County of Audrain v. Walker , 236 Mo. App. 627 ( 1941 )

SEPARATE CONCURRING OPINION. I concur fully in the opinion this day filed by the Honorable WALDO C. MAYFIELD. However, because of the importance of the questions involved, I desire to record certain of my views in respect to the case, and, therefore, am filing this concurring opinion.

Appellant insists that the trial court erred in failing and refusing to give its declaration of law in the nature of a demurrer to the evidence at the close of the whole case. Respondent contends that the trial court properly refused said declaration, and bases its right to an affirmance of the judgment in its favor upon two decisions of our Supreme Court, namely, Camdenton Consolidated School Dist. No. 6 of Camden County ex rel. W.H. Powell Lumber Co. v. New York Casualty Co.,340 Mo. 1070, 104 S.W.2d 319, and School Dist. No. 18 of Caruthersville v. McClure (Mo.), 224 S.W. 831. Respondent says that the Supreme Court in these cases has definitely, clearly, and unequivocally held that money lent to a contractor, which money is expended in the purchase of materials and for the payment of labor consumed in the work under the construction contract, is an item protected by and is within the terms of a contractor's bond, like or similar to the one executed by the contractor in the case at bar.

In the first named case the Powell Lumber Company, a corporation, sold material to a contractor who had given a performance bond, which the court there held was in effect a bond under Section 2890, R.S. Mo. 1929, for the construction of a certain school building. The material so furnished was actually used in the construction of the building. The Powell Lumber Company had, in addition to furnishing this lumber, advanced to the principal contractor certain sums of cash to be used, and which were used by the contractor, in the payment of labor bills on the school building. The arrangement entered into between the lumber company and the principal contractor was one whereby the contractor was to repay to the lumber company the advancements made by it out of payments received by the contractor from the school district under the provisions of his contract with the district. Under such arrangement the contractor paid to the lumber company the sum of $5,148.60. The lumber company had advanced, in money, the sum of $5,042.08, for the payment of labor bills. The lumber company, with full knowledge of the fact that the payment it received, namely, $5,148.60, was money paid to it by the contractor out of money received by him from the school district, under his contract for the erection of the school building, applied said amount so received in payment of the cash advance account, and credited the remainder of $106.52 to the material account. The lumber company then sued the principal contractor and the surety on the performance bond for the balance due on its material account. The contention of the surety, on appeal from the judgment for the plaintiff in that case, was that the amount of cash advanced by Powell to the contractor was merely a loan, and created only an indebtedness of the contractor to the Powell Company, and that the lumber company, therefore, could not legally receive funds from the contractor, which the contractor had in turn received in payment for work done on the school building, and apply such money in extinguishment of this indebtedness, but that said Powell Company was legally and equitably bound to use the money so received, with knowledge of its source, to the extinguishment of the sum due on the material account. The surety argued, therefore, that the Powell Company had been in fact paid for the material furnished, and had no cause of action therefor against the surety on the performance bond. The Supreme Court, therefore, in order to hold in the Powell case that the lumber company was entitled to recover from the surety the amount due it for the materials furnished and used in the construction of the school building, necessarily had to hold as a prerequisite that the Powell Company had a right to apply the money paid to it by the contractor to the extinguishment of its cash account, which was made up, of course, of amounts advanced to the contractor by the lumber company. The Court denied the surety company's contention in the case, saying:

"We are inclined to the opinion that under the facts of this case it is, in effect, immaterial to which account the payment was credited, since it is shown, and the referee's finding is conclusive thereof, that the cash advanced (except that paid out for premium on bond) was used solely to pay for labor performed in the construction of this building and for no other purpose, and that all the material charged on the material account allowed by the referee was furnished for and used in this building and appellant surety was liable for both labor and material accounts. . . . Crane Co. v. Pacific Heat Power Co., 36 Wash. 95, 78 P. 460, is fairly illustrative of the cases cited and relied upon by appellant in support of its contention that it, as surety, was equitably entitled to have the whole of the payment made by its principal to the Powell Company credited upon the material account. The facts set out therein are such as clearly invoke the application of the equitable principle which appellant advances here but under the facts of the instant case, and in so far as the equities are concerned, the equity of the Powell Company in the funds paid to it out of the payment to the contractor on the contract was superior to that of the surety. [Hartford Accident Indemnity Co. v. Federal Construction Co., 168 Minn. 202,209 N.W. 911; New Amsterdam Casualty Co. v. Wurtz, 145 Minn. 438, 177 N.W. 664; Ganley v. City of Pipestone, 154 Minn. 193, 191 N.W. 738.]"

