Wichita Sheet Metal Supply, Inc. v. Dahlstrom and Ferrell Const. Co., Inc.

• Decision Date: 25 May 1990
• Docket Number: 63389,Nos. 63073,s. 63073
• Citation: 246 Kan. 557,792 P.2d 1043
• Parties: , 12 UCC Rep.Serv.2d 634 WICHITA SHEET METAL SUPPLY, INC., Appellant, v. DAHLSTROM AND FERRELL CONSTRUCTION CO., INC., and The United States Fidelity & Guaranty Company, Appellees. AIR MOVING EQUIPMENT, INC., Appellant, v. The UNITED STATES FIDELITY & GUARANTY COMPANY, Appellee.
• Court: Kansas Supreme Court

Page 1043

792 P.2d 1043

246 Kan. 557, 12 UCC Rep.Serv.2d 634

WICHITA SHEET METAL SUPPLY, INC., Appellant, v. DAHLSTROM AND FERRELL CONSTRUCTION CO., INC., and The United

States Fidelity & Guaranty Company, Appellees.

AIR MOVING EQUIPMENT, INC., Appellant, v. The UNITED STATES FIDELITY & GUARANTY COMPANY, Appellee.

Nos. 63073, 63389.

Supreme Court of Kansas.

May 25, 1990.

Syllabus by the Court

1. In general, it is appropriate to analogize rules applicable to mechanics' liens to K.S.A. 60-1111 public works bonds.

2. Public works bonds are substitutes for mechanics' liens.

3. Mechanics' lien rights accrue to those in privity with the owner, contractor, or subcontractor with the contractor.

4. In order to come within the protection afforded by a public works bond, the claimant must establish he is one in whose favor mechanics' liens might accrue.

5. Suppliers of material to a second tier or sub-subcontractor are not within the purview of the protection afforded by mechanics' liens and contractors' public works bonds.

6. Usage of trade as set forth in K.S.A. 84-1-205(2) is concerned with reaching the commercial meaning of the agreement the parties have made. The provision may be utilized to explain terms used or fill in gaps in the agreement. Generally, the statute may not be used to create a contract where none previously existed.

Michelle Hostetler, of Martin, Churchill, Overman, Hill & Cole, Chartered, Wichita, argued the cause, and William M. Kehr, of the same firm, was on the briefs for appellant Wichita Sheet Metal Supply, Inc.

Edward Stephens, Leavenworth, argued the cause and was on the brief for appellant Air Moving Equipment, Inc.

Jeffrey B. Rosen, Kansas City, Mo., argued the cause, and Bruce W. Beye, of Polsinelli, White, Vardeman & Shalton, a Professional Corp., of Overland Park, was with him on the brief for appellees Dahlstrom & Ferrell Const. Co., Inc., and U.S. Fidelity and Guar. Co.

William A. Larson, of Gehrt & Roberts, Chartered, Topeka, was on the brief for amicus curiae The Associated General Contractors of Kansas, Inc.

McFARLAND, Justice:

In this consolidated appeal, two suppliers of materials to a second tier or "sub-subcontractor" seek to recover against the general contractor's public works bond issued pursuant to K.S.A. 60-1111. The trial court entered summary judgment in favor of the general contractor and the issuer of the bond on the basis that a K.S.A. 60-1111 public works bond afforded no protection to the suppliers herein. The suppliers appealed. The Court of Appeals reversed the trial court, holding that the suppliers were not so remote as to be precluded from protection under the statute (Wichita Sheet Metal Supply, Inc. v. Dahlstrom & Ferrell Constr. Co., 14 Kan.App.2d 111, 783 P.2d 353 [1989]. The matter is before us on petition for review.

The relevant facts may be summarized as follows.

In 1986 the City of Leavenworth entered into a contract with Dahlstrom & Ferrell Construction Company, Inc., (D & F) for the construction of a community center. D & F provided a public works bond as required by K.S.A. 60-1111. This bond was secured through United States Fidelity and Guaranty Company, Inc. (USF & G).

In 1987 D & F subcontracted with High Tech Construction, Inc., (HTC) for certain mechanical work on the project. HTC, in turn, subcontracted with ACI, Inc., for this same work. ACI ordered supplies from Wichita Sheet Metal Supply, Inc., (WSM) and Air Moving Equipment, Inc., (AME) which were allegedly delivered to and incorporated into the project.

In 1988, ACI filed a bankruptcy petition. WSM and AME had not been paid for the materials provided and, separately, filed actions seeking recovery under the public works bond in effect herein. Summary judgment was granted in each action in favor of D & F and USF & G. The cases were consolidated on appeal.

