Montgomery County v. Phoenix Insurance

Hammond, J., delivered the opinion of the Court. In late 1956 Fred Way, a developer of real estate, gave a bond as principal, with Phoenix Insurance Company as surety, in the amount of $9,693.00 to Montgomery County, obligee, to meet a condition precedent for the issuance of a permit by the County for the building of a road in a subdivision owned by Way, known as West Olney Park. The right of way for the road had been dedicated and graded. One of the obligations of the bond was that the permittee shall “* * * fully meet and faithfully perform his, their or its obligations in completing the work for which said permit is issued, and shall well and truly and in a manner satisfactory to the Department of Public Works of Montgomery County, Maryland, complete the ⁶⁰ work described in said approved application * * The obligations were to remain in full force and effect “until the work described in the application has been approved or accepted pursuant to the provisions of the Montgomery County Road Construction Code.” Way did not build the road and lost title to West Olney Park in a foreclosure in 1957.

About a year later, R. & G. Construction Co., Inc., bought the development after its officer had been told by the broker and the then owner that there was a road bond in force to guarantee completion of the road in the development. On June 5, 1959, Montgomery County wrote Phoenix, as surety, that the bond had been put in default in January, that Phoenix’s agent had been advised that the bond would not be released unless all interested lot owners in West Olney Park agreed, that the lot owners were calling for the building of the road, and that the County would expect Phoenix to complete the road without delay. Phoenix refused to admit liability and did not act. On September 29, 1959, R. & G. and Montgomery County, by a formally executed document, recited that the road should be constructed, that the County had no funds available for the construction and would not have until it obtained them from Phoenix or they were included in a budget appropriation, and agreed that (a) the County would construct the road if R. & G. would place in its hands a sum of money equal to the estimated cost of construction and pay any additional cost, upon completion, and (b) the County would sue Phoenix on the bond and, if successful, pay over the recovery to R. & G. If the County did not recover, it had no further liability to R. & G. On October 27, 1959, R. & G. deposited $12,882.00 in escrow for the use of Montgomery County, which several weeks later awarded a contract for the building of the road to a Frederick contractor who agreed to and did build it for $11,461.00.

Suit was filed on the bond by Montgomery County (by amendment Montgomery County, to the use of R. & G., was added as a plaintiff) against Way and Phoenix. Way had disappeared and could not be-served, and the case went to trial ⁶¹ against Phoenix before Judge Pugh, sitting without a jury. He said in his opinion that “the County wants to recover from a defendant in order to pay the money over to a total stranger to the transaction. The Court does not believe that * * * such a manipulation was contemplated when the bond was executed * * *.

The County has not been damaged nor has it incurred any expense through the failure of the permittee as stated in the bond. The County is attempting to enrich a total stranger to the original transaction. The Court should not aid such an attempt.” Judge Pugh’s translation of his beliefs as to the ethics and desirability of Montgomery County’s effort to recover on the bond into a judicial denial of its right to do so finds no support in law, as we see it. Phoenix defends on the grounds that the County was not damaged and therefore is not entitled to recover.

The contention is beside the point. It is well settled that if a bond is given to a public body as a prerequisite to the grant of a license or other privilege, or conditioned upon compliance with the requirements of law, the full penalty of the bond may be recovered for a breach of the bond, without proof of actual damage, in the absence of express or implied provisions to the contrary in the statute or ordinance which prescribes the bond, or in the bond itself. Clark v. Barnard, 108 U. S. 436 , 27 L. Ed. 780 (breach of bond to the State of Rhode Island for failure to build a railroad as agreed) ; United States v. Dieckerhoff, 202 U. S. 302 , 50 L. Ed. 1041 ; Fresh Grown Preserves