The respondent says in its brief that the Supreme Court, in the above case, could not possibly have reached the conclusion which it did reach without having first decided the very question involved in the case at bar, for if the Court had held that the Powell Company, as a lender of money to a contractor for his use in paying material and labor bills, was not entitled to recover from the surety on the bond, then the Supreme Court must have consequently held that plaintiff could not recover in the Powell case because it had in fact been paid for the material furnished.

I am unable to agree with respondent upon the interpretation and effect of the Powell decision, as developed in its brief and as presented at the oral argument. I do not believe that it rules this case, but to clearly demonstrate the difference between the two cases, a further analysis of the Powell decision is necessary.

The case merely held that a surety cannot, in the absence of a superior equity in his favor, insist upon the application by the principal and the creditor, or either of them, of the payments made by the principal out of funds derived from the construction contract, to the payment of claims covered by the bond. The court held that the surety in that case did not possess such superior equity.

The equity possessed by the surety in the Powell case was not the equity enforced in favor of the surety in the case of Prairie State National Bank v. United States, 164 U.S. 227, or by this court in Massachusetts Bonding Ins. Co. v. Ripley County Bank,208 Mo. App. 560, 237 S.W. 182, and in Lincoln County v. Du Pont de Nemours et al., 224 Mo. App. 1183, 32 S.W.2d 292. Those cases did not involve payments made to contractors, but reserved percentages retained under the construction contract, to secure the final performance of the obligation, and it was held in each case that the surety became subrogated to those funds retained. The cases have no application to money not reserved as a security but paid over to the contractor. The better view seems to be that it is for the public interest, in the absence of agreement to the contrary, to permit such funds to be freely applied in the commercial world as the contractor may see fit. Under this view, such funds are not trust funds to secure the surety, who after all is but a contingent creditor. [Third National Bank v. F. S. Co., 65 F.2d 548; Sturtevant Co. v. Fidelity Deposit Co.,92 Wash. 52, 158 P. 740; Kane v. Bank, 56 F.2d 534; Standard Oil Co. v. Day, 161 Minn. 281, 201 N.W. 410; Jefferson v. Church,41 Minn. 392, 43 N.W. 74; Grover v. Board, 102 N.J. Eq. 415,141 A. 81; Sampson v. Commonwealth, 208 Mass. 372, 94 N.E. 473; Radichel v. Federal Surety Co., 170 Minn. 92, 212 N.W. 171.] Under the foregoing cases, when the money was paid to Powell, it was free from any right of subrogation directly derived from the original contract of suretyship.

But the Powell opinion does speak of an equity in favor of the surety. Such equity does not have a contractual basis, as that involved in the Prairie State bank case, and could only be based upon the broad principle of justice, that where installments are paid under the construction contract to the contractor, the money should be used by him to pay only claims for which the surety is responsible, when both the contractor and the person receiving the funds know its source. If this is the nature of the right, then there is also force to the argument that under the broad general view, if the surety's obligations are in effect paid by the loan, the surety will not be heard to say that the money paid under the construction contract should have been applied to another obligation for which it was also liable. The principles of natural justice perhaps demand it, otherwise injustice would result. It would be inequitable to give the surety this double advantage and perhaps that was the basis of the ruling in the Powell case.

Whether this was the nature of the equity of the Powell Lumber Company, or whether its equity was a right of subrogation to the claims of laborers and materialmen, is not readily apparent from the opinion. But which ever view is adopted, I do not think the Powell case stands for the proposition that a money lender may recover on a bond such as involved in this case.

