American Bonding Co., of Baltimore v. Morris

• Decision Date: 03 June 1912
• Citation: 148 S.W. 519,104 Ark. 276
• Parties: AMERICAN BONDING COMPANY OF BALTIMORE v. MORRIS
• Court: Arkansas Supreme Court

148 S.W. 519

104 Ark. 276

AMERICAN BONDING COMPANY OF BALTIMORE v. MORRIS

Supreme Court of Arkansas

June 3, 1912

[Copyrighted Material Omitted]

Appeal from Pulaski Chancery Court; John E. Martineau, Chancellor affirmed.

STATEMENT BY THE COURT.

Appellee filed his complaint on May 5, 1909, in the Pulaski Chancery Court against Hugh McLennan, a building contractor, the appellant, surety on his bond, as such, and eighteen other defendants, alleging that he had agreed with the said McLennan for the construction of a building for an orphanage near the city of Little Rock, to be maintained as a home for indigent orphans, as a public charity; that the contract price of the building was $ 86,440, "to be paid on estimates made by the architect, monthly, during the progress of the work * * * based on the value of the labor performed and material used in the building, 10 per cent. of the estimates to be retained until full completion and final acceptance of the work." A copy of the contract was set out in the complaint and also a copy of the bond executed by the contractor in the sum of $ 40,000, with the American Bonding Company, appellant, as surety thereon.

It was alleged: "That the building is now incomplete; that the architect has made monthly estimates up to and including the month of March, 1909, and that all sums owing by the terms of the contract have been paid, the plaintiff having retained 10 per cent. of the estimates as provided in the contract; that many persons have made demand upon plaintiff for the payment of claims which they allege to have against McLennan on account of said building; that some have given notice that they would assert liens, and others have caused writs of garnishment to be issued and served on plaintiff; that plaintiff gave defendant American Bonding Company notice of such facts and called upon it to appear and make defense therein if so advised. Plaintiff further alleges that he is informed as a matter of law that, since he owes defendant McLennan nothing, except as it may become due under said contract, and as the contract was made for the purpose of causing the construction of a building to be used exclusively as a public charity, the building is not subject to mechanics' liens; that he is much harassed and annoyed by the said suits and by the filing of said claims; that the claimants assert conflicting claims as to priority between themselves, and that the matter will be the subject of litigation in many cases unless the questions are adjudicated in this cause.

"Plaintiff therefore asks that the various parties be required to come into court and assert their claims, and the court will determine who is entitled to whatever amount plaintiff may owe or hereafter owe to defendant McLennan."

Appellant answered on July 16, 1909, admitting the execution of the bond and the contract sued on, and "the defendant further says that said bond was executed with the distinct understanding and agreement that the said plaintiff would use due diligence to see that the said McLennan should perform said contract, and would not vary therefrom, and that all payments which said plaintiff might make on said contract would be made in such a way as to protect this defendant, and to secure it against any loss on said bond, and the defendant insists that neither the said plaintiff, nor any creditor of said McLennan, has any right to appropriate any part of the contract price of the said building to any debt or obligation of the said McLennan until after the said McLennan shall have fully discharged his obligations to the said plaintiff and released this defendant from any liability on said bond.

"The defendant further says that, for the reasons set forth in the said complaint, none of the claims for labor or material in said building can be enforced, or is a lien against said property, and defendant says that said building is now completed, and that, upon a fair and just settlement between said plaintiff and the said McLennan, there is nothing due from said McLennan to the said plaintiff on account of said contract."

It also demurred to the complaint, but there seems to have been no ruling of the court upon the demurrer.

On October 28, 1909, appellee filed an amended and substituted complaint, amplifying the allegations of the original complaint and setting out in more detail the facts relating to the history of the construction of the building, but making no change in the allegations relative to the execution and terms of the bond.

