Atlas Powder Co. v. Nelson and Chase & Gilbert Co.

• Decision Date: 11 April 1942
• Docket Number: 9224.
• Citation: 20 S.E.2d 890,124 W.Va. 298
• Parties: ATLAS POWDER CO. v. NELSON AND CHASE & GILBERT CO. et al.
• Court: West Virginia Supreme Court

20 S.E.2d 890

124 W.Va. 298

ATLAS POWDER CO. v. NELSON AND CHASE & GILBERT CO. et al.

No. 9224.

Supreme Court of Appeals of West Virginia.

April 11, 1942

Rehearing Denied July 1, 1942.

Syllabus by the Court.

Johnson & Johnson, of Clarksburg, and Charles C. Gammons, of Wilmington, Del., for appellant.

Fitzpatrick Strickling & Marshall, of Huntington, W. C. Plunkett, of Norfolk, Va., and Scott & Ducker, of Huntington, for appellee.

LOVINS Judge.

The Atlas Powder Company instituted a chancery suit in the Circuit Court of Wyoming County for the purpose of recovering from Nelson and Chase & Gilbert Company, Hartford Accident and Indemnity Company, the Virginian & Western Railway Company and the M. P. Smith Construction Company, the sum of $21,586.41 and interest, for explosives furnished the M. P. Smith Construction Company and used by it as subcontractor for Nelson and Chase & Gilbert Company, in the construction of three tunnels for the Railway Company. The Utilities Power and Light Company, and later its trustee in bankruptcy, Charles True Adams, became a defendant herein by its petition asserting a claim of $37,365.33, with interest, against Nelson and Chase & Gilbert Company, and adverse to the interests of the appellant herein, payment of which claim was reserved for future consideration by the final decree. From a decree of the circuit court dismissing the bill of complaint, the Atlas Powder Company appeals.

In May 1931, Nelson and Chase & Gilbert Company, hereinafter called "contractor", entered into a contract with the Railway Company for the construction of railroad subgrade and tunnels in Mingo and Wyoming Counties. The estimated cost of the entire work was $900,000 and an indemnity bond was executed in accordance with the contract provisions in the penalty of that amount with the contractor as principal and the Hartford Accident & Indemnity Company as surety thereon, to secure the Railway Company in the performance of the contract. The contract and the bond were recorded in Wyoming County on July 13, 1931, and in Mingo County on August 8, 1931. On June 18, 1931, the contractor by letter awarded to the M. P. Smith Construction Company, hereinafter referred to as "subcontractor", a contract for the tunnel work, pursuant to which letter a formal contract was executed and the subcontractor began work early in July, 1931. This contract called for completion of the tunnel work on or before January 15, 1932, and provided that payment was to be made on the basis of monthly estimates of work completed, ninety per cent of which was to be paid to the subcontractor and ten per cent retained by the contractor until completion of the work and acceptance of same by the Railway Company; it was also provided that the contractor reserved the right to pay part or all of such ninety per cent of the monthly estimates directly to those furnishing labor materials and machinery as well as the aforesaid ten per cent of the monthly estimates. The subcontractor purchased explosives from appellant from July, 1931, until June, 1932, aggregating $23,306.07, which total amount is reduced to $21,586.41 by certain credit memoranda and a payment of $1,000 by the contractor in February, 1932, the only payment ever made to appellant on subcontractor's account. Payments on the monthly estimates of completed work were made by contractor to subcontractor until January 20, 1932. Some difficulty arose as to subcontractor not paying its creditors, including appellant, and after that date the contractor retained all of the payments from the Railway Company on the monthly estimates of completed work on the tunnel project, and opened an account in a local bank, using same to pay supply and material bills and labor charges incurred by subcontractor. Under this arrangement, the work was completed about September, 1932, the contractor having paid out some three thousand dollars more than the amount so received and retained. In March, 1932, the subcontractor delivered to appellant an order directing the contractor to pay appellant its accrued indebtedness, and any money for materials thereafter becoming due. At that time the subcontractor's account with appellant was over twenty thousand dollars. On March 24, 1932, contractor accepted this order, with a written notation thereon that acceptance was subject to the terms of its contract with subcontractor.

