J.W. Thompson Co. v. Welles Products Corp.

• Decision Date: 08 July 1988
• Docket Number: No. 61170,61170
• Citation: 243 Kan. 503,758 P.2d 738
• Parties: J.W. THOMPSON COMPANY, Appellee, v. WELLES PRODUCTS CORPORATION, Defendant, and Penta Construction Company, Inc., and Federal Insurance Company, Appellants.
• Court: Kansas Supreme Court

Page 738

758 P.2d 738

243 Kan. 503

J.W. THOMPSON COMPANY, Appellee, v. WELLES PRODUCTS CORPORATION, Defendant and Penta Construction Company, Inc., and Federal Insurance Company, Appellants.

No. 61170.

Supreme Court of Kansas.

July 8, 1988.

Syllabus by the Court

1. Where the trial court has made findings of fact and conclusions of law, the function of this court on appeal is to determine whether the findings are supported by substantial competent evidence and whether the findings are sufficient to support the trial court's conclusions of law.

2. In Kansas, contractors' bonds on public works projects filed pursuant to K.S.A. 60-1111, are substitutes for mechanics' liens. Contractors' bonds are for the use of all persons in whose favor liens might accrue.

3. In general, it is appropriate to analogize rules applicable to mechanics' liens to contractors' public works bonds.

4. Suppliers of equipment and material to contractors and subcontractors come within the purview of the protection afforded by mechanics' liens and contractors' public works bonds. Suppliers to suppliers (remote suppliers) are not within the purview of such statutes.

5. Subcontractors and suppliers are discussed and distinguished.

6. The doctrine of unjust enrichment is discussed and held inapplicable to the facts herein.

Wyatt A. Hoch of Foulston, Siefkin, Powers & Eberhardt, Wichita, argued the cause, and Robert L. Howard, of the same firm, was with him on the briefs, for appellants.

William P. Tretbar of Fleeson, Gooing, Coulson & Kitch, Wichita, argued the cause and was on the brief, for appellee.

William A. Larson of Gehrt & Roberts, Chartered, Topeka, was on the brief amicus curiae for The Associated General Contractors of Kansas, Inc.

McFARLAND, Justice:

In this action plaintiff, J.W. Thompson Company (Thompson), seeks to recover the selling price of certain component parts it supplied which were utilized by defendant Penta Construction Company, Inc., (Penta) in the latter's completion of a construction contract of a public works project. Liability is predicated upon Penta's payment bond filed pursuant to K.S.A. 60-1111, and, alternatively, upon a theory of unjust enrichment. The district court held in favor of Thompson, and Penta and Federal Insurance Company (Federal) appeal therefrom.

The primary issue before us is the legal relationship existing between Penta and defendant Welles Products Corporation (Welles), although Welles is not a party to this appeal. Thompson supplied the component parts under an agreement with Welles. If Welles was a subcontractor of Penta, then Thompson is within the classification of a supplier to a subcontractor granted protection by K.S.A. 60-1111, the public works bond statute. If Welles was a supplier to Penta, then Thompson's claim as a supplier to a supplier is not within a classification afforded protection by the statute, and there is no liability on Penta's bond (defendant Federal being the surety thereon). The district court held that Welles was a subcontractor of Penta and entered judgment in favor of Thompson for $36,097 plus interest and costs.

The district court adopted, in toto, Thompson's proposed findings of fact and conclusions of law. The instrument so adopted is a mixture of factual findings, legal conclusions, and plaintiff's arguments in support of its position. Fortunately, the pertinent facts, although complex, are essentially uncontroverted and may be winnowed from the adopted instrument for summarization herein.

The City of Wichita (City) operates its Wastewater Treatment Plant No. 2. In the facility were three large storage containers known as "digesters." Sewage, after being subjected to a number of treatment processes, is deposited into a digester for further treatment before being discharged into the Arkansas River. The City of Wichita determined that a fourth digester was needed and the plant's motor control center needed to be relocated and upgraded. On December 29, 1983, the City entered into a contract with Penta to perform the necessary work at a cost of $1,126,000.

On January 31, 1984, Penta filed a statutory payment bond for the public works project with the Clerk of the Sedgwick County District Court in the sum equal to the contract. Following the requirements of K.S.A. 60-1111(a), the bond stated:

"NOW THEREFORE, if the said principal [Penta] or the subcontractor or subcontractors of said principal shall pay all indebtedness incurred for supplies, material or labor furnished, used or consumed in connection with or in or about the construction or making of the above described improvement ... this obligation shall be void; otherwise, it shall remain in full force and effect."