That opinion cites three cases from the Supreme Court of Minnesota, thereby adopting the Minnesota rule as announced in those decisions. To properly understand, therefore, the doctrine adopted by our Supreme Court it is necessary to examine the cases cited. It is from them that we find the basis of the rule announced, which is, of course, binding on this court.

One of the cases cited is New Amsterdam Cas. Co. v. Wurtz,145 Minn. 438, 177 N.W. 664. It is the leading case. In that case on July 17, 1917, one Wurtz entered into a contract with defendant school district for the construction of a school building. The contract price was $52,381, 85% of which was payable in instalments upon estimates to be made by the supervising architect during the progress of the work, and 15% of which was to be withheld until the building was completed and accepted. The building was completed and accepted on August 10, 1918. There was then due the contractor $7,970.75, the unpaid portion of the contract price.

Shortly after making the contract, Wurtz and the defendant bank agreed that the former should deposit in the bank all money he received from the school district, and that, if it was insufficient to enable him to carry on the work, the bank should make advances to him, crediting the amount thereof to his account and taking his notes therefor. It was agreed that the money credited to this account should be drawn out only to pay for labor and materials furnished for the construction of the school building. On February 7, 1918, Wurtz did not have sufficient money to carry on the work. Thereupon the bank credited his account with $5000 and took his notes for that amount, together with an order on the school district for the payment of the amount of the notes and interest. From the $5000 which the bank had advanced Wurtz, he paid the sum of $4500 to laborers and materialmen in accordance with the original agreement. Thereafter the school district paid to the bank $4,735.22. When the school building was completed, Wurtz owed large sums to laborers and materialmen, which he could not pay, and for which plaintiff was liable on its bond. The insurance company then brought this action against Wurtz, the school district, the bank, and the holders of claims for materials and labor, to compel the bank to refund to the school district said $4,735.22 or pay same to plaintiff for the payment of the claims of materialmen and laborers. The court gave judgment for the bank and upon appeal this action of the Court was affirmed. The opinion states:

"It is to be noted that the money advanced by the bank discharged the obligation of the contractor and his surety to the extent that it sufficed to pay the claims of laborers and materialmen. There is authority to the effect that the bank would have become subrogated to the rights of such claimants in the fund retained by the school district if it had taken an assignment of the claims paid with the money it advanced. [United States v. Rundle, 107 F. 227, 46 C.C.A. 251, 52 L.R.A. 505.] It must be conceded that the rights of such claimants in the fund were superior to plaintiff's rights. Although the bank took no assignments of the claims paid, its failure to do so does not alter the fact that in advancing its money to the contractor for the purpose stated it relieved plaintiff from its obligation to pay them. If plaintiff may now compel the bank to refund, it will be the gainer and the bank the loser in a double sense. If the bank must pay the amount advanced a second time, it will lose $4500 and interest, and with this money plaintiff will be able to satisfy unpaid claims for which it is responsible, and thereby be the gainer at the expense of the bank. A mere statement of the result that would follow if plaintiff's contention were sustained demonstrates its want of equity."

The Court distinguished the Prairie State Bank case and others on the ground that the banks there were mere volunteers and under no legal obligation to lend money to the contractor. But as to the bank in this case, the Court said:

"In the present case the bank was bound to finance the contractor. Its obligation to him was no less clear than plaintiff's obligation to laborers and materialmen.

. . . . . . "We think the distinction above noted may justly be drawn, and that one who has made an agreement with a contractor such as there was in the present case stands in a different position from one who voluntarily loans money to him."

There then follows the most interesting passage of the opinion, which gives the basis of the bank's rights. The court says:

"The equities are clearly with the bank, and equity is of the essence of the doctrine of subrogation. [Emmert v. Thompson,49 Minn. 386, 52 N.W. 31, 32 Am. St. Rep. 566; Northern Trust Co. v. Consolidated Elev. Co., 142 Minn. 132, 171 N.W. 265, 4 A.L.R. 510.]

"We hold that upon the facts here presented plaintiff's right of subrogation is not superior to the bank's right to retain the money, and that the learned trial court correctly decided the controversy in the bank's favor."

