WOLTERS VILLAGE MANAGE. CO. v. MERCHANTS & P. NAT. BANK, 15375.
| Decision Date | 25 May 1955 |
| Docket Number | No. 15375.,15375. |
| Parties | WOLTERS VILLAGE MANAGEMENT COMPANY, Graybar Electric Company, and T. R. Barnard, Appellants, v. The MERCHANTS and PLANTERS NATIONAL BANK OF SHERMAN et al., Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
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Norman R. Crozier, Jr., Dallas, Tex., for Wolters Village Management Co.
David Wuntch, Dallas, Tex., Walter A. Cober, Grand Prairie, Tex., for T. R. Barnard.
Thompson, Knight, Wright & Simmons and Sam H. Boren, Dallas, Tex., for Graybar Electric Co., Inc.
Joe A. Keith, Sherman, Tex., Ralph F. Malone, Dallas, Tex., and Malone, Lipscomb & Seay, Dallas, Tex., and Keith & Kennedy, Sherman, Tex., of counsel, for The Merchants and Planters National Bank of Sherman.
William B. David, J. A. Gooch and Cantey, Hanger, Johnson, Scarborough & Gooch, Fort Worth, Tex., for Houston Fire and Casualty Ins. Co.
Before RIVES, TUTTLE and CAMERON, Circuit Judges.
This many-sided case involves chiefly the effectiveness of a security arrangement in which a prime contractor promised a subcontractor to render payments by checks made out jointly to the subcontractor and his prospective creditor; whether the latter, after advancing money in reliance on the promise, was estopped by his conduct thereafter to complain of the obligor's failure to make out the checks jointly; and finally whether two mechanics' liens were validly imposed.
Appellant Wolters Village Management Company, a Delaware corporation (hereinafter "Wolters") was the prime contractor for the construction of 500 dwelling units on the leasehold estate of Wolters Village, Inc., on Wolters Air Force Base, Texas. Wolters subcontracted certain work to Central Electric Company (hereinafter "Central"), a partnership consisting of Moody and Falck, and Central gave a performance bond to Wolters in which the Houston Fire and Casualty Company was surety. Thereafter, Falck came to see the vice-president of Wolters, Mr. Dunlap, and asked if it would be agreeable for Central to make an assignment to the appellee Merchants and Planters National Bank. Dunlap agreed and signed a letter which read as follows:
On August 10, 1953, upon presentation of this letter and the $60,500 subcontract between Central and Wolters, the Bank made a loan to Central in the amount of $20,500, taking as further security therefor a demand note, a chattel mortgage on motor vehicles (estimated to be worth $2500) and a preexisting assignment of Moody's life insurance policy, of a value of $1500 to $1700. The Bank did not notify Wolters of this.
As the work proceeded and Central submitted estimates, Wolters made six progress payments to Central by checks, all of which were made out not jointly, as provided in the letter, but solely to Central, on dates and in the amounts as follows:
October 12, 1953, $18,900
November 2, 1953, 8,400
November 23, 1953, 5,040
December 2, 1953, 9,660
December 17, 1953, 5,400
January 11, 1954, 5,400
Central deposited only the first and last of these checks in the Bank, which applied one half of each to repayment of the note and credited the remainder to Central's bank account. The other four checks were negotiated by Central to creditors or for cash, and no part of these amounts was applied to the Bank loan. There is no evidence to show that the Bank knew of the payment of the four checks given to Central in November and December.
The Bank did not inform Wolters that the checks were not made out in accordance with the letter. It proceeded to make further advances of credit to Central:
Meanwhile Central was encountering financial difficulties. Appellant T. R. Barnard, who held a subcontract from Central for electrical wiring, and whose contract had been terminated on January 6 without full payment for work then completed, sent Central a notice to perfect lien on March 6, and filed a mechanics' lien on April 7, 1954.1 On March 5 Central assigned its claim for $8,700 yet unpaid on its subcontract, to its unpaid materialman, the appellant Graybar Electric Company, which on April 22 gave notice and filed its mechanics' lien for $8,700.
The Bank commenced this action on July 1, 1954, for $19,788.73, against Wolters as defendant, basing its claim on the letter agreement. Jurisdiction was properly based on diversity of citizenship. Wolters answered, denying that there was any assignment, and asserting that the Bank was estopped to set up the letter agreement because of its silence when it knew Wolters was making disbursements by checks payable to Central alone. By leave of court, Wolters then filed a third party complaint against Central, Moody and Falck both individually and as copartners in Central, Houston Fire and Casualty Company, Barnard, and Graybar Electric Company, Inc.; deposited into court the sum of $8,774.58 admittedly due under the subcontract with Central, praying for distribution of this fund to the claimants entitled to it, for cancellation of the two mechanics' liens, for attorneys' fees and damages from the third party defendants. In answer to this, various answers and cross-claims were filed, the details of which it is not necessary to relate.
The case was tried to a court without a jury, which adjudged that the Bank should recover $19,788.73 of Wolters; directed the clerk to distribute the $8,774.58 by paying Graybar $2,732.64 and the Bank $6,041.94; cancelled the mechanics' liens, denied any relief to Barnard, and denied all claims against the surety, Houston Fire and Casualty Company and Central. From this judgment Wolters, Graybar and Barnard have appealed.
The primary question is the effect of the letter agreement. The complaint referred to this as an assignment. The trial court said in its oral opinion: Since the material facts are undisputed, we are to ascertain the legal effect of the letter from the intentions of the parties as objectively manifested in the letter, construing that instrument in its entirety. It is clear that in general a right expected to arise in the future may be the subject of an assignment, if expected to arise under a contract in existence at the time of the assignment. 5 Tex.Jur. 11; Restatement, Contracts § 154(1). Since Central's subcontract was in existence, its claim could have been assigned. But an assignment must be "a manifestation to another person by the owner of a right indicating his intention to transfer, without further action or manifestation of intention, his right to such other person or a third person." Restatement, Contracts § 149(1). (Emphasis added.) The language of the letter does not admit of this construction; it did not state "we have assigned" or "we hereby assign," but "we wish to extend an assignment." Thus it clearly contemplates some further act to complete the transfer of the right. For the same reason, the letter was not the kind of order drawn on a debtor for a part of a particular fund, which is effective as an assignment. 5 Tex.Jur. 34; Restatement, Contracts § 163(1).
Consequently, the assignment was not made by means of this letter, but was completed later, in the transaction between Central and the Bank. If the Bank's rights depended solely on the subsequently completed assignment, it would have no right against Wolters here, because a debtor is entitled to credits for payments made before notice of the assignment, 5 Tex.Jur. 40-42; Restatement, Contracts § 167(1), and according to one Texas case, also for payments made after notice of the assignment if they reasonably appear necessary to enable the assignor to perform his duties under a building contract upon the performance of which his right to payment is dependent. Peden Iron & Steel Co. v. McKnight, 60 Tex.Civ.App. 45, 128 S.W. 156.
But the Bank's rights do not rest solely upon the assignment. We cannot agree with the trial court's finding that Wolters and not Central was the actual borrower, for this is contrary to all the evidence; however, it seems clear that the letter was actually a contract for the benefit of the Bank, which the Bank may enforce. It amounted to a promise by Wolters (see Restatement, Contracts § 2(1)) to make all checks under the Central subcontract payable jointly to Central and the Bank. The consideration for this promise was the relinquishment by...
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