Wachovia Bank & Trust Co. v. J. F. Mulligan Constraction Co., 200 N.C. 304 (1931)

Jan. 27, 1931 · Supreme Court of North Carolina

200 N.C. 304

WACHOVIA BANK AND TRUST COMPANY v. J. F. MULLIGAN CONSTRUCTION COMPANY et al.

(Filed 27 January, 1931.)

Principal and Surety B b — Surety is not liable to lender of money used to pay laborers when lender does not obtain assignment.

Money loaned a contractor building a State highway, evidenced by the contractor’s note specifying that it was to be used for the payment of laborers and materialmen in the construction of the road, is not included within the terms of the statutory surety bond of the contractor, and the surety is not liable therefor although the money was actually used as agreed in the note, unless the lender obtains an assignment from the laborers and materialmen of their rights.

Appeal by Southern Surety Company from Harding, J., at March Term, 1930, of Watauga.

Civil action in the nature of a creditors’ bill, brought under 3 O. S., 3846(v), to recover from surety on contractor’s bond, moneys loaned to contractor for use in carrying on work of construction.

The Surety Company lodged a motion for judgment as of nonsuit at the close of plaintiff’s evidence, which was overruled, and the case was, thereupon, tried on the following determinative issues:

“3. Did the defendant, J. E. Mulligan Construction Company, execute the note to plaintiff, dated 6 April, 1928, for $2,744.38 for money to be used for payrolls for labor performed on road project No. 7720, as alleged in the complaint? Answer: Yes (by consent).

“4. Was it stipulated in said note that said money was to be used in payment of payroll for labor on project No. 7720, as alleged in the complaint? Answer: Yes (by consent).

“5. Were tbe proceeds of said loan, if made, used by J. F. Mulligan Construction Company in payment for labor and material bills used or performed in tbe construction of project No. 7720? If so, wbat amount? Answer: Yes, $2,744.38.

“6. In wbat amount, if any, is defendant, Construction Company, indebted to tbe plaintiff bank? Answer: $2,744.38, with interest from 23 September, 1928.

“7. Wbat amount, if any, is tbe defendant, Southern Surety Company, indebted to tbe plaintiff by virtue of its surety bond to J. F. Mulligan Construction Company? Answer: $2,744.38, witb interest from 23 September, 1928.”

Judgment on tbe verdict for plaintiff, from wbicb tbe defendant, Southern Surety Company, appeals, assigning errors.

John L. Rendleman and Hayden Clement for plaintiff, Wachovia Bank and Trust Company.

A. J. Fletcher and Ruarle & Ruark for defendant, Southern Surety Comp cony.

Stacy, O. J.

On 23 September, 1927, tbe J. F. Mulligan Construction Company, contractor, entered into a written contract witb the State Highway Commission to construct or improve a section of road in Watauga County, known as project No. 7720; and to insure compliance witb tbe terms of said agreement, tbe State Highway Commission took from tbe contractor, as principal, and tbe Southern Surety Company, as surety, a bond in tbe sum of $43,800 conditioned, among other things, on tbe faithful performance of said contract, and that tbe contractor “shall well and truly pay all and every person furnishing material or performing labor in and about tbe construction of said roadway.”

On 6 April, 1928, tbe contractor borrowed from tbe plaintiff tbe sum of $2,744.38 for use in paying laborers for work done on, or in and about, said roadway, and executed its note therefor in wbicb it was stipulated that said funds were to be so used, and they were actually so employed.

Tbe case, therefore, presents tbe question as to whether tbe bond in suit is broad enough to cover moneys loaned by plaintiff to tbe contractor for use in paying laborers for work done on, or in and about, said roadway, when tbe note executed by tbe contractor to tbe plaintiff shows on its face that said funds were to be so used, and they were actually so employed. We think not. Snelson v. Hill, 196 N. C., 494, 146 S. E., 135; Hardaway v. Nat. Surety Co., 211 U. S., 552; United States for use of Fidelity Nat. Bank v. Rundle, 107 Fed., 227, 52 L. R. A., 505; Nat. Surety Co. v. Jackson County Bank, 20 Fed. (2d), 644.

It is conceded that tbe authorities, just cited, are in support of the position that a bank furnishing money to a contractor doing public work, for use in paying the claims of laborers and materialmen, without taking assignments of such claims, does not come within the protection of a statutory bond conditioned to pay all persons supplying the principal with labor or materials in the prosecution of his work. But plaintiff says the opinion in Bank v. Clark, 192 N. C., 403, 135 S. E., 123, gives decided intimation to the contrary, when the note given by the contractor shows on its face that the funds so borrowed are to be used in the prosecution of the work. "We do not so understand the limiting expressions contained in said opinion, which were used solely for the purpose of excluding a dictum on the question now presented.

There was error in overruling the motion of the Southern Surety. Company for judgment as of nonsuit.

Reversed.