Title Guaranty & Surety Company of Scranton, Pennsylvania v. State ex rel. Leavenworth State Bank

Decision Date18 June 1915
Docket Number8,609
Citation109 N.E. 237,61 Ind.App. 268
CourtIndiana Appellate Court

Rehearing denied January 14, 1916, Reported at: 61 Ind.App 268 at 291. Transfer denied March 17, 1916.

From Harrison Circuit Court; William Ridley, Judge.

Action by the State of Indiana, on the relation of The Leavenworth State Bank, against The Title Guaranty and Surety Company of Scranton, Pennsylvania, and others. From a judgment for relator, the defendant named appeals.


Major A. Downing, Samuel A. Lambdin and Major W. Funk, for appellant.

Evan B Stotsenburg and John H. Weathers, for appellee.



This action was prosecuted by appellee against appellant, as surety, and Fisher and Stabler, as principals, on a bond given to secure the performance of a contract for the construction of a free gravel road. The cause was tried on the second paragraph of amended complaint hereinafter referred to as the complaint, the material allegations of which are to the following effect: By a proceeding regular in all respects, the Board of Commissioners of Crawford County entered into a contract in writing with Fisher and Stabler, for the construction of a free gravel road in said county. Said contractors filed with their bid, a bond which was duly approved by the county auditor. The bond was conditioned that the contractors should enter into a contract for the performance of the work, and should faithfully perform the same, and should "promptly pay all debts incurred by them in the prosecution of said work, including labor, materials furnished and for the boarding of the laborers thereon". Copies of the contract and bond were made parts of the complaint. It is further alleged that the contractors in prosecuting said work failed to perform the conditions of their bond, in that they failed to pay for labor and materials furnished by a large number of persons, a tabulated statement of which is made a part of the complaint. The allegations of the complaint that become important in view of the questions raised respecting its sufficiency are as follows: "That said laborers and materialmen transferred their claims to this relator for full value, and with the agreement with said contractors that said claims should be paid out of the fund for building said road, and this relator paid said laborers and materialmen the full value of said claims, and now holds the same; that all of said labor so mentioned therein, and all of said materials went into the construction of said free gravel road", etc. There are other allegations that the amount and value of said claims is $ 2,500; that payment was demanded and refused, and that said sum is due and unpaid.

Appellant's demurrer for want of facts, filed to the complaint, was overruled, whereupon appellant answered by general denial. A jury trial resulted in a verdict against appellant in the sum of $ 2,250, on which judgment was rendered, and from which judgment this appeal is prosecuted. The following questions are properly presented for review: (1) The overruling of the demurrer; (2) the sufficiency of the evidence to sustain the verdict; (3) the overruling of appellant's motion for a peremptory instruction at the close of appellee's evidence in chief; (4) the overruling of a like motion at the close of all the evidence.

As we interpret appellant's argument directed against the complaint, it is to the effect that there is no allegation that the claims were transferred to appellee absolutely; that it appears from the complaint that the claims were assigned to appellee pursuant to a supplemental or independent contract to the effect that they should be paid out of the designated fund, as evidenced by the language "with the agreement with said contractors that said claims should be paid out of the funds for building said road"; that the right to resort to the bond constitutes no part of such fund, and that appellant was not surety for the performance of such independent or additional contract, and hence can not be held liable in this action. The incurring of the indebtedness by the contractors for labor and materials furnished and used in the performance of the work, and the failure of the contractors to pay such indebtedness when due rendered appellant liable in an action brought on the bond by the persons who performed such labor and furnished such materials, in the absence of a transfer of the claims so arising. If the claims were sold and assigned to appellee, then appellee became authorized, by virtue of such sale and assignment, to maintain an action on the bond against appellant as surety, in case of default in payment, unless there was something in the contract of assignment that precluded the right to maintain such action. Hart v. State, ex rel. (1889), 120 Ind. 83, 21 N.E. 654, 24 N.E. 151; Lane v. State, ex rel. (1896), 14 Ind.App. 573, 43 N.E. 244.

