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J. D. Halstead Lumber Co. v. Hartford Accident & Indemnity Co.

Supreme Court of Arizona

May 6, 1931

J. D. HALSTEAD LUMBER COMPANY, a Corporation, Appellant,

APPEAL from a judgment of the Superior Court of the County of Maricopa. Dudley W. Windes, Judge. Judgment affirmed.

Messrs. Cunningham & Carson and Mr. A. S. Gibbons, for Appellant.

Mr. Samuel White, Mr. J. L. B. Alexander and Messrs. Silverthorn & Van Spanckeren, for Appellee.


[38 Ariz. 229] LOCKWOOD, J.

On March 12, 1923, one Jay J. Garfield, hereinafter called the contractor, entered into a written contract with George H. M. Luhrs and Catherina M. Luhrs, his wife, to construct a building in Phoenix. The Luhrs demanded that he furnish a building bond in the sum of $410,000 for the faithful performance of the contract, and he applied to the Hartford Accident & Indemnity Company, a corporation, hereinafter called plaintiff, for such bond. Before [38 Ariz. 230] plaintiff executed the building bond it required the contractor and J. D. Halstead Lumber Company, a corporation, hereinafter called defendant, to execute in its favor an indemnity bond, agreeing to indemnify and save plaintiff harmless against any and all loss which it might sustain by reason of executing the building bond.

The contract for the building provided, among other things, as follows: "If at any time there shall be evidence of any lien or claim for which, if established, the owner of

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the said premises may become liable, and which is chargeable to the contractor, the owner shall have the right to retain out of any payment then due, or thereafter to become due, an amount sufficient to completely indemnify him against such lien or claim, should there prove to be any such claim. After all payments are made, the contractor shall refund to the owner all moneys that the latter may be compelled to pay in discharging any lien upon said premises made obligatory in consequence of the contractor's default."

When the building was completed, it appeared that there were a large number of persons who asserted lienable claims against it. The contractor was financially unable to pay these claims, and shortly before the completion of the building assigned and transferred to defendant all the moneys then due and to become due the contractor under the building contract. The Luhrs then had on deposit in the Bank of California National Association at San Francisco, California, for the sole purpose of payment of the building contract, the sum of $42,946.20, which was the amount still due under its terms.

Plaintiff had been advised about this time by the Luhrs that a number of the bills were unpaid and that it might become liable for a greater or lesser amount on the building bond. It therefore sent one J. H. Van Tassel, who was the attorney in charge of fidelity [38 Ariz. 231] and surety claims in the Pacific department of plaintiff, to Phoenix, and, after investigation of the situation, he notified the Luhrs to either retain the final payment and apply it on lienable claims, or pay it to plaintiff for that purpose. They were willing to pay it to plaintiff, but the bank, having notice of the assignment by the contractor to defendant of his interest in this money, refused to release it to plaintiff until defendant agreed thereto. After some negotiations defendant executed the following document, and delivered it to Van Tassel: "Phoenix, Arizona, May 14, 1924. To the Bank of California National Association, San Francisco, California. The J. D. Halstead Lumber Company hereby requests and directs that the balance of $42,946.20 in your hands for final payment of contractor on Luhrs Building in Phoenix be paid to Hartford Accident and Indemnity Company for use by it in payment of lienable claims on Luhrs Building. J. D. Halstead Lumber Company. By J. R. Halstead, Vice-President. Assignee of Jay J. Garfield" -- and the money in the bank was turned over to plaintiff. Thereafter it applied this money to the payment of various lienable claims against the building, all of which payments were approved before they were made, by both the contractor and by defendant. After the funds thus obtained were exhausted there were a number of other claims outstanding in the form of liens against the building. Suit was filed on some twelve of these claims, and after litigation four were denied and eight finally established as valid liens against the property. Thereafter the Luhrs paid the judgments and brought suit on the building bond against plaintiff to recover from it the amount of the lien judgments against the building as aforesaid, which suit ended in a judgment in favor of the Luhrs in the sum of $15,602.77, and plaintiff paid it.

[38 Ariz. 232] Defendant had been requested by plaintiff to defend both the lien suits and the suit by Luhrs against it, but failed and refused to do so, and plaintiff therefore employed attorneys to defend them. Thereafter plaintiff brought this suit to recover the amount of the judgment so paid by it, the sum of $275 for traveling expenses incurred by its representatives in checking up the lien claims, $122.55 costs, $1,530 attorney's fees paid in defending the suits aforesaid, and $1,470 additional attorney's fees claimed to be a reasonable amount for the prosecution of the present case.

There is no dispute as to these facts. The sole defense made in the action was that Van Tassel, in consideration of the assignment to plaintiff by defendant of the $42,946.20 in the bank as aforesaid, executed the following release:

"Phoenix, Arizona, May 14th, 1924. "J. D. Halstead Lumber ...

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