United States Fidelity & Guaranty Co. of Baltimore v. Marathon Lumber Co.

• Decision Date: 12 May 1919
• Docket Number: 20564
• Citation: 119 Miss. 802,81 So. 492
• Parties: UNITED STATES FIDELITY & GUARANTY CO. OF BALTIMORE, MD., ET AL. v. MARATHON LUMBER CO. ET AL
• Court: Mississippi Supreme Court

81 So. 492

119 Miss. 802

UNITED STATES FIDELITY & GUARANTY CO. OF BALTIMORE, MD., ET AL. v. MARATHON LUMBER CO. ET AL

No. 20564

Supreme Court of Mississippi

May 12, 1919

March 1919

Division A

1. STATE CONTRACTS. Lien on funds.

Since no lien for labor and material attaches to a state building for the erection thereof, funds in the hands of the agents of the state for the payment of the contractor cannot be applied to the payment of labor and material claims unless authorized by the contract.

2. STATE CONTRACTS. Contractor's bond. Rights of laborers and materialmen.

Where a contractor entered into a contract for the erection of a state building, which contract provided that, the contractor should furnish all labor and material for the erection of the building in accordance with the plans and specifications and should give bond insuring the fulfillment of all the provisions of the contract and covering all guarantees provided for in the contract and the prompt payment of all persons furnishing labor and material required in the prosecution of the work, and said contract further provided for the retention of funds to satisfy claims for labor performed and materials furnished, and the contractor, gave bond in a surety company: "To do and perform all things contemplated by said contract, together with all its terms covenants and conditions, specifications and stipulations," and assigned to his bondsmen the surety company all his rights under his contract, and thereafter defaulted on his contract and the surety company as allowed by the contract went forward and completed the building at a loss, in such case the surety company became subrogated to all the rights and liabilities of the contractor and was obligated to pay claims for labor performed and material furnished prior to the contractor's default and the laborers and materialmen had an equitable right to payment out of the funds retained superior to the sureties on the bond.

3. SAME.

In such case while it true the surety company bondsman was subrogated to the rights of the owner and contractor, yet it also assumed the contractor's burden imposed by the contract. It agreed as the subrogated successor of the contractor, to do those things which the contractor would have been bound to do in fulfilling the contract.

4. SAME.

In such case, the bond having been given to secure the performance of each and every covenant of the contract, one of which was that the amount due for labor and material furnished might be deducted, retained, and paid by the board of trustees at any time and out of any funds due the contractor during the period of the contract. It was proper to deduct the amount due the laborers and materialmen out of any funds due the contractor or its substitute, the subrogated surety company.

5. CONTRACTS. Optional provisions. Exercising option.

Notwithstanding a provision in a building contract provided that the trustees may "retain out of any payment due or thereafter to become due the contractor an amount sufficient to completely satisfy the laborers or materialmen," was optional and discretionary and such option was not exercised by the trustees against the contractor before default nor against the surety company, the bondsman, yet the trustees could exercise the option at any time while the building was in course of construction or afterwards; and it could be exercised against the contractor before he surrendered the completion of the contract to the surety company, or against the subrogated surety company after it assumed and took over the completion of the contract as it then stood in the shoes of the contractor as a substitute, with its subrogated rights and contractual obligations as surety. When the sums were deducted and set aside for the laborers and materialmen by the architect as he was authorized to do, acting for the trustees under the contract, this constituted an exercise of the option by the trustees to retain the amount due the laborers and materialmen; and these funds became impressed with a trust, and such sums so retained became payable to the laborers and materialmen, and it was the duty of the trustees to pay over the funds in satisfaction of their claims, under the contract and bond.

6. EQUITY. Maxims.

A court of equity will order that done which ought to have been done.

G. C. TANN, Chancellor.

APPEAL from the chancery court, of Jones county, G. C. TANN, Chancellor.

Bill of interpleader by the board of trustees of the South Mississippi Charity Hospital against the United States Fidelity & Guaranty Company, of Baltimore, Maryland, the Marathon Lumber Company and others. From a decree in favor of the Marathon Lumber Company and others, the United States Fidelity & Guaranty Company of Baltimore, Maryland, and others appeal, affirmed.