The bond identified Federal as surety.

On February 6, 1984, Penta contracted with Welles for the purchase of materials and equipment as follows:

One (1) floating digester cover (100' in diameter);

Four (4) eductomix gas mixing systems;

Two (2) gas compressors with housing and overhead piping accessories.

The engineering firm in charge of the project for the City was Wilson & Company Engineers and Architects (Wilson). Welles agreed to provide the materials and equipment in accordance with section 11B of the project's specifications, which included the preparation and submission to Wilson for approval of shop drawings for the piece-by-piece layout of the floating cover and compressor systems. Penta was responsible for the installation of the entire system, which included the Welles components. Welles was to provide a representative to inspect Penta's installation for the "start-up" of the gas mixing system equipment and to train city personnel in the use of the gas mixing equipment. The purchase price specified in the Penta-Welles purchase order was $290,000 (later adjusted slightly downward).

Some further explanation of the portion of the system purchased from Welles is appropriate. The circular floating cover of the digester was to move up and down dependent on the level of sewage in the digester. The cover would hold in the methane gas produced by the decomposition of the materials. The gas mixing systems and compressors were to be contained essentially in a rectangular housing situated on top of the cover with the purpose of same being to force the methane gas back through the sewage to accelerate the treatment process. These types of equipment are not regularly stocked items and must be specially manufactured to meet the needs of the plant wherein they are to be utilized.

Thompson is a manufacturer's representative for industrial air and material handling equipment. It also designs, builds, installs, and starts up complex industrial mechanical systems. In August 1984, Welles contracted with Thompson to supply certain of the components needed to fulfill its purchase order with Penta. These consisted essentially of gas compression systems housed on top of the cover but excluding the cover, the two gas compressors, and the control panel. The initial purchase price was $34,230, but subsequent changes agreed to between Welles and Thompson increased the price to $46,097. The gas compressor assembly was shipped to the job site by Thompson on April 23, 1985. Welles had previously paid Thompson $10,000, leaving a balance due of $36,097. Welles has never made any additional payments.

Penta installed the gas compressor assembly on the floating cover supplied by Welles and the two gas compressors. Pursuant to its agreement with Penta, a Welles representative inspected Penta's installation of the gas compression equipment and assisted Penta's employee in making some minor adjustments. No effort was made to start up the equipment. In July, a Welles representative returned to the job site for start-up as required by the Penta-Welles agreement. The gas compressor equipment did not function by virtue of some difficulties with certain safety switches. Some of the problems in the switches were due to design error--whether these were attributable to Welles or Wilson is unclear and such determination is unnecessary to the opinion herein. Ultimately, the safety switch problem was resolved and the gas compression equipment performed satisfactorily. No Thompson personnel were ever at the job site.

The construction contract was completed by Penta and accepted by the City of Wichita in December 1985. On January 15, 1986, Thompson brought this action seeking payment of the $36,097 owed plus interest and costs. Welles never appeared in the action, and a default judgment was entered in favor of Thompson on April 8, 1986, for the full amount of the claim. No appeal has been taken therefrom. In 1987, a bench trial was held as to Thompson's claims against Penta and its surety (Federal). On July 7, 1987, the trial court entered the following judgment:

"Judgment granted in the sum of $36,097.00 plus interest at the statutory rate from and after November 5, 1985, plus court costs. (The Court adopts as its own the Findings of Fact and Conclusions of Law as submitted by Mr. Tretbar [counsel of Thompson]."

Penta and its surety appeal from the judgment.

The first issue before us is whether the district court erred in concluding that Welles was a subcontractor to Penta rather than a supplier. This legal conclusion was crucial to the subsequent conclusion that Penta and its surety were liable on the bond herein.

The standard of appellate review is clear. Where the trial court has made findings of fact and conclusions of law, the function of this court on appeal is to determine whether the findings are supported by substantial competent evidence and whether the findings are sufficient to support the trial court's conclusions of law. Moore v. R.Z. Sims Chevrolet-Subaru, Inc., 241 Kan. 542, Syl. p 3, 738 P.2d 852 (1987); Rosenbaum v. Texas Energies, Inc., 241 Kan. 295, Syl. p 5, 736 P.2d 888 (1987); Southwest Nat'l Bank of Wichita v. ATG Constr. Mgt., Inc., 241 Kan. 257, Syl. p 1, 736 P.2d 894 (198...