Lutz v. Porter

Hammond, J., delivered the opinion of the Court. This appeal is from a decree holding the appellant, Vernon C. Lutz, liable as surety on a bond given to guarantee performance of a building contract and referring the matter to an auditor for the ascertainment of damages. The description of the parties in the bond was reversed, the actual principal being called surety, and the appellant and a co-surety, principals, and, although executed by the appellant as an individual, was signed by him as vice-president of the corporate principal. The bill' of complaint was filed by Helen B. Porter, the appellee, against the appellant, the McMillen Company, the contractor and principal on the bond, and Edward W. Pugh, its controlling stockholder and the co-surety, to construe the bond so as to give effect ⁵⁹⁸ to the agreement and understanding of the parties or, in the alternative, to reform the bond, and to procure damages for failure to faithfully perform the building contract.

Demurrers were over-ruled, answers filed and testimony taken. The McMillen Company and Pugh did not appeal, although the decree was against them also. The appellant, a surveyor and engineer, had done work for Pugh, a builder. Pugh had encountered difficulties and was indebted to appellant, although the two were friends.

Appellant, because of a desire to help Pugh, as well as to bring about profits which would enable him to be repaid the monies due him, and in anticipation of becoming an officer of Pugh’s newly formed building company, was instrumental in bringing together, through the offices of a lawyer, the appellee who was going to build a house, and Pugh, operating as the McMillen Company. The contract was signed September 18,1951 but all copies remained in the offices of appellee’s lawyer until October 25, 1951, after the bond had been signed, sealed and delivered on that day. The house was never completed by the McMillen Company and there were unpaid bills to suppliers of some seven thousand dollars. The appellee was required to pay these in order to save the property from sale.

Demand was made upon appellant to make good on his bond, and after negotiations for the purchase of the house from Mrs. Porter by him had fallen through, the proceedings which have led to this appeal were instituted. The parties differ sharply as to the facts. The appellant says that he did not intend to be bound individually when he signed the bond, that even if it be held that he so intended, the bond was signed almost a month after the contract had been executed and was effective, so that there was no consideration for the signing of the bond. Further, he says that all payments on the contract, which, according to its terms were to be made at stated intervals, were to be made to him and the McMillen Company jointly, so that the payment of suppliers would be insured, but this was not done and that, ⁵⁹⁹ therefore, his liability was terminated.

He argues also that the appellee demanded many things which the contract did not require and the McMillen Company acceded to these demands without his consent and that this was a departure from the contract which he guaranteed, so as to release him. Finally, he says that the building contract was breached by Mrs. Porter rather than by the McMillen Company because of the excessive and unreasonable nature of her demands. On the other hand, Mrs. Porter says that the contract was delivered to her attorney to be held until the bond was executed, and only then was to go into effect. She says that Lutz was required to go on the bond because neither Pugh nor his company had any financial responsibility and had been given the contract only because Lutz was back of him.

She denies that there was ever any agreement to make the payments through Lutz or that she was unreasonable in her demands or breached the contract. The chancellor found as a fact that the bond was intended to be and, under its terms, was one wherein the McMillen Company was the principal, and Lutz and Pugh, sureties in their individual capacities, and that