In Ganley v. City of Pipestone, 154 Minn. 193, 191 N.W. 738, cited in the Powell opinion, the same rule of law was applied, but in Hartford Accident Indemnity Co. v. Federal Construction Co., 168 Minn. 202, 209 N.W. 911, the bank was denied recovery, because under its agreement with the contractor the latter could use the money as it saw fit, and did use it in the general conduct of its business. In other words, for the rule of the Wurtz case to apply, the agreement must be that the money lent is to be used by the contractor exclusively for the payment of items lienable under the bond.

It will be observed that the three Minnesota cases were not suits on contractor's bonds, but involved money earned under the construction contract and paid under assignments to the bank or retained percentages in the hands of the obligee, and the court held that the equity of the bank under such circumstances was superior to the equity of the surety company. The Minnesota courts have never held that a bank that lends money under an arrangement such as shown by the Wurtz case has an action on a contractor's bond, but on the contrary, in subsequent cases has expressly held that the doctrine of the Wurtz case cannot be applied so as to give a bank lending money such an action. Thus, in First National Bank of Chisholm v. O'Neil, 223 N.W. 298, the plaintiff bank had agreed to, and did advance the money needed to enable the contractor to perform the contract, and the latter executed notes for such advances, and assigned to plaintiff all moneys earned or to be earned under the contract. Pursuant to the agreement, the contractor turned over to and deposited with plaintiff all moneys received from the State, and made all payments for labor and materials by checks drawn on the plaintiff, each check specifying the item in payment of which it was issued. It was agreed between the bank and the contractor that the bank should be subrogated to all rights and remedies of the payees of the checks. Neither the defendant surety nor the payee of the checks had any notice or knowledge of this agreement between the bank and the contractor. At the completion of the contract, plaintiff had advanced the sum of $28,892.81 over and above the amount received from the State, but there was a balance of $11,442.68 still due from the State and the bank brought suit for both said amounts. The trial court held that it was entitled to recover and as against the surety it was entitled to the amount due from the State, but held that the surety was not liable for the money advanced by the bank to the contractor. On appeal the question was whether the surety was liable for those advances. The court held that the surety was not liable, and in distinguishing the case from the Wurtz case, said:

"The cases of New Amsterdam Casualty Co. v. Wurtz,145 Minn. 438, 177 N.W. 664; Ganley v. City of Pipestone, 154 Minn. 193, 191 N.W. 738, and Standard Oil Co. v. Remer, 167 Minn. 352,209 N.W. 315, cited by plaintiff, are not in point. In those cases the contractor had assigned to the bank the money to accrue under the contract and the bank had obligated itself to, and did, pay claims of laborers and materialmen; and the question was whether the bank or the surety was entitled to the balance due under the contract. It was held that the bank, under its assignment, was entitled to this balance to the extent necessary to reimburse it for payments made for labor and material for which the surety would otherwise have been liable; but there was no suggestion that the bond covered such payments, or that the bank had any recourse against the surety for reimbursement therefor.

"The agreement between the contractor and the bank that the latter, on paying the checks, should be subrogated to the rights and remedies of the payees therein, was wholly ineffectual to accomplish that purpose; for the payees were not a party to it, had no knowledge of it, and neither assigned nor intended to assign their claims to the bank. They simply accepted checks for the amounts due which they presented for payment in the usual manner and received their money. Their claims were thereby satisfied and extinguished.

. . . . . . "We concur in the conclusion of the learned trial court that plaintiff did not acquire the claims of the payees of the checks nor become subrogated to any rights which they may have had under the bond."

In First National Bank v. Hagquist (Minn.), 225 N.W. 11, the bank brought suit against the surety. The petition alleged that the contractor, Hagquist, had made a written contract with the plaintiff, in which it was "agreed that the money from such estimates shall be paid to the second party herein (plaintiff) by Tingdale Bros., Inc., and the second party (plaintiff) agrees to and will loan and advance moneys to the first party (Hagquist) for the sole and express purpose of paying such labor, supply and material accounts only. . . . The first party (Hagquist) hereby assigns to the second party (plaintiff) all such moneys coming from said estimates as security for the payment of such loans and advances to be used as above stated and he hereby directs and authorizes said Tingdale Bros., Inc., to make the payments to the second party (plaintiff) herein direct pursuant to the terms of this agreement.

