Sherman v. Western Construction Co. , 14 Wash. 2d 252 ( 1942 )

¹ Reported in 127 P.2d 673. Plaintiffs instituted this action to recover a sum of money claimed to be due on a written contract. The case, tried to the court, resulted in the entry of judgment in favor of plaintiffs. Defendant has appealed.

The assignments of error relate to actions of the court in striking certain portions of appellant's defense and in the entry of findings of fact, conclusions of law, and judgment in favor of respondents.

The facts may be stated as follows: In November, 1937, appellant, as general contractor for the construction of a post office, agreed to pay Austin Plumbing Heating Co. (hereinafter referred to as Austin) sixty-three hundred dollars to install the plumbing, heating, and sewer systems. Their contract provided in part:

"Payment to be made as follows: [provision for payment periods]. It is, however, understood that before each payment is made satisfactory evidence must be shown that all bills for labor and material have been paid."

As consideration for the advancement of money and material to Austin by respondent Sherman, the former assigned, February 8, 1938, to respondent bank, as security, money due and to become due under its subcontract with appellant. February 11, 1938, Sherman guaranteed to appellant the payment of all bills for labor and material incurred by Austin. In consideration for this guaranty, appellant executed March 23, 1938, its "consent, approval and acceptance" of the assignment, promising to pay respondent bank the money due Austin as well as waiving the condition precedent herein set forth with reference to payments expressed in the Austin subcontract. At the present time, appellant still owes the sum of $1,159.50 on this subcontract.

After performing the installation work, Austin had an indebtedness of twenty-five hundred dollars for materials used. Being the general contractor, payment was demanded of appellant, who, in turn, looked to Sherman's guaranty contract.

In conformance with the Heard act (40 U.S.C.A. § 270a), appellant, as contractor for a public building, executed its bond. To recover thereon, however, laborers and materialmen must comply with certain conditions precedent. 40 U.S.C.A. § 270b. Because the creditors of Austin failed to establish their claims, the bond was never subjected to liability. Moreover, the contractor, under the act, is not liable for the obligations incurred by the subcontractors.

On Sherman's refusal to discharge Austin's obligations, appellant instituted action November 29, 1938, to recover on the guaranty contract the amount of the creditors' claims. On appeal, this court, in Western Const. Co. v. Austin, 3 Wn.2d 58,99 P.2d 932, denied recovery, holding:

"There was no proof whatsoever that respondent [appellant here] had incurred any individual liability to Austin's creditors. Nor was there proof of any steps taken by Austin's creditors to establish liability against respondent's bond furnished pursuant to Title 40, U.S.C.A., § 270. In other words, respondent failed to prove that either it or its bond was in any legal sense liable for Austin's obligations."

for the reason that:

"The amount of the guarantor's liability is to be determined by the contract of guaranty. And that is to be construed in accordance with general rules of construction. 28 C.J. 963. In final analysis, that simply means that the measure of damages is the loss sustained by the guarantee by reason of the guarantor's breach. 28 C.J. 963; Rawleigh Co. v. Lanaeland.145 Wn. 525, 261 P. 93. Upon guaranties of this character — to pay all bills for labor and material — it is generally held that the guarantee can recover only on such obligations as he, his property or (in case of a public contract) his own bond is legally liable. Rust v. United States Fidelity Guaranty Co.,87 Wn. 93, 151 P. 248; Karr v. Peter, 60 Ill. App. 209. Nor can the guarantee fasten liability on the guarantor by making voluntary payments to creditors of the contractor [Citing cases]."

Respondents, thereafter, initiated this action to recover the sum of $1,159.50, representing the balance due on Austin's assignment to the bank. Appellant's main contention is that all the agreements between the various parties should be construed as one instrument; that, on Sherman's refusal to discharge Austin's indebtedness, he breached his guaranty contract with appellant; and that, as a result of this breach, Sherman and his privy, the bank, are now precluded from recovering from appellant.

[1] The answer to this contention is found in Western Const.Co. v. Austin, supra. Because the creditors of Austin failed to establish their claims in compliance with 40 U.S.C.A. § 270b, and because appellant failed to prove that either it or its bond was liable for Austin's obligations, we held that Sherman, as guarantor, was under no contractual duty to discharge them. Regardless, then, of whether or not the bank is a privy, appellant is barred from employing Sherman's alleged breach as a defense. We conclude, therefore, that this action is governed by the Western Const. Co. decision.

Since appellant's other assignment of error, that the court erred in striking certain portions of its answer and amended answer, is based on the preceding contention, we find it, likewise, to be without merit.

The court did not commit error, and the judgment is therefore affirmed.

ROBINSON, C.J., MAIN, MILLARD, STEINERT, JEFFERS, and DRIVER, JJ., concur.