Brown Const. Co. v. Massachusetts Bonding & Ins. Co.

• Court: South Carolina Supreme Court
• Citation: Brown Const. Co. v. Massachusetts Bonding & Ins. Co., 179 S.E. 697, 176 S.C. 76 (S.C. 1935)
• Decision Date: 16 April 1935
• Docket Number: 14045.
• Parties: BROWN CONST. CO. et al. v. MASSACHUSETTS BONDING & INS. CO. et al. In re MACKEY.

179 S.E. 697

176 S.C. 76

BROWN CONST. CO. et al. v. MASSACHUSETTS BONDING & INS. CO. et al.

In re MACKEY.

No. 14045.

Supreme Court of South Carolina

April 16, 1935

Appeal from Common Pleas Circuit Court of Richland County; H. F Rice, Judge.

Action by the Brown Construction Company, for and on behalf of itself and of all other creditors of the defendants having claims on account of the South Carolina Projects Nos. 778-A and B and 795-B, Pickens County, against the Massachusetts Bonding & Insurance Company and others, wherein Jesse Mackey administrator of the estate of Robert Mackey, filed a claim against funds held by the South Carolina State Highway Department. From an order, the administrator appeals.

Affirmed.

Price & Poag and W. A. Bull, all of Greenville, for appellant.

Nelson & Mullins, of Columbia, and J. F. Flowers, of Charlotte, N C., for respondent.

PHILIP H. STOLL, Acting Associate Justice.

On the 19th day of August, 1931, the South Carolina Highway Department awarded to Sutton Bros., Inc., a certain contract for the construction of state routes 14 and 183 in Pickens county, and on the same day, pursuant to the requirements of the highway department, Sutton Bros., Inc., as principal, and Union Indemnity Company, as surety, executed the usual highway bond in the sum of $105,444.88, in favor of the highway department, conditioned for the faithful performance of the contract.

Sutton Bros., Inc., entered upon the performance of this contract but before the contract was completed it became financially involved and defaulted, and the Union Indemnity Company, as surety, exercised its rights and elected to complete the contract. On May 9, 1932, the Union Indemnity Company, with the approval of the highway department, entered into a written agreement with the defendant, W. H. Thomas, for the completion of the said highway projects, and sublet the contract to him. The contract with Thomas incorporated by reference the specifications, contract, and bond between Sutton Bros., Inc., and the state highway department. Thomas was required to execute a surety bond in favor of the Union Indemnity Company in the amount of $95,000 for the completion of the contract with the Massachusetts Bonding & Insurance Company, as surety, on said bond. Thomas entered upon the performance of this contract, but he too became financially involved and defaulted on November 1, 1932, whereupon the Massachusetts Bonding & Insurance Company, through its own agents and representatives, took charge of, supervised, paid certain claims which were filed against Thomas, and continued with the prosecution of the work until the 17th day of January, 1933, at which time it abandoned the work.

The highway department was then forced to complete the projects; the completion of the same being relet by the highway department by a contract which is not material here. The projects have been completed to the satisfaction of the highway department, in accordance with the terms of the original contract between the highway department and Sutton Bros., and Thomas' contract with the Union Indemnity Company above referred to, and without the highway department having to expend any more than the original contract price stipulated in the said contract of Sutton Bros. The highway department has in its possession the sum of approximately $40,000 which represents the balance due on account of the completion of the projects, including the retained percentages, the said balance having accrued and become due as the result of the completion of the projects in accordance with the terms of Thomas' contract, which contract included by reference all the terms, conditions, specifications, etc., of the original contract between Sutton Bros. and the highway department. This fund now in possession of the highway department is the fund in controversy here. The highway department makes no claim to the fund, being ready and willing to pay the same to such person or persons as the court may direct, and the only claimants to the fund are the respondent, Massachusetts Bonding & Insurance Company, on the one hand, and the appellant, together with another creditor of Thomas, Emmett Rogers, who levied an attachment under similar circumstances, on the other hand.