It was then alleged that pursuant to this agreement plaintiff paid accounts for labor and material; that the contractor failed; that there was an unknown amount of earned money for work which had been performed, that had not been paid, and that defendant took possession of the work. Plaintiff sought to recover $1000, the amount of its loans, less estimates paid to it.

In affirming the action of the trial court in sustaining a demurrer to the petition, the court said:

"Plaintiff, pursuant to its agreement with the contractor, did pay accounts for labor and material relative to said work to the extent of $7000, and received through estimates for work completed $6000. The contractor failed. Plaintiff's loans and payments ceased. There was then an unknown amount of earned money for work which had been performed that had not been paid. Defendant took possession of the work and put a force of men to work thereon. Plaintiff seeks to recover $1000 of its claim from defendant.

"It is to be noted that the complaint does not seek to establish an equitable right to the unpaid estimates or earned money superior to the rights of defendant, the surety. The complaint does not show that defendant has in any way in relation thereto invaded plaintiff's rights. The question whether it is entitled thereto by virtue of its assignment is not presented to us by the record. There is no averment of any controversy as to such estimates, and the complaint does not disclose the disposition of such alleged unpaid estimates. The mere fact that the unpaid earned money existed does not attach liability to defendant. The complaint does not charge defendant with having collected it; nor does it appear that plaintiff cannot have the same by asking for it. The estimates do not seem to be the gist of the action. Plaintiff has by reason of such omissions failed to bring itself within the rules discussed in Hartford Accident Indemnity Co. v. Federal Const. Co., 168 Minn. 202, 209 N.W. 911, and cases therein cited.

"Questions arise in relation to whether the right which a surety acquires by subrogation is superior to the rights of a bank acquired by actual assignment from the contractor are quite distinct from the question of a contractor's surety being liable to one who merely loans money to the contractor to be used in the work.

"The complaint seems to stand and rest upon the theory that a bank which by agreement with the contractor advances money to pay for labor and material used in the work, is subrogated to the rights of the laborers and materialmen whose claims are paid, and is entitled to recover such advances on the contractor's bond. But we have recently held to the contrary. [First National Bank of Chisholm v. O'Neil (Minn.), 223 N.W. 298, filed January 25, 1929.] The surety is not liable, for the simple reason that the terms of its bond did not obligate it to pay claims for borrowed money. Upon this theory the complaint is insufficient. The Aetna Case recognized the doctrine of the cases discussed in the Hartford Case and permitted a recovery of the fund remaining unpaid, but declined to impose a direct liability upon the surety under the language of its obligation. [The case of Finch v. Enke (S.D.), 222 N.W. 657, is not in point.]"

To like effect is Farmers State Bank v. Anderson (Minn.),263 N.W. 443.

I do not believe that the Missouri Supreme Court, when it adopted the law announced in the Wurtz case, intended to give the doctrine of that case any wider scope than was intended by the Minnesota Supreme Court. The Minnesota courts have restricted it to cases involving instalments due or paid under construction contract, or retained percentage under the construction contract. I am, therefore, of the view that the Powell case can only stand for the proposition that where money is loaned to the contractor and is used to pay labor claims, the lender by reason of the assignment by the contractor of money due under the construction contract has an equity superior to the equity of the surety on the contractor's bond in the instalments paid under the construction contract prior to any default by the contractor, and that the lender by reason of this superior equity has a right to apply the instalment paid to the liquidation of the loan. It follows, of course, that since Powell exercised his right to apply the money paid to him on the loan account, he stood in court as a materialman suing on the bond, and since the statute gave materialmen a right to sue on the bond, the judgment in his favor had to be affirmed.

This is entirely different from a holding that a bank, under facts such as are shown in the case at bar, has an action on a bond. The equity raised in the Powell case is not sufficient to create a cause of action on the bond.

