First State Bank v. Reorganized School Dist. R-3, Bunker

• Decision Date: 07 May 1973
• Docket Number: R--3,No. 9301,BUNKE,M,9301
• Parties: FIRST STATE BANK, a corporation, Plaintiff-Respondent, v. REORGANIZED SCHOOL DISTRICTissouri, and United States Fidelity and Guaranty Company, a corporation, Defendants-Appellants.
• Court: Missouri Court of Appeals

Page 471

495 S.W.2d 471

FIRST STATE BANK, a corporation, Plaintiff-Respondent, v. REORGANIZED SCHOOL DISTRICT R--3, BUNKER, Missouri, and United States Fidelity and Guaranty Company, a

corporation, Defendants-Appellants.

No. 9301.

Missouri Court of Appeals, Springfield District.

May 7, 1973.

Motions for Rehearing or Transfer Denied May 24, 1973 and

May 25, 1973.

Dewey Routh, Routh & Turley, Rolla, William E. Seay, Salem, for defendants-appellants.

Weldon W. Moore, Rolla, Morton K. Lange, St. Louis, for plaintiff-respondent.

HOGAN, Judge.

This is an action to determine the priority of claims made by the surety on the performance bond of a defaulting building contractor and a bank which had advanced money on the strength of an assignment of the proceeds of the contract. The trial court has found for the plaintiff bank on stipulated facts and the surety and the school district (which is merely a stakeholder) have appealed. Our duty is to determine whether or not the trial court's judgment represents the proper legal conclusion on the facts stipulated. Jewel Tea Co. v. City of Carthage, 257 Mo. 383, 388, 165 S.W. 743, 744 (1914); Browning v. City of Poplar Bluff, 370 S.W.2d 179, 182(3) (Mo.App.1963); Bartlett v. Nat'l Fin. Corp., 228 Mo.App. 789, 799, 73 S.W.2d 451, 457(11) (1934). In reviewing the record, we are permitted to draw reasonable inferences from the facts stated, and we should sustain the judgment if that can be done on any reasonable theory, Murphy v. Doniphan Tel. Co., 347 Mo. 372, 379, 147 S.W.2d 616, 619--620(6), (7, 8) (1941); Semo Motor Co. v. Nat'l Mut. Ins. Co., 383 S.W.2d 158, 161(1, 2) (Mo.App.1964), but if the facts stipulated, together with the reasonable inferences to be drawn therefrom, are insufficient to sustain the result reached, the judgment must be reversed, and the case may be remanded for a new trial. City of Stanberry v. Jordan, 145 Mo. 371, 382--383, 46 S.W. 1093, 1096(5) (1898). By express authority of Rule 83.13(c) ¹ the order for a new trial may be restricted to specific issues.

On November 29, 1967, the school district, specifically Reorganized School District R--3 of Bunker, Missouri, entered into a contract with R. D. Light & Son Construction, Inc., (the contractor) for the construction of an addition to the high school building at Bunker. The contract ² provides: that the work will be done for the sum of $130,069, and shall be completed by September 26, 1968; that partial or progress payments of 90% of the construction accomplished during the preceding calendar month shall be made on or about the fifth day of each month, on the basis of application for payment submitted by the contractor and certified by the architect, and that on substantial completion of the work, the owner (here the school district) shall pay a sum sufficient to increase the total payments to 90% of the total contract price. The contract further provides that this 10% 'retainage', or 'retent', as it is often called, shall be paid within 30 days of substantial completion of the work upon issuance of a certificate for payment by the architect. We have the distinct impression that the contract before us (as Exhibit L) is not the whole agreement which the parties entered into; the contract is sufficient as such, but it is written on a standard form prepared for use by the American Institute of Architects, and this form is usually integrated with a second form setting out the general conditions of the contract in detail, including the events or conditions of default, and the rights of the parties thereupon. We must, of course, take the record as it comes to us without conjecture as to what may have been omitted, John Hancock Mut. Life Ins. Co. v. Dawson, 278 S.W.2d 57, 61(9) (Mo.App.1955), and the exhibit included and designated 'the contract' must be accepted as such without reference to any document which usually accompanies such contracts.

Contemporaneously with the execution of the contract, the contractor applied to the surety (U.S. F. & G.) for a 'performance' bond as required by § 107.170. The application recites that the contractor then had four building contracts 'on hand', two of which were partially complete. The amount due the contractor for incomplete work is shown as being $310,561, including the Bunker School contract. By the terms of the application, the contractor conditionally assigned the proceeds of the Bunker job to the surety 'as collateral, to secure the obligations (of the contractor)', the assignment to become effective in case of any breach of the agreement contained in the application or in the bond, or in case of any assignment for the benefit of creditors or any application for the appointment of a receiver or trustee for the contractor, whether insolvent or not.

