National Surety Co. v. Price

• Decision Date: 10 February 1915
• Citation: 172 S.W. 1072,162 Ky. 632
• Parties: NATIONAL SURETY CO. ET AL. v. PRICE.
• Court: Kentucky Court of Appeals

172 S.W. 1072

162 Ky. 632

NATIONAL SURETY CO. ET AL. v. PRICE.

Court of Appeals of Kentucky.

February 10, 1915

Appeal from Circuit Court, Jefferson County, Chancery Branch, Second Division.

Action against the National Surety Company and others to enforce mechanics' liens against the property of W. B. Price. From the judgment, the Surety Company and Henry J. Schoo appeal, and Price cross-appeals. Affirmed.

John Bryce Baskin, of Louisville, for appellant National Surety Co.

M. A D. A. & J. G. Sachs and Benjamin Sachs, all of Louisville for appellant Henry J. Schoo.

Fred Forcht, Jr., and P.J. Cosgrove, both of Louisville, for appellee J. Guy Everett Co.

Wm. F Clarke, Jr., of Louisville, for appellee Wm. B. Pell & Bro.

Furlong, Woodbury & Furlong, of Louisville, for appellees Mehler & Eckstenkemper and G. W. Younger.

Pryor & Castleman and David R. Castleman, all of Louisville, for appellee W. B. Price.

CLAY C.

In February, 1912, W. B. Price contracted with Nicholas Collett to build for him a residence in Audubon Park, a suburb of Louisville, for the sum of $9,200. To insure the performance of the contract, Collett executed and delivered to Price a bond with the National Surety Company as surety. Work on the building was begun in the month of March. About the 1st of September Collett began to default. The local agent and representative of the bonding company was notified. On September 26th formal written notice was sent to the bonding company that Collett had defaulted in the contract, and that the work would be completed under the supervision of the architect, as the contract required. Meyer was the architect, and had full authority to represent the owner.

This action was brought to enforce certain mechanics' liens on the property, and to determine the liability of the surety. The case was referred to the master commissioner to hear evidence and report. Several liens, aggregating $4,066.87, were allowed. The commissioner further reported that Price, the owner of the building, was entitled to a judgment for the amount of these claims, subject to a credit of $1,928.82, the balance of the contract price in his hands. The lien claim of Henry J. Schoo was disallowed. Judgment was entered in conformity with the commissioner's report. From that judgment the National Surety Company and Henry J. Schoo appeal, and W. B. Price, the owner, prosecutes a cross-appeal.

We shall first discuss the liability of the surety company. Sections 2 and 4 of the bond are as follows:

"2. The obligee shall, at the times and in the manner specified in said contract, perform all the covenants, matters, and things required to be by the obligee performed; and if the obligee default in the performance of any matter or thing in this instrument, or in said contract agreed or required to be performed by the obligee, the company shall thereupon be relieved from all liability hereunder."

"4. If at any time during the prosecution of the work specified in said contract to be performed there come to the notice or knowledge of the obligee the fact that any claim for labor performed or for materials or supplies furnished the said principal in or upon said work remains unpaid or that any lien or notice of lien for such work, materials, or supplies has been filed or served, the obligee shall withhold payment from the principal or any moneys due or to become due to the principal under said contract until the payment of such claim or the cancellation and discharge of such lien or notice of lien, if any, and will so notify the company, giving a statement of the particular facts and amount of each such claim, lien, or notice of lien."

It is the contention of the surety company that it was released from all liability under the bond by reason of the fact that Price, the obligee, after having notice of unpaid claims, not only failed to withhold payments to the contractor, but also failed to give reasonable notice of such facts to the surety company. To determine this question it will be necessary to give a somewhat detailed statement of the evidence.

As before stated, Meyer was Price's agent for the purposes of the contract. The work on the contract was begun in March, 1912. The Corey-Scheffel Lumber Company delivered $75.24 worth of lumber on April 9th. On April 12th that company wrote to the architect that that much lumber had been delivered. The letter also contains the following statement:

"Mr. Scheffel advised that you will protect us on all material we notify you about. We hope that you will keep this matter confidential, as we do not care to have the matter get to Mr. Collett."