It is manifest that the plaintiff herein has not furnished labor or materials, or any of the items specified in the statute as covered by the bond. Its claim, therefor, if sustained, must be worked out upon the theory that the rights of the laborers and materialmen, whose claims were paid out of the proceeds of the loans, have vested in it, or that, for the purpose of enforcing the claim on the bond, the bank stands in the shoes of the laborers and materialmen. In other words, the doctrine of subrogation must be invoked — the right to resort to the security and remedy which the creditors, i.e., laborers and materialmen, were capable of asserting.

If the Minnesota Supreme Court, in the Wurtz case, based the bank's superior right to the fund there in dispute upon the theory that it was subrogated to the rights of the materialmen and laborers, it extended the doctrine of subrogation to the extreme limit, and is contrary to the great weight of authority, which holds that a bank under such circumstances is a mere volunteer, and not entitled to the remedy, for the reason that the doctrine will only be applied, when the person paying the debt of another does not act voluntarily, but under some compulsion, pays a debt or discharges an obligation for which another is primarily liable, and which in equity and good conscience ought to be discharged by the latter. The general rule is that there must be some element of self-protection involved. That can only be supplied under the Wurtz and Powell cases by holding that the bank made the payments in performance of a legal duty imposed by its contract to loan money to the contractor to pay labor and material claims, which was entered into prior to entering upon the work.

It is difficult to circumscribe specifically all the situations to which the principle of subrogation may be applied, and whether it is applicable or not depends upon the particular facts and circumstances of each case as it arises. And while the broad equities should always be sought out as far as possible, it cannot be used as a universal remedy for parties who have lost their money, but must be applied according to the established rules of equity jurisprudence and with due regard to the legal and equitable rights of others.

The right of subrogation, if any, raised in the Powell case, was dependent on the contract between Powell and the contractor in the sense that it grew out of conditions resulting from a due observance of that contract, namely, the payment of claims of laborers for which the surety was liable, and the reimbursement of the bank out of a fund in which the contractor had a proprietary interest and in reference to which he had a right to contract, which right, of course, was subordinate to the right of the materialmen and laborers to have the fund applied upon their claim. He had a right to assign his interest in the fund to Powell, which he did, and the latter applied it to the loan, the proceeds of which had been used to pay labor claims for which the surety was liable. The surety then cannot complain if the court holds this condition, arising from an observance of the agreement, created an equity superior to its equity in the fund. But the surety can complain if it is attempted to make use of those conditions to enlarge his obligations under a contract over which the parties contracting had no control.

It seems to me that this distinction is valid. It has been applied by the Supreme Court of Texas in Employers' Casualty Co. et al. v. Wolfe City et al., 119 Tex. 552, 25 S.W.2d 320. In that case one Bradshaw entered into a contract with the city to build a waterworks and dam, and the Employers' Casualty Company furnished the performance bond. Thereafter Bradshaw needed money with which to pay claims of laborers and materialmen, and applied to the First State Bank for money with which to pay said claims. An agreement was reached with the bank, whereby the bank agreed to lend the money and Bradshaw agreed that the bank should take the place and stand in the shoes of the laborer and materialmen claimants. Notes were also given to the bank. The court refused to allow recovery by the bank in a suit by it on the bond. The court said:

"We understand in this connection that the bank contends that the agreement between the debtor, Bradshaw, and itself, together with the other circumstances, is sufficient to work subrogation of the creditors' security in favor of the bank. We cannot sustain this contention. It is true that subrogation may accrue on an agreement between a volunteer and a debtor as held in Fievel v. Zuber, 67 Tex. 275, 3 S.W. 273, and other authorities cited by the Court of Civil Appeals. However, these authorities do not have application here, for the reason that Bradshaw had no authority to deal with the bond, which is the property, on which the lien was sought to be fixed by the transactions and agreement between him and the bank. In the case at bar, neither Bradshaw, the city, nor the bank had any authority to deal for the casualty company. At the time the bank advanced the money, it took no assignment of the lien of laborers or materialmen, and it (the bank) had no claims against the bond that it was necessary for it to protect by paying the laborers and materialmen. Such being the case, it was a pure volunteer, and is not entitled to any judgment against the bonding company. Certainly the bank could not be subrogated to any rights of the laborers or materialmen against the bond by virtue of its agreement with Bradshaw, for the reason that Bradshaw had no authority to deal with the bond."

