Aetna Cas. & Surety Co. v. U.S. Gypsum Co.

• Decision Date: 19 June 1931
• Citation: 239 Ky. 247
• Court: Supreme Court of Kentucky
• Parties: Aetna Casualty & Surety Company v. United States Gypsum Company. Same v. Wheeler & Putnam Company.

Page 247

239 Ky. 247

Aetna Casualty & Surety Company v. United States Gypsum Company.

Same v. Wheeler & Putnam Company.

Court of Appeals of Kentucky.

Decided March 27, 1931.

As Modified on Denial of Rehearing June 19, 1931.

1. Mechanics' Liens. — Materialmen could sue contractor's surety on bond containing condition that, if contractor should pay all persons for labor or materials, obligation should be void.

2. Mechanics' Liens. — Materialmen could sue on bond requiring contractor to discharge all mechanics' and materialmen's liens.

3. Mechanics' Liens. — That owner executed statutory bond to satisfy mechanic's lien did not discharge bond contractor had executed to owner (Ky. Stats., sec. 2478).

Ky. Stats., sec. 2478, in substance, provides that, where a mechanic's lien has been asserted against property, owner may discharge the lien by executing a bond in double the amount of lien conditioned that owner will satisfy any judgment which may be rendered in favor of person asserting lien.

4. Mechanics' Liens. — That materialmen released liens as required by trust agreement with mortgagee and owner executed after general contractor's insolvency did not discharge contractor's surety or obligation to materialmen.

Facts disclosed that after the general contractor became insolvent a trust agreement was entered into, between materialmen holding liens, owner, and mortgagee, by which property was conveyed to trustee, the income of property to be devoted to the discharge of the claims of the mortgagee and materialmen, and to consummate the agreement the materialmen and mortgagee released their liens.

5. Novation. — Materialman's conditional acceptance of benefit of trust indenture entered into with mortgagee and owner did not work novation defeating materialman's rights against contractor's surety.

The materialman accepted the benefits of the trust indenture on condition that it did not thereby release any claim it had against the contractor.

6. Mechanics' Liens. — That materialmen suing within statutory limitation period did not sue within six months from accrual of cause of action on contractor's bond as required thereby did not defeat recovery (Ky. Stats., sec. 2514).

7. Limitation of Actions. — Provision in contract, made and performed in state, to abridge periods prescribed by limitation statute, is void.

8. Mechanics' Liens. — That contractor became insolvent in period during which materialmen delayed suing did not defeat recovery on contractor's bond because of laches.

The delay did not bar recovery on ground of laches, since the surety at any time during the period could have paid off the materialmen and have been subrogated to their claims against the contractor. Therefore any prejudice to the surety cause by the delay of the materialmen was of the surety's own working.

Appeals from Boyd Circuit Court.

CLYDE L. MILLER and DYSARD & TINSLEY for appellant.

BROWNING & REED and B.O. BECKER for appellee United States Gypsum Co.

HAGER, PRICHARD & MALIN for appellee Wheeler & Putnam Co.

OPINION OF THE COURT BY JUDGE DIETZMAN.

Affirming.

The Ashland Hotel & Realty Company, the owner of the Ventura Hotel at Ashland, Ky., entered into a written contract under date of May 14, 1927, with the Ramsey & Gatlin Construction Company for the erection of an eleven story addition to the Ventura Hotel. Under date of December 19, 1927, the hotel company entered into another written contract with the construction company to repair and remodel the old hotel building. Each of the contracts required the construction company to execute bonds with surety, and the appellant became the surety on both bonds. By the terms of the bond covering the contract for the eleven story addition, the construction company as principal and the appellant as surety were held firmly bound unto the hotel company in the sum of $241,147, the condition being: "If the principal shall faithfully perform the contract on his part and fully indemnify and save harmless the owner from all cost and damage which he may suffer by reason of failure so to do and shall fully reimburse and repay the owner for all outlay and expense which the owner may incur in making good any such default and shall pay all persons who have contracts directly with the principal for labor or materials, then this obligation shall be null and void. Otherwise, it shall remain in full force and effect." The bond covering the contract for the remodeling and repairing the old building bound the construction company and the surety in the penal sum of $77,260, and provided that the contractor should "pay off and discharge any and all mechanics' and materialmen's liens for the work done, the labor performed or material furnished," and further provided that, if the contractor should faithfully perform all of the obligations on his part "and fully indemnify and save harmless" the hotel company "from all costs and damages which" it "may suffer by reason of failure so to do and shall fully reimburse and repay to" the hotel company "all outlay and expense which" it "may incur in making good such default, then this obligation" should "be null and void. Otherwise it" should "remain in full force and effect." "The contract for the remodeling work provided that the contractor should "pay for all labor or materials which have been contracted for under said contract." The appellee Wheeler & Putnam Company furnished to the contractor building materials to the extent of $1,234.34 for the new building, and $369.84 for the old building, to recover for which it brought this action against the contractor and the surety on the two bonds above mentioned. The appellee United States Gypsum Company furnished to the contractor building materials used in the erection of the annex to the extent of $7,850, receiving on account thereof from the contractor $5,218.91, leaving a balance of $2,631.09, to recover for which this suit was brought against the contractor and the surety on the bonds. From judgments in favor of these materialmen, the surety appeals.

