York v. Cline Const. Co.

• Citation: 336 S.W.2d 34
• Parties: Bess YORK et al., Appellants, v. CLINE CONSTRUCTION COMPANY, Inc., et al., Appellees.
• Decision Date: 03 June 1960
• Court: United States State Supreme Court — District of Kentucky

Page 34

336 S.W.2d 34

Bess YORK et al., Appellants, v. CLINE CONSTRUCTION COMPANY, Inc., et al., Appellees.

Court of Appeals of Kentucky.

June 3, 1960.

O. T. Hinton, F. Dale Burke, Pikeville, for appellants.

Oldham Clarke, McElwain, Dinning, Clarke & Winstead, Louisville, Ky., Edward R. Hays, Baird & Hays, Pikesville, Ky., for appellee and cross-appellant, U. S. Fidelity & Guaranty Co.

CULLEN, Commissioner.

Bess York and Gypsy York Johnson loaned money to one Robert Johnson, a partner in the Cline Construction Company, which at the time was engaged in work on six highway construction projects under contracts with the Kentucky Department of Highways. Some of the money was used to pay for labor, materials and supplies on two projects on which the United States Fidelity and Guaranty Company was surety on the contractor's performance bonds. Among other things, the bonds were conditioned that the contractor 'shall promptly and fully pay each and every person supplying labor, materials, and supplies in the prosecution of the work.' The Cline Construction Company went bankrupt and was unable to meet its obligations under the contracts. Miss York and Mrs. Johnson thereupon brought this action against U. S. F. & G. to recover so much of the money loaned by them as had been applied in payment for labor, materials and supplies on the two projects on which U. S. F. & G. was the surety. Judgment was entered awarding recovery of $3,086.11. Miss York and Mrs. Juhnson have appealed, maintaining that they should have been awarded $11,166.25. U. S. F. & G. has cross-appealed, contending that there should be no recovery at all.

The appellants base their claim upon the doctrine of equitable subrogation. Since the application of this doctrine depends upon the facts of the particular case we shall state the facts of this case.

When the construction contracts were entered into with the Department of Highways the Cline Construction Company consisted only of Don Cline doing business as a sole trader. Subsequently Robert Johnson, son of Gypsy York Johnson and nephew of Bess York, went into partnership with Don Cline and the partnership undertook to carry out the six construction projects, two of which were bonded by U. S. F. & G. and others of which were bonded by the Maryland Casualty Company.

The partnership quickly ran into financial difficulties and over a period of several months Mrs. Johnson and Miss York advanced some $60,000. However, the particular claim in this case arises out of only two of the advancements, one for $12,000 and the other for $10,000. Each of these advancements was made in the following manner: Mrs. Johnson executed a note payable to Miss York and Robert Johnson; they endorsed the note and discounted it at the First National Bank of Pikeville; part of the proceeds were deposited in the account of the Cline Construction Company and part in the account of Robert Johnson; however, subsequently the part deposited in Johnson's account was transferred to the Cline Construction Company's account. Checks were drawn upon the latter account to pay for labor, materials and supplies on the various construction projects, and there was evidence that perhaps as much as $11,000 (out of the total advancements of $22,000) of these payments were attributable to the two projects on which U. S. F. & G. was surety.

Robert Johnson died before trial of the action so his testimony was not available. Mrs. Johnson and Miss York, in their testimony, indicated that their dealings with Robert Johnson were based upon affection and close family ties rather than upon the cold realities of the business world. When asked why she executed the $10,000 note Mrs. Johnson said: 'Robert was in this construction business, and he thought he could make money, and I gave him the opportunity.' As to the purpose of the $12,000 note she said: 'To be used for this construction work. * * * It was used on this work.' She did not know how many contracts Robert had. She never had any business transactions with Don Cline personally, and she didn't know just when her son became connected with Cline. However, she knew that Cline was associated with Robert when she executed the notes. Miss York, when asked as to the purpose of the $12,000 note, said: 'Well, it was for Robert in this construction business, and Don Cline. He wanted the money to work on.' She thought they had highway contracts. The money was 'for construction.' The purpose of the $10,000 note was 'for the same thing.' She knew the money from both notes was to be 'paid on the work * * * the road contracts.' The notes were given 'to help in the construction business.' She didn't know what or how many projects the Cline Construction Company was working on. 'He just told me he needed it for Cline Construction Company is all I know.' She knew that Robert bought a lot of expensive road equipment.

There were introduced in evidence two letters addressed to the First National Bank of Pikeville and signed in the name of the Cline Construction Company by Robert Johnson. The first referred to the $12,000 note and...