The Young Men's Christian Association v. Ritter

• Decision Date: 05 July 1913
• Docket Number: 18,326
• Citation: 133 P. 894,90 Kan. 332
• Parties: THE YOUNG MEN'S CHRISTIAN ASSOCIATION, OF SALINA, Appellee, v. A. H. RITTER et al., Partners, etc., et al. (THE UNITED STATES FIDELITY AND GUARANTY COMPANY, Appellant)
• Court: Kansas Supreme Court

133 P. 894

90 Kan. 332

THE YOUNG MEN'S CHRISTIAN ASSOCIATION, OF SALINA, Appellee, v. A. H. RITTER et al., Partners, etc., et al. (THE UNITED STATES FIDELITY AND GUARANTY COMPANY, Appellant)

No. 18,326

Supreme Court of Kansas

July 5, 1913

Decided July, 1913.

Appeal from Saline district court.

Judgment reversed and cause remanded.

SYLLABUS

SYLLABUS BY THE COURT.

1. BUILDING CONTRACT--Payments to Contractor--"Final Payment" Construed. A contract for the erection of a building contained a clause which, after reciting the whole sum to be paid for work and materials, provided "that such sum shall be paid by the owners to the contractors, in current funds, and only upon the certificates of the architects as follows: on or before the first of every month the architects shall make written estimates of all work and material furnished on the contract during the preceding thirty days and eighty per cent of same shall be paid the contractors by the owners when presented. The final payment shall be made within ten days after the completion of the work included in this contract, and all payments shall be due when certificates for the same are issued." Held, that "the final payment" referred to the twenty per cent of the amount of the estimates after the eighty per cent had been paid.

2. Indemnity Bond--Failure to Retain Required Percentage--Surety Released. A bond of indemnity was executed by a surety company against pecuniary loss resulting from the failure of a contractor to comply with the terms of a building contract. The bond referred to the contract and contained a condition that no liability should attach to the surety unless the owner should give notice to and obtain the consent of the surety before making the final payment provided for in the contract. Held, that the failure to retain the required percentage discharged the surety to the extent of the premature payments.

Z. C Millikin, of Salina, for the appellant.

C. W. Burch, and B. I. Litowich, both of Salina, for the appellee.

OPINION

PORTER, J.:

The question to be determined in this case is whether a bond given by a surety company guaranteeing the faithful performance of a contract for the erection of a building is discharged by the failure of the owner to retain the final payment provided for in the contract until the completion of the building and until the bonding company has consented thereto.

The defendant is a corporation engaged in writing surety bonds for compensation. In November, 1909, A. H. Ritter & Son, builders, entered into a written contract with the Young Men's Christian Association of Salina (herein referred to as the association) for the construction of an association building at a cost of $ 34,600. The contract was executed in duplicate, and a copy with exhibits showing the plans and specifications was submitted to the bonding company, and in December, 1909, the company executed its bond for which it was paid a premium. The building was finally completed, except as to a few minor details, in the fall of 1910. The contractor defaulted in payment of certain claims for material and labor, and some of the subcontractors filed liens. The association brought suit on the bond to recover damages for the breach of its conditions. The jury returned a verdict for the association and also made findings of fact. The defenses were raised by a demurrer to the evidence, by a motion for a directed verdict, and a motion for judgment on the findings.

The building contract provided, among other things, that the building was to be erected according to plans and specifications prepared by a firm of architects at Salina, and under their direction, and that they should construe the meaning of the plans and specifications. During the progress of the work a dispute as to whether the basement walls should be 21 or 25 inches in thickness arose between the association and the architect, Smith, who acted for his firm, which resulted in his resignation. The association thereupon substituted one Barnes, its secretary, who from that time acted as superintendent of construction. He was without experience as an architect or builder, and his substitution without notice to or knowledge of the bonding company is one of the defenses pleaded in the answer and relied upon at the trial. Another defense is that certain material alterations in the plans were made without the knowledge or consent of the surety. The third defense is that the required percentage of money earned by the contractor was not retained by the association as required by the bond, and that the failure to comply with this condition discharged the surety. From our view of the case it is not deemed necessary to consider any of these defenses except the last.

