of the contract. Ho response was made by the contractor and no further effort made by him to proceed with the work.." The answer admits that defendant was duly notified of the -contractor’s default, but defendant made no attempt to avail itself of the provision of the undertaking authorizing it to proceed with the completion of- the work.

The plaintiff did proceed with ■ and complete the work, expending, including the amounts paid under the original and supplementary contracts, a sum exceeding by over $4,000 the agreed contract price. It has recovered a judgment against defendant for the sum of $3,000 with interest, the amount of the undertaking.

The answer as amended at the trial consists of formal denials on information and belief of parts of the complaint, and of a separate defense that the plaintiff and the O’Connor-McIntire Company made substantial changes in the original contract, and the work done and to be done thereafter without the knowledge or consent of the defendant. No evidence was offered to support this separate defense.

The defendant’s principal contention is that plaintiff overpaid the contractor, and hence relieved the surety from the obligation of its undertaking. It is by no means clear that the answer presented any such issue (Howard County v. Baker, 119 Mo. 397; 24 S. W. Rep. 200), but assuming that it did, the contention is unfounded. The contract provided that payments should be made monthly to the extent of eighty per cent of the amount of work done ” upon proper certificate of the superintendent (of plaintiff) of the amount of such work. What was done was that the superintendent estimated the value of the work done each month, and the plaintiff paid eighty per cent of the amount so ascertained. The claim of the defendant is that the superintendent should have measured each month the amount of work done and that the contractor should have paid eighty per cent of that proportion of $11,000, which the amount of work done during the month bore to the whole amount of work called for by the contract. In our opinion, the method of estimating the monthly payments to be made to the contractor, as adopted by the plaintiff and its superintendent, was in accordance with the intent of the contract, and indeed the only practicable method of arriving at a just result. (Howard County v. Baker, supra.) It was in accordance with the practical construction given to the contract by both the contracting parties, and was unquestionably adopted and carried out in good faith. If we are right in this construction of the contract the judgment is undoubtedly just. It is true that the court seems to have adopted an erroneous view of the contract in its charge, and it undoubtedly made a considerable error in the statement of figures. That view was that it was plaintiff’s duty to have paid the contractor up to the full eighty per cent of the whole contract price before calling the contract abandoned, without regard to how much work had been done under it. Taking this view, by way of a second defense quite inconsistent with the first, the defendant says that the plaintiff underpaid the contractor, and, therefore, that it was the plaintiff and not the contractor who defaulted. Again it may be observed that no such defense is pleaded, but again overlooking that circumstance it is obvious ■ that the defense is without foundation. The original contract provided that plaintiff should pay only eighty per cent of the amount of work done as the work progressed, and the undertaking required that the plaintiff should retain not less then fifteen per cent of all payments for work performed and materials furnished. ¡So that it was not only plaintiff’s right, but its duty, under iits contract with defendant, to retain twenty per cent) or certainly fifteen per cent of the sums earned each month for the amount of work done, however that amount was to be ascertained. If it had paid to the contractor eighty per cent of the whole amount of the contract price, before the whole contract work had been finished it would clearly have released the surety.

The contract made the superintendent the umpire to decide on the amount of work done and both the contractor and the defendant are bound by his decision in the absence of fraud or palpable mistake, neither of which is charged.

According to the unchallenged testimony of the superintendent the amount paid to the contractor prior to the making of the supplemental contract represented eighty per cent of the work done up to¡ that time and the sums paid for work and materials after that time represented, as nearly as might be, eighty per cent 'of the work done while that contract was operative. The sum of. these payments was $7,666.75, and the plaintiff was obliged to pay out afterwards to complete the work $6,367.3-5, making its total actual payments $14,034.10 for a work which ¡defendant had undertaken that the contractor would do for $11,000. Upon the undisputed evidence in the case, therefore, the plaintiff was entitled, to the direction of a verdict-in the sum of $3,000, the penalty named in the undertaking. The jury, therefore, arrived at a correct result and any error of the court in its charge became unimportant.

The defendant makes a somewhat half-hearted objection to the act of plaintiff in paying for a lot of tarvia which the contractor had ordered and left upon the ground when he abandoned the work. The objection is without substance. It is not claimed that too high a price was paid, and if plaintiff had not taken over this tarvia and used it in completing the work,' it would have been obliged to buy an equal amount elsewhere. That the superintendent made no certificate of the amount of work done after the making of the supplementary contract is unimportant. The only purpose of such certificate was to fix the amount to be paid the contractor, and as the whole eighty per cent payable was expended for labor and materials there was nothing to be paid the contractor, and no occasion for making certificates. (Smith v. Molleson, 148 N. Y. 248; St. John’s College v. Ætna Indemnity Co., 201 id. 341.)

The judgment and order must be affirmed, with costs.

Ingraham, P. J., McLaughlin, Laughlin and Clarke, JJ., concurred.

Judgment and order affirmed, with costs.  