Decree affirmed.

Watkins & Watkins, for appellant.

Now, the law is well settled in cases of this character that the surety was not, by implication, liable for the materials furnished by the appellees; such liability could only grow out of express contract, and nothing could be added to the contract by inference or construction.

The question is, therefore, squarely presented as to whether or not the bond in this case actually bound the surety to pay the claims for labor and material used in the prosecution of the work. Our position is that such was not the case, that no such bond was ever given; that a stipulation contained in the proposals for bidders providing that the successful bidder would give a bond conditioned upon the payment of claims of materialmen falls short of creating an obligation upon the part of the successful bidder to become so liable. In other words, something else was necessary in order to render the surety liable. The proposal did not, ipso facto, make the bond liable, but provided that the successful bidder should thereafter enter into a contract to be and become liable, which was not done in this case.

Our position is that after the Burke Construction Company became the successful bidder, the owner of the building was under no duty to require such bond to be given; had a perfect right to waive it, and did waive that requirement in the proposal, by not exacting from the Burke Construction Company and its surety an obligation, in express terms, to pay and satisfy claims for labor and material. In this connection we are well fortified by authorities, and will direct the attention of the court thereto. 4 Elliott on Contracts, par. 3798; Electric Appliances Co. v. U. S. Fidelity & Guaranty Co., 53 L. R. A. (O. S.) 609; City of Stirling v. Wolfe, (Ill.), 45 N.E. 218.

It is, of course, well established that an agreement upon the part of a contractor to furnish all labor and material used in the erection of a building does not impose liability upon his surety for the claims of materialmen.

In addition to the above cases, see the case of Searles v. City of Flora, (Ill.), 80 N.E. 98. The same is held in the case of Townsend v. Cleveland Fire Proof Co., (Ind.), 47 N.E. 707.

In the case of Greenfield Lbr. Co. v. Parker, (Ind.), 65 N.E. 747, it is held that in order to entitle a person to remedy against the surety in a contractor's bond for materials furnished, the bond, or at least, the contract, must contain an express provision to pay for all materials furnished, in such language or from that the failure of the contractor to pay for materials will constitute a breach of the condition of the bond.

And in the case of Jones Lumber Co. v. Villegas (Tex.), 28 S.W. 558, it is held that the obligation of the contractor to furnish all material and labor used in construction of the building will not render the surety liable for such labor and material. The same is held in the case of Montgomery v. Rief (Utah), 50 P. 623.

We again insist that there is no obligation in this case upon the part of the surety to pay and satisfy the claims of materialmen. Of course, the principal is liable therefor, because he contracted the obligation, but we mean by virtue of the bond. As illustrating the contention which we are making, that the mere provision in the proposal and specifications that the successful bidder should give a bond conditioned for the payment of all claims for labor and materialmen is not covered by the bond in question, we cite the very recent case of Nick Peay Construction Co. v. Miller (Ark.), 139 S.W. 1107.

Therefore, we say in this case that while the proposals for specifications became part of the contract, they were intended to furnish a guide as to the kind and quality of the work to be performed; and, in addition thereto, contained no express obligation that the bond should become liable for the claims of laborers and materialmen, but only contained the stipulation that the successful bidder would thereafter, by giving bond become so liable, which was never done. Therefore, we have in this case no express obligation upon the part of the surety to pay the obligations of appellees.

We direct the attention of the court to the fact that appellees have cited no case upholding their theory. The only case cited by them is the National Surety Company v Hall-Miller Decorating Co., 104 Miss. 46 L. R. A. (N. S.) 325. The bond in that case contained the following condition: "The National Surety Company of New York as surety are held and firmly bound unto the board of trustees, state Charity Hospital, Jackson, Mississippi, and all subcontractors, workmen, laborers, mechanics and furnishers of material jointly, as their interest may appear, and as hereinafter set forth, in the full sum of twenty-five thousand dollars, the bond being conditioned as follows: "Now, the condition of the foregoing obligation is such that if the said Reusch Contracting Company shall...