Appellant never filed a mechanic's lien, based upon the claim asserted herein, however, in August, 1932, numerous mechanics' liens were being filed by creditors of the subcontractor and suits were being instituted for the enforcement of such liens. The suits pending in Wyoming County were consolidated into that of Bluefield Supply Co. v. M. P. Smith Construction Company and others, reported in 115 W.Va. 537, 177 S.E. 296. An arrangement was effected in September, 1932, between the contractor, the Railway Company and the Surety, whereby all amounts accruing to contractor, from the entire contract, would be placed in a separate account, supervised by the Surety, to pay liens, costs and expenses. From this account, appellant contends that in January, 1933, certain claims were paid in the absence of service of mechanics' lien notices on the Railway Company, and without having submitted the validity of such liens to the court wherein they were pending. It is argued by appellant that the contractor and the Surety should be compelled to reimburse the fund of the subcontractor for sums expended in the payment of such invalid liens.

After the execution of the main contract between contractor and the Railway Company, contractor borrowed $35,000 from the Utilities Power and Light Company, executing and delivering to the Utilities Company its note therefor and as collateral security a written assignment, dated July 9, 1931, of all retained percentages from the monthly estimates, due or to become due to contractor from the Railway Company under the main contract. No notice of such assignment was given to the Railway Company until April, 1933, and no effort was made by the Utilities Company to collect on the same until the filing of its petition in this suit. Appellant contends that by the very terms of the assignment, the Utilities Company became bound with knowledge of the terms of the main contract as to payment for labor and materials, and that any rights of the Utilities Company obtained by the assignment are inferior to the claim of the appellant asserted herein.

At the time of the institution of this suit and even before the completion of the tunnel project, subcontractor was hopelessly insolvent; there remains in the hands of the surety some $25,000, which fund accrued from the percentages of monthly estimates retained under the principal contract placed in the supervision of the surety under the arrangement hereinbefore mentioned.

The principal contention of appellant is that its claim against subcontractor is covered by the main contract and the bond and that thereunder contractor and surety are liable for debts and obligations of the subcontractor, including the debt herein though it was not perfected as a mechanic's lien. The other points, regarding the application of funds by surety and contractor to invalid liens, and the preference of appellant's claim over that of the Utilities Company, have been mentioned hereinbefore.

Following submission of the cause upon bill, answers, replications, depositions and exhibits, the circuit court made the following findings:

(1) That the bond was given by contractor in accordance with Code, 38-2-22, and appellant, having failed to perfect a mechanic's lien, can not recover on the bond;

(2) That contractor did not guarantee payment of appellant's account against subcontractor;

(3) That contractor's assignment to Utilities Company is superior to that of subcontractor to appellant; and that appellant has no right to the fund in the hands of the surety; and

(4) That the funds accruing to subcontractor from monthly estimate were properly disbursed.

As before stated, appellant's bill was dismissed and the questions in regard to payment of the Utilities Company claim were reserved for further consideration.

In considering the question of liability on the bond, it is necessary to refer to the contract and bond provisions and the statute, referred to in the decree of the circuit court. In the main contract, the contractor agreed "to be held responsible for the payment of all labor, supplies and material furnished for all the work embraced in this contract, whether such work is done directly by him or a subcontractor under him". The condition in the bond required contractor to "well and truly carry out, perform and fulfil all the covenants and agreements on its part in said contract in writing contained", and further to "pay off, satisfy and discharge all claims of subcontractors, laborers and materialmen and all persons furnishing material or doing work upon the said (Railway Company)". Article 2 of Chapter 38 deals with mechanics' liens and the establishment and enforcement thereof. Section 4 of that article gives, to a person furnishing a subcontractor materials, a lien for compensation therefor on the building or structure involved. In Bluefield Supply Co. v. Smith Construction Co., supra, this Court held that a railway tunnel is a "structure" within the meaning of Code, 38-2-4. Section 22 of the same article provides that an owner may limit his liability upon the construction contract to the contract price therefor by recording, in the county where the building or structure is situate, the contract and a bond of the general contractor in a penalty equal to the contract price, for the protection of any laborer, materialman or other person "having...