The court later, in Verschoyle v. Holifield (Tex. Civ. App.),123 S.W.2d 878, 883, cited and followed the above case and explained the theory of the decision in the following language:

"The court treated the bond given for the benefit of laborers and materialmen as property against which a lien was sought to be fixed in favor of the bank by virtue of the agreement between the debtor and the bank, and held that no lien could thus be given to the bank, and that the bank could not by virtue of the agreement be subrogated to the rights of the laborers and materialmen against the bond, because Bradshaw had no authority to deal with the bond, that is, no authority to create a lien against the property."

Walker, the debtor in the case at bar, could no more create a right of subrogation in the bank to the laborers' claims on the bond in suit than could a debtor create a right to subrogation to a deed of trust on property he did not own.

In the McClure case, also relied upon by respondent, the plaintiff, a school district, had contracted with defendant, Frank P. McClure, to build for it a certain school building at a price of $35,000. Defendant, Southern Surety Company, the bondsman of the said McClure, guaranteed the faithful performance of the contract. Suit on the bond was brought by the school district, as obligee, the petition alleging that plaintiff was compelled to take over and finish the building, because of McClure's failure to fully construct and finish the same in accordance with the terms of the contract and subsequent contracts regarding alterations. In the written portion of the bond appeared the following language:

"The principal and surety in this bond covenant and agree to repay to 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 court held that this portion of the bond showed a clear intent to create a liability for the contractor's failure to pay for material and labor which might go into the building.

The facts further showed defendant's foreman became short of funds with which to meet the payrolls for two successive weeks, and borrowed $800 from a bank, with which to meet such payrolls, giving the bank at the time an order on plaintiff for said amount, to be taken out of the next payment to the contractor. The court held that this amount could be recovered by the school district in the suit on the bond, saying:

"The evidence tends to show that this money was used to pay for labor done upon this school building. It was gotten for that purpose, and whilst notes were given with the order aforesaid as collateral, we are inclined to the view that this item, as well as all others sued for, was properly chargeable to the bond in suit. The money was actually paid for labor done upon the school building, and was paid to the bank, rather than the contractor under the circumstances above detailed. Had the plaintiff paid the contractor this sum for such purposes, there would be no question as to the liability of the bond. The payment, being made to the bank upon the direct order (in writing) signed by the contractor, cannot and does not change the situation. In other words, the payment of this $800 upon the written order as above mentioned was the same as if it had been paid direct to the contractor. This because it was paid upon the written order of the contractor."

Nothing appears in the above case that would lead me to believe that the Supreme Court had intended it as an authority giving a money lender a suit on a contractor's bond under the statute. In that case, the school district, the obligee of the bond, brought suit to recover money it had paid to the bank upon written orders of the contractor. The obligation of the bond was to reimburse the obligee for such payments. The basis of recovery was that the payment to the bank under orders of the contractor was equivalent to a payment to the contractor. The right of the bank to recover under the bond was not ruled on.

Respondent here also contends that the bond is broader than the statute and includes respondent in its terms. The bond stipulates to "pay to the proper parties all amounts due for material . . . and for all labor performed in such work whether by subcontractor or otherwise, then this obligation to be void. . . ."

The statute provides: ". . . and such bond, among other conditions, shall be conditioned for the payment of material, . . . consumed . . . and for all labor performed. . . ."

I think it perfectly obvious, from a reading of the bond, that the obligor undertook to pay all amounts due for material and labor to the proper parties as determined by the statute and that the proper parties are those persons furnishing same. The bank supplied no material, it did no labor, it held no assignment from any laboring man or materialman, and it was not subrogated to the claims of any laborer or materialman. It was not a party covered by the bond, either under the terms of the statute or the bond itself.

I am of the opinion that there is nothing in the case which justifies recovery by respondent, and I am of the further opinion that the trial court erred in failing and refusing to give the declaration of law in the nature of a demurrer to the evidence requested by the appellant.