Minidoka County for Use and Benefit of Detweiler Bros., Inc. v. Krieger

• Court: Idaho Supreme Court
• Writing for the Court: SMITH; KNUDSON; SMITH
• Citation: Minidoka County for Use and Benefit of Detweiler Bros., Inc. v. Krieger, 88 Idaho 395, 399 P.2d 962 (Idaho 1964)
• Decision Date: 16 July 1964
• Docket Number: No. 9334,9334
• Parties: MINIDOKA COUNTY, Idaho, for the Use and Benefit of DETWEILER BROS., INC., an Idaho corporation, Plaintiff-Respondent, v. L. H. KRIEGER, doing business under the firm name and style of Krieger Construction Co., American Casualty Company, a corporation, Defendants-Appellants, and Associated Specialties Co., a corporation, and Alfred Thaxton, doing business under the firm name and style of Thaxton Painting Company, Defendants-Respondents. AMERICAN CASUALTY COMPANY, a corporation, Defendant and Third-Party Plaintiff-Appellant, v. MINIDOKA COUNTY, Idaho, Plaintiff and Third-Party Defendant-Respondent.

Page 962

399 P.2d 962

88 Idaho 395

MINIDOKA COUNTY, Idaho, for the Use and Benefit of DETWEILER BROS., INC., an Idaho corporation, Plaintiff-Respondent, v. L. H. KRIEGER, doing business under the firm name and style of Krieger Construction Co., American Casualty Company, a corporation, Defendants-Appellants and Associated Specialties Co., a corporation, and Alfred Thaxton, doing business under the firm name and style of Thaxton Painting Company, Defendants-Respondents AMERICAN CASUALTY COMPANY, a corporation, Defendant and Third-Party Plaintiff-Appellant, v. MINIDOKA COUNTY, Idaho, Plaintiff and Third-Party Defendant-Respondent.

No. 9334.

Supreme Court of Idaho.

July 16, 1964.

On Rehearing March 23, 1965.

Bellwood & Goodman, Rupert, for appellant American Cas. Co. Charles H. Creason, Rupert, for appellant L. H. Krieger.

Moffatt, Thomas, Barrett & Blanton, Boise, for appellant American Cas. Co., on appeal.

Benoit & Benoit, Twin Falls, for respondent Detweiler Bros., Inc.

Louis F. Racine, Jr., Pocatello, for respondent Associated Specialties co.

Duffin & Duff, Rupert, for respondent Minidoka County.

Parsons, Smith & Snow, Burley, for respondent Alfred Thaxton.

SMITH, Justice.

Various parties will be referred to as follows: Minidoka County as the County; Detweiler Bros., Inc. as Detweiler; L. H. Krieger, d/b/a Krieger Construction Co. or Krieger Construction Company, Inc., a corporation sole, as Krieger; American Casualty Company as American Casualty or the Surety; Associated Specialties Co., a corporation, as Associated; and Alfred Thaxton d/b/a Thaxton Painting Company as Thaxton.

Respondent Detweiler, in the name of the County, commenced this action May 9, 1961, seeking to recover $22,306.05, based upon its claim filed with the County for labor, materials and supplies, which Detweiler, a sub-contractor, furnished to appellant (defendant) Krieger, the general contractor, for use in the construction of a hospital building. ¹ Detweiler brought the action against Krieger and Krieger's surety, American Casualty, on its Performance Bond, ² and Payment Bond, ³ required by I.C. § 45-502; ⁴ also against respondents (defendants) Associated and Thaxton, as additional sub-contractors and claimants under the contract and bonds, for materials and supplies furnished in constructing the hospital.

Respondents Associated and Thaxton, as sub-contractors, creditors of Krieger, answering the complaint, pleaded their in claims against Krieger, and against American Casualty on the payment bond.

Appellant Krieger answered, admitting $22,306.05 to be due and owing Detweiler on its claim, but denied liability on the ground that it had assigned all its assets to American Casualty and others as security for any amount that the Surety may owe under the sub-contracts; and that payment of such amounts thereby became the obligation of the Surety.

Appellant American Casualty by its amended answer denied liability in the premises and asserted that certain conduct of Detweiler, Associated and Thaxton barred their claims as against the Surety; and specifically alleged that Detweiler and Associated had accepted promissory notes from Krieger in payment of their claims under their sub-contracts and Krieger's prime contract with the County, and had executed affidavits to that effect on December 7 and December 8, 1960, respectively; that Thaxton had accepted Krieger's promissory note, executed December 15, 1960, in payment of his sub-contractor's claim under Krieger's prime contract. The Surety further alleged that such voluntary acts of respondents allowed Krieger to submit an affidavit to the Architect, and in turn to the County, for the purpose of obtaining the retainage held under the prime contract, on the ground that all claims of sub-contractors had been satisfied; that respondents knew that such acts on their part 'would result' in payment of the retainage by the County; that the Surety was prejudiced by such acts due to the fact that the amounts so received as retainage 'were not used to pay all of the obligations of said L. H. Krieger Construction Company arising from its contract with Minidoka County'; and finally, that respondents, by their acts, and the fact that the retainage was not used to pay all of the claims arising under the prime contract, were estopped from seeking recovery from the Surety under the payment bond.

