National Loan & Exchange Bank of Greenwood v. Gustafson

• Court: South Carolina Supreme Court
• Writing for the Court: WATTS, C.J.
• Citation: National Loan & Exchange Bank of Greenwood v. Gustafson, 157 S.C. 221, 154 S.E. 167 (S.C. 1930)
• Decision Date: 11 July 1930
• Docket Number: 12947.
• Parties: NATIONAL LOAN & EXCHANGE BANK OF GREENWOOD v. GUSTAFSON et al.

154 S.E. 167

157 S.C. 221

NATIONAL LOAN & EXCHANGE BANK OF GREENWOOD v. GUSTAFSON et al.

No. 12947.

Supreme Court of South Carolina

July 11, 1930

Appeal from Common Pleas Circuit Court of Greenwood County; E. C Dennis, Judge.

Action by the National Loan & Exchange Bank of Greenwood against K R. Gustafson, National Surety Company, and others. From the judgment, the National Surety Company appeals.

Affirmed.

The decree of E. C. Dennis, circuit judge, is as follows:

This is an action by the Plaintiff Bank against the Defendants growing out of the following alleged facts:

On the 11th day of July, 1925, the Defendant K. R. Gustafson, as Gustafson Construction Co., entered into a contract with the Board of Trustees of School District No. 18, Greenwood County, for the erection of high school building. The building was to cost in the neighborhood of $150,000.00, and upon entering into the contract, the contractor was required to give a bond for the faithful performance of the contract, in the sum of about $52,000.00, which bond was executed as surety by the Defendant National Surety Company. The provisions of the bond and the contract will be hereafter discussed.

The School District was to pay the contractor at the end of each month upon certificates issued by the architect about 85 per cent. of the amount of labor and material furnished during the preceding month. Fifteen per cent. of the contract price was to be withheld until the building was finally completed and accepted by the Architect in charge.

In order to carry on the work, the Contractor borrowed about $12,000.00 from the Plaintiff Bank and assigned as security to the loan his monthly estimated and final retained percentage.

About the 10th of May, 1926, there was an estimate of about $8,000.00 due the contractor, for work performed during the month of April, and the Bank gave notice to the Board of Trustees that this estimate had been assigned to it, and asked that the same be paid over to the bank. The Surety Company appeared before the Board of Trustees, and objected to the payment of the estimate to the Bank, and asked the Board of Trustees to place a Superintendent in charge of the work and to practically take charge of the work themselves by assuring laborers and materialmen that they would pay for all material and labor from that date until the completion of the building, and that all other claims which had theretofore been contracted would be postponed until after the completion of the building, and the settlement of the issues between the Surety Company and the Bank. Under this arrangement the Board was to hold whatever balance it had in hand after the completion of the building for application to such claims as the fund would be applicable to, preserving the right of the Bank, if it had such right, to the $8,000.00 due and payable on May 10, 1926. At that time the board had in hand more than enough funds to finish the building and cover also the indebtedness due the Plaintiff.

This arrangement lasted for about a week or ten days, when the Surety Company again appeared before the Board of Trustees, with the Contractor, and asked the Board of Trustees to pay over to the contractor and itself the $8,000.00 estimate and such other estimates as would become due and payable under the contract from time to time up until the building was completed, assuring the Board of Trustees that if this were done the building would be completed in accordance with the terms of the contract, and the retained percentage of 15 per cent. could be held by the Board as a substitute for the $8,000.00 estimate in issue, and such other estimates as were due and payable to the Bank under its assignment. On this understanding the Board of Trustees consented to and did pay over the estimate then due and payable, and thereupon this suit was brought on July 15, 1926 for a judgment against the Contractor and the Surety Company on the note of $12,000.00 and asking that the Board of Trustees be restrained and enjoined from paying out any further estimates and for other relief.

