Mid-Continent Petroleum Corporation v. Southern Surety Co.

• Decision Date: 22 June 1928
• Citation: 225 Ky. 501,9 S.W.2d 229
• Parties: MID-CONTINENT PETROLEUM CORPORATION v. SOUTHERN SURETY CO.
• Court: Kentucky Court of Appeals

9 S.W.2d 229

225 Ky. 501

MID-CONTINENT PETROLEUM CORPORATION v. SOUTHERN SURETY CO.

Court of Appeals of Kentucky

June 22, 1928

Rehearing Denied Oct. 12, 1928.

Appeal from Circuit Court, Jefferson County, Common Pleas Branch Fourth Division.

Action by the Mid-Continent Petroleum Corporation against the Southern Surety Company. Judgment for defendant, and plaintiff appeals. Reversed, with directions.

Robert F. Vaughan, of Louisville, for appellant.

J. S McElroy, Jr., of Louisville, for appellee.

REES J.

The commissioners of sewerage of the city of Louisville entered into a contract on August 17, 1925, with H. O. Schaefer &amp Sons for the construction of a certain sewer project. The contractor executed bond for the faithful performance of the work with the appellee, Southern Surety Company, as surety. The bond contained this provision:

"Now, the condition of this obligation is such that if the said principal shall well and truly keep and perform all the agreements, terms and conditions of said contract on their part to be kept and performed, and shall also pay for all labor performed or furnished, and for all materials used in the carrying out of said contract, then this obligation shall be void; otherwise it shall remain in full force and virtue."

During the progress of the work the contractor encountered considerable rock, which was removed by placing charges of dynamite in holes drilled into the rock by compressors. Excavating machinery was used in digging the trench in which the sewer pipe was laid; gasoline pumps were used in pumping water from the trench and hoisting machines for disposing of the excavated material. In all of these operations machinery was used by the contractor which required gasoline as fuel and oil as a lubricant. During July, August, and September, 1926, the appellant, Mid-Continental Petroleum Corporation, sold and delivered to H. O. Schaefer & Sons gasoline and oil to the amount of $3,050.47, all of which was consumed by the machinery which was used for digging and preparing the trench. Before the work was completed the contractor became insolvent and the appellee, Southern Surety Company, completed it. Appellant presented to the appellee for payment its claim for oil and gasoline furnished the contractor, and, payment having been refused, this action was brought to recover from the surety.

Substantially the foregoing facts were alleged in the petition as amended and copies of the contract between Schaefer & Sons and the commissioners of sewerage and of the bond were filed as exhibits. The trial court sustained a demurrer to the petition as amended on the theory that gasoline and oil when used under such circumstances are not "materials" within the meaning of the Mechanics' and Materialmen's Lien Law of Kentucky, only such articles being lienable as actually enter into a structure or become part of it or come into direct contact with it.

It is insisted for appellee: (1) That no action lay on the bond by materialmen; (2) that even if the bond could be construed as a contract for the benefit of materialmen, only those having lienable claims could sue; (3) that the claim of appellant was not a lienable claim.

The contract between H. O. Schaefer & Sons and the commissioners of sewerage contains the following provision:

"The contractor shall do all the work and furnish all the materials, tools and appliances necessary or proper for performing and completing the work required by this contract, in the manner and within the time herein agreed upon."

The contract also provides:

"The contractor shall indemnify and save harmless the city and commission from all claims relating to labor and materials furnished for the work."

It will be observed that the contract only provides that the contractor shall indemnify and save harmless the city and commission from all "claims relating to labor and materials." But the terms of the bond go beyond the terms of the contract, and, after providing that the principal shall keep and perform all the agreements, terms, and conditions of the contract on its part to be kept and performed, that the contractor "shall also pay for all labor performed or furnished and for all materials used in the carrying out of said contract." The commission not only sought protection against loss to the city, but in the bond inserted a provision for the benefit of the laborers and materialmen.

