Southern Surety Co. v. Merchants And Farmers Bank of Avilla
| Decision Date | 24 June 1931 |
| Docket Number | 26,059 |
| Citation | 176 N.E. 846,203 Ind. 173 |
| Parties | Southern Surety Company v. Merchants and Farmers Bank of Avilla et al |
| Court | Indiana Supreme Court |
Rehearing denied January 15, 1932, Reported at: 203 Ind. 173 at 200.
1. CONTRACTS---Construction---Instruments Relating to Same Subject-Matter---Should be Considered as one Agreement.---Where two or more instruments relating to the same subject-matter were executed as evidence of the same agreement, they should be considered as one transaction and agreement. p. 192.
2. CONTRACTS---Highway Contractor's Agreement with Surety Company Furnishing Bond---Application for Bond Containing Agreement for Assignment of Funds---Should be Construed Together.---Where a highway construction company, in order to obtain contractor's bonds for the construction of two highways on which it was bidding if it secured the contracts agreed to execute written applications for such bonds and that such applications should contain assignments of all the highway funds to become due the contractor, and, thereafter having secured the contracts, made written applications for bonds, pursuant to the oral agreement, and such bonds were executed by a surety company, the various instruments, being executed as parts of the same transaction must be construed together as one agreement. p. 192.
3. HIGHWAYS---Construction---Contractor's Abandonment of Contract---Rights of County to Funds Retained in County's Hands.---On a contractor's abandonment of a contract to construct a county road, the county had the right to hold the retained percentages of the estimates of the amounts due the contractor under 8396 Burns 1926 to secure itself against any damages that might result from the nonperformance of the contract. p. 192.
4. HIGHWAYS---Construction---Surety on Contractor's Bond---Right to Funds Retained by Employer---Superior to Assignee of Estimates for Work Done.---The surety on a highway contractor's bond is entitled to the same protection as the county or other employer of the contractor, and, therefore, has a prior claim to the funds retained by the county for its protection (8396 Burns 1926), which is superior to the claim of a bank for loans made to the contractor on his assignment of the estimates due him for work done. p. 192.
5. HIGHWAYS---Construction---Assignee of Funds due the Contractor for Work done---Bound to Take Notice of Rights of Surety on Construction Bond.---Persons taking assignments of funds due a highway contractor for work done in constructing a highway are bound to take notice of the terms of the contract and that the contract is accompanied by a surety bond, and likewise of the undertaking of the surety and that any and all funds retained by the employer are for the indemnity of the surety as well as the employer. p. 194.
6. HIGHWAYS---Construction---Assignee of Funds due the Contractor for Work done---Priority of Claim.---The assignee of funds due a highway contractor for work done in constructing a highway can have no greater claim to such funds than the assignor would have had had there been no assignment. p. 194.
7. SUBROGATION---Payment of Claims Prerequisite to Subrogation.---A highway contractor's surety is not entitled to be sub-rogated to the claims of laborers and materialmen who have performed labor and furnished material in the construction of the road unless the surety has paid such claims. p. 195.
8. HIGHWAYS---Construction---Laborers' and Materialmen's Claims---Exceeding Funds Retained---Proper Order of Court.---Where persons who have performed labor and furnished material for the construction of a highway have obtained judgments on their claims in excess of the funds on hands due the contractor, and the contractor's assignee of the funds due the contractor for work done and the surety on the contractor's bond are prosecuting conflicting claims for such funds, the court should direct payment into court of the funds retained by the employer and the application of the funds pro rata on the laborers' and materialmen's judgments. p. 195.
9. HIGHWAYS---Construction---Contractor's Bond---Provision Guaranteeing Payment of "all Debts Contracted in the Prosecution of the Work"---Held Valid and Enforcible.---A highway contractor's bond which contained a provision guaranteeing that the contractor should "pay all debts contracted by said principal in the prosecution of said work," although broader in its conditions than required by the statute under which it was given (8393 Burns 1926), was valid and enforcible. p. 196.
