Corpus Christi Bank and Trust v. Smith
| Citation | 17 UCCRep.Serv. 233,525 S.W.2d 501 |
| Decision Date | 04 June 1975 |
| Docket Number | No. B--4883,B--4883 |
| Parties | 17 UCC Rep.Serv. 233 CORPUS CHRISTI BANK AND TRUST, Petitioner, v. Chester SMITH et al., Respondents. |
| Court | Supreme Court of Texas |
Wood, Boykin & Wolter, Mark W. Owen, Corpus Christi, for petitioner.
Wood, Burney, Nesbitt & Ryan, Shelby A. Jordan, Luther & Karchmer, Max J. Luther, III, Milton W. Walton, Meredith & Donnell, Finley Edmonds, Sorrell, Anderson & Sorrell, William R. Anderson, Jr., Harold Alberts, James F. McKibben, Jr., Asst. City Atty., Corpus Christi, for respondents.
Corpus Christi Bank and Trust contends that its security interest in certain funds retained by the City of Corpus Christi under a construction contract should prevail over the claims of certain materialmen and subcontractors who failed to perfect their rights against a payment bond given under Article 5160. The trial court, sitting without a jury, rendered judgment for the materialmen and subcontractors giving them judgment against the original contractor and also for the retained funds. The court of civil appeals affirmed. 512 S.W.2d 761. We reverse that part of the judgment which denied the Bank's secured claim to the retained funds and render judgment that the Bank recover the funds.
On March 12, 1971, Manson Industries entered into a contract with the City of Corpus Christi to repair damages to the municipal airport which were caused by Hurricane Celia. The contract required Manson to provide performance and payment bonds in the sum of $22,250.00, the amount of the contract price. Manson provided those bonds pursuant to the contract and Article 5160, Tex.Rev.Civ.Stat.Ann. (1971). The project was financed through the Bank, which advanced funds to Manson Industries as needed. The advancements were secured by agreement by Manson's accounts receivable then owned or thereafter acquired. Similar security agreements were entered into on February 26, 1971, and July 27, 1971. The Bank filed financing statements with the Secretary of State on December 31, 1970 and January 15, 1971. Manson began the repair work in early April, 1971, and in November of that year, the city engineer certified the work as completed in substantial compliance with the contract.
Several individuals and firms came forward with claims for unpaid materials and labor. They were Chester Smith, Armstrong Lumber Co., Thurman-Fondren Glass Co., Inc., A.B.C. Hardware and Supply Co., Baker Roofing and Sheet Metal Co., and Heath Floor Co., Inc. Chester Smith filed suit against the contractor, Manson Industries, the Bank as Manson's assignee of the contract rights and accounts receivable, and the City of Corpus Christi. The City tendered into the court the sum of $13,221.10 which it had retained and interplead the other parties who asserted claims to the funds. The City was then dismissed and is not a party to the suit. Since A.B.C. Hardware and Supply Co. gave notice of its claim as required by Article 5160, that company recovered against the surety on the payment bond by force of its perfected claim and it is no longer in the case.
The Bank claims that it has prior claim upon the remaining funds because it perfected its security interest. The materialmen and subcontractors say that they own the funds because they are third-party beneficiaries under the contract which the City made with Manson. They do not and could not assert any rights under the payment bond since they did not comply with Article 5160. The controlling question presented in this case is whether the following provision of the contract between the City of Corpus Christi and Manson Industries as the original contractor made the materialmen and subcontractors third-party beneficiaries under the contract:
Whenever the improvement provided for by the contract shall have been completely performed on the part of the Contractor as evidenced by the Engineer in the Certificate of Final Inspection, a final estimate showing the value of the work will be prepared by the Engineer as soon as the necessary measurements and computations can be made. All prior estimates upon which payments have been made are subject to necessary corrections or revisions in the final payment. The amount of this final estimate, less any sums that have been deducted or retained under the provisions of the contract, will be paid the Contractor within thirty (30) days after final acceptance Provided the Contractor has furnished to the City satisfactory evidence that all sums of money due for any labor, materials, apparatus, fixtures, or machinery furnished for and used in the prosecution of the work have been paid; or that the person or persons to whom the sum may respectively be due have consented to such final payment. . . . (Emphasis added.)
The intention of the contracting parties is of controlling significance to a determination that a third party may enforce the contract provision. Banker v. Breaux, 133 Tex. 183, 128 S.W.2d 23 (1939). In deriving intent, we must begin with the presumption that parties contract for themselves, and a contract will not be construed as having been made for the benefit of third parties unless it clearly appears that such was the intention of the contracting parties. Employers' Liability Assur. Corp. v. Trane Co., 139 Tex. 388, 163 S.W.2d 398 (1942); Citizens Nat. Bk. v. Texas & P. Ry. Co., 136 Tex. 333, 150 S.W.2d 1003 (1941); National Bank v. Gulf, C. & S.F. Ry. Co., 95 Tex. 176, 66 S.W. 203 (1902); Republic Nat. Bank v. National Bankers Life Ins. Co., 427 S.W.2d 76 (Tex.Civ.App.1968, writ ref'd n.r.e.); 17 Am.Jur.2d, Contracts § 304 (1964).
The assertion of rights as third-party beneficiaries to funds retained under construction contracts has often been the source of claims by materialmen and laborers. This court has consistently denied the claims. Citizens Nat. Bk. v. Texas & P. Ry. Co., Supra; Tezel & Cotter v. Roark, 301 S.W.2d 179 (Tex.Civ.App.1957, writ ref'd); Scarborough v. Victoria Bank & Trust Co., 250 S.W.2d 918 (Tex.Civ.App.1952, writ ref'd); C. A. Dunham Co. v. McKee, 57 S.W.2d 1132 (Tex.Civ.App.1933, writ ref'd); See also Barfield v. Henderson, 471 S.W.2d 633 (Tex.Civ.App.1971, writ ref'd n.r.e.); Henderson v. Couch, 274 S.W.2d 844 (Tex.Civ.App.1955, no writ); Houston Shell & Concrete Co. v. Minella, 269 S.W.2d 953 (Tex.Civ.App.1954, writ ref'd n.r.e.).
In the first case, above cited, Texas & Pacific Railway Company contracted with Locke, a general contractor, for grading and culvert work. Locke financed the project with Citizens National Bank, who secured the loan by taking an assignment of funds due Locke under the contract with Railway. The owner, Railway, also retained fifteen percent of the funds due under the contract, pursuant to a contract provision nearly identical to that involved in this case. 1 After completion of the work, the bank sued to recover the funds by virtue of its assignment contract with Locke, and the materialmen intervened claiming to be third-party beneficiaries of the contract between Locke and Railway. This court held that the retainage provision in the contract was intended to benefit Railway to protect it against lien claims on its property, and was not intended to benefit the third-party materialmen.
A similar Texas case is Scarborough v. Victoria Bank & Trust Co., 250 S.W.2d 918 (Tex.Civ.App.1952, writ ref'd). The facts are very similar to the instant case, except that Scarborough involved a private owner. The owner, however, required the general contractor to execute a performance bond in order to insulate the owner's property from liens. In spite of the fact that the owner's property was adequately protected, it was held that the retainage provision was not a contract for the benefit of materialmen.
The materialmen and subcontractors here forcibly argue and the courts below have held that all of the prior decisions concerning claims to retainage as third-party beneficiaries are distinguishable since no lien can be enforced against the property of a municipality and, unless the retainage provision was meant to benefit them, it is an idle provision which is...
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