Shelton v. American Surety Co.

• Decision Date: 09 February 1904
• Docket Number: 84.
• Citation: 127 F. 736
• Parties: SHELTON v. AMERICAN SURETY CO.
• Court: U.S. District Court — Eastern District of Pennsylvania

127 F. 736

SHELTON v. AMERICAN SURETY CO.

No. 84.

United States Circuit Court, E.D. Pennsylvania.

February 9, 1904

At Law. On motion for judgment for want of sufficient affidavit.

1. SURETY ON BUILDING-- DISCHARGE-- PAYMENTS TO CONTRACTORS IN VIOLATION OF CONTRACT.

Where a building contract provided for monthly estimates and payments to the contractor, but that such payments should not be made until the contractor delivered to the architect copies of all bills and vouchers for work done and materials furnished, or releases of all liens, payments by the owner without requiring such vouchers or releases was a departure from the contract, which discharged the contractor's surety from liability for the amount of liens subsequently established against the property.

C. B Taylor, for plaintiff.

H Gordon McCouch and Richard C. Dale, for defendant.

J. B McPHERSON, District Judge.

This case arises upon the plaintiff's statement of claim and the affidavit of defense that has been filed thereto. The facts which appear upon these papers, and, indeed, are undisputed, are as follows: The plaintiff, being about to alter a house, made a contract with a firm of builders, by which it was provided, inter alia, that the architect should value the work done and the materials furnished each month, and that 80 per cent. of his valuation should be paid to the builders. Under this provision $5,736.43 was paid in four installments. The builders then became insolvent, and the plaintiff completed the work, but he was obliged to pay $2,901.05 more than the contract price. Under the paragraphs of the contract that are now to be considered the builders were required to apply the installments received by them in payment for work done and materials furnished to the building, but, in violation of these provisions, they only applied $2,833.38, using the balance, $2,901.05 for other purposes. For this balance, included in a larger sum that embraced other claims as well, mechanics' liens were filed, which the plaintiff was obliged to pay. The present suit is brought against the builder's surety to recover $2,500 and interest, this being the principal of the defendant's bond. The paragraphs in question are as follows:

'(b) That no payments shall become due until in each case the contractors shall have delivered to the architect copies of all bills and vouchers for work done and materials furnished upon which payment is claimed to be done, or until they have given the architect a true and accurate account of the exact standing of all accounts to date, on their books, for the work herein contracted for, and shall have delivered to the owner a satisfactory release of all liens against the premises on the part of all persons, who have delivered materials for use in or performed work on said premises, together with a true and accurate showing of the state of such persons' accounts then due, or thereafter to become due, for materials to be furnished or work to be done under this agreement.

'And, it is further agreed, that before the final payment shall become due a full and complete release of liens, including the liens or the parties of the first part, shall have been delivered to the party of the second part, and accepted by him as satisfactory.

'(c) That no liens attachment or other incumbrance under any law of this state, or otherwise, by any persons whosoever, shall at any time be put or remain upon the building or premises, unto or upon which any work is done or may be done, or materials are furnished or may be furnished under this contract for such work or material or by reason of any claim or demand against the contractors in respect thereof.

'And it is further agreed, that if at any time there shall be any lien or claim, which if established, the owner of the said premises might be made liable, and which would be chargeable to the said contractors, the owner shall have the right to retain out of any payment then due, or thereafter to become due, an amount sufficient to completely indemnify him against such lien or claim, until the same be effectually satisfied, or discharged or cancelled, and should there prove to be any such claim after all payments are made, the contractors do hereby covenant that they will refund to the owner all moneys, that the latter may be compelled to pay discharging any lien on said premises, and obligatory in consequence of the former's default.' As already stated, four installments were paid by the plaintiff, but he did not require a release of liens to be delivered in accordance with the provisions of paragraph 'b,' and this failure upon his part set up as a defense. To this the plaintiff replies that the provision referred to was merely intended for his own protection, and that he was at liberty to waive it if he chose, without danger to this rights against the surety. I cannot agree to the correctness of this position. There can be no doubt that paragraph 'b' was intended for the protection of the plaintiff, and perhaps primarily for his protection; but its enforcement would also protect the surety by compelling the builders to pay the workmen and materialmen as the work went on, thus diminishing the risk that the surety might suffer from the failure of the builders to fulfill their contract concerning liens. The danger of liens was provided against as carefully as possible. Before any installment could become due, copies of bills and vouchers for work and materials were to be furnished, or a true account of these subjects taken from the builders' books was to be presented, accompanied by a release from all persons entitled to a lien up to that time, together with a true showing of the accounts of such persons with the builders. But, in spite of these precautions, it was recognized that the builders might be careless, or might deceive the architect about these matters, and therefore it was provided that a further release should be given before final payment should become due; and, as even this might not fully protect the

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