after the work was started and continued until Needham left the job.
A more substantial dispute had to do with a later clause of Article XIII, which provided that the contractor might, in order to expedite the work, make payments (in addition to the regular 85% on estimates) to the subcontractor for materials prepared and ready for delivery, upon production of fire insurance policies and evidence that the materials were stored for the subcontractor. Even if this clause be stretched to support all payments made by the contractor for all labor and materials that actually went into the job, it remains undisputed that a large part of the money received by Needham on the trade acceptances was diverted from the job to other purposes. Needham puts this amount at about $17,000.The plaintiff argues that it is about $7,700. However, I accept the testimony of the defendant's accountant upon this point and find that the amount of money which Needham received from Miller which did not go into the Westfield Project amounted to $33,788.21.
The law of New Jersey governs, and it is stated as follows in Meyer v. Standard Accident Insurance Co., 1935, 114 N.J.L. 483, 490, 177 A. 255, 259: "It is a general principle that any material alteration in a building contract will release nonconsenting sureties upon a bond given to guarantee the faithful performance of the contract, and to protect the owner against any claims or liens for labor or materials used in the construction of the building. Whether a payment made by the owner before it has become due, or in an amount larger than provided for in the contract, is such a material alteration of the contract as to release the sureties, is a question upon which the decisions do not agree; but the great weight of authority seems to be that such payments will release the sureties, the argument being not only that the sureties are entitled to have the amounts reserved in the contract applied to the satisfaction of possible liens or claims against the building, but also that the fact that there are earned, but unpaid, moneys in the hands of the owner, will act as an incentive to the contractor to execute his contract in a faithful manner."
The plaintiff urges that Judge Arant in a very interesting article in the University of Pennsylvania Law Review for April, 1932, vol. 80, p. 842,
has demonstrated that the view that overpayments by a contractor constitutes material alterations of the contract is fallacious. To this I can only answer that I am bound by the law of the State of New Jersey, under which it seems to be clear that if overpayments in a material amount are made the surety will be released. Detriment to the surety will be presumed from any substantial impairment of the retained percentage, which the New Jersey Courts regard as a security by way of money in hand to pay liens and an incentive to the contractor to complete. See Note.
The important issue of fact in connection with the defense of overpayment arises upon the question whether or not the defendant, before it executed the bond, had knowledge that Miller proposed to finance Needham by means of trade acceptances, an arrangement which, if known, would, it seems to me, give notice of an intention to make payments from time to time beyond the required retained percentage.
The defendant itself had no such knowledge. I reject the testimony of Hager, the defendant's agent, to the effect that he advised Ehnes, an officer of the defendant company, by telephone that such course was contemplated. Hager unquestionably knew all about it himself. Hager was the defendant's general agent. He was also Miller's insurance advisor. The legal question involved is whether his knowledge is to be imputed to the defendant and his waiver of the requirement for retained percentages binding upon the defendant. The answer depends upon the scope of Hager's authority.
His contract of agency with the defendant contained an express provision denying him any power to "alter or agree to any alteration, extension or waiver of any * * * contract * * * unless specifically authorized in writing by the company so to do." In the face of this specific limitation of authority, the fact that Hager considered himself a "general agent," even in connection with a letter of the defendant to a third party stating that "All of the business of this company in the eastern half of Pennsylvania is under the jurisdiction of our Philadelphia agent," and a letterhead used by Hager himself upon which he was described as general agent, and a paragraph in an insurance directory in which he was described as a general agent for several surety companies including the defendant, is not sufficient to make his acts in respect to waivers or alterations binding upon the defendant. Even if this all amounted to a holding out by the defendant of Hager as its "general agent" -- which it does not -- the term general agent has no such well defined meaning that one can predicate the precise scope of the powers of any particular general agent upon the mere fact that he is permitted to use that appellation. The plaintiff, to support his contention in this respect, called two witnesses whom I permitted, over objection, to testify as to the general understanding of the term in the insurance business. Both, however, agree that "general agent" is a term of variable meaning, usually applicable to insurance agents who have somewhat more authority than mere brokers and who get a larger commission in consideration of maintaining an organized office and employing and paying their own subagents and brokers. Both agree that there is nothing about employment as a general agent which would override a specific limitation in the agent's appointment or give him broader powers than granted thereby.
I therefore conclude that the defendant did not waive the provision of the contract for retention of a percentage of the payments and that it did not consent to an alteration of the contract in that respect.
The complaint may be dismissed.