Miller v. Commercial Electric Construction, Inc. , 223 Pa. Super. 216 ( 1972 )

Opinion by

Hoffman, J.,

This appeal involves the question of whether an individual employee may recover sums claimed for labor supplied or performed from a surety when the compensation for such labor is calculated, in part, upon a percentage of the profits of the employer rather than paid on a weekly, monthly, or other basis.

This case is before us upon the appeal of appellant, United States Fidelity & Guaranty Company (hereinafter “U.S.F. & G.”), from an order of the court below denying its motion for judgment n.o.v. and for a new trial. The pleadings and testimony in the case establish that on or about May 13, 1966, Franklin O. Miller (hereinafter “Miller”) and Commercial Electric Construction, Inc. (hereinafter “Commercial”), entered into a contract of employment through an exchange of letters whereby Miller was hired to “develop, operate and control all electrical work in the Allentown area.” His compensation was based on a salary of $250 per week plus “one-half of the profits of all work secured in the Allentown area.” U.S.F. & G. and Commercial admitted that “plaintiff performed labor in the supervision of the said electrical construction contract.” U.S.F. & G.’s bond contained the customary language that if Commercial paid “all sums of money which may be due for all materials furnished, labor supplied or performed, ... in or in connection with the prosecution of the work . . .” (emphasis added), then the obligation would be null and void, otherwise to remain in full force and effect.

The jury accepted plaintiffs evidence that the profit on the Bethlehem Housing Authority project, which contract for the construction of electrical work had been secured by Miller for Commercial, was $36,545.45. The jury returned a verdict against both Commercial and U.S.F. & G. in the amount of $18,014, or slightly less than one-half of the profits from the project.

It is basic that the obligations of a surety under a bond cannot be extended beyond the plain import of the words used. Obligations not imposed by the terms of the bond cannot be created by judicial construction or interpretation which extends the terms beyond their normal meaning. Peter J. Mascaro Co. v. Milonas, 401 Pa. 632, 635, 166 A. 2d 15 (1960).

The surety agreement between Commercial and U.S.F. & G. was entered into in accordance with the dictates of the Act of May 28, 1937, P. L. 955, §11, as amended, 35 P.S. 1551. In addition to containing language substantially similar to that included in the surety agreement the Act further provides: “Such provision shall be deemed to be included for the benefit of every person, . . . who as subcontractor or otherwise, has furnished material, supplied or performed labor, rented equipment or services in or in connection with the prosecution of the work. . . .”

This Commonwealth has long recognized that compensation in the form of profits is within the contemplation of labor and materialmen’s bonds. In Philadelphia v. Pierson, 217 Pa. 193, 196-97 (1907), our Supreme Court permitted recovery of the contract price, which included a profit for the subcontractor, and the claim of the surety that recovery be limited to the value of the materials and labor was rejected. The Court stated: “The obligation of the Trust Company was not to pay for labor and materials furnished according to their market value any more than it was Pierson’s. The latter’s obligation was to pay ‘any and all persons, any and all snm or sums of money which may be due for labor and materials furnished,’ etc. Pierson could not have been heard to say in defense of the action that the contract price exceeded the market value of the labor and materials employed, for what was due to the plaintiff, and therefore recoverable, was such sum as he had agreed to pay for the ceiling. No more could the Trust Company, for the obligation was the same with respect to each.” See also, H. F. Watson Co., Inc. v. Christ, 62 Pa. 604 (1916); Right Lumber Co. v. Kretchmar, 200 Pa. Superior Ct. 335, 189 A. 2d 302 (1963).

Appellant cites a number of cases for the proposition that recovery on a surety bond should be denied for profit as compensation for work done. A review of those cases reveals that they are inapposite to the case before us. As Judge Scheiber, writing for the lower court perceptively noted: “Those cases in which a plaintiff is seeking lost profit for work not done because of a breach of contract by the principal in a surety bond are not precedent in our situation which involves profit as compensation for work done.”¹