We are informed by brief that there is pending in the circuit court a large number of like cases, and that the parties have selected the two above-styled appeals as typical of the cases and the questions involved. It also appears from brief that a like case is now pending in the Supreme Court of the United States, the materialmen in that case, the Vincennes Bridge Company, having brought its suit in the federal District Court for the Eastern District of Kentucky, where it too recovered a judgment. On appeal to the United States Circuit Court of Appeals, the case was referred to the Supreme Court on this certificate: "Was the bond so far and so directly for the benefit of the sub-contractor that it can maintain against the surety company this action thereon?" And that is the first question presented to us for decision on these two appeals.

This question was considered at length by us in the case of Standard Oil Co. v. National Surety Co., 234 Ky. 764, 29 S.W. (2d) 29, 30. We there said:

"We have in Kentucky two distinct lines of decision in cases of this character. If the bond, when read in connection with the contract, contains a provision obligating the contractor to pay for the material, or to compensate the laborers, it constitutes a provision for the benefit of the laborers and materialmen, upon which they are entitled to maintain an action directly against the surety. Federal Union Surety Co. v. Commonwealth, 139 Ky. 92, 129 S.W. 335; Fidelity & Deposit Co. of Maryland v. Chas. Hegewald Co., 144 Ky. 790, 139 S.W. 975; Citizens' Trust & Guaranty Co. v. Peebles Paving Brick Co., 174 Ky. 439, 192 S.W. 508; National Surety Co. v. Daviess County Planing Mill Co., 213 Ky. 670, 281 S.W. 791; Mid-Continent Petroleum Corp. v. Southern Surety Co., 225 Ky. 501, 9 S.W. (2d) 229. On the other hand, when the bond is one solely to secure performance of the contract and contains no language from which an express covenant for the benefit of third parties may be derived, an action thereon by a stranger to the contract may not be maintained. Dayton Lumber & Mfg. Co. v. New Capital Hotel, 222 Ky. 29, 299 S.W. 1063 Kentucky Rock Asphalt Co. v. Fidelity & Casualty Co. (6 C.C.A.) 37 F. (2d) 279; Owens v. Georgia Life Ins. Co., 165 Ky. 507, 177 S.W. 294. The problem presented, therefore, is the interpretation of the written instruments to ascertain whether they contain any provision for the benefit of the materialmen, of whom appellant was one. If so, the line of cases first indicated controls, and the action may be maintained; but, if the contract and accompanying bond, fairly construed, do not contain any provision for the benefit of the materialmen, the second line of cases govern. . . .

"It is argued that the distinction in the decisions depends upon the character of the subject-matter of the contract, and, when the contract concerns a public improvement, as here, it will be presumed that the bond was intended for the benefit of laborers and materialmen. It is said that they are unable to assert a lien on public property, and for that reason the bond is provided to supply the rights ordinarily given by lien laws. In amplification of the argument, it is insisted that, when the subject-matter of a contract is a private structure, the lien laws of the state afford ample remedy, and it is unnecessary to resort to a bond for their protection. But such distinction is artificial and drawn from the accidental circumstances of the cases. The true basis for the diverging decisions is found in the terms of the instruments involved. The liability of the surety is measured by the terms of his contract, and the right of the third party to sue must be derived from the document signed by the surety.. . .

"The same motive that prompted the passage of material and labor lien laws is sufficient to suggest the expediency of a surety contract for the benefit of those who perform labor...