County of Audrain Ex Rel. First National Bank of Mexico v. Walker

This is a suit brought against a performance bond given by one James C. Walker, an individual doing business as Acme Contracting Company, as principal, and the Fidelity and Casualty Company of New York, a corporation, as surety, for the faithful performance of a building contract made by Walker with the board of trustees for Audrain County, Missouri, for the erection of a Nurses' Home at Mexico, Missouri. Judgment of the trial court was against Walker and his surety, but only the surety appealed here. The action is brought at the relation of the First National Bank of Mexico, and by it the bank seeks in its own right, and not as an assignee or subrogee, to recover on such bond. For purposes of designation and identification the respective parties will be referred to in the following manner: James C. Walker, doing business as Acme Contracting Company, as Walker; the board of trustees of Audrain County, as board; the Fidelity and Casualty Company of New York, as surety; First National Bank of Mexico, as the bank; and the building contract will be called contract. A jury was legally waived by all of the parties to the trial and verdict and judgment was rendered by the trial court in favor of the bank for the sum of the penalty of the bond, to be satisfied upon the payment of the principal sum of $3094.46, together with interest thereon at the rate of six per cent per annum from the 27th day of August, 1937, to the date of the rendition of the judgment, and amounting at the time of such rendition to $285.70, which made the total sum of the judgment amount to $3380.16. The defendant surety company had filed a counterclaim along with other defenses and the court denied recovery on such counterclaim. The answer of Walker was a general denial but did not rise to the status of a legal denial of the execution of the building contract or bond by him.

The petition filed by the plaintiff set up the incorporation of the bank and the surety company, alleged the style under which Walker was doing business, and that on the 5th day of December, 1935, Walker made a contract with the Board for the erection of a Nurses' Home in the City of Mexico, Missouri, with the surety company and Walker giving a bond for the performance of such contract; that by the terms of such bond the obligors thereof bound themselves "to pay to the proper parties as soon as the work contemplated by the contract had been completed, all amounts due for material, lubricants, oil, gasoline, grain, hay, feed, coal and coke, repairs on machinery, groceries and foodstuffs, equipment and tools, consumed or used in connection with the construction of such work, and for all labor performed in such work, whether by sub-contractor or otherwise, and to faithfully perform all and singular the terms and stipulations of said contract. Plaintiff further states that the work contemplated by said contract, has prior to the filing of this petition, been completed."

The petition further alleged that before Walker began a performance of his contract, that he entered into an arrangement or agreement with the bank to the effect that Walker not being himself able to finance the payments for labor and materials used from time to time in the construction of the building, the bank would supply Walker with such funds; that pursuant to this arrangement the bank had advanced certain sums in various amounts and on different dates, and that the specific amount of $3094.46 was composed of funds supplied Walker by the bank between June 19, 1936, and August 7, 1936, and

"Plaintiff further states that all of the said sum of $3094.46 so furnished to Walker as aforesaid, was used by the said Walker for the payment of materials and labor used in and on the Nurses' Home in Mexico, Missouri.

"Plaintiff further states that by reason of the foregoing breach of the terms and conditions of the bond aforesaid, by the said Walker, the said bank has been damaged in the principal sum of three thousand ninety-four and 46/100 dollars ($3,094.46) and the defendants have become liable to the said bank for said amount."

