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

• Decision Date: 08 December 1989
• Docket Number: Nos. 63073,63389,s. 63073
• Parties: WICHITA SHEET METAL SUPPLY, INC., Appellant, v. DAHLSTROM AND FERRELL CONSTRUCTION CO., INC., and the United States Fidelity & Guaranty Company, Appellees. and AIR MOVING EQUIPMENT, INC., Appellant, v. The UNITED STATES FIDELITY & GUARANTY COMPANY, Appellee.
• Court: Kansas Court of Appeals

Page 353

783 P.2d 353

14 Kan.App.2d 111

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

States Fidelity & Guaranty Company, Appellees.

and

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

Nos. 63073, 63389.

Court of Appeals of Kansas.

Dec. 8, 1989.

Review Granted Jan. 26, 1990.

Syllabus by the Court

1. In general, it is appropriate to analogize rules applicable to mechanics' liens to contractor's public works bonds. J.W. Thompson Co. v. Welles Products Corp., 243 Kan. 503, 758 P.2d 738 (1988).

2. Contractor's bonds for public works projects filed pursuant to K.S.A. 60-1111 are substitutes for mechanics' liens and are for the use of all persons in whose favor liens might accrue. J.W. Thompson Co. v. Welles Products Corp., 243 Kan. 503, 758 P.2d 738 (1988).

3. Contractor's bonds filed pursuant to K.S.A. 60-1111 apply to all indebtedness incurred in making public improvements and do not require privity of contract with the general contractor posting the bond. Arrowhead Constr. Co. v. Essex Corp., 233 Kan. 241, 662 P.2d 1195 (1983).

4. Remote suppliers are not afforded the protection of the K.S.A. 60-1111 bond. J.W. Thompson Co. v. Welles Products Corp., 243 Kan. 503, 758 P.2d 738 (1988).

5. The immediate supplier of a second-tier subcontractor is not so remote as to preclude the protections of a K.S.A. 60-1111 bond.

6. When a bond has been given as required by statute, the obligations imposed by statute must be read into the bond and conditions of the bond at variance with the statute will be ignored or treated as surplusage. Arrowhead Constr. Co. v. Essex Corp., 233 Kan. 241, 662 P.2d 1195 (1983).

William M. Kehr of Martin, Churchill, Overman, Hill & Cole, Chartered, Wichita, for appellant Wichita Sheet Metal Supply, Inc.

Edward Stephens, Leavenworth, for appellant Air Moving Equipment, Inc.

Bruce W. Beye of Polsinelli, White, Vardeman, & Shalton, P.C., Overland Park, for appellees.

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

Before ELLIOTT, P.J., and THEODORE B. ICE and PHILIP C. VIEUX, District Judges, Assigned.

PHILIP C. VIEUX, District Judge:

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 to ensure payment of indebtedness incurred in the construction of the building. 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.

As a result of ACI filing for bankruptcy protection in 1988, WSM and AME were not paid for the materials provided. WSM and AME separately filed actions against D & F and USF & G for payment. In both cases, D & F and USF & G filed motions for summary judgment. The motions were sustained by the trial court, which determined that, as a matter of law, supplies to "sub-subcontractors" were not covered by K.S.A. 60-1111 public works bonds. WSM and AME each timely appealed the orders, and the cases are now consolidated.

Summary judgment is proper when the record conclusively shows that "there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Danes v. St. David's Episcopal Church, 242 Kan. 822, 830, 752 P.2d 653 (1988); K.S.A. 60-256(c). " 'Where the facts presented in the motion are subject to conflicting interpretations or reasonable persons might differ as to their significance summary judgment is improper.' " Busch v. City of Augusta, 9 Kan.App.2d 119, 122, 674 P.2d 1054 (1983). "An appellate court should read the record in the light most favorable to the party against whom summary judgment was entered. It should take such party's allegations as true, and it should give him the benefit of the doubt when his assertions conflict with those of the movant." Busch v. City of Augusta, 9 Kan.App.2d 119, 674 P.2d 1054, Syl. p 3. "Factual inferences tending to show triable issues are to be considered in the light most favorable to the existence of those issues. If there is a reasonable doubt as to the existence of fact, a motion for summary judgment will be denied." Ruebke v. Globe Communications Corp., 241 Kan. 595, 602, 738 P.2d 1246 (1987).

