Moliter v. Peoples' Building Loan Association

Haht, J., (after stating tbe facts). Tbe by-laws of tbe People’s Building & Loan Association! incorporated in our statement of facts were in existence at the time tbe contract in this case was executed, and became a part of tbe contract. Therefore they must be read in tbe light of each other.in construing the contract. It is tbe contention of counsel for tbe defendants that, when tbe by-laws are read .into tbe contract, tbe two in effect provide that tbe sole object of the execution of tbe bond was to protect tbe association against the liens of laborers and materialmen in tbe construction of tbe buildings to be erected upon tbe lots in question. In making this contention they referred to that part of § 12 which reads as follows: “Before, however, paying any part of such loan, the contractors or borrower must be required to give a bond to indemnify tbe association against liens of mechanics and materialmen.” “Such loan” means tbe loan made to tbe borrower for tbe purpose of erecting' buildings on the lots described in the application. "When tlie clause of the by-laws just quoted is read in connection witb tlie conditions of tbe bond, it will be noted that tbe terms of tbe bond are broader than warranted by tbe by-laws. In other words, tbe by-laws only provide for tbe execution of a bond to indemnify tbe association against tbe liens of mechanics and materialmen. The terms of the bond go further and provide that the borrower shall expend the whole of the $10,000 in making the specified improvements on the lots and thereby cause the property to be increased in value to the extent of $10,000. It then provides that the signers of the bond shall pay or cause to be paid all amounts due for labor or materials used in the erection of the buildings. The parties were capable of contracting between themselves, and there is nothing in the by-laws to prevent said building and loan association from requiring a bond that the borrower shall expend the amount borrowed in making the proposed improvements on the property, in addition to paying all amounts due for labor and materials used in the erection of the buildings. If the sureties only wished to become liable for the amount of laborers’ and materialmen’s liens on the proposed buildings, .-they should have signed a bond which restricted them to liability to that extent. Having signed a bond conditioned that the borrower should expend the amount borrowed in making certain improvements, they are liable for any default by their principal in failing to carry out the conditions of the bond. It cannot be said that, because the by-laws only provided for the execution of a bond for the payment of labor performed and materials used in the erection of the buildings, this is an implied prohibition against executing a bond, not only for that purpose, but containing the additional covenant that the borrower should expend all of the $10,000 in making the improvements. It is true that the building and loan association was not required to take a bond having this additional covenant, but it was not ultra vires for it to do so. Therefore, having written into the bond a covenant that the principals should expend the sum of $10,000 in making the improvements, the sureties are liable for default therein. It is next contended that the plaintiff is estopped from making this contention because it allowed a period of more than one year to elapse without saying anything to the sureties about the alleged default. This did not make any difference. In order that mere silence may operate as an estoppel in equity, it is necessary that one should maintain silence when in conscience he ought to speak. In short, it is only when the party is under a duty to speak that mere silence will operate as an estoppel. Pettit-Galloway Co. v. Womack, 167 Ark. 356. To illustrate: 'Suppose the building and loan association had approved a contract for the erection of the buildings as 'contemplated in the application for the loan, and its building committee had approved the plans and specifications, it could not then have urged that the whole of the amount borrowed had not been expended in making the improvements. Again, if it had exercised a general supervision in the course of the erection lof the proposed buildings, it could not wait until they had been completed and then complain that inferior or faulty materials had been used in the construction of the buildings. It follows that the decree must be affirmed.