The Surety also filed a third-party complaint against the County alleging that it (1) breached the terms of the prime contract with Krieger by failing to retain 10% of the contract price; and (2) failed to publish timely notice to creditors, in violation of I.C. § 45-502, as it regarded formal date of completion of the hospital to be November 10, 1960, but did not publish formal notice to creditors until February 9 and 16, 1961; that the Surety was prejudiced by such acts of the County, in prematurely releasing the retainage held under the terms of the prime contract and in failing to publish timely notice as required by law; that the Surety was exonerated of its obligations in the premises under the payment bond; and if not so exonerated that, in the alternative, it have judgment against the County in reimbursement of all sums it, the Surety, may be compelled to pay under the bond.

The County in its answer to the Surety's third-party complaint defended on the grounds that the retainage was paid in compliance with the contract terms; that the provisions of I.C. § 45-502 are for the protection of laborers and materialmen only, and not for the benefit of surety companies on their bonds; also, that even if premature payment of retainage was found to have been made, the Surety was not thereby prejudiced, since the retainage was paid to Krieger, who used it first to pay debts owed under the prime contract and sub-contracts, before conveying his assets to the Surety for use in the payment of any additional claims; that the Surety, by accepting such assets, was estopped to deny its liability under the payment bond 'and has waived its right, if any it had, to such discharge.'

Detweiler, in an amendment to its complaint, alleged that on April 14, 1961, Krieger assigned all of its assets to the Surety and others 'as security for any amount that the American Casualty Company might owe under this action,' and that therefore American Casualty was estopped from asserting any defenses to the claims of Detweiler, Associated and Thaxton.

In a supplemental answer to Detweiler's amended complaint, the Surety admitted taking assignment of Krieger's assets 'as security for any obligations of American Casualty Company under its bond'; but denied the asserted estoppel for the reason that it had no knowledge of its defenses at the time of taking the assignment.

February 12, 1963, the trial court, after having considered the pleadings and records, including Krieger's deposition, admissions, interrogatories and answers thereto, and the statement of facts agreed to by all the parties to the action, granted respondent County's motion for summary judgment for the use and benefit of Detweiler, 'on the basis that there are no remaining issues of material facts,' and also granted like motions of respondents, Associated and Thaxton. The court also allowed the County to tender into court the sum of $6,670.28 as representing the remaining amount which the County owed under its prime contract with Krieger.

The court thereupon entered judgments against appellants in favor of the parties, i. e., Detweiler, Associated and Thaxton, for the amount of their claims together with interest, and for attorneys' fees as provided by I.C. § 45-502; also judgment in favor of the County and against all parties on all claims excepting as to the $6,670.28 tendered into court, adjudged to be proportionately disbursed to the judgment creditors, with credit proportionately to be given the judgment debtors on said judgments.

Certain facts agreed to by the parties include the following:

On July 1, 1959, L. H. Krieger Construction Co., by L. H. Krieger, an individual, as contractor, and respondent County, as Owner, entered into a contract for construction of a hospital building; the contract authorized 10% retainage by the County, and provided for final payment within 30 days after submission of the Architect's certificate of completion of the building, and upon delivery by the contractor to the County, of a release of all claims against the County arising under the prime contract and all sub-contracts. Acceptance of final payment by the contractor would operate to release the County of all liability to the contractor under the contract; but 'No payments, however, final or otherwise, shall operate to release the Contractor or his sureties from any obligation under this contract or the Performance and Payment Bonds.' Assignment by the contractor of any part of the contract or monies due or to become due thereunder would require the written consent of the County, and of the Surety executing any bonds on behalf of the contractor; and any instrument of assignment would provide that the rights of the assignee be subject to the terms of the contract, its amendments and supplements, and to the rights and remedies of the County thereunder or arising by operation of law, and to the liens of all parties supplying services or materials in the performance of the contract.

July 1, 1959 the Surety issued the payment and performance bonds each in the amount of $329,632, wherein L. H. Krieger Construction Co., by L. H. Krieger was named as individual principal, and the County as obligee. The Surety issued its bonds on the basis of Krieger's indemnity agreement containing an assignment to the Surety of the contract balances 'and upon the basis of * * * the contract executed for which said bonds were furnished between the county as owner and Krieger as contractor.' Subsequently, Krieger Construction Company, Inc., was formed as a sole corporation, and the...