The surety, for a premium not disclosed, thereupon issued a labor and material payment bond (Exhibit K) as mandatorily required by § 107.170, which recites that it is issued simultaneously with a 'performance bond' (of the type usually called a 'completion' bond), which appears as Exhibit J. For our purposes, we shall regard the contract, the application for the bond, and both bonds as the integrated 'contract documents', at least as between the parties, Nat'l Sur. Corp. v. Fisher, 317 S.W.2d 334, 340 (Mo. banc 1958); although the contract documents are not as complete as those considered in the National Surety case, supra, 317 S.W.2d 334, to which all three parties have referred again and again.

The contractor began work on the school building, apparently in December 1967, and continued working until May 16, 1968, when it entered into a loan transaction with the plaintiff bank. The nature of this transaction is not entirely clear; there are a number of instruments in the record (Exhibits A, B and C) which exemplify or prove some kind of loan agreement, and considering them as a whole, it would appear that the bank agreed to advance the contractor a line of credit up to $56,000, taking as security therefor the contractor's promissory note in the amount of $56,000 and an unconditional assignment of all proceeds to become due under the Bunker School District construction contract. It is stipulated that the loan was made to the contractor as working capital to complete the Bunker School job and other contracts. In any case, the bank filed the assignment, (together with a document entitled a 'schedule') for record, and Exhibit B shows that the assignment, together with the 'schedule' was recorded in the Phelps County Recorder's Office on May 22, 1968.

The assignment and the note were executed on May 16, 1968. On May 15, 1968, the bank had advised the school district, by letter, that the contractor had applied for a loan, and sought to pledge 'their (sic) accounts receivable due from your school district as security.' The school district was asked to acknowledge a notice of assignment, prepared, it appears, to comply with the requirements of the federal Assignment of Claims Act, 41 U.S.C. § 15, and 41 C.F.R. 1--30.704, although there is nothing in the record to indicate that federal funds are involved. This formal notice of assignment was acknowledged by a Mr. Edwin R. Miller, as the school district's superintendent, on May 16, and on May 16, notice of the contractor's assignment to the bank was given to the surety's local agent, who had issued and signed the bond on the surety's behalf. The bank's ledger card kept in connection with the contractor's loan shows that the bank advanced the following sums to the contractor: $41,000 on May 17, 1968; $12,000 on May 29, 1968, and $3,000 on June 17, 1968.

The bank's letter of May 15, 1968, to the school district requested that progress payments be made directly to the bank, but on June 10, 1968, progress payment number six in the amount of $14,561 became due and was paid by the school district to the contractor, who endorsed the school district's check to the bank. On June 21, 1968, the contractor's president conferred with the surety's officers in St. Louis, and met the next day, June 22, with officers of the surety and the bank, at which time the contractor's president declared, in the language of the stipulation, that the contractor 'did not have sufficient cash on hand to pay for materials and labor to complete his (sic) then existing contracts.'

On July 5, 1968, progress payment number seven in the amount of $12,217.50 became due and payable. On July 16, the bank, through its attorneys, made a formal written demand upon the school district for 'all moneys due as progress payment', stating that it was the bank's understanding that progress payment number seven (for work completed during June) was then due and payable. On July 18, the contractor addressed a letter to the surety stating that it was financially unable to complete the Bunker construction and requested the surety 'to assist in the completion of the (Bunker) job (so the contractor could) fullfill (sic) its obligations under this contract.' On July 19, 1968, the school district drew its check #1607 in the amount of $12,217.50, representing progress payment number seven, in favor of the surety. The check (Exhibit M) shows that it was credited to the surety's account by the Mercantile Trust Company of St. Louis on August 5, 1968. A letter dated July 26, 1968, addressed to the school district's superintendent by Mr. Harry Zumstein, one of the surety's bond attorneys, states that the surety '(has) been advancing funds to assist in meeting payrolls and in the payment of bills owed on the project', and indicates that progress payment number seven was paid by the school district to the surety at the surety's request, and upon the surety's agreement to indemnify the school district in the event of any action by the bank.

Finally, it is stipulated that from and after July 24, 1968, the surety furnished all funds to meet the payroll and discharge the materials bills, and that the surety paid 'some' taxes,...