The Algonite Stone Manufacturing Company v. The Fidelity & Deposit Company of Maryland

• Citation: 100 Kan. 28,163 P. 1076
• Decision Date: 10 March 1917
• Docket Number: 20,384
• Court: United States State Supreme Court of Kansas
• Parties: THE ALGONITE STONE MANUFACTURING COMPANY, Appellant, v. THE FIDELITY & DEPOSIT COMPANY OF MARYLAND, Appellee

163 P. 1076

100 Kan. 28

THE ALGONITE STONE MANUFACTURING COMPANY, Appellant, v. THE FIDELITY & DEPOSIT COMPANY OF MARYLAND, Appellee

No. 20,384

Supreme Court of Kansas

March 10, 1917

Decided January, 1917.

Appeal from Sedgwick district court, division No. 2; THORNTON W SARGENT, judge.

Judgment reversed and cause remanded.

SYLLABUS

SYLLABUS BY THE COURT.

BUILDING CONTRACT--Surety Bond--Inures to the Benefit of Laborers and Materialmen. A surety bond to guarantee the faithful performance of a contract for the erection of a building, which by reference makes the contract and specifications a part of the bond, the specifications requiring the contractor upon final settlement to furnish satisfactory evidence that all persons who performed labor or furnished materials under the contract have been fully paid, otherwise reserving to the owner the right to retain final payment "until all liabilities are fully discharged by paying them from such money," is held to have been intended for the benefit of laborers and materialmen under the contract; and therefore they may maintain a suit on the bond to enforce their claims without having filed mechanic's liens.

R. R. Vermilion, Earle W. Evans, Joseph G. Carey, and Eugene Stanley, all of Wichita, for the appellant.

R. L. Holmes, Charles G. Yankey, and W. E. Holmes, all of Wichita, for the appellee.

Porter, J. Porter, J. dissenting. Mr. Justice West concurs in this dissent.

OPINION

PORTER, J.:

The Stauffer Construction Company, having contracted for the construction of a church building, gave a bond running to the owner, conditioned for the faithful performance of its contract, and the appellee, a surety company, signed the bond as surety. The appellant sold stone to the contractor which was used in the building, and a balance of $ 1039.44 on the purchase price of the stone was left unpaid. The building was completed May 25, 1914. No lien was filed by appellant. No controversy or unsettled matters existed between the owner, the contractor and the surety company. In October of that year the contractor filed a voluntary petition in bankruptcy. This action to recover the balance due for stone furnished was not commenced until May 5, 1915, and the only parties are the stone company and the surety. The appeal is from a judgment sustaining a demurrer to the petition.

The question presented for determination is a narrow one. It is appellant's contention that the bond contains provisions intended for the benefit and protection of the materialmen. The appellee's contention is that the bond was not intended for the protection of the materialmen, that any benefit they might obtain was only incidental. The bond contained these conditions:

"Whereas the said principals have on the 2nd day of July, A. D., 1913, entered into a certain written contract with said owner, to furnish all labor, material and construct a certain church building to be erected at Olmitz, Kansas, according to the plans and specifications furnished by H. W. Brinkman, architect of Emporia, Kansas, which contract is made a part hereof the same as if written at length herein, now therefore, if said principal shall well and faithfully and fully comply with all the requirements in the contract for said work and shall complete same according to the full meaning and intent thereof, then this obligation to be null and void, otherwise to remain in full force and effect."

Nothing in the bond itself suggests an intention to protect any one except the owner. The bond by reference, however, makes the contract, plans and specifications a part of it, and the appellee concedes that of necessity the extent of the surety's obligations are to be measured by taking the contract and specifications into consideration. Two provisions of the contract and specifications are relied upon by appellant to support the contention that the bond was given to protect the materialmen, the first of which reads:

"It being understood and agreed that final payment shall and will be made within ten days after this contract is completely finished, provided that in each of the said cases the architect shall certify in writing that all work upon the performance of which the payment is to become due has been done to his satisfaction; and provided further, that all claims that might by law become a lien against the property have been adjusted to the satisfaction of the architect and owner and receipts furnished therefor by contractor."

The language selected is, as appellee suggests, only a portion of the clause in the contract. Immediately preceding the portion quoted is the following:

"It is hereby agreed by the parties hereto, that the compensation to be paid by the party of the second part to the party of the first part shall be for all work and materials as shown by the drawings and specifications and this contract shall be twenty-three thousand six hundred and forty-eight dollars ($ 23,648) and that such sum shall be paid in current funds by the second party in installments on certificates signed by the architect."

The whole clause is construed by the appellee as a mere statement of the owner as to the amount and manner of payment, a statement that he will make final payment within ten days after the contract is completed, provided the architect's certificate is furnished and all claims which might become liens against the property are adjusted to the satisfaction of the architect and the owner, receipts therefor being furnished by the contractor. The appellee's contention therefore is that this provision is in no sense an agreement by the contractor to pay claims for labor or material, but is the statement of a condition precedent to his right of demanding final settlement. It is argued that if the contractor could furnish satisfactory receipts of adjustment with laborers and materialmen showing a release of all liens whether actually paid or merely the credit of the contractor accepted in lieu of liens, no one could question the right of the contractor to demand final settlement; and it is said that the only result of the contractor's failure to pay the claims of laborers and materialmen would be the right of the owner to withhold final payment.

The other provision of the contract upon which appellant relies is a part of the specifications, which reads:

"Payments--It is understood that the contractor pay all persons who perform labor and furnish materials, in full after each estimate, and upon final settlements he shall furnish satisfactory evidence that all persons who have performed labor or furnished materials under these specifications have been fully paid and in case such evidence is not furnished, the owner shall have the right to retain such moneys due the contractor until all liabilities are fully discharged by paying them from such money."

The appellee insists that this provision likewise is intended merely as a protection to the owner by permitting him to retain the funds if he sees fit until the labor and material claims are paid, and was not intended as a statement of an agreement that the contractor would pay all the claims absolutely or in a certain manner; and that the owner could not decline final payment if the contractor was able to show that the holders of labor and material claims had accepted his credit and made no claims of liens against the property. It is clear, however, that the right to withhold final payment until all claims for labor and material were paid would, of necessity, protect the holders of such claims, so that indirectly, at least, both parties to the contract must be held to have intended that all such claims should be paid.

It may be conceded that it was competent for the parties to agree that the church society would be satisfied provided the building was turned over completed according to the plans and specifications and free from all liability on the part of the owner for any claims on account of material or labor. Plainly, the intent of the parties to the contract of suretyship is the controlling question. In arriving at the intention it is reasonable to take into consideration the fact that it is seldom an owner of residence property would be satisfied to live in a home erected of material or by labor which would never be paid for. The church organization which made the contract for the erection of the building intended the edifice to be used for religious services, and was careful to insert in the contract a provision that no work upon it should be performed on a church holiday. It is fair to assume that the organization had no intention of securing a building to be used for religious worship upon which claims for labor or material might remain unpaid.

A further argument made by the appellee is based upon the well-known fact of the existence of two kinds of bonds in building contracts--one commonly known as the statutory bond running to the state and...