First National Bank of Auburn v. Pesha

• Decision Date: 29 April 1916
• Docket Number: 18725
• Citation: 157 N.W. 924,99 Neb. 785
• Parties: FIRST NATIONAL BANK OF AUBURN, APPELLANT, v. GEORGE C. PESHA ET AL., APPELLEES
• Court: Nebraska Supreme Court

157 N.W. 924

99 Neb. 785

FIRST NATIONAL BANK OF AUBURN, APPELLANT, v. GEORGE C. PESHA ET AL., APPELLEES

No. 18725

Supreme Court of Nebraska

April 29, 1916

APPEAL from the district court for Nemaha county: JOHN B. RAPER JUDGE. Affirmed.

AFFIRMED.

Kelligar & Ferneau, for appellant.

Nolan & Woodland, contra.

FAWCETT J. SEDGWICK, J., not sitting.

OPINION

FAWCETT, J.

Defendant Pesha entered into a contract with the school district of Auburn for the erection of a high school building for the contract price of $ 39,105, and, in compliance with the provisions of section 3840, Rev. St. 1913, gave bond for the payment of claims for labor and material, defendant Equitable Surety Company executing the bond as surety. A copy of the contract, bond and technical and general specifications are attached to and made a part of the petition. The contract bears date March 5, 1912, and the bond March 12, 1912. On January 8, 1913, Pesha borrowed from plaintiff $ 1,500, which sum was placed to his credit on open account. As security for this loan he gave plaintiff a written order or assignment, addressed to the board of education of the school district, directing them to pay to plaintiff the sum named, and to "charge the same to my account as contractor with your district for the construction of the new high school building, now under course of construction, when the building is finished and accepted by you." Plaintiff filed this order with the school district. Pesha defaulted in the performance of his contract, and the school district completed the building. On completion of the building the sum of $ 2,906.85 remained in the hands of the district as the balance of the contract price. Prior to his default, and subsequent to the assignment to plaintiff, Pesha, for materials furnished and used in the building, executed two assignments, one to John Westover, Incorporated, for $ 2,342.27, and the other to Elmer Dovel for $ 2,100. The defendant surety company paid these claims and took assignments thereof. Plaintiff claims priority over the rights of the surety company to the balance of the fund in the hands of the school district, and from a judgment adverse to such claim it appeals.

A public school building cannot be subjected to a mechanic's lien. Section 3840, Rev. St. 1913, requiring the contractor to give a bond, was doubtless enacted for the purpose of protecting mechanics and materialmen. The bond, therefore, became an essential part of the contract entered into by and between Pesha and the school district. The contract provided for estimates by the architect and for payments from time to time, and provided that "the amount to be paid to the contractor shall be eighty-five per cent. (85%) of the amount of such estimate on the presentation of the progress certificate." It also provided: "The final estimate shall be made when the architect is satisfied that the work is entirely and satisfactorily completed, at which time the contractor shall be entitled to the fifteen per cent. (15%) retainer from the progress payments, as balance due him on the contract."

The question to be determined is: Is plaintiff, by virtue of its assignment as security for money advanced to the contractor, entitled to priority over the surety who has by the terms of its bond been required to pay for materials furnished for the construction of the building? A similar question, involving a bond given in compliance with a federal statute relating to the construction of public buildings, was before the supreme court of the United States in Hardaway v. National Surety Co., 211 U.S. 552, 53 L.Ed. 321, 29 S.Ct. 202, where it is held: "The right of the surety on a bond for performance of a contract given under the act of August 13, 1894, c. 280, 28 Stat. 278, to be subrogated to the contractor's claim for balances due from the Government, is superior to that of one advancing money to the contractor on assignment of such claim."

In that case the court followed Prairie State Bank v....