
    The Royal Indemnity Co. v. The Northern Ohio Granite & Stone Co.
    
      Suretyship — Construction of contract — Ambiguous terms — Contractor’s bond — Default by principal contractor — Materialmen and laborers — Surety liable to subcontractors, when.
    
    1. The rule of strict construction ordinarily applied in favor of private, voluntary sureties does not apply to that class of sureties which, for a pecuniary consideration, undertakes to indemnify an owner of a construction against the defaults of the principal contractor who engages to furnish labor and materials for the construction. In such contracts, where ariibiguous terms are employed, ■ that construction should be adopted, if consistent with the purpose to be accomplished, most favorable to the beneficiary.
    2. A surety of the character described, which, by its contract, assures the faithful performance thereof by a principal who agrees to furnish labor and materials on a structure, at his own risk, cost and expense, is liable to a materialman who furnishes material, in default of the principal’s payment therefor. (Cleveland Metal Roofing & Ceiling Co. v. Gaspard et al., 89 Ohio St., 185, overruled.)
    (No. 16270
    Decided December 9, 1919.)
    Error to the Court of Appeals of Cuyahoga county.
    This was a suit brought against the surety on a contractor’s bond. On August 18, 1915, one Edward A. Weiland entered into a contract with the city of Cleveland, under the terms of which he agreed to build a reinforced concrete floor for a viaduct in that city. One of the terms of his contract was that he would “at his own risk, cost and expense do all work • and furnish all materials, labor, tools, appliances, ways and means” in building the concrete floor of that viaduct. To secure the construction of this viaduct floor Weiland gave a bond with the plaintiff in error, The Royal Indemnity Company of New York, as surety. By the terms of this bond it was provided that said Edward A. Weiland should “well and truly execute all and singular the stipulations by him to be executed * * * and do and perform all and singular the terms, conditions and requirements of the plans, specifications and contract * * * and should further indemnify and save harmless said The City of Cleveland from all liens, charges, claims, demands, loss, costs and damages of every kind and nature whatsoever, including claims for material and labor, furnished and performed for and upon the work specified in said agreement.”
    
      After the execution and delivery of said contract and bond The Northern Ohio Granite & Stone Company performed labor and furnished material for the erection of the reinforced concrete flooring on the viaduct, under a contract made between it and said Weiland. Upon the failure of Weiland to pay for the labor and material The Northern Ohio Granite & Stone Company brought suit for the amount due, and asked judgment therefor.
    These facts were alleged in the second amended petition of plaintiff, The Northern Ohio Granite & Stone Company, to which the defendant surety company interposed a general demurrer. This demurrer was sustained by the trial court, and judgment entered thereon. The court of appeals reversed this judgment, whereupon error was prosecuted to this court.
    
      Messrs. Orgill, Maschke & Mellen, for plaintiff in error.
    
      Messrs. Griswold, Green, Palmer & Hadden, for defendant in error.
   Jones, J.

The Northern Ohio Granite & Stone Company .is not specifically named as an obligee in the bond. However, it could maintain an action as a party in interest under our code if the terms of the bond inured to it as a beneficiary thereunder. The contract not only became a part of the bond, by the latter’s requirement that it should be faithfully performed, but was made a part of the bond in the specific terms, “as if fully set forth,” therein. Among the terms of the contract required to be faithfully performed by this bond was the one that required Weiland “at his own risk, cost and expense” to do all the work and furnish all the material for the reinforced concrete floor of the viaduct.

Did this engagement between the city and the surety reasonably contemplate the promise to pay upon the part of Weiland for the labor and materials entering into the superstructure? At the threshold of this case we are confronted with the rule announced in Cleveland Metal Roofing & Ceiling Co. v. Gaspard et al., 89 Ohio St., 185. We do not deem it now necessary to enter upon a discussion of the principle there announced further than to say that we are fully in accord with that line of decisions which upholds liability upon the part of the surety for the payment of material and labor furnished under a stipulation in a bond guaranteeing the payment of claims for material and labor required in the construction of the building. Not only does the current of modern authority support this view, but it is flanked by a sound legal reason. We are utterly unable to see why in a case of such character a court should be required to adopt a construction that would nullify not only the specific provision of the bond itself but the evident intention of the parties thereto. By the terms of that bond those who furnished material and labor became beneficiaries thereunder. Nor is the principle announced in the Gaspard case in harmony with two unreported cases decided by this court, viz.: Henry et al. v. Ankrim, 39 W. L. B., 78, affirmed by the supreme court without opinion, 57 Ohio St., 665, and American Surety Co. of New York v. Raeder, 15 C. C, 47, affirmed by the supreme court without opinion, 61 Ohio St., 661. We, therefore, disapprove the principle announced in the Gaspard case, supra.

