#### THE STANDARD ELECTRIC TIME COMPANY, Inc. v. THE FIDELITY AND DEPOSIT COMPANY OF MARYLAND et al.

(Filed 28 April, 1926.)

1. Mechanics’ Liens — Liens—Principal and Surety — Statutes—Laborers— Material.

A surety bond given by a contractor for tbe erection by a municipality of a public building since tbe amendment of C. S., 2445, by chapter 100, Public Laws of 1923, is liable to those doing labor thereon or furnishing material therefor, whether such condition is written into the obligation of the bond itself or otherwise.

*6542. Same — Contracts.

The indemnity bond given by a contractor for the erection of a municipal building and the contract itself, are to be construed together upon the question as to whether provision is made for the nonpayment by the original contractor of the laborers on and material furnished for the erection of the building, the subject of the contract.

S. Same — Subcontractors.

When according to the terms of its undertaking the surety on a contractor’s bond for the erection of a municipal building is liable to those doing labor thereon or furnishing material therefor, this liability not only extends to such as may have furnished the material directly to the original contractor, but to those who have done so to his subcontractors.

4. Same — Bills and Notes.

Where the plaintiff has furnished material and labor to a subcontractor for the erection by a municipality of a public building, and has a right of action against the surety on the indemnity bond given by the original contractor to the city, such right is not impaired by reason of his having taken the note of the contractor for the materials and labor furnished under contract with the subcontractor.

Appeal by the defendant. Fidelity and Deposit Company of Maryland, from Finley, J., at November Term, 1925, of EociaNGHAM.

Civil action to recover for materials furnished by plaintiff to a subcontractor and used in tbe construction of a public school building.

The purpose of the suit is to hold the Fidelity and Deposit Company of Maryland liable for the claim of the plaintiff by reason of a $60,000 bond executed to the Eeidsville Graded School Committee to save it harmless, together with the materialmen and laborers, from loss due to any failure of the principal contractor to complete a public school building at Eeidsville, N. C., and to pay for all labor done and materials furnished thereon, in accordance with the terms of a written contract.

Upon denial of liability, and issues joined, there was a verdict and judgment for plaintiff in the sum of $981.00 with interest and costs, from which the Fidelity and Deposit Company of Maryland appeals, assigning errors.

W. B. Dalton for plaintiff.

Humphreys & G-wyn for defendant, Fidelity and Deposit Company.

Stacy, C. J.

On 1 June, 1922, L. B. Flora & Co., Inc., contractor, entered into a written agreement with the Eeidsville Graded School Committee for the erection of a public school building at Eeidsville, N. C., in which it was stipulated, among other things, that “the contractor shall and will provide all the materials and perform all the work” necessary for the erection of the said school building; and on the same day, for a valuable consideration, the Eeidsville Graded School *655Committee took from tbe contractor, as principal, and tbe Fidelity and Deposit Company of Maryland, as surety, a bond in tbe sum of $60,000 to insure tbe faithful performance of said contract, tbe condition of tbe bond being as follows: “Now, therefore, if tbe said L. B. Flora & Company, Inc., shall well and truly perform all tbe conditions therein set out in all particulars, and particularly shall pay for all labor done on, and all material and supplies furnished for said work, then this obligation to be void; otherwise to remain in full force and virtue.”

Thereafter, on 12 June, 1922, tbe general contractor sublet a portion of tbe work on tbe building, to wit, tbe installation of tbe electric-time equipment and fire-alarm system, to tbe Wells Electric Company, which said company, in turn, on 2 August, 1922, purchased from tbe plaintiff certain fixtures and materials for use in equipping tbe building with an electric clock and fire-alarm system as called for in tbe building contract.

There is evidence tending to show that tbe general contractor, as well as tbe supervising architect, bad knowledge or were advised, though not formally notified, of tbe fact that tbe plaintiff was supplying tbe Wells Electric Company with certain materials for use in executing its part of tbe work.

Tbe general contractor made payments, from time to time, to tbe Wells Electric Company, for its part of tbe work, and on 13 August, 1923, a complete settlement was bad, tbe general contractor paying tbe Wells Electric Company in full for installing in said building tbe electric-time equipment and fire-alarm system, as called for by tbe building contract.

In January, 1924, about five months after its' settlement with tbe general contractor, tbe Wells Electric Company made an assignment for tbe benefit of its creditors. Immediately following, tbe plaintiff called upon L. B. Flora & Company, tbe general contractor, to pay its claim for materials furnished and used in tbe construction of tbe public school building at Reidsville. Up to this time the plaintiff bad only looked to tbe Wells Electric Company for payment, and bad taken its ninety-day trade acceptance for tbe amount due as a matter of business convenience. Payment was refused by tbe general contractor. This suit is to recover on tbe bond.

