Truro (Town) v. Toronto General Insurance Co., (1973) 6 N.S.R.(2d) 163 (SCC)

• Judge: Martland, Ritchie, Spence, Laskin and Dickson, JJ.
• Court: Supreme Court (Canada)
• Case Date: August 27, 1973
• Jurisdiction: Canada (Federal)
• Citations: (1973), 6 N.S.R.(2d) 163 (SCC);1973 CanLII 35 (SCC);[1973] 6 WWR 564;11 RFL 333;39 DLR (3d) 693;39 DLR (3d) 1;[1974] SCR 1129;[1973] SCJ No 116 (QL);[1973] CarswellBC 191;38 DLR (3d) 481;1973 CanLII 29 (SCC);1973 CanLII 174 (SCC);39 DLR (3d) 574;1973 CanLII 164 (SCC);[1974] SCR 1023;1973 CanLII 163 (SCC);41 DLR (3d) 416;1973 CanLII 6 (SCC);[1974] S

Truro v. Toronto General Ins. Co. (1973), 6 N.S.R.(2d) 163 (SCC)

MLB headnote and full text

Town of Truro v. Toronto General Insurance Co.

Indexed As: Truro (Town) v. Toronto General Insurance Co.

Supreme Court of Canada

Martland, Ritchie, Spence, Laskin and Dickson, JJ.

August 27, 1973.

Summary:

This case arose out of a claim by a trustee of a subcontractor against a surety on a performance bond for work done in connection with the construction of a school at Truro, Nova Scotia. The owner of the school was the Town of Truro. The defendant insurance company issued a Performance Bond and a Labour and Material Payment Bond in connection with the construction of the school. The Performance Bond guaranteed the performance of the general contractor. The Labour and Material Bond guaranteed the payment by the general contractor of its obligations under subcontracts. During the construction of the school the Town Of Truro entered into an agreement with an amalgamated school board which agreed to assume the Town's obligations under the building contract for the school. The trial court held the defendant insurance company liable in an action by a trustee on behalf of an unpaid subcontractor. On appeal to the Appeal Division of the Nova Scotia Supreme Court the appeal was allowed and the action against the insurance company was dismissed. The Appeal Division stated that the surety was released from its obligations under the Labour and Materials Bond because of the agreement between the Town of Truro and the amalgamated school board. On appeal to the Supreme Court of Canada the judgment of the Appeal Division of the Supreme Court of Nova Scotia was set aside and the judgment of the trial court was restored. See 1973, 4 N.S.R.(2d) 495, for a report of the judgments of the Appeal Division and the Trial Division in the Nova Scotia Supreme Court.

The Supreme Court of Canada stated that the agreement between the Town of Truro and the amalgamated school board did not affect the liability of the Town of Truro under the building contract and accordingly was not a material change which would discharge the surety.

The Supreme Court of Canada outlined the nature of the duty of a surety under a Labour and Materials Payment Bond. In this case the surety made a quarterly inquiry of an architect which the Supreme Court of Canada stated was insufficient. The Supreme Court of Canada stated that the surety had a duty to keep itself informed of the current state of accounts between the contractor and the subcontractors - see paragraph 17.

Contracts - Topic 9040

Third party beneficiaries - A performance bond was issued by an insurance company which guaranteed payments to subcontractors by a general contractor who had contracted to build a school - The Supreme Court of Canada allowed an action by a trustee for the subcontractors against the insurance company.

Guarantee and Indemnity - Topic 3031

Discharge of surety - Whether a material change was made in the principal contract - A surety issued a performance bond for a building contract for the construction of a school - The owner of the school was the Town of Truro which during construction entered into an agreement with an amalgamated school board which agreed to assume the Town's obligations under the building contract - The Supreme Court of Canada held that the surety was liable in an action on the performance bond - The Supreme Court of Canada stated that the agreement by the town of truro with the amalgamated school board did not affect the Town's liability under the building contract and accordingly was not a material change which would discharge the surety.

Guarantee and Indemnity - Topic 800

Duties of surety - A surety issued a performance bond for the payment of subcontractors by a general contractor - The Supreme Court of Canada stated that the surety agreed to ensure performance of the obligations of the general contractor to the subcontractors - The Supreme Court of Canada referred to the conduct required of a surety in order for it to keep itself informed of the state of accounts of the general contractor - See paragraph 17.

Cases Noticed:

Doe et al. v. Canadian Surety Co., [1937] S.C.R. 1, folld. [para. 15].

Moschi v. Lep Air Services Ltd., [1972] 2 W.L.R. 1175, folld. [para. 17].

Counsel:

A.L. Caldwell, Q.C., T. Peter Sodero, and L.A. Kitz, Q.C., for the appellant;

G.B. Robertson, Q.C., for the respondent.

The judgment of the court was delivered by Dickson, J.