10. HIGHWAYS---Construction---Liability of Surety on Contractor's Bond---For Money Loaned to Contractor for Use in Constructing Road and Actually Used Thereon.---A surety on a highway contractor's bond which guaranteed the payment "of all debts contracted by the principal in the prosecution of the work" was liable for money loaned to the contractor to enable him to carry on the work and which was actually expended in the construction of the road unless the surety was released by the lender. p. 196.
11. PRINCIPAL AND SURETY---Duties of Bank Loaning Money to Highway Contractor---Permitting Dissipation of Collateral to Detriment of Surety on Contractor's Bond---Released Surety from Liability to Bank.---A bank loaning money to a highway contractor for the purpose of enabling him to carry out his contract, with knowledge that the contractor had given bond with surety for the completion of the work and the payment of the debts connected therewith, was in duty bound not knowingly or negligently to permit the money loaned for that purpose or the funds received by it on estimates for work done by the contractor which had been assigned to the bank as collateral security for the loan to be paid out for other purposes and not applied on the contractor's debt to the bank, to the detriment of the surety on his bond, and where the bank knowingly cashed checks issued by the contractor in payment of other obligations, it thereby released the surety from any liability to it under the terms of the bond. p. 196.
12. PRINCIPAL AND SURETY---Release of Surety---By Creditor's Return of Collateral Securities to Principal---Without Consent of Surety.---A surety is discharged where collateral securities received by the creditor from the principal are voluntarily returned to the principal without the consent of the surety, at least to the extent of the value of such collateral securities released. p. 196.
13. HIGHWAYS---Construction---Bank's Loan of Money to Contractor to Enable him to Construct Road---Permitting Contractor to Use Funds to Pay other Indebtedness---Discharge of Surety on Contractor's Bond.---Where a bank loaned money to a contractor for the construction of a county highway and took an assignment of the estimates of the amounts due the contractor as the work progressed, which amounted to more than his indebtedness for labor and materials on the road, but, instead of applying the funds as received to such indebtedness, placed the same in the contractor's personal account and permitted him to check thereon in payment of other indebtedness, it was not entitled to a personal judgment against the surety on the contractor's bond. p. 196.
From Noble Circuit Court; Arthur F. Biggs, Judge.
Actions by the Southern Surety Company against the Merchants and Farmers Bank of Avilla and others, in which the defendant named and others filed cross-complaints, the two actions being consolidated in the trial court. From judgments in both actions for defendants, not only on the complaints but on the cross-complaints, the plaintiff appealed to the Appellate Court. (Transferred to the Supreme Court under cl. 2, § 1357 Burns 1926.)
Reversed.
John R. Browne, William M. McLaughlin, Fred L. Bodenhafer and Gemmill, Browne & Campbell, for appellant.
Redmond & Emerick and Luke H. Wrigley, for appellees.
Appellant commenced two actions in the Noble Circuit Court against the Merchants and Farmers Bank of Avilla, Indiana, hereafter referred to as "appellee," and others, including the board of commissioners, the auditor and the treasurer of Noble County, to determine priority rights in and to as certain unexpended highway funds, including retained percentage on estimates allowed, arising from the sale of bonds to pay for the construction of what was known as the "Rich" and "Krieger" Roads, located in said county. One action related to the unexpended "Rich" Road fund, amounting to $ 16,191.71, and the other action related to the unexpended "Krieger" Road fund, amounting to $ 13,652.00.
Laborers and materialmen filed cross-complaints for the respective amounts due each of them; the number of such claimants not being disclosed by the record. The record shows that the county officials filed answers in general denial, but all parties to this appeal agree that said county officers have no active interest in this appeal and are ready and willing to pay all the money in their hands to the parties entitled to receive the same, as finally determined. The actions were consolidated for trial, and the laborers and materialmen were given judgments on their cross-complaints for their respective claims, aggregating more than $ 30,000; the exact amount does not appear, from which judgments no appeal has been taken and the time for taking an appeal has long since expired.
Appellant claims the said unexpended funds now in the hands of said county officials, subject to the rights of the claimants for labor performed and materials furnished in the construction of said road, for which judgments had been rendered herein on their said cross-complaints, by virtue of being surety upon the contractor's bond, given to the county by "Baker, Agerter and Thompson, Incorporated," the contractor on...
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