On May 15th a second letter was sent to Meyer, notifying him that $312.75 worth of lumber had been delivered up to that date. On May 20th a third letter was sent, notifying Meyer that the firm had delivered $335.64 worth of lumber. Each of the letters contains a paragraph similar to the one above quoted. On May 21st Meyer wrote to the Corey-Scheffel Lumber Company, telling them that some time prior thereto he had written them that the matter would have to be brought to the notice of Mr. Collett, and that he could not make settlement unless he received an order through him. The letter also suggested that the firm get a settlement from Collett without troubling the writer. Mr. Scheffel testifies that he wrote the letter above referred to. Before he furnished the lumber he went to Meyer and told him that he would expect him (Meyer) to protect him. On June 10, 1912, he received $200 on his account. He possibly had four or five conversations with Meyer about getting his money. Meyer said that there would be enough to settle his claim. For this reason he was not uneasy about it until towards the end. Both before and after the credit he tried to get money from Meyer. When he received the $200 Collett gave him an order for it. When the payment was made it was satisfactory, and he accepted it. He was in Meyer's office every two or three weeks after the payment, and discussed the account with him. He was not looking to Collett for his money; he was looking for the architect and builder to protect him.

J. Guy Everett, who had a claim for the tin work and roofing, which was begun in April or May, and not completed until the fall, testified that he received an order for $500 on July 20th. His whole debt was only $672. The $500 was all he asked for. The work was not entirely completed, and he was not in the habit of asking for full payment until the work was completed. The payment was satisfactory to him.

E. L. Hughes, a member of the Hughes-Byron Company, testified that, after he had furnished about $200 worth of material, he asked payment on account, and was given an order by Collett on May 28th for $150. This order was presented to Meyer and paid. The only interview that he had with Meyer was at the time of this payment. The payment of the $150 on May 28th was entirely satisfactory. Thought that prior to that time he had talked to Meyer, and that after that time he also talked to Meyer about getting money, but was not positive as to this. Was not able to state any conversation he had had with Meyer, because practically he had had none about the money.

Henry Schoo testified that a day or two before he filed his mechanic's lien during the month of September, he had a talk with Meyer in regard to his claim, and that Meyer promised that, if he would go ahead and complete the work, he would see that he was paid. On the question in controversy Mr. Meyer, the architect, testified on cross-examination as follows:

"Q. Mr. Meyer, when did you first learn that Collett was not paying his subcontractors, or any of them? A. The first part of May, as a protection both to the owner and people--to protect one side as well as the other--we tried to keep track of the contractor, whether they were paying out to the materialmen the money we were paying out on the contract; and from time to time we noted any default with these people, and as a matter of fact Mr. Collett himself would tell us of different bills he had not paid, and promised to pay these bills. Q. When did that first begin? A. So far as they were not paid constantly, I heard from his contract--different bills he had not paid. Q. Along in April and May--as early as that? A. Corey-Scheffel Lumber Company--yes; in April and May they claimed a bill of $300, and said he had given them but $200 on account, for which he gave me a receipt; and so he had paid them part of their account. I have got a receipt from him showing that he had paid it, but claimed he only owed them a balance of $89. I was keeping track of him, and the amount of money he was paying. Q. Did Corey-Scheffel, in their letter of April 12th, talk to you about the balance of $75 shown in their letter? A. Not about this. I don't know we ever had any discussion about that. You see, that is part of their whole statement. Q. Did you have any talk with them about the $312.75? A. They simply notified me. We were keeping track of him. Afterwards we took up this--this balance--and told them, as far as I knew at that time, in May, he was going to come out all right on his contract. He was paying some part of them. Q. When did you have any conversation with any other subcontractors about not getting their money? A. One or two. Only one other man came to me originally, and that was Henry Schoo, who put in a stairway, and after he finished, he asked us about a payment on the thing. We asked him how much he had paid him. He said he was unable to get his money out of him. Q. When was that? A. I can't give you the exact date. I should say this was along about June, the right date, and this was the original bill. I have got a copy of his bill he mailed me. Q. That was about the last of

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