Judgment was prayed for the penal sum of the bond to be satisfied upon the payment of the amount of damages with interest thereon from the first day of September, 1936, and costs. In addition to the counterclaim of the surety company referred to above, the answer of this company consisted of several pleas, among which was the usual general denial, but not the execution of the bond; also that the Statutes of Missouri in conformity to which said bond was alleged to have been given, prescribed and designated the persons entitled to sue on such bond and that the bank was not such a designated person and was not one furnishing any of the items prescribed or referred to in the Statutes. The other matters pleaded in the answer of the surety company beyond the admission of the execution of the bond sued upon, are not important to this opinion. At the trial of the cause it was shown by stipulation entered into by the surety company and the bank, by exhibits and witnesses, that in December of 1935, the County of Audrain in its regular capacity as such, desiring to erect a nurses' home for such county, entered into a contract with Walker for the erection of the building for that purpose. The local representative of the surety company in that county, with Walker, executed the bond herein sued upon on the 5th day of December, 1935, which was the same date of the contract for the erection of said home. The condition and terms of such bond will be referred to later herein. Sometime the latter part of January, 1936, such local representative of the surety company approached the president of the bank about furnishing funds to Walker with which to carry out his contract with the county and later such representative came back with Walker and several members of the board when the details of borrowing money for Walker were gone into and arrangements were made whereby the bank furnished funds as above stated; and on the 12th day of February, 1936, Walker executed a power of attorney to the bank, containing certain provisions, none of which are controlling in this opinion. It seems to be agreed by all of the parties, if Walker can be said to have agreed to anything in the trial, that the amount sought here to be recovered was actually advanced by the bank to Walker and was used by him in a legitimate manner for the payment of items that went into said home and toward performance of Walker's contract. The trial court so found, and also found that the bond given here, "was required by, in pursuance of, executed under and complied with Section 2890, Session Acts of 1933, page 179, and Section 2891, R.S. Missouri, 1929." These sections are now Sections 3277 and 3278, Revised Statutes 1939. The trial court also found that the home had been completed, and it was shown that the surety company had paid for some items for which it filed a counterclaim against the plaintiff. We do not deem either these items or the counterclaim important or controlling. In its conclusions of law, the trial court declared the capacity of the bank to maintain the action in the form it was brought; that failure to pay the bank "the balance due said bank . . . constitutes a breach of the terms and conditions of the surety bond, and that the bank was entitled to recover from such surety its damages by reason of such breach." There were other conclusions of law as well as findings of fact made by the trial court which are not herein embodied.

(1) At the outset of this case, this court finds itself confronted with the situation that neither in pleadings, proof, or finding of the trial court is it shown that there was a failure of performance of Walker's contract, upon which the bank herein seeks its recovery upon a bond given to secure such performance. The contract was the primary obligation and the bond was the secondary one. The bond was "conditioned that in the event said James C. Walker . . . shall faithfully and properly perform the foregoing contract according to all the terms thereof, . . ." In order for liability to accrue upon the bond it was absolutely necessary to a legal right of recovery, in the form of the present action, that a failure to perform the contract be shown. The bond was given for the purpose of, and was to become liable only in the event Walker did not perform his contract himself, and upon performance by Walker it necessarily results that nothing was to be recovered or can be recovered upon the bond anymore than a criminal bond could be sued upon where the defendant appears in court. Plaintiff's petition does not allege non-payment for any of the items that the bond guaranteed payment for and which would, in law, constitute non-performance under Walker's contract and render the bond liable for payment therefor. When analyzed, the petition pleads, the evidence shows, and the trial court found, there was a performance of the contract by Walker by payments for the items covered by the bond and that the bank furnished the money or funds for such payment and performance, and that by reason thereof the bank should be reimbursed for having furnished funds with which performance was had and payments for items going into the building were made. This brings the bank to the place where it pleads and shows that it was the means of causing the performance of Walker's contract to pay for items used by Walker in the building, for which the bond would become liable if there had been non-payment. It is not fulfillment of Walker's contract that breaches his contract and rendered the bond liable, even though the bank was the cause of such fulfillment; it was non-fulfillment and non-performance, which meant no payment by Walker for specified items, that breached or broke the contract and rendered liability on the bond. There was no allegation in the petition nor evidence in the proof, that the items required to be paid for were not paid for; but the bank pleads they were paid for, that it furnished the money for such payment and should thereby be reimbursed. The source of the funds with which performance of the contract was made neither creates nor destroys liability on the bond. The contract was performed just the same. In such situation, if reimbursement to the bank is to be made, it must be from some source other than the bond given only to protect fulfillment or performance of a contract not pleaded or shown to have been broken, but on the contrary both pleaded and shown to have been performed with funds furnished by the bank. The bond was liable only when there was a breach of the contract and it had to step into and close such breach, but until there was a breach, the bond, as surety, could not and did not become liable. It was in the nature of a collateral promise or undertaking, of what might be termed, to answer for the debt, default, or miscarriage of Walker who, being the purchaser of labor and materials for the erection of the building, was in the first instance liable for the payment of all such items and for the performance of his own contract of such purchase. It was a promise, in effect, by the bond, that if Walker did not pay, the bond would and being so, non-payment by Walker had to be pleaded and proven, because Walker had the first chance or first right to pay and it was only when Walker did not pay that the bond had to pay. The petition in referring to the only breach to which it makes reference says "that by reason of the aforesaid breach of the terms and conditions of the bond aforesaid," certain results were obtained. There is no allegation in the petition of the breach of the contract. The bond alone could not be breached. The contract had also to be breached and the contract, as shown by this record, did not require Walker to pay the bank anything. The bond could not be and was not liable for anything for which the building contract did not require payment to be made. Payment to a person furnishing money, regardless of the purpose for which such money was used, was not a requirement of performance of such contract. Two cases and the Statute are cited and relied upon by respondent herein for the support of the judgment rendered in its behalf. The first of these is Camdenton Consol. School Dist. No. 6 of Camden County ex rel. W.H. Powell Lumber Co. v. New York Casualty Company, 340 Mo. 1070, 104 S.W.2d 319; and the other is School District No. 18 of Caruthersville v. McClure et al., 224 S.W. 831. Counsel in their brief refer to these as the Powell and McClure cases respectively and they will be herein so indicated. In the Powell case it is shown that there was a breach of the building contract by the statement that:

