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General Builders Supply Co. v. Macarthur

Decided: April 16, 1962.


Appeal from the Circuit Court for Montgomery County; Anderson, J.

Henderson, Hammond, Prescott, Horney and Sybert, JJ. Horney, J., delivered the opinion of the Court.


In an action brought by an owner against the builder as principal and the surety on a performance bond for the construction of a dwelling, the Circuit Court for Montgomery County entered a judgment against the surety as well as the builder (though in varying amounts) and the surety appealed.

In October of 1959 Bruce M. MacArthur (the owner) entered into a memorandum agreement with the Construction and Development Corporation of Maryland (the builder or principal) under which the builder proposed to construct a dwelling for $29,431, and the owner made a deposit on account of $1,000. Subsequently, before the construction contract was executed, the builder suggested that a "precut house" be purchased from the Hog Island Lumber Company (Hilco) at a cost of $10,000. The owner adopted the suggestion and paid the builder another $2,500 on account for the precut lumber.

The construction contract, to which the plans and specifications were attached, was executed in February of 1960. Between October and February the owner had paid to the builder an additional sum of $931, or a total of $4,431, on account of the contract price. And, when the construction contract had

been signed, the owner went beyond the requirements of the contract and sent a check direct to Hilco for $7,500, at the request of the builder, for the balance due on the lumber. But almost immediately thereafter the owner, having become concerned about the ability of the builder to meet its obligations for labor and materials, stopped payment on the check and demanded a performance bond to assure compliance with the construction contract.

In the area in which the dwelling was under construction, the General Builders Supply Company, Inc., had an agency agreement with Hilco whereby it received a commission on the prefabricated houses sold in its territory. On other occasions the agent had become surety on other performance bonds. And, when Hilco was informed of the stop order and demand for bond, it promptly communicated with its agent (sometimes referred to as surety) and arranged for it to become surety on the bond demanded by the owner. The agent, because it was reluctant to be bound for so large a sum, hesitated at first to sign the bond, but when Hilco insisted and intimated that the agent might lose its franchise if it did not go on the bond, the agent as surety executed the bond with the builder as principal and delivered it to the owner. The obligation of the bond was to the effect that if the principal did not perform its contract with the owner, then the surety would "remedy the default" or "complete the contract in accordance with its terms and conditions." Promptly thereafter the owner paid Hilco the balance due of $7,500.

After the signing of the construction contract, sums slightly in excess of the balance of the contract price were deposited from time to time in a joint bank account and all withdrawals therefrom were signed by or on behalf of the owner and builder. But by May of 1960 it became evident that there would not be sufficient funds to complete the house. As of that time the financial status of the builder was such that it could not meet current obligations. And, although $29,598.69 had been expended, there were unpaid bills totaling $7,904.31. At this point the owner refused to make further advances and as a result no further work was done by the builder. The surety was notified of the builder's default, but it denied liability,

and refused to complete the house. And when the surety also defaulted, the owner proceeded to complete the construction of the house. The total cost, including extras costing $2,901, was $46,433.24. And, since the contract price was $29,431, the difference between that price and the actual cost of $43,532.24 was $14,101.24. Judgment was entered against the builder for the difference, but because $4,431 had been paid the builder before the performance bond was executed, a judgment for $9,670.24 was entered against the surety.

Relying primarily on Maryland Rule 828 b, the appellee moved to dismiss the appeal because the record was so inadequate that it would not permit a determination of the questions presented. The appellant's record extract is indeed skimpy, but we think there is enough in the record extract and the appellee's appendix to decide most, if not all, of the questions raised. We therefore deny the motion to dismiss and will dispose of the appeal on its merits insofar as it is possible.

On appeal the surety contends (i) that the performance bond was unenforceable for want of assent; (ii) that the bond was unenforceable for want of consideration; (iii) that it was relieved of liability because the owner breached the contract; and (iv) that the owner failed ...

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