AMFAC Distribution Corp. v. Union Rock & Materials Corp.

• Decision Date: 09 July 1985
• Docket Number: CA-CIV,No. 1,1
• Citation: 147 Ariz. 468,711 P.2d 607
• Court: Arizona Court of Appeals
• Parties: AMFAC DISTRIBUTION CORPORATION, a California corporation, dba Amfac Electric Supply Company, Plaintiff-Appellant, v. UNION ROCK & MATERIALS CORPORATION, an Arizona corporation, Defendant-Appellee. 7374.

Page 607

711 P.2d 607

147 Ariz. 468

AMFAC DISTRIBUTION CORPORATION, a California corporation, dba Amfac Electric Supply Company, Plaintiff-Appellant, v. UNION ROCK & MATERIALS CORPORATION, an Arizona corporation, Defendant-Appellee.

No. 1 CA-CIV 7374.

Court of Appeals of Arizona,

Division 1, Department A.

July 9, 1985.

Motion for Reconsideration Denied

Dec. 19, 1985.

Law Firm of T.J. Tweeton by Timothy J. Tweeton, Phoenix, for plaintiff-appellant

Wentworth & Lundin by David McCord, Stephen W. Myers and William J. Reckling III, Phoenix, for defendant-appellee.

OPINION

JACOBSON, Chief Judge.

The issue on this appeal is whether a satisfaction of a bond posted to discharge materialmen's liens discharges debts incurred, not only by the general contractor who posted the bond, but also debts of the owner of the property.

Union Rock & Materials Corporation [Union Rock] contracted with Defco Construction Company [Defco] for the construction of a maintenance facility on its property in Phoenix, Arizona. Defco subcontracted with SWL Electric Corporation [SWL] for a portion of the work on the project. Amfac Distribution Corporation [Amfac] furnished materials to SWL for use in the Union Rock construction project. On July 6, 1981, Amfac sent Union Rock the "preliminary twenty-day notice" pursuant to A.R.S. § 33-992.01 that is required prior to the recording of a mechanic's lien. Accompanying the notice was a letter asking Union Rock to notify Amfac if the notice was incorrect in any manner. SWL failed to pay a balance owing to Amfac for materials supplied for the Union Rock project in the amount of $45,818.98. Amfac filed a timely mechanic's lien on the property pursuant to A.R.S. § 33-993.

On May 7, 1982, Amfac filed suit to foreclose its lien, naming Union Rock, Defco, and SWL as defendants. The complaint contained a second count against Union Rock for unjust enrichment. On May 20, 1982, a statutory discharge of lien bond was recorded pursuant to A.R.S. § 33-1004 in the amount of one and a half times the amount of Amfac's lien, naming Defco as principal, United Pacific Insurance Company as surety, and Amfac as claimant. Amfac amended its complaint to add Union Pacific Insurance Company as a defendant pursuant to A.R.S. § 33-1004(C).

Around the time that the bond discharging the lien was recorded, Amfac learned that the materials it had supplied to SWL were utilized not only in connection with the construction of the maintenance facility for which Defco was the general contractor, but also that $11,531.83 of the materials it had supplied to SWL had been used by SWL in the performance of another portion of the Union Rock construction project, namely installation of a service entry section to the maintenance facility, for which SWL had been the general contractor and Defco was not involved. Amfac entered into a settlement with Defco regarding payment for the materials Amfac had supplied to SWL that had been used in fulfilling SWL's subcontract with Defco. A stipulation and order dismissing Defco was entered. Amfac continued with its suit to foreclose on Union Rock's property for the $11,531.83 in materials supplied to SWL under the contract SWL had entered into directly with Union Rock.

Union Rock sought summary judgment on the grounds that the statutory discharge of lien bond when recorded had discharged the full amount of Amfac's lien on Union Rock's property. Amfac responded and filed a cross-motion for summary judgment for the $11,531.83 for materials it supplied under Union Rock's contract with SWL. Amfac argued that the statutory discharge bond applied only to the amount of materials supplied by Amfac to SWL in the performance of its obligation under the subcontract with Defco. The trial court entered its formal order granting Union Rock's motion for summary judgment and denying the motion of Amfac from which Amfac appeals. ¹

In support of the trial court's ruling, Union Rock argues that Defco's statutory release of lien bond filed pursuant to A.R.S. § 33-1004 which purported to release Amfac's lien in its entirety did as a matter of law release the entire lien. Union Rock points out that subsection (A) of the statute provides in mandatory terms that "[u]pon the recordation of such bond, the property shall be discharged of such lien ...." As Union Rock points out, the obvious policy of the statute is to give property owners the ability to free their property from liens. It gives the owner the ability to pass on to the contractor the responsibility for unpaid materialmen by withholding final payment until the contractor provides a lien discharge bond to the owner. Union Rock argues that Amfac's contention that a portion of its lien claim still exists despite the recordation of a full lien discharge bond undermines the policy of the statute. Union Rock suggests that Amfac would have had a remedy in this situation by pursuing its suit against Defco for the full amount of the lien that was discharged. It also contends that since Defco provided a bond in an amount to discharge the entire lien, Amfac would have been entitled to collect the full amount from Defco or its surety. This does not legally follow. The mere fact that Defco supplied a bond for the full amount of the lien, without more, did not mean that Defco agreed to be liable for the full amount of the lien. The bond in this case specifically provided that Defco disputed the correctness or validity of the claim, but that it was filing the bond to shift any responsibility which might exist away from the property owner. Moreover, the liability of the surety is ordinarily measured by the liability of the principal and therefore the surety is not liable if the principal is not. 74 Am.Jur.2d, Suretyship § 25 at 28 (1974); Phelps v. Dawson, 97 F.2d 339 (8th Cir.1938). A surety may raise any defense which would be available to its principal. Spear v. Industrial Commission, 114 Ariz. 601, 562 P.2d 1099 (App.1977). If a company agrees to be surety for a particular principal, the contract is understood to be only for that named principal. Western Surety Company v. Horrall, 111 Ariz. 486, 533 P.2d 543 (1975). We must decide, therefore, where the loss should be borne as between the landowner, Union Rock, who apparently has already paid the contract price to its contractor, SWL, and the materialman, Amfac, who did not receive payment from the contractor.

It is easy to see that the problem presented in this case would not have existed if Amfac had filed two separate liens, one for the materials it supplied to SWL in its contract with Defco and one for the materials it supplied in SWL's contract with Union Rock. Union Rock would have then known that it needed to obtain a statutory release of lien bond not only from Defco but also from SWL to release the lien for the materials Amfac had supplied for the SWL/Union Rock contract. Amfac contends, however, that it was unaware and had no reason to inquire as to whether it was supplying...