"The contractor failed to pay the lumber company's account for materials in full, whereupon this action was brought on the contractor's bond in the name of the School District, at the relation of the Lumber Company, for the balance alleged to be unpaid and owing to the lumber company on the account."

In the McClure case a breach of the builders' contract was shown in this manner:

"The petition herein recites the conditions of the contract and bond, and charges breaches of said contract by McClure, and breaches of said bond by both defendants. It avers that plaintiff was compelled to take over and finish the building owing to McClure's failure to fully construct and finish same, as per the terms of said contract. . . ."

Without limiting ourselves to these cases, it will be found that in all instances in the State of Missouri where an action has been brought upon a bond of a building contractor, it has been both pleaded and proven that there was a failure of performance of the contract to build and that by reason of such failure the bond became liable to perform that which the contractor had not originally performed.

(2) It is conceded by all of the parties to this appeal and it was found by the trial court that the bond in this action was given to conform to what are now Sections 3277 and 3278, Revised Statutes 1939, formerly Section 2890, Revised Statutes 1929, as re-enacted by Laws 1933, page 179, and Section 2891, Revised Statutes 1929. Appellant contends, among other things, that the petition fails to state a cause of action, that the bank was not a proper party to maintain an action on a contractor's statutory performance bond, and that the recovery of money loaned by a bank to a contractor was not within the protection of a contractor's performance bond; and as a result of these contentions the appellant urges that its demurrers offered at the close of plaintiff's case and renewed again at the close of the whole case, should have been sustained. It is not contended that the bank furnished any of the specified items set forth in either the bond or the statute. Its only contention is that it furnished the money with which to pay for certain of such items. The building contract and the bond for the performance of the same both being made and entered into within the State of Missouri, were Missouri contracts and obligations and accordingly were governed by Missouri laws and rules of construction. Both the contract and the bond were to be construed by the ordinary rules of construction, that is, from all four corners.

"Such contracts of suretyship are to be construed as ordinary contracts, and under the rules applicable to ordinary contracts. The intention of the parties is the vital issue. [State v. Chicago Bonding Surety Co., 215 S.W. 25; Lackland v. Renshaw,256 Mo. 140, 150, 151, 165 S.W. 315.]

"This intention is to be gathered from the four corners of the instrument as you would gather the intentions of the parties in other contracts. In other words, we use the ordinary rule of construction to determine the meaning of the contract and the breaches thereof. [5 Cyc. 753.]

"Appellants speak of extending the obligation of the bond by mere implication. The rule is to get the intent of the parties under the usual rules of construction, and this rule we shall apply in the construction of this bond." [School Dist. No. 18 of Caruthersville v. McClure, 224 S.W. 831, 833.]