The real issue before us involves a question we have not, heretofore, directly decided. While appellant’s contention that profits are not a valid means of recovery under a surety bond is wholly insupportable under our own case law as well as that of the majority of jurisdictions, the trial judge had to deal with the rather novel contention that a surety is not responsible for profits for work already entered into or done prior to the surety agreement. The trial judge ably responded to this contention, when he said: “Fidelity (U.S.F. & G.) contends that plaintiff’s sharing of profits was contingent upon his securing the construction job and that this was accomplished prior to the execution of the bond, therefore, the sum claimed was not Tabor supplied or performed’ in the prosecution of the bonded work. This argument is too restrictive of either the contract or the evidence adduced. Plaintiff was hired ‘to develop, operate and control’ all electrical work in the Allentown area. Commercial’s offer of employment Included the following, ‘You will set up a field organization and office when necessary to successfully operate all work in this area.’ Fidelity and Commercial admitted that ‘plaintiff performed labor in the supervision of the said electrical construction contract.’ Fidelity’s version that plaintiff was to have one-half of the profits of any job ‘generated by him’ and that $250 weekly was his compensation for work done, is not borne out in the record. Plaintiff’s services were to be compensated by a salary and a share of the profits on work secured by him. The compensation was not divided as to services; the two methods of payment were for services performed. As we will note later, plaintiff allocated figures to the Housing Authority job and thus brought himself within the terms of the bond. Plaintiff’s right to one-half of the profits did not accrue to him merely for securing the job; it was part and parcel of the total compensation for prosecuting the work.”

We are also mindful of the fact that a corporate surety in business for profit is not a favorite of the law and surety contracts such as the one in the instant case are to be liberally construed in favor of laborers and materialmen. Pennsylvania Supply Co. v. National Casualty Co., 152 Pa. Superior Ct. 217, 31 A. 2d 453 (1943); 10 Appleman, Insurance Law and Practice, Section 5857, 5889 (1913).

Inherent in appellant’s disagreement with the lower court proceedings is the contention that the admission of parol evidence was a violation of the parol evidence rule. The position taken by appellant is entirely inconsistent with its averments in new matter, which stated that the contract between appellee and Commercial was “too vague and indefinite to permit enforcement against a surety”. By such averments, IT.S.F. & G. acknowledged ambiguity in the contract. Clearly, the law is that where a written contract is ambiguous, oral evidence is admissible to explain the contract and to resolve the ambiguity. Fischer & Porter Co. v. Porter, 364 Pa. 495, 72 A. 2d 98 (1950). We are of the opinion that parol evidence was properly admitted, and the jury having reasonably adopted plaintiff’s interpretation and figures substantiating “profit”, those findings of fact are conclusive.

Viewing the contractual relationship of the parties as a whole, it is clear that the appellee’s performance was not merely to secure work but rather to secure work and to do all things necessary in the prosecution of the work to assure that the job was completed and a profit was made for Commercial. The record discloses that it was obviously the intent of the contracting parties to compensate appellee on the basis of 50% of the profits secured by him, and that this compensation was for the entire performance of “labor supplied or performed” and not merely the securing of the work.

We see no reason why a surety should not be bound to pay for contemplated expenses and services simply because the work, or a part thereof, was accomplished prior to the bond agreement. As Commercial benefited from appellee’s efforts, and as the contract was fully performed without any breach of contract, we believe that the surety is responsible for the compensation agreed upon between the contracting parties.

We believe the trial judge acted properly during the course of the proceedings, and rightfully denied TJ.S.F. & GPs post-trial motions.²

We, therefore, affirm the order and judgment of the lower court.

1 As set forth in. 17 Am. Jr. 2d, Contractors’ Bonds, Section 134: “Ordinarily, however, loss of profits by a subcontractor or materialman resulting from the refusal of the principal contractor to permit a subcontractor fully to perform the latter’s subcontract, or from the principal contractor’s failure or refusal to accept the materials which he contracted to purchase, are not recoverable from the surety on the bond; and particularly is this true in jurisdictions in which the bond of public contractors is regarded merely as a substitute for a mechanics’ lien law protecting subcontractors and materialmen of private contractors. On the other hand, where the contract of the subcontractor or of the materialman is fully performed and nothing remains but the payment of the contract price or the balance due thereon, the recovery of profits from the surety is not to be denied merely because it is profit rather than value of labor or materials furnished." (Emphasis added)

2 As the evidence clearly disclosed that there was a complete absence of joint control and that the contracting parties were in the relationship of employer to employee, denial of recovery on the basis of a finding of joint ventare would have been improper.