Citizens Nat. Bank v. Texas & P. Ry. Co.

• Decision Date: 19 March 1941
• Docket Number: No. 7580.,7580.
• Citation: 150 S.W.2d 1003
• Parties: CITIZENS NAT. BANK IN ABILENE v. TEXAS & P. RY. CO. et al.
• Court: Texas Supreme Court

150 S.W.2d 1003

CITIZENS NAT. BANK IN ABILENE v. TEXAS & P. RY. CO. et al.

No. 7580.

Supreme Court of Texas.

March 19, 1941.

Motions for Rehearing Overruled May 14, 1941.

Error to Court of Civil Appeals of Eleventh Supreme Judicial District.

Suit by the Citizens National Bank in Abilene against the Texas & Pacific Railway Company wherein Frank Parrott, Fort Worth Sand & Gravel Company, and F. C. Crane Company intervened claiming right to collect their claims against R. H. Locke, contractor, out of funds in hands of the railway company which funds were also claimed by plaintiff under an assignment. A judgment for plaintiff was reversed and the cause remanded for a new trial by the Court of Civil Appeals, 126 S.W.2d 765, and the plaintiff brings error.

Judgment of Court of Civil Appeals reversed and judgment of the District Court affirmed.

Smith & Eplen, of Abilene, for plaintiff in error.

Guthrie & Guthrie, R. S. Shapard, and M. E. Clinton, all of Dallas, and Wagstaff, Harwell, Douthit & Alvis, of Abilene, for defendants in error.

CRITZ, Justice.

R. H. Locke was desirous of entering into a construction contract with the Texas & Pacific Railway Company. Lacking funds with which to finance such contemplated contract, Locke applied to the Citizens National Bank in Abilene, Texas, for a line of credit. The Bank agreed to extend the credit, provided Locke would deliver to it as security an assignment of all funds accruing to him under the contract with the Railway. This was agreeable to Locke, and the matter was presented to the Railway. The two contracts were then prepared, one the contract between the Railway and Locke, and the other the assignment contract from Locke to the Bank. The assignment to the Bank was delivered to it, and on the same day it was signed by Locke the Bank mailed it to the Railway at Dallas with a letter, in which the Bank informed the Railway that Locke was mailing to it the construction contract. The Bank's letter requested the Railway to hold the assignment "until you receive these contracts, and upon your approval mail one of the copies back to us, when we will proceed to make Mr. Locke's loan if, and when, he needs same." On August 31, 1936, the Railway returned the assignment contract to the Bank, duly approved by the Railway. It appears that the construction contract was duly assigned and entered into between the Railway and Locke.

By the terms of the construction contract, Locke agreed to do certain grading and culvert work for the Railway. This contract then provided: "The Railway shall pay the Contractor in current funds for the performance of this contract the following rates and prices, grading quantities to be measured in excavation." Then follows a schedule showing the rates and prices that the Railway was to pay Locke for the things he was to do and perform under the contract.

We deem it important to here quote in full subdivisions 5 and 6 of the contract between Locke and the Railway. They are as follows:

"5. As soon as possible after the first day of each month, the Engineer shall estimate the quantities of work completed under this contract, and by applying unit prices shall determine the total work performed and the amount due the Contractor. The Railway shall as soon thereafter as such estimate can be audited and passed for voucher in the course of the Railway's business, pay the Contractor the amount of such estimate less previous payments and less fifteen (15) per cent.

"6. Upon completion of the work herein provided, the Chief Engineer shall have an inspection made and if the work is complete and satisfactory, a final statement of all the work done and moneys due the Contractor shall be made by the Railway Engineer, whereupon, after the Contractor has furnished written evidence satisfactory to the Railway, that he has paid in full all amounts that may be due by him to any and all persons who may have performed labor or furnished materials or supplies to the Contractor in connection with the work to be done hereunder, the Railway shall pay to the Contractor the full amount earned under this contract, less payments previously made, as soon as final statement can be audited and passed for voucher in the course of the Railway's business."

The assignment contract from Locke to the Bank identifies the contract between the Railway and the Bank; it recites that Locke has arranged with the Bank for funds to carry out the contract with the Railway, and states that in order to protect the Bank he desires to assign and transfer to said Bank any and all sums of money that may become due under such contract by the Railway. The assignment contract then assigns all money to become due under such contract to the Bank, with full authority on the part of the Bank to collect and receive the same. As already stated, this contract was duly approved by the Railway.