The facts, as stated above, are not in dispute. The case turns on legal conclusions regarding the scope of liability on public works bonds.

The bond required by K.S.A. 60-1111 must be of sufficient sureties, "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." The filing of such a bond bars the attachment of any lien and discharges existing liens, its obvious purpose to preclude the seizing and selling of public property to satisfy liens for labor and materials. The statute specifically states that "[a]ny person to whom there is due any sum for labor or material furnished ... may bring an action on such bond for the recovery of such indebtedness." (Emphasis added.) K.S.A. 60-1111(b).

With no on-point Kansas precedent, the trial court accepted the defendants' argument that this statute, K.S.A. 60-1111, coupled with the mechanic's lien statute, K.S.A.1988 Supp. 60-1103, and related Kansas case law, precludes suppliers to sub-subcontractors from suing on the bond. We disagree.

The Kansas Supreme Court has stated that public works bonds filed pursuant to K.S.A. 60-1111 are substitutes for mechanics' liens, and, in general, it is appropriate to analogize rules applicable to mechanics' liens to contractors' bonds. J.W. Thompson Co. v. Welles Products Corp., 243 Kan. 503, 508-09, 758 P.2d 738 (1988). Moreover, contractors' bonds are for the use of all persons in whose favor liens might occur. 243 Kan. at 508, 758 P.2d 738.

K.S.A.1988 Supp. 60-1103(a), the mechanic's lien statute, 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." (Emphasis added.)

Defendants argue and the trial court agreed that, as to subcontractors, the language in K.S.A.1988 Supp. 60-1103(a) restricts coverage to only those agreements with first-tier subcontractors. The court apparently based its conclusion on the omission of the term "sub-subcontractor" in either statute, K.S.A.1988 Supp. 60-1103 or K.S.A. 60-1111, and on Gard's comments to 60-1103 in his Kansas Code of Civil Procedure 2d Annotated (1979). The trial court mischaracterized Gard's comments. Regarding 60-1103(a), Gard writes:

"[T]he right to a lien is expressly extended to protect persons furnishing labor, equipment, materials or supplies not only under an agreement with the contractor but also with 'a subcontractor of the contractor.' This is a rejection of the principle of Nixon v. Cydon Lodge, [56 Kan. 298, 43 Pac. 236], interpreting the former statute and holding that the lien provisions of the statute did not cover a subcontractor of a subcontractor. The extension under this subsection is not ad infinitem but protects only those dealing with a subcontractor of the one having the original contract."

Again, in his comment to 60-1111, the controlling statute in this case, Gard explains:

"Prior to the amendment of the former statute in 1931 it had been held in Indiana Limestone Co. v. Cuthbert, [126 Kan. 262, 267 Pac. 983], that limestone furnished to a subcontractor, and used in a building, was not the subject of a lien by the supplier. The 1931 amendment made the liability under the bond extend to the obligations of 'subcontractor or subcontractors of said contractor or contractors' and thus repealed the effect of the Indiana Limestone decision. So now suppliers of subcontractors are protected. This is consistent with the new policy of Section 60-1103 extending to subcontractors of subcontractors the right to file liens."

Kansas cases addressing scope of liability under public works bonds, while factually distinguishable from the present case, provide rationale consistent with allowing suppliers of sub-subcontractors to reach the bond. "The purpose of K.S.A. 60-1111 is to protect the contributions of those assisting in the construction of public improvements and public works and the bond given in compliance with the statute must be construed to accomplish the end which the legislature had in view." Cedar Vale Co-op Exch., Inc. v. Allen Utilities, Inc., 10 Kan.App.2d 129, 131, 694 P.2d 903, rev. denied 237 Kan. 886 (1985) (supplier of first-tier subcontractor may sue on a public works bond) (citing Leidigh & Havens Lumber Co. v. Bollinger, 193 Kan. 600, 602, 396 P.2d 320 [1964].

"A statutory public works bond has two characteristics which are important to a discussion of this issue. First, such a bond applies to 'all indebtedness' incurred in making public improvements. Thus, no privity with the general contractor is required. Second, such a bond, properly filed, acts to discharge all liens filed in connection with the construction." Arrowhead Constr. Co. v. Essex Corp., 233 Kan. 241, 246, 662 P.2d 1195 (1983) (contractor and surety estopped from excluding sub-subcontractor from...