93 Kan. 539 | Kan. | 1914
The opinion of the court was delivered by
Joseph Bortenlanger contracted with the city of Stafford for the construction of a waterworks system and an electric light plant. Pursuant to the provision requiring him to give bond he furnished one executed by the plaintiff, which bond provided that if the principal should voluntarily abandon the contract the surety should have the right to assume the same and sublet or complete it, “and if said contract shall be assumed by the Surety, then as such contract is duly performed, any reserve, deferred payments and all other monies provided by said contract to be paid to the Principals, shall'be paid to the Surety, at the same times and under the same conditions as by the terms thereof, such monies would have been paid to the Principals had the contract, been duly performed by them.” This was executed January 30, 1911. The same principal and surety on the same date executed a bond to the state conditioned for the payment of all
“The bank was to give Bortenlanger credit for said $2000.00, and it was to be drawn out on the checks of said Bortenlanger for material and labor in the fulfillment of his contract with the city, to which check was to be attached the bill of such labor and material for which said check was issued, properly signed by the materialman or laborer so paid; that no part of said $2000.00 was to be drawn in any other manner, and none of it was in fact drawn or used by said Bortenlanger in any other manner than as agreed; that said agreement and said credit was given on the above terms and conditions prior to any of such money being drawn out of said bank; that the said money was loaned by the bank to Bortenlanger for the payment of labor and .material thereafter to go into the work.”
The company recovered and the city and the bank appeal, the sole point presented being the effect of the arrangement made with the bank.
It is manifest that under the contract already referred to the surety company, on completing the work after the contractor’s default, was entitled to step into his shoes and receive such payments from the city as otherwise he could have been entitled to. Also, that the bank was not the contractor’s creditor by virtue of an ordinary loan of money to him to use as he pleased, but because of having furnished $2000 to pay that amount of the" labor and material claims as they accrued in the progress of the work; and of course by paying them they were taken out of the category of possible demands, lienable or otherwise, to be considered in the final settlement. It is also clear that while this transaction was had by consent of the contractor, the bank and the city, the plaintiff surety company was not assenting thereto and does not appear to have had notice thereof, and yet under one of the contracts said by the trial court to have been on file with the city clerk the plaintiff, upon completing the work, was entitled to look to the city for all sums due or to become due on the contract. The plaintiff’s position is that
A brief review of the cases relied on by the plaintiff
“It had no interest at hazard which required it to pay this debt. . . . There was no obligation on account of which, or reason why, the complainant should have connected itself in any way with this transaction, or have paid this money, except the ordinary desire to make a profit in the purchase of bonds.” (p. 548.)
And it was held that subrogation is not for the stranger or volunteer, but for one who was already bound and could not but choose to abide the penalty. The case of Prairie State Bank v. United States, 164 U. S. 227, 17 Sup. Ct. Rep. 142, 41 L. Ed. 412, is a leading one. There the real points decided were that a claim against the government was not transferable, and that an order on the United States to repay the bank certain advancements, the surety having without
“The bank on the contrary, was a mere volunteer, who lent money to Sundberg on the faith of a presumed agreement and of supposed rights acquired thereunder.” (p. 232.)
And it was finally said (p. 240) that the contractors could not transfer to the bank any greater right in the funds than they themselves possessed, and that such rights were subordinate to those of the United States and the sureties. In the case of Henningsen v. U. S. Fidelity & Guaranty Co., 208 U. S. 404, 28 Sup. Ct. Rep. 389, 52 L. Ed. 547, a similar ruling was made touching a condition very much like the one last referred to. The surety on the bond of the contractor who had undertaken the construction of certain government buildings was held to have a claim to the sums due from the government superior to the claims of a bank under an assignment from the contractor to secure payment of money loaned to him. There the loan, however, was not confined to the payment of labor and material claims but was to be used as the
“As held by all the authorities, it is only in cases where the person advancing the money to pay the debt of a third party stands in the situation of a surety, or is compelled to pay it to protect his own rights, that a court of equity will substitute him in place of the creditor, as matter of course, without any agreement to that effect.” (p. 541.)
Labbee v. Bernard, 196 Mass. 551, 82 N. E. 688, 14 L. R. A. 457, holds that one of several sureties on a contractor’s bond who, upon default, finishes the work can not compel contribution without permitting his cosureties to share in the proceeds. In First Nat. Bank of Madison v. School District, 77 Neb. 570, 110 N. W. 349, it was held under a clause almost like the one in the bond under consideration that the surety completing the contract does not stand in the position of assignee in reference to money in the hands of the owner and other moneys due or to become due, but as an original party to the trilateral contract. There the contractor borrowed $2000 from a bank to pay for labor and material required in the erection of the school building, which was used for that purpose, giving his note therefor, and giving to the bank an assignment of sufficient funds to pay such note, authorizing their payment. These orders were presented to the district and certain payments thereon made. Afterwards the contractor gave another bank an- order on the surety company for certain money as indemnity against loss, and later still an order for the remaining amount due from the school district. The court said (p. 575) that at the time of the two assignments there
“These cases show that the equity of the surety who pays the debts arising under the contract will take precedence of any assignment of funds due from the government made by the contractor.” (p. 50.)
This case, however, must be determined by rules applicable to its own facts. The bank, in effect, paid and took over $2000 worth of labor and material claims, and the formality of giving Bortenlanger credit and
We have reached this conclusion after carefully considering the authorities referred to — being disposed to differ from those which might lead to a different result. The right of the plaintiff to step into the shoes of the contractor is fully recognized. Neither is it to be understood that he had authority to dispose of this right or to impair it by his assignment or order to the bank. But claims which the bank paid were not to be impaired or destroyed because of the surety’s relation to the work and to the fund provided by the city to pay therefor. Whoever furnishes labor or material must take his chances on the sufficiency of such fund or else be content to look to the contractor alone for payment. As to the city the bank took its chances, as the surety company took its chances with the contractor when it guaranteed his completion "of the contract. But as between the bank, the city and the surety, the natural promptings of fairness as well as the rules
Subrogation is said to be the substitution of another person in the place of a creditor to whose rights such person succeeds.
“The doctrine is one of equity and benevolence, and like contribution and other similar equitable rights was adopted from the civil law, and its basis is the doing of complete, essential, and perfect justice between all the parties without regard to form, and its object is the prevention of injustice.” (37 Cyc. 363.)
“But the right of subrogation or of equitable assignment is not founded upon contract alone, nor upon the absence of contract, but is founded upon the facts and circumstances of the particular case and upon principles of natural justice; and generally, where it is equitable that a person furnishing money to pay a debt should be substituted for the creditor or in the place of the creditor, such person will be so substituted.” (Crippen v. Chappel, 35 Kan. 495, 499, 11 Pac. 453.)
(See, also, Safe Deposit Co. v. Thomas, 59 Kan. 470, 53 Pac. 472.)
The case is remanded with directions to modify the judgment in accordance herewith.