On motion of tbe Reidsville Graded School Committee, judgment of nonsuit was entered as to it, and correctly so, under authority of Noland Co. v. Trustees, 190 N. C., 253. Tbe appeal presents only tbe case of tbe surety company.

It is conceded by all tbe parties that tbe bond in question was taken and given in view of tbe provisions of C. S., 2445, as amended by chapter 100, Public Laws 1923, requiring every county, city, town or *656other municipal corporation, which lets a contract for building, repairing or altering any building, public road or street, to take from the contractor of such work (when the contract price exceeds $500.00) a bond, with one or more solvent sureties, before beginning any work under the contract, payable to said county, city, town or other municipal corporation, and conditioned “for the payment of all labor done -on and materials and supplies furnished for the said work,” and upon which suit may be brought for the benefit of laborers and materialmen having claims. Warner v. Halyburton, 187 N. C., 414.

The statute, as amended, provides that every bond given to any county, city, town or other municipal corporation, for the building, repairing or altering of any public building, public road or street, as required by this section, “shall be conclusively presumed to have been given in accordance therewith, whether such bond be so drawn as to conform to the statute or not, and this statute shall be conclusively presumed to have been written into every such bond so given.” It is further provided in the amended law that only one action may be brought on such bond, all claimants to be duly notified, which was done in the instant case, and if the aggregate sum exceed the amount of the bond, the payments are to be prorated. The surety is also allowed, by paying into court in such suit the full amount of the penalty of the bond, to be relieved from any other or further liability thereon.

The principle is well established by many authoritative decisions, here and elsewhere, that in determining the surety’s liability to third persons on a bond given for their benefit and to secure the faithful performance of a building contract as it relates to them, the contract and bond are to be construed together. Mfg. Co. v. Andrews, 165 N. C., 285. And in application of this principle, recoveries on the part of such third persons, usually laborers and materialmen, even when not expressly named therein, are generally sustained where it appears, by express stipulation, that the contractor has agreed to pay the claims of such third persons, or where by fair and reasonable intendment their rights and interests were being provided for and were in the contemplation of the parties at the time of the execution of the bond. Lumber Co. v. Johnson, 177 N. C., 44. The obligation of the bond is to be read in the light of the contract it is given to secure, and ordinarily the extent of the engagement, entered into by the surety, is to be measured by the terms of the principal’s agreement. Brick Co. v. Gentry, ante, 636, and cases there cited.

Here, by the express stipulation of the contract and under the provisions of the bond, it is clear, we think, that the claims of laborers, doing work on the building, and of materialmen, furnishing material *657and supplies for said work, were not only being provided for and were in tbe contemplation of tbe parties at tbe time of tbe execution of tbe contract and bond, but tbat tbey also come directly witbin tbe terms of tbe statute governing tbe matter. Ingold v. Hickory, 178 N. C., 614; Hill v. Amr. Surety Co., 200 U. S., 197.

It is provided in C. S., 2445, tbat “any laborer doing work on said building and materialman furnisbing material tberefor and used therein,” still bave “tbe right to sue on said bond, tbe principal and sureties.” This language is quite similar to tbat used in U. S. Comp. St., 1913, sec. 6923, and in Hill v. Amer. Surety Co., 200 U. S., 197, tbe Supreme Court of tbe United States held tbe Act of Congress and tbe bond given thereunder sufficient to cover claims of materialmen furnisb-ing material and supplies to a subcontractor. In tbe course of an elaborate opinion dealing with tbe purpose and intent of tbe statute, Mr. Justice Day said:

> “If literally construed, tbe obligation of tbe bond might be limited to secure only persons supplying labor or materials directly to tbe contractor, for which be would be personally liable. But we must not overlook, in construing this obligation, tbe manifest purpose of tbe statute to require tbat material and labor actually contributed to tbe construction of tbe public building shall be paid for and to provide a security to tbat end. Statutes are not to be so literally construed as to defeat tbe purpose of tbe Legislature. . . . There is no language in tbe statute nor in tbe bond which is therein authorized limiting tbe right of recovery to those who furnish material or labor directly to tbe contractor, but all persons supplying tbe contractor with labor or materials in tbe prosecution of tbe work provided for in tbe contract are to be protected. Tbe source of tbe labor or material is not indicated or circumscribed. It is only required to be ‘supplied’ to tbe contractor in tbe prosecution of tbe work provided for. How supplied is not stated, and could only be known as tbe work advanced and tbe labor and material are furnished.