Applying these rules of construction to the bond in the present case it would seem that it is amply clear that a person or bank furnishing money or funds to a building contractor with which for him to perform, or with which he actually does perform such building contract is not within the contemplation of the Legislature as shown by the statutory provisions, and, consequently, was not within the contemplations of the parties to this action, as shown by the bond which contained the statutory wording and followed the language of such statute. Outside of and beyond what appears to be a misprint or clerical error in the bond where the word "food" appears following the word "hay" and where it seems intended that the word "food" should have been "feed," the words of the bond follow the exact wording of the statute. In the statute it seems clear that the Legislature made room for other provisions to have been made and contained within a bond given in conformity with the terms of Section 3277, Revised Statutes 1939, and yet to have conformed to the provisions of such section. This is said because this section of the statute contains the provision ". . . and such bond, among other conditions, shall be conditioned . . ." This is broad enough to show that had the parties in the present case provided after the specification of the items or articles set forth in the statute that the bond should provide for payment of or cover, persons furnishing funds or money for the payment of the aforesaid items, they still could have conformed to the statute. The bond here did not so provide. It did provide, as does the statute, with the apparent clerical error above noted, that it was "conditioned that in the event the said James C. Walker . . . shall faithfully and properly perform the foregoing contract according to all the terms thereof, and shall as soon as the work contemplated by said contract is completed, pay to the proper parties all amounts due for material, lubricants, oil, gasoline, grain, hay, food (feed), coal and coke, repairs or machinery, groceries and foodstuffs, equipment and tools, consumed or used in connection with the construction of such work, and all insurance premiums, both compensation, and all other kinds of insurance, on said work, and for all labor performed in such work whether by sub-contractor or otherwise."

To this was not added any provision by the parties that persons furnishing the money with which to pay for any or all of the above noted items should be likewise covered and protected by the bond as were the parties who did furnish such items or perform labor. When the parties themselves do not see fit to put something into their contracts or written agreements, all of them being parties of understanding and with contracting ability, then the court cannot and will not include within the terms of such written agreement that which the parties themselves nor the Legislature saw fit to include therein. It does not require construction or sophistry to see that in this instance the bare fact that the bank supplied Walker with funds with which to perform his contract, that such act on the part of the bank was not included in the provisions of the terms of the bond or of the statute in conformity with which such bond was given. On the premise that "birds of a feather flock together," or that a person is known by his associates, it seems perfectly clear that the Legislature and the parties to this bond had only in mind the protection, primarily at least, of the persons performing work or supplying the items and articles set forth in both the statute and the bond here. That this is undoubtedly the proper construction to be placed upon the language of the statute and the present bond seems illustrated further by the succeeding section 3278, Revised Statutes 1939, where, among other things, it is provided:

"Every person furnishing material or performing labor . . . for any contractor with the state, or any county, . . . where bonds shall be executed as provided in Section 3277, shall have the right to sue on such bond. . . ."

This section does not contain a provision to protect any one other than a person furnishing material or performing labor, and does not provide that a person furnishing money with which to pay for material or for the performance of labor shall have a right to sue upon the bond given in conformity with the preceding section. There is no showing in this case that Walker failed to pay for any items to any person to whom the statute gives a right of action on the bond, as it is not shown that any persons who furnished any of the items covered by either the bond or the statute were not paid. It is pleaded and proven that they were paid, but were so paid by the money furnished by the bank. The bank does not seek to here sue or pursue a remedy as a subrogee or an assignee of the right of any persons who might have been or were paid with its money, but it seeks to recover in its own right by reason of having furnished money or funds which were used by Walker in the performance of his building contract.

