The Chicago Lumber Company v. Douglas

• Decision Date: 12 April 1913
• Docket Number: 18,052
• Citation: 131 P. 563,89 Kan. 308
• Parties: THE CHICAGO LUMBER COMPANY, Appellee, v. H. S. DOUGLAS et al., Partners, etc., et al. (THE FEDERAL UNION SURETY COMPANY, Appellant)
• Court: Kansas Supreme Court

131 P. 563

89 Kan. 308

THE CHICAGO LUMBER COMPANY, Appellee, v. H. S. DOUGLAS et al., Partners, etc., et al. (THE FEDERAL UNION SURETY COMPANY, Appellant)

No. 18,052

Supreme Court of Kansas

April 12, 1913

Decided January, 1913.

Appeal from Shawnee district court, division No. 1.

Judgment affirmed.

SYLLABUS

SYLLABUS BY THE COURT.

1. MECHANIC'S LIEN--What Constitutes "Material" under the Law--Liability of Surety. Lumber furnished for and used in the making of forms for a concrete structure as provided in the contract and specifications for its erection and which is largely consumed and rendered valueless by such use, is material within the meaning of the mechanic's-lien law (Civ. Code, §§ 649-662) and of the provisions of a bond given by a surety company in the form provided for in section 660 of the civil code, the obligation of which is that the contractor will "pay all indebtedness incurred for labor and material furnished and used in and about said contract work, or which might become the basis of a lien."

2. Payment by Contractor--Application of Money by "Materialman"--Surety Not Released. The surety company can not escape liability upon the bond for material furnished to and used by the contractor in the building on the ground that money received from the owner and paid to the materialman was applied by the latter in discharge of an earlier indebtedness of the contractor for material used on other buildings, no direction having been given by the contractor as to the application of the payment at the time it was made.

3. CORPORATIONS--Suretyship for Profit--Not "Favorites of the Law." The law does not have the same solicitude for corporations organized for the purpose of giving indemnity bonds and which make suretyship a business for profit that it has for voluntary sureties. Such corporations are essentially insurers, and in determining their rights and liabilities the rules peculiar to suretyship do not apply.

L. S. Ferry, T. F. Doran, and J. S. Dean, all of Topeka, for the appellant.

C. J. Evans, of Topeka, for the appellee.

OPINION

JOHNSTON, C. J.:

This appeal involves the liability of the appellant, the Federal Union Surety Company, which guaranteed the faithful performance of a contract of Douglas & Evans with the state of Kansas to furnish the material and erect the foundations of the Memorial Building and also that it would pay all indebtedness for labor and material furnished and used in and about the work. Douglas & Evans were general contractors, and were at the time engaged in building structures other than the Memorial Building. They purchased a large quantity of lumber from appellee, the Chicago Lumber Company, which was used to make forms for the concrete foundations of the Memorial Building, and they had previously purchased lumber from appellee for other buildings for which payment had not been made. On May 10, 1910, a payment of $ 4000 was made by the state to the contractors, and on the following day they paid $ 2000 of the amount received from the state to appellee which appellee applied on the oldest bills held against the contractors and which were for materials used on other buildings. Of the lumber furnished for the concrete forms the court held the surety company liable for $ 1322.98, being the cost of the same less $ 88, the value of the lumber which was fit for use again after it was removed from the building.

It is first contended that the surety company is not liable for the lumber used in the concrete forms for the reason that it did not become a permanent part of the foundations or other portion of the building. By its bond the company guaranteed that the contractors would faithfully perform the contract in all particulars and "pay all indebtedness incurred for labor and material furnished and used in and about said contract work," and there is an added clause, "or which might become the basis of a lien." The form of the contract was evidently the one ordinarily used where the owner is a private person against whose property a lien might be obtained. If the lumber placed in the concrete forms can be said to have been used in and about the contract work the surety company is liable for it. Although no mechanic's lien can be created where the state is the owner, counsel for both parties argue the case on the theory that the rule of liability of the surety company under its bond is the same as it would have been if the owner of the building was not the state and the property improved was subject to a lien. Assuming that to be the rule we have the question whether a person who furnishes the material for the forms into which the concrete for the walls of the building were poured is entitled to a lien. On one side it is contended that it is essential to the existence of a lien that the material shall have entered into and become a part of the permanent structure. On the other side it is insisted that it is not necessary that the material shall be incorporated into the building if it is material provided for in the contract and is used and consumed in whole or in part in the erection or repair of the building.

