Standard Accident Ins. Co. of Detroit v. Rose

• Decision Date: 05 December 1950
• Citation: 314 Ky. 233
• Parties: Standard Accident Ins. Co. of Detroit v. Rose.
• Court: United States State Supreme Court — District of Kentucky

Page 233

314 Ky. 233

Standard Accident Ins. Co. of Detroit v. Rose.

Court of Appeals of Kentucky.

December 5, 1950.

Green Rose brought an action against Standard Accident Insurance Company of Detroit for amount necessary to complete two houses which a contractor had agreed to build for plaintiff, and for other relief. The Circuit Court, Breathitt County, Ervine Turner, J., rendered a judgment adverse to defendant and defendant appealed. The Court of Appeals, Knight, J., held, inter alia that surety was not liable to plaintiff owner under labor and material payment bond for materials and labor reasonably required to complete houses which contractor failed to complete for plaintiff pursuant to contract, as well as for labor and materials furnished to contractor.

Affirmed in part and reversed in part.

1. Principal and Surety. — A performance bond containing usual conditions, the obligation of which was that if person who contracted to erect houses for plaintiff properly and faithfully performed contract, the obligation should be void, and that otherwise obligation should remain in full force and effect, guaranteed that if contractor defaulted and failed to complete contract, surety could itself complete contract as authorized by bond or pay full amount of obligation of surety under bond.

2. Mechanics' Liens. — The only purpose of a labor and material payment bond is to protect owner against claims of those who furnish labor and materials to contractor, because, if contractor fails to pay such bills, mechanics liens can be filed against owner and payment enforced even though owner had no direct dealing with labor and materialmen.

3. Mechanics' Liens. — The words "all labor and materials used or reasonably required for use in performance of contract" were written into labor and material payment bond to protect surety against extravagant and unnecessary use of labor and materials, and did not render surety liable to owner for materials and labor reasonably required to complete houses which contractor failed to complete for plaintiff pursuant to contract, as well as for labor and material furnished to contractor.

4. Evidence. — Original letter from surety which was relied upon by plaintiff to support claim that performance bond and labor and material bond should be reformed, and which was relied upon to support plaintiff's claim of estoppel, was best evidence of contents of letter, and trial court improperly admitted parole evidence of contents of letter in absence of showing that letter was lost and that diligent effort to locate letter were unsuccessful.

5. Mechanics' Liens; Principal and Surety; Reformation of Instruments. — Where bonds submitted by surety showed plainly that one was a performance bond and the other a labor and material payment bond, and evidence disclosed no contrary representation, and plaintiff and plaintiff's attorney accepted bonds after examination, plaintiff was bound by terms of bonds, and letter subsequently written by surety stating that coverage of bonds was broader than in bond submitted by plaintiff's attorney and rejected by surety, did not justify reformation of bonds to show a coverage in excess of coverage shown by bonds, and it did not stop surety from denying that coverage was in excess of shown coverage.

Craft & Stanfill, and Williams & Allen for appellant.

Grannis Bach for appellee.

Before Ervine Turner, Judge.

JUDGE KNIGHT.

Affirming in part, reversing in part.

On July 2, 1947, appellee, Green Rose, entered into a contract with E.L. Powers doing business as Powers Brothers Contruction Co., hereinafter referred to as Powers, whereby the latter agreed to construct two dwelling houses on a tract of land belonging to Rose in Jackson, Ky., at the agreed price of $11,575.00 for the two, under specifications filed with the contract. Powers was to furnish all labor and materials and was to complete the construction by December 15, 1947, and was to pay Rose $100 per month as liquidated damages for each month after that date until completed. To secure Rose, Powers was to execute bond with corporate surety in the amount of the contract. Upon signing of the contract, Rose's attorney drew up a bond which was attached to the contract and specifications and turned over to the local agent of the Standard Accident Insurance Co. of Detroit, appellant herein. All were submitted to the appellant, which would not, or at least did not, accept the bond as drawn up by Rose's attorney but instead executed and submitted to Rose on its regular forms used by it two bonds for $5800 each, one titled a "Performance Bond" and the other, a "Labor and Material Payment Bond." After going over these bonds with his attorney, Rose accepted them in lieu of the bond which had been drawn up by his attorney and upon their acceptance he turned over to Powers the full amount called for in the contract, $11,575, and Powers began construction. He soon ran into financial difficulties and about October 21, 1947, ceased work on the houses and abandoned the contracts whereupon appellant was called upon as surety to make good on the contract. A dispute arose as to the extent of appellant's liability and appellee filed this suit which in the final amended petition prayed judgment for $9000 necessary to complete the two houses in accordance with the specifications, $1000 for deterioration of the buildings resulting from the abandonment of the contract by Powers, and $600 for loss in rental for a period of six months from December 15, 1947, when they should have been completed. An amended petition also set out that Powers was indebted to certain named parties in various named amounts totaling $691.80 for materials used in construction of the buildings and that appellee should recover of appellant this sum for the benefit of those parties. After various motions and demurrers were filed and passed on, the issues were made up and the case was, by agreement, submitted to the judge without the intervention of a jury on the pleadings, exhibits, and the small amount of proof taken by appellee. Appellant took no proof. Whereupon a judgment was entered in favor of appellee in the sum of $10,200, being $9000 necessary to complete the buildings, $600 for their rental value until the time they could have reasonably been completed and $600 for deterioration in value of the partly constructed buildings. He was also given judgment for $691.80 for and on behalf of the materialmen who had set up claims...