Appellant cites and relies upon numerous authorities, both inside and outside the State of Missouri, but this contract being a Missouri contract and our own courts having laid down the rules of construction for the same, we are bound by and have followed the rules of construction of the courts of our own State. Respondent, as heretofore indicated, relies upon what we may here refer to as the Powell and McClure cases. Neither of these cases are authority, in principle or in fact, in the case with which we are here dealing. The Powell case cites as an authority for certain language it uses, the McClure case, but in the Powell case, the action sought recovery as a materialman for materials which the Powell Lumber Company had furnished for the erection of the building and for which payment had not been made. There was a failure of performance of the contract by the contractor, Dawson, and in suing upon the bond given for the faithful performance of the contract, it was shown that in addition to using materials of the Powell Company, in the erection and construction of the building, that Dawson also borrowed money from the same company and used it for the payment of payroll accounts or items which went into the building, much in the same or similar manner as Walker did in the present case. The Powell Company in its bookkeeping kept a separate account of the money loaned and of the material furnished, and in one instance where Powell had made payment to it without designating or appropriating such payment to a certain account, such company credited the money loaned account with the payment made by Powell, and left the greater part of the material account unpaid. When it was sued upon its bonds the bonding company contended that the Powell Lumber Company did not have the right to apply the payment made by Dawson to the money loaned account so as to pay it in full, but that it should have credited the material account with such payment. In answering this contention our Supreme Court held that it was not tenable because "Appellant surety was liable for both labor and material accounts." This is unquestionably true under the wording of the bond given in the Powell case where the court said, on page 321 of 104 S.W.2d that the contractor was required to "furnish bond covering the faithful performance of the contract and the payment of all obligations arising thereunder." The language of the Supreme Court is that the "surety was liable for both labor and material accounts." This is far from saying that the surety is liable for money advanced or loaned for the payment of labor and material accounts, and the facts in the Powell case were that the party seeking recovery was included within the direct terms and provisions of the bond and the statute, because it was a materialman.

It is also true that Dawson owing more than one account to the Powell Company and making a payment to such company, by not specifying to which account it should be applied, the Powell Company had a right to appropriate such payment to either of the accounts. [Bradys Admr. v. Hill, 1 Mo. 315, 13 Am. Dec. 503; J.I. Case Threshing Mach. Co. v. Matthews, 188 Mo. App. 429, 436, 174 S.W. 198, 200; Short v. White et al., 234 Mo. App. 499,133 S.W.2d 1039.]

The McClure case relied upon by respondent and cited by the Supreme Court in the Powell case had a set of facts entirely different from those in the case before us, as well as different terms and provisions in the bond. As disclosed by the opinion of the Supreme Court the bond there provides that "``the principal and surety in this bond covenant and agree to repay the obligee all sums of money which the obligee may pay to other persons, in accordance with and under the terms of the contract plans and specifications, on account of work and labor done, or material furnished which the contractor may fail to do or to furnish.'"

The action there was brought by the direct obligee of the bond when McClure failed to perform his contract and in that action the school board, who was the obligee, sought to recover from the surety the sum of eight hundred ($800) dollars which it had paid to a bank on what amounted to McClure's legal order. The surety had covenanted and agreed in the bond "to repay the obligee all sums of money which the obligee may pay to other persons, in accordance with and under the terms of the contract plans and specifications, on account of work and labor done or material furnished which the contractor may fail to do or furnish."

McClure had failed and the direct obligee was seeking to have the surety repay to it that which the surety had expressly contracted to repay, and it seemed that the only necessary requisite for it to create a direct obligation under the bond, was for the obligee to show that such payment was made to other persons and was made in accordance with the terms and specifications of the contract for materials that went into the building.

Neither of the above cases control in this case, nor are the facts of them so similar as to make them analogous. No cases have been cited or found in Missouri where a set of facts exist that are similar or analogous to those in the present case; and while, undoubtedly, the transactions between Walker and the bank here, as disclosed by this record, created legal obligations, yet such obligations were not against the bond, which specifically provided in conformity with the provisions laid down by the Legislature, that it was to cover only certain items, and the items herein sought to be recovered were not specified therein.

(3) The plaintiff herein having failed to either plead or prove a violation or a failure to perform the building contract by Walker, the bond did not become liable without such showing and the bank not being a person or party contemplated or contained within the terms and provisions of the bond was not entitled to maintain this action or to recover herein. The demurrer of the appellant at the close of all the evidence should have been sustained and the judgment of the trial court as to the appellant is reversed outright. Hughes, P.J., not sitting; McCullen,J., presiding in the case, and Anderson, J., concur in separate opinions.