The Board of Trustees answered the complaint setting forth substantially the above stated facts in reference to the payment of the estimate and the agreement between the Board and the Surety Company, and alleged that after having obtained all the funds which they were able to obtain under the terms of the contract, the contractor and the Surety Company abandoned the building, and the Board of Trustees were forced to take it over and complete it on September 1, 1926, and asked judgment against the Surety Company for the whole penalty of the bond, and that all creditors of the contractor be called into this action to prove their claims.

The Surety Company answered denying liability on Plaintiff's debt and setting up certain defenses which will appear from its answer.

In this situation, an order was passed on November 12, 1926 by His Honor, Judge Sease, requiring the Board of Trustees as soon as practicable to secure a final report from the architect, showing the costs and expenses of completing the building, and the balance in the hands of the Board, and providing that whatever balance would be left in the hands of the Board should be held subject to the orders of the Court in this action. The order further provided that the Surety Company should pay all persons who have uncontested claims and such portions of contested claims as might be uncontested for labor and material furnished under the contract, and that all issues between the parties be referred to the Master for the purpose of taking the testimony, and that all creditors be enjoined from bringing suit except in this action, and that they be made parties to this suit by a call from the Master.

The testimony has been taken and the case was called before me for trial at the April, 1928 term of Court for Greenwood County.

So far as the records show, all claims for labor and material, have been paid except the claim of the plaintiff. While the Master was not required to file any report, there is nothing in the record to show that any such claims are outstanding. On the other hand, the attorneys for the Surety Company assure the Court that all of such claims proven in this case and in pursuance of the call of the Master, have been paid and disposed of.

Therefore, the only issues remaining for decision by the Court are: 1. A statement of the account between the School District and the Contractor, or his Surety.

2. The claim of the architects for additional compensation caused by the failure of the contractor to complete the building.

3. The liability of the Surety on the debt of the Plaintiff.

I will consider these matters in the order in which they are stated.

A Statement of the Account between the School District and the Contractor, or His Surety.

The first matter to be decided between the School District and the Surety Company is what balance, if any, is in the hands of the Board of Trustees applicable to the payment of debts or for which the Board ought to account to the Surety Company.

There is very little, if any, controversy so far as is disclosed by the facts, upon what amounts have been paid out by the Board of Trustees from the contract price.

Leaving out of question the bonus, which was agreed to be paid for the completion of the building in accordance with the terms of the contract, which admittedly was not done by either the contractor, or the Surety Company, the contract price should be stated as follows:

The original contract price was	$151,810.00
Certain extra work was allowed	489.58
	-----------
Total Contract Price	$152,299.58
From this is to be deducted two allowances on alternate material used which under the contract the Board had the right to choose .	1,096.00
	-----------
	$151,203.58

The alleged bonus of $3,600.00 was payable only in the event the contractor completed the building in accordance with the terms of the contract and to the satisfaction of the Architects. It is undisputed that neither the contractor nor the Surety completed the building, but both abandoned the work, and the Board of Trustees took over the work on September 1, 1926, and completed it during the following December. These facts are not in dispute and under the plain terms of the resolution of the Board offering to pay the bonus, there has been no compliance with its terms, and it cannot be allowed. The contract price, therefore, is fixed at the sum of $151,203.58.

The Architects have filed A statement showing exactly what funds have been paid out by the Board of Trustees, and how these funds were paid out. No controversy has arisen so far as the testimony discloses as to the correctness of this. Therefore, the disbursements should be stated as follows:

Direct payments made upon Architects' Certificates either to the Contractor or to the Surety Company = $132,098.50

Paid Sub"contractors	2,967.10
Paid Canton Foundry Company	126.00
Paid Pay Rolls	4,887.18
Material purchased by the Contractors from Board	2,000.00
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Total Disbursements	$142,078.78
I find therefore that the total contract price was	$151,203.58
I, also, find that the total disbursements made by the Board were .	142,078.78
	-----------
This would leave in the hands of the Board for disposition under the terms of the contract	9,124.80

Up to this point there is not substantial dispute between the parties.

Deficiencies.

The Architects certify that certain work on the building is deficient and that certain deductions ought to be made on account of these deficiencies. The testimony as to these...