Southern Surety Co. v. Hudson

The opinion of the court was delivered by Mason, J.: The board of education of the city of Arkansas City entered into a contract with E. L. Hudson for the building of a schoolhouse, which required the contractor to give two bonds, one for its faithful performance, and the other for indemnity against mechanics’ liens, “as required by the laws of the state of Kansas.” Several lien statements were filed. The surety company procured assignments of the rights of the claimants, and brought an action to foreclose- the liens, based upon a contention that the conduct of the board had released it [776] from liability upon the bonds, thus making the situation practically the same as though no bond had been given. A motion of the board for judgment in its behalf upon the pleadings was sustained, and the plaintiff appeals. A copy of the contract is set out in the answer, which must be regarded as accurate, since its correctness was not denied under oath. It shows that the clause upon which the plaintiff chiefly relies reads as follows: “It is further agreed by the party of the first part [the contractor], that a sum of money equal to ten per cent be reserved and shall be held by the party of the second part [the board of education] as part security for the faithful performance of work and may be applied under the direction of the superintendent in liquidation of any damages under this contract.” The bond against liens was approved and filed by the clerk of the district court, and was in the form provided by statute, (Civ. Code, § 660), running to the state for the benefit of persons in whose favor liens might accrue, the condition being expressed in these words: “The conditions of this obligation is that R. L. Hudson will make payment of all claims arising from the furnishing of labor or material for the purpose hereinbefore recited, which might be the basis of lien under the provisions of the laws of the State of Kansas.” The bond for the faithful performance of the contract contained this language, the italics showing the portions particularly relied upon by the plaintiif : “Provided, however, that this bond is issued subject to the following conditions and provisions: “First. That no liability shall attach to the surety hereunder unless, in the event of any default on the part of the principal in the performance of any of the terms, covenants or conditions of the said contract, the obligee shall promptly, upon knowledge thereof, and in any event not later than thirty days after the occurrence of such default, deliver to the surety at its office in the City of Muskogee, Oklahoma, written notice thereof with a statement of the principal facts showing such default and the date thereof; nor unless the said obligee shall deliver written notice to the .surety at its office aforesaid, and the consent of the surety thereto obtained, before making to the principal the final payment provided for under the contract herein referred to. “Second. That in case of such default on the part of the principal, the surety shall have the right, if it so desire, to assume and complete or ;procure the completion of said contract; and in case of such default, the ■surety shall be subrogated and entitled to all the rights and properties■ •of the principal arising out of said contract and otherwise, including all [777] securities and indemnities theretofore received by the obligee and all deferred payments, retained percentages and credits, due to the principal ■at the time of such default or to become due thereafter by the terms and dates of the contract.” The petition and reply allege in substance that the board was estopped from insisting upon the surety’s liability on the bonds, because it failed to retain ten per cent of the contract price, but paid it to the contractor at the time of the completion of the building, making it impossible for the surety to protect itself against any claim that might be made the basis of a lien. The plaintiff’s contention is that the contract and the two bonds are to be interpreted as' parts of one entire agreement, and that the violation by the board of a provision of the bond for faithful performance of the contract precludes its enforcing the other bond against the surety. It is at least doubtful whether sufficient facts are pleaded to show that any loss to the surety resulted from a premature settlement with the contractor — a condition necessary to a defense to the bond based on that ground. (School District v. McCurley, 92 Kan. 53, 142 Pac. 1077; Y. M. C. A. v. Ritter, 92 Kan. 467, 140 Pac. 892.) But that question need not be determined, for the case is controlled by another consideration. The requirement regarding notice to the surety before the making of the final payment, and that relating to the subrogation of the surety to "the rights of the board, were made conditions of the surety’s liability upon the bond for faithful performance of the contract, but the bond for indemnity against mechanics’ liens was ■complete in itself and contained no such limitation. The present action, so far as the board of education is concerned, is purely one for the enforcement of mechanics’ liens against the schoolhouse. Such a lien can exist only by virtue of the act of the legislature, under the conditions there laid down. And the statute in so many words provides that where the contractor gives such a bond against liens as that here given, and it is approved and filed, no lien shall attach. (Civ. Code, § 660.) While the obligation to furnish the bond was assumed by the contractor as a part of his contract, its effect is determined by the statute, with which it complied in all respects. It gave protection to third persons, and when it had once been ■executed, approved and filed, it was not subject to nullification [778] by reason of the relations of the builder and contractor. The statute says that where such a bond is given there shall be no lien. The bond was given and all basis for a lien was thereby removed. The laborers and material men had no claim against the building and their assignment could transfer none to the plaintiff. The appellant suggests that at all events the court committed reversible .error in failing to render a personal judgment, as prayed in the petition, against the contractor. The ruling complained of is the sustaining of the motion of the board of education for judgment in its favor dismissing the suit. This ruling and the ensuing judgment are to be interpreted as defining the rights of the plaintiff with respect only to the board, and not as affecting its action regardéd as a personal one against the contractor. The judgment is affirmed.