It is admitted that this fund is less in amount than the aggregate of the claims for materials furnished and labor performed on the projects in question, and which claims have been actually paid by the Massachusetts Bonding & Insurance Company, the respondent herein, by reason of its liability as surety for Thomas.

The present action was commenced by service of summons and complaint by Brown Construction Company on the 2d day of February, 1933. This action was in the nature of a creditors' bill brought by Brown Construction Company for and on behalf of itself and all other creditors of the contractor, W. H. Thomas, and was brought against Thomas and the Massachusetts Bonding & Insurance Company, as surety, on his bond. The defendant surety filed its answer in the cause admitting the execution of the bond but denying that it was liable to the plaintiffs on account of the execution of same.

On February 2, 1933, the matter was referred to J. C. Townsend, as special referee, by order of his honor, W. H. Townsend, to call in creditors, take testimony, and report findings of fact and conclusions of law, and any special matters, which was complied with; said order of Judge Townsend also enjoining the highway department from paying out any funds due on projects and retained in its hands, pending outcome.

In May, 1933, Judge Townsend refused a motion by appellant to modify his order of February 2, 1933, by permitting the state highway department to disburse the sum of $3,040.55 out of the fund of $8,473.65 attached by the appellant on October 18, 1932, in a cause of action against W. H. Thomas, arising out of the death of appellant's intestate, appellant having recovered a default judgment for that amount, including costs, in the court of common pleas for Pickens county on the 8th day of March, 1933. Judge Townsend, however, allowed appellant to come in and file his claim based on the attachment of funds which were retained by the highway department and which were retained percentages accruing to W. H. Thomas, contractor, pursuant to the terms of said contract. The attachment in question was levied on the 18th day of October, 1932, which was before any default had been declared on the part of Thomas. Appellant filed his verified claim with the special referee, and relied solely for the payment of his claim against the fund which was attached in the hands of the highway department.

The Massachusetts Bonding & Insurance Company objected to appellant's claim only in respect to priority, contending that Thomas, in his application to it for issuance of the bond, made an assignment to it of funds due and to become due by and retained by the highway department, and also claiming the right of subrogation.

On December 11, 1933, the special referee filed his final report, holding the bonding company liable under its bond and allowing against same all claims filed with him, with a few exceptions, one of which is the claim of appellant. The appellant excepted in due time to the final report of the special referee, and on January 12, 1934, the matter was heard before his honor, H. F. Rice. On February 19, 1934, Judge Rice affirmed said final report as to claims aggregating approximately $55,000, all of which claims were for labor performed for, and materials supplied to, Thomas on account of and for the use of the projects in question, and which have been paid by the bonding company, and on July 3, 1934, Judge Rice signed an order affirming said final report as to this claim.

In due time, appellant gave notice of his intention to appeal to the Supreme Court from said order of Judge Rice, and from judgment entered thereon.

The sole issue raised by this appeal is whether the appellant or respondent has a superior or prior right to the attached fund in the hands of the state highway department. The appellant relies upon his attachment of the fund, and the respondent relies upon its rights on an assignment of the fund from the principal at the time the bond was issued and on its right of subrogation after having paid all claims for labor performed and materials supplied for the project in question.

As this appeal raises one issue, the various exceptions will be considered together.

Has the surety of the contractor Thomas, who is the respondent here priority over appellant's claim by attachment because of the assignment of said fund to it by the contractor in his application for bond? The court below held affirmatively, and appellant challenges this finding upon two grounds: (1) The assignment in terms did not become operative (it was a lifeless assignment) until there was a default by the contractor, and the appellant's attachment, having been levied before any default, then under the law as laid down in the case of National Loan & Exchange Bank v. Gustafson, 157 S.C. 221, 154 S.E. 167, the equitable assignment to the surety in the application could not be superior to the legal rights of the appellant under his attachment; and (2)...