The appellee relies on the case of Dayton Lumber & Manufacturing Co. v. New Capital Hotel, 222 Ky. 29, 299 S.W. 1063, in support of its contention that the bond here in question was not intended to be for the benefit of materialmen. In that case the bond did not require the contractor to pay for all labor and material and did not purport to be for the benefit of laborers and materialmen, but only stipulated that the principal would indemnify and save harmless the hotel company from any pecuniary loss from the breach of any of the terms of the contract. Construing the contract and bond together, it was held the bond was for the benefit of the obligee and not for the benefit of materialmen. Here, however, after a provision in the bond for indemnification of the obligee, the surety undertakes that the contractor "shall also pay for all labor performed or furnished and for all materials used in the carrying out of said contract." This covenant was unnecessary for the protection of the obligee and the only purpose for which it was inserted was to bind the surety for the payment of claims for labor and material. If it does not have this effect it is meaningless, since the obligee was fully protected by the preceding clause. The bond is almost identical in terms with the bond in Fidelity & Deposit Co. v. Hegewald, 144 Ky. 790, 139 S.W. 975, which was construed as a contract for the benefit of materialmen. See, also, Federal Union Surety Co. v. Commonwealth, 139 Ky. 92, 129 S.W. 335, and Owens v. Georgia Life Insurance Co., 165 Ky. 507, 177 S.W. 294.

In National Surety Co. v. Daviess County Planing Mill Co., 213 Ky. 670, 281 S.W. 791, the board of education of the city of Owensboro let a contract for the construction of a school building. The contractors executed bond to the board of education by which they undertook to faithfully perform the contract. After providing that the principal should fully indemnify and save harmless the owner from all cost and damage which it might suffer by reason of the failure of the contractors to faithfully perform the contract on their part, and that they should fully reimburse and repay the owner all outlay and expense which the owner might incur in making good such default, the bond contained this clause: "And shall pay all persons who have contracts directly with the principal for labor or materials." It was held that the bond was for the benefit of materialmen. On the authority of the cases cited, supra, we conclude that the wording of the bond shows an intent to protect laborers and materialmen.

The case of National Surety Co. v. Daviess County Planing Mill Company, supra, likewise decides adversely to appellee's contention the question whether appellant may maintain an action on the contract made for its benefit. In that case it was held that the materialman for whose benefit the bond was executed might maintain an action thereon. See, also, Fidelity & Deposit Co. v. Hegewald, supra; St. Paul Foundry Co. v. Evenson, 169 Minn. 485, 211 N.W. 834, 213 N.W. 352.

There is a diversity of opinion among the courts as to whether or not gasoline and oil are lienable materials when furnished to a contractor and used under circumstances similar to those of this case. Until recently a majority of the courts denied liens for materials which, though employed or consumed in the work, became no part of the structure, but now there is a tendency to relax that rigid rule and to allow liens to the extent to which the materials are consumed or depreciated in the work. In Avery & Sons v. Woodruff, 144 Ky. 227, 137 S.W. 1088, 36 L. R. A. (N. S.) 866, it was held that lumber furnished for the forms in which to mold the concrete for a building is lienable material if it is destroyed in the use although it became no part of the building. Some of the cases from other jurisdictions in which this rule has been followed are Barker & S. Lumber Co. v. Marathon Paper Mills Co., 146 Wis. 12, 130 N.W. 866, 36 L. R. A. (N. S.) 875; E. R. Darlington Lumber Co. v. Westlake Construction Co., 161 Mo.App. 723, 141 S.W. 931; Chicago Lumber Co. v. Douglas, 89 Kan. 308, 131 P. 563, 44 L. R. A. (N. S.) 843.

In Fidelity & Deposit Co. v. Hegewald, supra, the commissioners of sewerage of the city of Louisville let a contract for the construction of a system of sewers and the contractor in excavating for and building the sewers used certain machines which in the course of the work became out of repair, and the Hegewald Company was employed by the contractor to repair them and replace certain worn-out parts. The service rendered by the Hegewald Company was held such as to entitle it to a mechanics lien. Referring to the surety's liability on the bond, the court said:

"It will be observed that

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