National Surety Co. v. Brown-Graves Co.

MOORMAN, C. J.

The Wade Chateau Co., for the purpose of erecting a building, issued bonds in the amount of $100,000 secured by a mortgage issued to the Guardian Bank as trustee for the bondholders. In the deed of trust there was a clause providing that the Wade Chateau Co. furnish a bond in amount of $50,000, to secure the bondholders from liability on any mechanics liens.

After the execution of the bond, the Brown-Graves Co. furnished material for the construction of the building. Subsequently the Chateau Co. became insolvent and the creditors asserted liens on the building which was sold subject to the mortgage bonds and the proceeds distributed among the creditors, leaving a balance due the Brown-Graves Co. of $13,252.35.

This action was brought by the said company to recover from the surety, the balance due it from the Wade Chateau Co. The District Court held in favor of the Brown-Graves Co. The Surety Co. prosecuted error and the Circuit Court of Appeals held:

1. This bond was executed at the instance and for the sole benefit of the bondholders and did not inure to the benefit of those furnishing labor and material.

2. The mere fact that the Brown-Graves Co. relied on this bond did not enlarge the obligation of the bond or the purpose for which it was executed.

3. Inasmuch as the Brown-Graves Co. was not a party to this bond or to the consideration inducing its execution, and as it was not made for the benefit of the creditors, the said company cannot recover thereunder.

Judgment reversed.