In respect of this defense the association makes the contention, first, that the provision in the contract whereby it was to pay eighty per cent of the written estimates of all work and material for thirty days preceding the first of each month does not in so many words say that twenty per cent should be retained, or that the final payment mentioned should be twenty per cent of such estimates; and second, that the provision was solely for its benefit and not that of the surety, and moreover was not a provision prohibiting it from making payment in full at any time it saw fit to do so; but on the contrary it was intended by the provision that it should be wholly optional with the association to retain part of the payments or to pay the whole sums due the contractors for any work or material furnished "when certificates for the same" were issued.

As to the first contention we think it is clear that the contract provision for the payment of eighty per cent of the estimates of material and work furnished contemplated that twenty per cent might be retained as the "final payment," and that the only reasonable construction to be given to the words "final payment" is that they mean twenty per cent, that is, the percentage remaining due after the payment of the eighty per cent mentioned.

Article 9 of the contract reads:

"It is hereby mutually agreed between the parties hereto that the sum to be paid by the owners to the contractors for said work and materials shall be thirty-four thousand six hundred ($ 34,600.00) dollars, subject to additions and deductions as hereinbefore provided, and that such sum shall be paid by the owners to the contractors, in current funds, and only upon the certificates of the architects, as follows: On or about the first of every month the architects shall make written estimates of all work and material furnished on the contract during the preceding thirty days, and eighty per cent of same shall be paid the contractors by the owners when presented. The final payment shall be made within ten days after the completion of the work included in this contract, and all payments shall be due when certificates for the same are issued."

The bond refers to the contract, and the conditions of the bond in respect to the matter under consideration read:

"Now, therefore, the condition of the foregoing obligation is such that if the said Principal shall well and truly indemnify and save harmless the said Obligee from any pecuniary loss resulting from the breach of any of the terms, covenants and conditions of the said contract on the part of the said Principal to be performed, then this obligation shall be void; otherwise to remain in full force and effect in law; Provided, however, that this bond is issued subject to the following conditions and provisions:

"First: That no liability shall attach to the Surety hereunder unless, in the event of any default on the part of the Principal in the performance of any of the terms, covenants or conditions of the said contract, the Obligee shall promptly, and in any event not later than thirty days after knowledge of such default, deliver to the Surety at its office in the city of Baltimore, written notice thereof, with a statement of the principal facts showing such default and the date thereof; nor unless the said Obligee shall deliver written notice to the Surety at its office aforesaid, and the consent of the Surety thereto obtained, before making to the Principal the final payment provided for under the contract herein referred to.

"Second: That in case of such default on the part of the principal the Surety shall have the right, if it so desires, to assume and complete or procure the completion of said contract and in case of such default, the Surety shall be subrogated and entitled to all the rights and properties of the Principal arising out of the said contract and otherwise, including all sureties and indemnities theretofore received by the Obligee and all deferred payments, retained percentages and credits due to the principal at the time of such default or to become due thereafter by the terms and dates of the contract."

In their brief counsel for plaintiff (appellee) say:

"Appellant in his brief assumes that the contract and bond required the retention of 20 per cent of the contract price until final settlement was made. Neither the contract nor the bond contains any such recital or provision. Contracts and bonds in other cases may contain such recitals. No provision was made in the contract in this case for the retention of any percentage until final settlement. . . . The language of the contract is '80 per cent of which shall be paid the contractors by the owners,' and is not as counsel assumes, '20 per cent shall be retained by the owners.' And the contract further provides that 'all payments shall be due when certificates for the same are issued.' These are the only provisions in either contract or bond concerning payment or retention of any per cent."

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