In due time Locke complied with his contract with the Railway, and same was accepted by it. In the meantime Frank Parrott, Fort Worth Sand & Gravel Company, and F. C. Crane Company had furnished Locke with materials and machinery used in and on this project, for which Locke has never paid. It appears that the amounts respectively of such claims are: to Frank Parrott, $555.11; to Fort Worth Sand & Gravel Company, $175.32; and to F. C. Crane Company, $137.77. It also appears that on February 16, 1937, Locke owed the Bank $2,173.30, which sum, with accrued interest, is the amount of Locke's indebtedness to the Bank. It conclusively appears that none of the parties above mentioned, who furnished Locke with materials and machinery, have ever fixed, or attempted to fix, any lien against the Railway, and that when this suit was filed and tried in the district court, the time had long since passed when, under applicable statutes, any lien could be fixed against the Railway for any matter arising out of this contract. It also appears that at the time this case was tried the Railway had in its hands, unpaid on the Locke contract, the sum of $2,259.11. This sum was the amount of the 15% retainage. If the Bank is entitled to collect this fund under its assignment, its claim, including interest, is greater than the fund.

After the completion and acceptance of Locke's contract with the Railway, the Bank made demand on it for the payment to it of the $2,259.11. The Railway refused payment, and this suit was filed by the Bank to collect the same. Frank Parrott, Fort Worth Sand & Gravel Company, and F. C. Crane Company intervened, respectively claiming the right to collect their claims against Locke out of the fund in the hands of the Railway.

On final trial in the district court judgment was entered for the Bank against the Railway. It was also adjudged that the three intervenors above named take nothing against either the Bank or the Railway. The judgment adjudged costs. The Railway and the intervenors appealed to the Court of Civil Appeals at Eastland. On final hearing in the last named court the judgment of the district court was reversed and the cause remanded to the district court for a new trial. 126 S.W.2d 765, 766.

As we interpret the opinion of the Court of Civil Appeals, it holds:

(a) That that part of the contract between the Railway and Locke which provides for final payment to Locke "after the Contractor has furnished written evidence satisfactory to the Railway, that he has paid, in full, all amounts that may be due by him to any and all persons who may have performed labor or furnished material and supplies to the Contractor in connection with the work to be done hereunder, * * *" made it unnecessary for such laborers and materialmen and supplymen to fix liens on the fund here involved, because the above-quoted contractual provision was made for their benefit.

(b) That even if such contractual provision were not made for the benefit of such laborers, materialmen and supplymen nevertheless the Railway was under no duty to pay the Bank until Locke had complied with the letter of his contract with the Railway, and furnished it with written evidence that he had paid in full all amounts due by him to any and all persons who may have performed labor or furnished material or supplies on the project.

(c) That "Since the Railway Company has no property right in the fund but is entitled to withhold the payment thereof to the bank until compliance with the condition upon which such payment was promised, and since such condition cannot be met except by payment of the claims of interveners, we are of the opinion that, in the right of the Railway Company, if not in their own right, the interveners were properly permitted to come in and to have their several judgments against the Railway Company in pro tanto discharge and acquittance of the Railway Company's obligation to the bank."

Before proceeding further we deem it appropriate to state certain well-established rules of law, which we consider germane to the decision of this case:

(1) Rules of construction as applied to contracts are for the purpose of enabling the court to ascertain from the contract itself, that is the language used, the manner and extent to which the parties intended to be bound. Courts do not resort to arbitrary rules of construction where the intention of the parties is clearly expressed in unambiguous language. Magnolia Petroleum Co. v. Connellee, Tex. Com.App., 11 S.W.2d 158.

(2) The cardinal rule of construction as applied to all contracts is to ascertain the intention of the parties as expressed in the language used in the instrument itself. In this connection, it is the intention and purpose of the contracting parties, as disclosed by the instrument, which should control. 10 Tex.Jur., p. 272, § 159.

(3) A contract must be construed in accordance with its language. Its terms, when free from ambiguity and not in conflict with law, establish the rights of the parties. 10 Tex.Jur., p. 279, § 163.

(4) It is the duty of the court, in...