Robert Simmons Const. Co. v. Powers Regulator Co.

• Decision Date: 22 January 1965
• Parties: ROBERT SIMMONS CONSTRUCTION COMPANY et al., Appellants, v. The POWERS REGULATOR COMPANY, Appellee.
• Court: United States State Supreme Court — District of Kentucky

Page 901

390 S.W.2d 901

ROBERT SIMMONS CONSTRUCTION COMPANY et al., Appellants, v. The POWERS REGULATOR COMPANY, Appellee.

Court of Appeals of Kentucky.

Jan. 22, 1965.

As Modified on Denial of Rehearing June 4, 1965.

Thomas W. Burks, Alexander G. Booth, J. Leonard Walker, Booth, Walker & Allen, Louisville, for appellants.

Samuel Steinfeld, Marvin M. Sotsky, Steinfeld & Steinfeld, Louisville, for appellee.

PALMORE, Judge.

The appellant Simmons was a prime contractor in the construction of Franklin County High School. The appellant National Union is the surety on Simmons's bond to the Franklin County Fiscal Court guaranteeding payment for all labor and materials furnished on the project. Powers, the appellee, supplied to one of Simmons's subcontractors labor and materials for which it has an unpaid bill of $18,602. Simmons and National Union appeal from a summary judgment in that amount granted Powers in its suit against them, the defaulting subcontractor, and the latter's surety.

There are two main questions in the case, one substantive and the other procedural. The substantive question is whether Powers's actions in the handling of its claim against the defaulting subcontractor released the appellant guarantors of their obligation under the bond. The procedural problem is whether there is a genuine issue as to any fact essential to the disposition of the substantive question, hence whether the summary judgment was premature. Cf. CR 56.03.

The prime contract was entered into in June of 1957. Simmons let the plumbing and heating subcontract to Roy C. Dillow, an individual proprietor doing business as Roy C. Dillow Company, and shortly thereafter Dillow placed his order with Powers. In December of 1957 Dillow incorporated as Roy C. Dillow Co., Inc., the corporation assuming all of his business assets and liabilities. Thereafter all of Dillow's work and correspondence were carried on in the name of the corporation.

Powers completed the furnishing of labor and materials in August of 1958, though Dillow had not yet completed his contract with Simmons. On July 10, 1959, Dillow owed Powers a balance of $23,602 and had a claim against Simmons for an unpaid balance of $14,000. At this time a meeting was had in Simmons's office by representatives of Powers, Dillow, and Simmons, resulting in an assignment by the Dillow corporation to Powers of its $14,000 account against Simmons and the subsequent execution, under date of July 15, 1959, of a series of notes from the Dillow corporation to Powers in the principal amount of $9,302, payable over a period of six months from date. Technically, Simmons did not accept the assignment, ¹ but there is little doubt that its responsible officers knew of this entire arrangement between Dillow and Powers and, subject at most to its own set-offs against Dillow, tacitly approved of it. The Dillow corporation thereafter paid $1,000 on these notes and Simmons paid $4,000 on the assigned account. ²

The Dillow corporation was unable to pay on schedule, and in November of 1959 the unpaid notes were destroyed and replaced by a new installment note in the face amount of $8,602, back-dated as of July 15, 1959, and payable over a period beginning January 15, 1960, and ending December 15, 1960. Evidently this transaction also took place in Simmons's office and, according to the deposition of Powers's credit manager, was instigated 'at the request of Mr. Simmons and Mr. Dillow in order to ease Mr. Dillow's position.' None of the installments called for by the new note were paid, and on May 5, 1960, Powers brought this action against Dillow the individual, Dillow the corporation, Simmons, National Union, and the surety on Dillow's bond. ³

Simmons's and National Union's answer pleaded that they were released as sureties by reason of Powers's acceptance of the notes and assignment on July 10, 1959, in lieu of Dillow's pre-existing obligation. In the answer it was alleged that Simmons had not acquiesced in or in any way agreed to the transaction.

Following the taking of certain depositions a pre-trial conference was held and various facts were stipulated. It was stipulated also that Simmons and National Union are liable unless released by reason of the notes or the assignment heretofore mentioned. Further facts were developed through requests for admissions. CR 36. Simmons and National Union moved for summary judgment, which was denied. Powers then moved for and was granted a summary judgment against Simmons and National Union.

One of the oldest and best opinions dealing with the obligation of a surety company under a bond similar to the one given by Simmons and National Union in this case is United States Fidelity & Guaranty Co. v. United States, 191 U.S. 416, 24 S.Ct. 142, 48 L.Ed. 242 (1903), in which it was held that the rule of strictissimi juris, which originated to protect accommodation endorsers on fixed and precise obligations, does not extend to contracts such as the one in question. Some of the reasoning pertinent to that conclusion reads as follows:

'The guarantor is ignorant of the parties with whom his principal may contract, the amount, the nature, and the value of the materials required, as well as the time when payment for them will become due. These particulars it would probably be impossible even for the principal to furnish, and it is to be assumed that the surety contracts with knowledge of this fact. Not knowing when or by whom these materials will be supplied, or when the bills for them will mature, it can make no difference to him whether they were originally purchased on a credit of sixty days, or whether, after the materials are furnished, the time for payment is extended sixty days, and a note given for the amount maturing at that time. If a person deliberately contracts for an uncertain liability, he ought not to complain when that uncertainty becomes certain.' (Emphasis added.)

In a later opinion of the late Judge John J. Parker the rule was thus epitomized in a manner hardly susceptible of improvement:

'The law seems well settled that a corporate surety on a contractor's bond is not released from liability to a claimant for labor or materials furnished, by reason of an extension of time of payment granted by the claimant to the contractor, where the extension is bona fide and not in excess of a reasonable, usual, or customary credit.' Maryland Casualty Co. v. Ohio River Gravel Co., 20 F.2d 514 (4th Cir. 1927).

Both of the cases from which we have quoted involved a surety company's liability after extensions had been given to its principal, whereas in this case the indulged person was a third party subcontractor. The rule expressed in the Restatement of Security, Sec. 129, as applicable to a contract of this particular nature is that in the absence of an express reservation of rights a binding agreement by the creditor, without the surety's consent, extending the principal's time of payment will...