The earlier rule of strictissimi juris adopted for the protection of sureties -should not apply to cases of this character. “The early adjudications in suretyship treated the contract as one of great burden to the promisor, because of the fact that it was usually entered into for accommodation merely, and -without any participation in the benefits of the principal contract.” (Stearns on Suretyships [2 ed.], Section 2.) Where contracts for improvements are entered into between an owner and a surety who receives a premium for its engagement of fidelity, terms may be employed which fairly contemplate the financial protection of subcontractors who employ labor and furnish material for the structure contemplated in the bond. That labor and materialmen may eventually perfect liens against a structure would be a sufficient consideration for immunity of the owner upon the part of the surety.

While under our statute our mechanic’s lien law may not have provided for liens on this particular structure, because of its public nature, the city, in this case, knowing that fact, may have had in contemplation the protection of mechanics and materialmen who could not obtain a valid lien upon this structure. Unlike an ordinary private surety, a surety of the character here involved, which accepts money consideration, has the power to and does fix the amount of its premium so as to cover its financial responsibility. This class of surety-ships, therefore, is not regarded as “a favorite of the law.” (Bryant v. The American Bonding Co., 77 Ohio St., 90, 99.) And if the terms of the surety contract are susceptible of two constructions, that one should be adopted, if consistent with the purpose to be accomplished, which is most favorable to the beneficiary. (Supreme Council Catholic Knights v. Fidelity & Casualty Co., 63 Fed. Rep., 48, 58; American Surety Co. v. Pauly, 170 U. S., 133; Cowles v. U. S. Fidelity & Guaranty Co., 32 Wash., 120, and Mechanics’ Savings Bank & Trust Co. v. Guarantee Co., 68 Fed. Rep., 459.) Especially is this so when the contract of suretyship employs ambiguous terms relating to those furnishing labor and material which enter into the structure.

In this situation, therefore, talcing both the bond and the contract into consideration, and giving to the terms of the bond a reasonable construction, can it be said that the parties thereto contemplated the purpose of payment for the labor and material that entered into this structure? If Weiland by his contract had merely engaged to “furnish” or to “provide” materials and labor in conformity to his contract, it could reasonably be claimed that payment to the materialmen was not comprehended within such terms. But his contract provides more than that. It provides that he shall furnish those materials at his own expense. There is some ambiguity in the employment of this clause. There was no necessity for the employment of these words for the protection oi:-the city, because it was already protected by another term of the bond, which provided that the city should be saved harmless from all claims and demands against it. These words must, therefore, have been used for a definite purpose. Although Weiland engaged to furnish these materials at his own cost and expense this obligation of the bond was broken, for the materials furnished were furnished at another's cost and expense. This construction of a contract of similar character was upheld in the case of Fuller & Co. v. Alturas School District et al., 28 Cal. App., 609. However, in a similar case a different construction was upheld in Greenfield Lumber & Ice Co. v. Parker et al., 159 Ind., 571.

The principle here announced is supported by the case of Lyman v. City of Lincoln et al., 38 Neb., 794. There the contract provided that receipts for claims for labor and material should be filed with the board of public works before the financial estimate was paid and work accepted. It is there held that such clause in the contract constituted a promise to pay for labor and material furnished on the contract.

The disposition of this feature of the case renders unnecessary the consideration of other alleged errors presented.

The judgment of the court of appeals reversing the judgment of the common pleas court is affirmed and the case is remanded to the latter with instructions to overrule the demurrer to the second amended petition.

Judgment affirmed.

Nichols, C. J., Matthias, Johnson and Wanamaker, JJ., concur.

Merrell, ]., not participating.  