K.S.A. 60-1111(a) and (b) provide:

"(a) Except as provided in subsection (c), whenever any public official, under the laws of the state, enters into contract in any sum exceeding $10,000 with any person or persons for the purpose of making any public improvements, or constructing any public building or making repairs on the same, such officer shall take, from the party contracted with, a bond to the state of Kansas with good and sufficient sureties in a sum not less than the sum total in the contract, conditioned that such contractor or the subcontractor of such contractor shall pay all indebtedness incurred for labor furnished, materials, equipment or supplies, used or consumed in connection with or in or about the construction of such public building or in making such public improvements.

"(b) The bond required under subsection (a) shall be approved by and filed with the clerk of the district court of the county in which such public improvement is to be made. When such bond is filed, no lien shall attach under this article, and if when such bond is filed liens have already been filed, such liens shall be discharged. Any person to whom there is due any sum for labor or material furnished, as stated in the preceding section, or such person's assigns, may bring an action on such bond for the recovery of such indebtedness but no action shall be brought on such bond after six months from the completion of said public improvements or public buildings."

K.S.A. 60-1101 provides:

"Any person furnishing labor, equipment, material, or supplies used or consumed for the improvement of real property, under a contract with the owner or with the trustee, agent or spouse of the owner, shall have a lien upon the property for the labor, equipment, material or supplies furnished, and for the cost of transporting the same. The lien shall be preferred to all other liens or encumbrances which are subsequent to the commencement of the furnishing of such labor, equipment, material or supplies at the site of the property subject to the lien. When two or more such contracts are entered into applicable to the same improvement, the liens of all claimants shall be similarly preferred to the date of the earliest unsatisfied lien of any of them."

K.S.A.1989 Supp. 60-1103(a) provides:

"Any supplier, subcontractor or other person furnishing labor, equipment, material or supplies, used or consumed at the site of the property subject to the lien, under an agreement with the contractor, subcontractor or owner contractor may obtain a lien for the amount due in the same manner and to the same extent as the original contractor...."

The trial court held that under K.S.A. 60-1101 and K.S.A.1989 Supp. 60-1103(a) lien protection is afforded to those in privity with the owner, contractor, or subcontractor to the contractor. The trial court further held that only those having lien rights had protection under a K.S.A. 60-1111 public works bond. As neither WSM nor AME were within such classification, they had no claim under the public works bond. The trial court's judgment relies upon and is consistent with our holdings in J.W. Thompson Co. v. Welles Products Corp., 243 Kan. 503, 758 P.2d 738 (1988).

The Court of Appeals reversed the trial court. In so doing, it held:

1. Privity with the owner, contractor, or first-tier subcontractor is not required for protection under a public works bond. There is language in Arrowhead Constr. Co. v. Essex Corp., 233 Kan. 241, 662 P.2d 1195 (1983), supportive of this conclusion. The protection is not extended ad infinitum but only to those who are not too remote. A supplier to a second tier or sub-subcontractor is not too remote to be protected. What is "too remote" is not defined.

2. Summary judgment was inappropriate as a material fact remained in dispute.

Before proceeding to the main issue, it should, perhaps, be noted that D & F's bond limited liability thereto to those in privity with D & F or a subcontractor of D & F. It specifically stated that only those having mechanics' lien rights were protected by the bond. In its contract D & F stated that each subcontractor would be required to post a public works bond. This provision was not enforced as to HTC but that fact has no bearing on this litigation. The Court of Appeals correctly held:

"When a statute requires a bond to be given, the statutory terms and conditions will be read into the bond and conditions not required by statute will be stricken from the bond as surplusage. Stevens v. Farmers Elevator Mutual Ins. Co., 197 Kan. 74, 78, 415 P.2d 236 (1966)." 14 Kan.App.2d at 116, 783 P.2d 353.

If privity with the contractor or a subcontractor of the contractor is a requisite to protection under the public works bond statute, then the bond herein was in proper form. If the protection afforded is extended to a broader class by the statute, then such broader class cannot be denied protection by restrictive language in the bond. This result is consistent with what we said about similar provisions contained in the public works bond involved in Arrowhead Constr. Co. v. Essex Corp., 233 Kan. 241, 662 P.2d 1195. The language used in the bond is, accordingly, not controlling herein.

One further point needs to be made. The protection required by the statute controls over the language of the bond only where the bond contains language purporting to provide less than the statutorily mandated protection. If the bond provides greater protection than is required by the statute, then the language of the bond is controlling. Put another way, the statute sets forth the minimum protection required to be provided in a public works bond.

We turn now to the conflict between J.W. Thompson Co. v. Welles Products Corp., 243 Kan. 503, 758 P.2d 738 (relied on by the trial court), and Arrowhead Constr. Co. v. Essex Corp., 233 Kan. 241, 662 P.2d 1195 (relied on by the Court of Appeals).

In Thompson, Penta Construction Company, Inc., (Penta) had a contract with the City of Wichita to construct a large sewage treatment container called a "digester." Penta signed a purchase order...