> “If a construction is given to tbe bond so limiting tbe obligation incurred as to permit only those to recover who bave contracted directly with tbe principal, it 'may happen tbat tbe material and labor which bave contributed to tbe structure will not be paid for, owing to tbe default of subcontractors and tbe manifest purpose of tbe statute to require compensation to those who bave supplied such labor or material will be defeated. "We cannot conceive tbat this construction works any hardship to tbe surety. . . . It is easy for tbe contractor to see to it tbat be and bis surety are secured against loss by requiring those with whom be deals to give security by bond, or otherwise, for tbe payment of such persons as furnish work or labor to go into tbe structure. *658In view of the declared purpose of the statute, in the light of which this bond must be read, and considering that the act declares in terms the purpose to protect those who have furnished labor or material in the prosecution of the work, we think it would be giving- too narrow a construction to its terms to limit its benefits to those only who supply such labor or-materials directly to the contractor.”

¥e have quoted at length from this opinion because it is an apt and clear exposition of our own statute. The reasoning of that case controls here. The language of the Federal Act is no stronger than the language used in our own statute. Such statutes are enacted in the exercise of a sound public policy. The contractor gets the benefit of the work done and materials furnished, and the statute requires that he pay for them, to the end that public works may not be erected by the use of labor and materials belonging to others. Speaking to the policy of the law in this respect, Dean, J., in Philadelphia v. Stewart, 201 Pa., 526, said:

> “Seldom are contractors for large public works able of themselves to furnish the labor and material necessary to the completion of their contracts; in nearly every case they rely on many subcontractors and ma-terialmen to furnish different kinds of mechanical skill and labor, also material, such as stone, brick, lumber, glass, and iron; these have nothing on which to rely for payment except the honesty and ability of the principal contractor. If the contractor of himself do not inspire confidence among these, who must be subordinate to him, his ability in many cases to bid for large work must be weakened or altogether destroyed; as a necessary consequence, competition for work disappears, in large measure, and there follows a monopoly to the few contractors of large capital, with the inevitable result of exorbitant prices. Every one knows the city will pay the principal contractor, but will he pay his subcontractors and materialmen, whether he makes or 'loses on his contract ? is the question with them.”

Nor can the surety complain at this holding, because when a surety executes a bond in compliance with a statute requiring it, he knows that such statute enters into and becomes a part of the undertaking. House v. Parker, 181 N. C., 40; Hardware Co. v. Liability Co., 178 Cal., 252; Cleveland Metal Roofing Co. v. Gospard, 89 Ohio St., 185, reported in 39 Ann. Cas., with valuable note.

The acceptance by the plaintiff of a ninety-day trade acceptance for the amount due from the "Wells Electric Company, as a matter of business convenience, is not a bar to its right to recover on the bond. Guaranty Co. v. Pressed Brick Co., 191 U. S., 416.

• In the instant case the general contractor agreed to provide “all the material and perform all the work,” required for the erection of the *659building, and to “pay for- all labor done on, and all material and supplies furnished for said work.” These provisions, read in the light of the statute, look to the protection of those who furnish the labor and materials provided for in the contract, and not to the particular contract or engagement under which they are supplied. If the general contractor sees fit to let a portion of the work to a subcontractor, who employs labor and buys materials which are used to carry out and fulfill the engagement of the original contractor, the principal contractor is thereby furnished with the labor and materials for the fulfillment of his engagement as effectually as he would have been had he directly hired the labor or bought the materials.

This interpretation finds support generally in the decisions of other jurisdictions. Multnomah County v. U. S. F. & G. Co., 87 Or., 205; Columbia County v. Consolidated Contract Co., 83 Or., 258; Crane Co. v. Md. Cas. Co., 102 Wash., 66; Haakinson & B. Co. v. McPherson, 182 Iowa, 477; Hardware Co. v. Aetna Acc. & Liability Co., 178 Cal., 252; Associated Oil Co. v. Commary-Peterson Co., 32 Cal. App., 586; School District v. Hallock, 86 Or., 692; Oliver Const. Co. v. Williams, 152 Ark., 419.

We conclude that the material and supplies furnished by the plaintiff in the instant case were within the obligation of the surety on the bond, and in this view the verdict and judgment must be upheld.

No error.