FIRST NAT. BANK IN WINFIELD, KAN. v. Fidelity & Deposit Co.

• Decision Date: 30 June 1933
• Docket Number: No. 756.,756.
• Citation: 65 F.2d 959
• Parties: FIRST NAT. BANK IN WINFIELD, KAN., v. FIDELITY & DEPOSIT CO. OF MARYLAND et al.
• Court: U.S. Court of Appeals — Tenth Circuit

65 F.2d 959 (1933)

FIRST NAT. BANK IN WINFIELD, KAN., v. FIDELITY & DEPOSIT CO. OF MARYLAND et al.

No. 756.

Circuit Court of Appeals, Tenth Circuit.

June 30, 1933.

Richard B. McDermott and Harry O. Janicke, both of Winfield, Kan., for appellant.

Harry W. Hart, of Wichita, Kan. (Glenn Porter, Enos E. Hook, Edw. H. Jamison, and Getto McDonald, all of Wichita, Kan., on the brief), for appellees.

Before LEWIS and PHILLIPS, Circuit Judges, and JOHNSON, District Judge.

JOHNSON, District Judge.

This appeal involves the disposition made by the trial court of the retained percentages in the hands of the owner under the terms of a building contract at the completion of the building by the contractor. As usual in such cases the contest in respect to this fund was between the surety on the contractor's bond and a creditor of the contractor with an assignment or order for the fund from the contractor — in this instance an order accepted by the owner.

The facts stipulated or undisputed and found by the trial court upon conflicting evidence so far as material are as follows:

On June 24, 1930, J. M. Fuller entered into a contract with the Scott County Community High School of Scott City, Kan., to furnish all material and labor and to construct a school building for the high school for which he was to receive $101,473.70. On the same day the Fidelity & Deposit Company of Maryland executed in behalf of Fuller a performance bond to the high school with the usual conditions; also a statutory bond to the state of Kansas conditioned that Fuller would pay all bills for labor and material incurred in carrying out his contract with the high school. Fuller thereafter entered upon the construction of the building and completed it in January, 1931. The high school took possession of the building upon its completion, but never formally accepted it because Fuller had not paid all bills and claims for material and labor furnished by others in the construction of the building. During the progress of the work, the high school made monthly payments on estimates of the architect as stipulated in the contract. When the high school took possession of the building, the retained percentages of the contract price in the hands of the high school amounted to $10,343.64. There was also at that time owing Fuller on the final estimate of the architect the sum of $3,050 for which he was given a check by the high school. He owed at that time on unpaid bills for material used in the construction of the building $23,673.49. On February 7, 1931, Fuller informed the surety company that he owed about $20,000 for labor and material used in the construction of the building which he was unable to pay, and at the same time indorsed to the surety company the check for $3,050 previously given him by the high school. Thereafter the surety company paid bills owing by Fuller for material furnished amounting to $16,079.04, thereby paying out on Fuller's account, after deducting the $3,050 represented by the check above mentioned, a total of $13,029.04.

Between the middle of December, 1930, and the middle of January, 1931, the First National Bank in Winfield, Kan., made four loans to Fuller upon his notes aggregating $10,000. At the foot of each of the notes over the signature of Fuller there was a statement in somewhat different language but to the effect that "this note is an order on the Board of Education of Scott City Community High School contract." On January 22, 1931, Fuller made and delivered to the bank this order:

"Scott City, Kans., Jan. 22, 1931.

"Order to Pay Board of Education Scott County Community High School, Scott City, Kansas.

"Please pay to the First National Bank of Winfield, Kansas, the sum of Ten Thousand ($10,000.00) Dollars, this to be paid after the completion and acceptance of building from amount now retained.

"J. M. Fuller, Contractor. "By J. M. Fuller. "Accepted — "Matilda Freed, Chairman or President "S. W. Filson, Clerk "C. E. Norman, Treasurer."

Later both the surety company and the bank claimed the fund in the hands of the high school — the bank to the amount of $10,000. It did not pay either.

In April, 1931, appellee, the Fidelity & Deposit Company of Maryland, commenced this action in the court below against the First National Bank in Winfield, appellant, the Scott County Community High School, Fuller, and others, praying among other things that it be adjudged and decreed to have a first, prior, and superior equitable lien upon the said $10,343.64 in the hands of the defendant high school. In its answer the bank set out the several notes of Fuller to it, including the order on the board of education contained in each, and also in substance the order executed by Fuller on January 22, 1931, above set out. In respect to this order the bank in its answer alleged affirmatively:

"That on January 22, 1931, the said J. M. Fuller in furtherance of the said assignment as represented in said notes and as a part of his agreement with the said First National Bank gave to the said First National Bank his certain further assignment in writing, which assignment was duly accepted in writing by the said defendant, The Board of Trustees of The Scott County Community High School, in words and figures as set forth as Exhibit C attached to the Bill of Complaint.

"That the said First National Bank had no notice or knowledge of any other or previous assignment of any of said indebtedness or contract price to any other person or corporation whatsoever and that it loaned the said sum of money to the said J. M. Fuller in reliance upon the said assignments and orders and that the said sums so loaned to the said J. M. Fuller were in fact used by the said J. M. Fuller in and about the construction of said building and in payment of labor and material bills that would otherwise have remained unpaid and would have formed the basis and the subject matter of unpaid claims and liens against the said building for which the complainant herein would have been liable under the terms of its bond."

It prayed: "This defendant asks that the complainant take nothing by reason of the claim herein as against this defendant and that this defendant have judgment against the defendant, the Scott County Community High School and its Board of Trustees as the officials thereof in the sum of $10,000.00 free and clear of the claims of the complainant and its co-defendants herein."

The high school paid the $10,343.64 into the registry of the court and by its answer prayed that it be applied by the court to the payment of the unpaid bills of those who had furnished labor or material to Fuller in the construction of the building. The lower court upon the trial of the cause denied the prayer of the bank and ordered the $10,343.64 in the registry of the court applied, First: To the payment of the costs of the action. Second: To the payment...