Y.M.C.A.'s As'Gn. Paducah v. Indem. Ins. Co. N.A.

• Citation: 244 Ky. 473
• Parties: Young Men's Christian Association's Assignee of Paducah v. Indemnity Insurance Company of North America.
• Decision Date: 14 June 1932
• Court: United States State Supreme Court (Kentucky)

Page 473

244 Ky. 473

Young Men's Christian Association's Assignee of Paducah v. Indemnity Insurance Company of North America.

Court of Appeals of Kentucky.

Decided June 14, 1932.

1. Mechanics' Liens. — Payments to and for plumbing contractor exceeding percentage contractor could demand under contract, where applied in discharge of claims covered by contractor's faithful performance bond, did not preclude recovery against surety thereon.

Payments of the sums in excess of the percentage the contractor was entitled to demand under the terms of the contract to, and for the benefit of, the contractor, and the actual appropriation of these sums to the payment of material and labor required under the express terms of the contract, was not harmful, but was beneficial to the surety's interest, as it resulted in the discharge to that extent of its liabilities, and saved the accumulation of interest on the claims thereby liquidated.

2. Principal and Surety. — Obligee must exercise utmost good faith in all dealings with principal obligor and strictly comply with contract to hold gratuitous surety.

3. Insurance. — Contractor's faithful performance bond with compensated surety is essentially insurance contract.

Appeal from McCracken Circuit Court.

L.B. ALEXANDER for appellant.

W.A. BERRY for appellee.

OPINION OF THE COURT BY JUDGE RICHARDSON.

Affirming in part and reversing in part.

In November, 1927, W.R. Chandler was engaged in the business of plumbing in Paducah, Ky., in the name of the Economy Plumbing Company. The Young Men's Christian Association entered into a contract with him for plumbing and heating a unit of its building, situated in the city of Paducah, and for which it agreed to pay him $10,417.30. The contract between them was reduced to writing, signed, delivered, and accepted. The plan and specifications of the plumbing and heating to be done by him were made a part of the written contract. Articles 4 and 5 of the contract contained these provisions:

"Article Four. Progress Payments — The Owner shall make payments on account of the contract as provided therein as follows:

"On or about the first to fifth day of each month Eighty (80) per cent of the value, based on the contract prices of labor and materials incorporated in the work up to the 1st to 5th day of that month as estimated by the Architect, less the aggregate of previous payments; and upon substantial completion of the entire work, a sum sufficient to increase the total payments to Eighty (80) per cent of the contract price."

"Article 5. Acceptance and Final Payment — Final payment shall be due thirty days (30) after substantial completion of the work provided the work be then fully completed and the Contract fully performed. Upon receipt of written notice that the work is ready for final inspection and acceptance, the Architect shall promptly make such inspection, and when he finds the work acceptable under the contract, and the contract fully performed he shall promptly issue a final certificate over his own signature, stating that the work provided for in this contract has been completed and is accepted by him under the terms and conditions thereof, and that the entire balance found to be due the contractor and noted in said final certificate, is due and payable. Before issuance of final certificate the contractor shall submit evidence satisfactory to the Architect that all payrolls, material bills, and other indebtedness connected with the work have been paid."

To secure the Young Men's Christian Association in the faithful performance of his contract, Chandler executed and delivered to it a bond, signed by the Indemnity Company of North America, as surety. The contract between Chandler and the Young Men's Christian Association was referred to and made a part of it with the proviso that the contract was to be considered a part of the bond as if copied therein. It was stipulated in the bond:

"That if the above bounded principal shall well and truly keep, do and perform, each and every, all and singular, the matters and things in said contract set forth and specified to be by the said principal kept, done and performed at the time and in the manner in said contract specified, and shall pay over, make good and reimburse to the above obligee, all loss and damage which said obligee may sustain by reason of failure or default on the part of said principal, then this obligation shall be void; otherwise to be and remain in full force and effect."

Chandler in the execution of his contract furnished material and labor, and, as the work progressed, the architect's certificates were issued for 80 per cent thereof and delivered as per his contract for different amounts, aggregating $7,200. He performed extra work amounting to $992.60. On October 4, 1928, the Young Men's Christian Association advanced to Chandler $633.37, without the architect's certificate and in excess of 80 per cent of the contract price to enable him to pay for material purhased and work performed. Chandler was hard pressed to pay for material and labor, and, in order to obtain money for that purpose, he borrowed from the People's National Bank of Paducah $700, and, to secure its payment, he executed and delivered to the bank an order on the Young Men's Christian Association for that amount, which it approved and paid on April 2, 1929. Immediately on its payment, Chandler availed himself of the Bankruptcy Law (11 USCA). At that time he owed for material used in the building, to Bass & Co., $1,531.19, and, to the Egyptian Supply Company, $422.93. He had failed to install, as per his contract, a chlorinator of the value of $597. The Young Men's Christian Association paid to Bass & Co. and to the Egyptian Supply Company the amounts respectively due them. The chlorinator was not installed, but for the purpose of this action it was agreed that the cost to install it was $597. A stipulation of facts was made by the parties showing the amount of the debts to Bass & Co. and the Egyptian Supply Company, with a lien on the property of the Young Men's Christian Association to secure their payment. The bankruptcy proceedings of Chandler and the result thereof are set out in the stipulation of facts. This action was instituted to recover on the bond of the Indemnity Company of North America, $1,193 which the Young Men's Christian Association averred it was entitled to recover by reason of Chandler's breach of the contract to complete the building, and to relieve its property of the materialmen's liens.

On the trial by the court without a jury, a recovery of $467.66, with interest from the 1st day of September, 1929, until paid, and the costs, were decreed against the Indemnity Insurance Company. The Young...