It further alleged that soon after the estimate in March it became apparent that the contractor was unable to carry out his contract, and that the plaintiff had an interview with him and with the surety on the contractor's bond to decide what course was best to pursue in completing the building. That it was agreed that the plaintiff should guaranty and be responsible for the materials thereafter furnished and labor performed, and the amount paid on such guaranty should be charged to the contractor under the contract. That the work was begun on August 30, 1908, and completed and the last payment made on October 14, 1909.

An itemized account of the cost of the building with the amounts paid on account of it was filed, which showed that the plaintiff had paid $ 730.20 in excess of the contract price for which he claimed judgment against McLennan and the Bonding Company. It then sets out the names of all claimants who had attempted to assert liens and those who had given notice that they would do so, making them defendants, and prayed "that this court will inquire into the validity of each and all of the said claims, and upon a final hearing will adjudge that the orphanage building, having been erected for the purpose of a public charity, is not subject to mechanics' liens, and that the only indebtedness that ever existed from the plaintiff to the defendant McLennan has been fully paid, and, having been contracted for the purpose of constructing a building to be used as a public charity, the plaintiff was not subject to garnishment at the suit of any of the defendants; but, if the court shall ascertain and determine the issue, either upon the claims of mechanics' liens, or upon the garnishments against plaintiff, then and in such event the plaintiff prays in the alternative that the court will ascertain the order of priorities between the defendants, if there be any, and what amounts the defendants, or either of them, are entitled to demand of the plaintiffs together with the basis of such right, and will, by its decree, fix the amount due to each, and that it will render judgment in plaintiff's favor against the defendant McLennan and the surety upon his bond for all such amounts, together with the amount to which plaintiff is entitled because of excessive payment and the defective construction of the floors, as hereinabove set out; and the plaintiff further prays for all other relief to which he may be entitled."

No answer was filed by appellant to the amended and substituted complaint, and the cause was heard upon several of the interventions, and a decree rendered fixing a lien on the building in favor of Nowlin Lumber Company, Hilliard Brothers and the Southwestern Tile Company, for the respective amounts of $ 1,966, $ 1,933, and $ 423.55, which amounts were ordered to be paid within sixty days, and the property to be sold if it was not done, and further "that the said John B. Morris have and recover of and from the American Bonding Company the said several amounts as aforesaid, and have execution therefor on payment of any of the amounts aforesaid," with judgment for costs also arising from the intervention.

Both John B. Morris and the American Bonding Company, parties hereto, appealed from that decree to the Supreme Court, and no question was raised as to the liability of the Bonding Company, and the decree of the chancellor was affirmed on July 10, 1911.

Thereafter, when the cause proceeded to a final hearing upon the other claims, appellant tendered a pleading, which it termed a supplemental answer to the amended and substituted complaint of appellee, in which it denied that the architect made monthly estimates up to and including the month of March, 1909, as provided in the contract, and alleged that the plaintiff made payments to the contractor on estimates of the architect more frequently than once a month, in violation of the contract; that plaintiff, after making the March payment, on March 5, and before the April payment became due, the contractor having defaulted between the two dates, and been notified thereof on March 27, made three payments to the contractor aggregating $ 8,245.55. That said payments were made in violation of the contract between plaintiff and Hugh McLennan, and in violation of the duty which plaintiff owed defendant upon the bond, and without the consent or knowledge of the defendant; that it is thereby released and discharged from liability upon the bond of the contractor.

Appellee filed a formal remonstrance against permitting the answer to be filed, setting out that the decree first rendered in this cause, and affirmed by the Supreme Court on appeal, was an adjudication of appellant's liability upon the bond; that the defense presented by the answer had already been adjudicated.

It set out a history of the default of the contractor, the notice thereof to the Bonding Company, the construction of the building, the payment therefor, the filing of the claims and liens, that appellant assumed the conduct of the litigation resisting the liens asserted, without questioning its liability upon the bond if they were established; that it would be inequitable and unjust to permit the Bonding Company now to make an issue as to its liability....