The statute gives a lien to any person who shall "furnish material for the erection, alteration or repair of any building, improvement or structure" (Civ. Code, § 649) on the land of the owner with whom a contract is made. There is a division of judicial opinion as to whether a lien is given unless the material actually enters into and becomes a part of the completed structure, and this arises, to some extent, from the language of the different statutes providing for liens. In Hill v. Bowers, 45 Kan. 592, 26 P. 13, it was said that no lien can be allowed for material purchased for a building or structure on the land of the owner unless it in fact goes into the building. This was said in a case where the material was not used in any way in or about the structure. It was purchased for the building of a fence on the owner's land, and was taken and left for a time on the highway in front of the land but was afterwards seized and sold by the sheriff on execution. That rule was followed in McGarry v. Averill, 50 Kan. 362, 31 P. 1082, 34 Am. St. Rep. 120, where it was held to be error to refuse an offer of proof that the material purchased to improve a lot was never used in the construction of the building upon the lot but was taken away and used elsewhere. The question involved in these cases was whether a lien could be had for material purchased for use in the erection of a building or other structure but which in fact was never used for that purpose. It not only did not enter into or become a part of the completed structure but was not even used to promote the erection, alteration or repair of the same, and involved a very different question than is presented in the case under consideration. Here the material was used in the erection of the building and it became temporarily a part of the foundations of the building. Its use was provided for in the plans for the building and was included in the contract of the parties. By its use most of the material was destroyed or rendered unfit for any other practical use. One witness said that lumber so used became water soaked, twisted and practically valueless, and that architects now generally provide in their specifications that new lumber should. be used for such forms. Some of the thicker or dimension lumber was not destroyed and that much of it was used for other purposes. For this a credit of $ 88 was allowed. However, one of the contractors said that they would have been as well off if they had thrown it aside and procured new lumber. The material having been provided for in the contract and having been used and practically consumed in the erection of the building, can it be held to be lienable under the law or can the surety company be held liable for such material?

In Kennedy v. Commonwealth, 182 Mass. 480, 65 N.E. 828, a like question was involved where the statute gave a lien for material purchased for or used in the construction or repair of buildings. Lumber for forms was used in a building to hold the concrete in place while hardening, after which it was taken down and used again, and after being so used several times was finally sold for firewood. The court held that the lien statute did not contemplate the giving of a lien for all labor and all kinds of material that might incidentally promote the construction of the building but only for such materials as entered into the construction and became a part of the structure. The court placed material so used in the same class with the tools of the mechanic or the horses sold to the contractor to haul the material to the building. The same court, in a later case, sustained a claim for a lien for gunpowder used in the building of an aqueduct. To accomplish the work it became necessary to excavate through rock and powder was used in blasting a trench for a conduit, and this was done in accordance with a provision of the contract. When the Kennedy case was cited as an authority against the allowance of a lien it was said:

"This court has never had occasion to consider a case like the present, where the material was used directly upon the work or the structure in process of construction, for the purpose of bringing it into proper form or condition, and was entirely consumed in the use. In such a case it may be said that, in a general sense, the material enters into the completed structure. In this broad sense it forms a part of it, as it loses its identity and ceases to exist as a separate substance, in producing a direct effect upon the construction, which effect remains as a part of the result shown in the completed structure." (Sampson Co. v Commonwealth, 202 Mass. 326,...