We proceed to determine whether there was anything in the contract of assignment, as appears from the complaint, to which such an effect must be ascribed. It plainly appears from the complaint that said claims were sold and transferred to appellee, and that appellee thereby became the owner of them. There is a further averment to the effect that at the time the claims were transferred, or at some other time, and in a transaction that became connected with such transfer, the contractors agreed either with the laborers and materialmen or with appellee, that they would pay the claims out of the fund that would become due to them for building the road under the contract; in short, the contractors simply agreed that they would collect said fund and apply it on the claims. It seems to be appellant's construction of said alleged agreement that thereby the contract price for building the road became a special or primary fund set apart for the payment of these claims, to which it was the duty of appellee to resort, to the exclusion of any right to have recourse to the bond, and that as appellant did not sustain the relation of surety to the arrangement out of which such duty arose, appellant can not be held liable in this action. We can not agree that appellant is right in such contention. From the facts alleged, it does not appear that a specific right to resort to such fund arose, unless from such facts it may be gathered that thereby said fund was assigned to the end that said claims might be paid, or that thereby a lien on such fund was created for that purpose. A mere agreement to pay out of a fund is not sufficient to create a specific equitable lien on the fund for the payment of the debt involved. Burke v. Child (1875), 21 Wall. 441, 22 L.Ed. 623. Paraphrasing the language used by the Supreme Court of this State as applicable here, it was the duty of the contractors, as we have said, to pay the claims, and their promise to pay them out of a particular fund imposed no additional legal obligation upon them. The promise to pay the claims out of the fund named conferred no benefit on appellee, as such promise did not operate as an assignment to appellee of the fund or give appellee control of it. Such promise did not operate as an assignment of the fund or create a lien thereon. Ford v. Garner (1860), 15 Ind. 298. "In order to constitute an assignment, either in law or equity, there should be such an actual or constructive appropriation of the subject-matter assigned, as to confer a complete and present right on the assignee, even where the circumstances do not admit of its immediate exercise. A covenant, on the part of the debtor, to apply a particular fund in payment of the debt, as soon as he receives it, will not operate as an assignment; for it does not give the covenantee a right to the fund, save through the medium of the covenantor, and looks to a future act, on his part, as the means of rendering it effectual; while the characteristics of an assignment are, the relinquishment of all legal or equitable interest by the assignnor, and the creation of a new and independent right in the assignee." Ford v. Garner, supra, quoting 2 Lead. Ca. Eq. pt. 2, 233. See, also, Burton v. Morrow (1892), 133 Ind. 221, 229, 32 N.E. 921; Tiernan v. Jackson (1831), 8 L.Ed. 234, note; Christmas v. Gains (1871), 14 Wall. 69, 20 L.Ed. 762; Walker v. Brown (1896), 41 L.Ed. 865, 17 S.Ct. 453, note; Siegmund v. Kellogg-Mackay-Cameron Co. (1906), 38 Ind.App. 95, 99, 77 N.E. 1096; Harrison v. Wright (1885), 100 Ind. 515, 50 Am. Rep. 805; 4 Cyc 47; 2 R. C. L. 615. Moreover, the suit here is not based on the promise to pay the claims out of the fund named. It is grounded on the bond. It is not contended that the alleged promise released the contractors from the obligation to pay generally. Such contention would be unavailing under the facts alleged. If the contractors were not released from such general obligation to pay, and if there was no assignment of the fund or lien created thereon, appellant was not affected by such promise, and on default in payment, liability on the bond arose. The promise to pay out of the fund gave appellee no new or additional cause of action. On default in payment, appellee's cause of action became as complete without such promise as with it. In either case, appellee became entitled to maintain an action against the contractors on the claims, or against them and appellant on the bond. For the payment of a judgment recovered in any such suit, recourse might be had to said fund, not specifically as a fund appropriated for that purpose, but generally as any other fund or property might be subjected to that end. Ford v. Garner, supra, 302. The court did not err in overruling the demurrer to the complaint.


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