First Nat. Bank of North Bend v. U.S. Fidelity & Guaranty Co.

• Decision Date: 23 October 1928
• Citation: 271 P. 57,127 Or. 147
• Parties: FIRST NAT. BANK OF NORTH BEND v. UNITED STATES FIDELITY & GUARANTY CO. ET AL.
• Court: Oregon Supreme Court

271 P. 57

127 Or. 147

FIRST NAT. BANK OF NORTH BEND v. UNITED STATES FIDELITY & GUARANTY CO. ET AL.

Supreme Court of Oregon

October 23, 1928

Department 2.

Appeal from Circuit Court, Multnomah County; Robert Tucker, Judge.

Suit by the First National Bank of North Bend, against the United States Fidelity & Guaranty Company and others. From an adverse decree, plaintiff appeals. Reversed and rendered.

This is an appeal from a decree dismissing plaintiff's complaint in a suit brought to impress a trust on a fund in the hands of the defendant United States Fidelity & Guaranty Company. It is the contention of plaintiff that respondent cannot equitably retain the sum of $6,533.84 paid it by the government, for the account of Payne & Padrick, in view of the following facts.

On the 5th of January, 1924, the United States awarded a contract to the defendants Payne & Padrick for the construction of a section of the Detroit-Niagara Forest Road on the Santiam river. Respondent United States Fidelity & Guaranty Company executed a bond in the sum of $65,000 to guarantee the performance by the defendants Payne & Padrick of their contract. The bond was a commercial bond executed for a premium of $2,089.80. The defendants Payne & Padrick entered upon the performance of their contract and applied to plaintiff for moneys with which to finance the performance of their work. The bank was unwilling to make advances for this purpose without some assurance that the estimates would be paid to it for the satisfaction of the notes given for advances so made to the contractors. In order that assurance on this subject might be given, it was necessary that the surety should join with the contractors in the commitment which plaintiff required. Under these circumstances respondent executed and delivered to plaintiff the following letter:

"United States Fidelity and Guaranty Company, Portland Office.

"C O. Price, Manager. 1208 Porter Bldg., Portland, Oregon.

"February 20, 1924.

"First National Bank of North Bend, North Bend, Oregon. Gentlemen Referring to the contract which Messrs. Payne and Padrick have heretofore entered into with the Bureau of Public Roads for the construction of a section of the Detroit-Niagara Forest Road on the Santiam River, we are informed that Messrs. Payne and Padrick have designated that the monies due or to become due under this contract, are to be paid to your bank in accordance with the terms and provisions of a Power of Attorney given by them to you under date of February 16, 1924. Therefore this letter is to advise you that this company, as the surety on the bond furnished to guarantee the performance of the above mentioned contract, hereby consents to the payment of the monies due or to become due under the contract in question, not exceeding the sum of $25,000 in accordance with the arrangement referred to above. (Italics ours.)

"Yours very truly,

"[Signed.] O. Price, Manager."

On receipt of this letter and on the 21st of February, 1924 plaintiff advanced the contractors $2,000. On the 13th of March an additional $5,000 was advanced.

A question occurred whether this letter permitted aggregate advances to exceed $25,000, to clarify which the respondent by the manager of its Portland office, wrote to the plaintiff on April 2, 1924, in effect as follows:

"In this connection will say that we have no objection to your advancing Mr. Payne such amounts as you deem advisable providing your outstanding loans to him at any one time do not exceed $25,000."

This letter was not regarded as satisfactory, and, after a conference between one of the directors and a representative of respondent, the company wrote to plaintiff the following letter dated April 9th, 1924:

"In Re: Payne & Padrick

"In accordance with my conversation today with Mr. Hollister, this letter is to advise you that the United States Fidelity & Guaranty Company as surety on the bond furnished for Messrs. Payne & Padrick to guarantee contract made with the Bureau of Public Roads, consents to the assignment to your bank of the estimates under said contract in consideration of advances made by your bank to these contractors to carry on the work." (We underscore.)

On the 5th of April, plaintiff advanced the contractors $5,000 and on April 11, $6,000, as plaintiffs asserts, on the faith of the assurance given by respondent to plaintiff. On April 14th plaintiff wrote respondent a letter, in substance, as follows:

"We have your letter of the 9th instant referring to advances made on estimate on the road contract of Messrs. Payne & Padrick. This to advise you that we are acting on said advice and are making advances until such consent by yourselves as surety under this contract is cancelled."

On the 7th of May, plaintiff advanced an additional $5,000; on the 12th of May, $3,500, and on the 13th of May, $1,500, and on the 9th of June, $5,000, and on the 16th of June, $2,500, and on July 3d, $4,000. At that time Mr. R. B. Mason, a representative of respondent, telephoned to Mr. John H. Greves, cashier of plaintiff, asking plaintiff to make no further advances, and plaintiff informed Mr. Padrick that it could advance no more money because of the attitude taken by the guaranty company. After Mr. Padrick took the matter up with the guaranty company, respondent wrote the following letter to plaintiff:

"We are enclosing Mr. Padrick's note for the balance of the June estimate. We asked you to suspend this temporarily in order that we might have a conference with Mr. Padrick and be assured that the plans for the work this month and expenditure of the funds were satisfactory. Mr. Padrick came in yesterday and we find the work going on in order. Therefore we withdraw our "stop" request and ask that this advance go through according to previous arrangement."

It appears that the contractors entered into an agreement of indemnity with the guaranty company on November 15, 1923, by the terms of which, among other things, it was provided:

"That the said Company, as surety on said bond, as of this date, shall be subrogated to all our rights, privileges and properties as principal and otherwise in said contract, and said principal does hereby assign transfer and convey to said company all the deferred payments and retained percentages, and any and all moneys and properties that may be due and payable to said principal at the time of such breach or default, or that may thereafter become due and payable to said principal on account of said contract, or on account of extra work or materials supplied in connection therewith, hereby agreeing that all such moneys and the proceeds of such payments and properties shall be the sole property of the said company, and to be by it credited upon any loss, damage, charge and expense sustained or incurred by it as above set forth under its bond of suretyship."

Wallace McCamant, of Portland (McCamant & Thompson, of Portland, on the brief), for appellant.

Wm. C. Ralston, of Portland (Chester A. Sheppard and W. D. Burnett, both of Portland, on the brief), for respondents.

BEAN, J. (after stating the facts as above).

The answer of the respondent asserts that it was understood between the bank, the respondent, and the contractors, at the time the letters were given, that the bank would be protected only on such moneys as it collected on estimates for work actually done each month, and that the letters were not intended to give the bank, which was so understood by it, the right to collect the retained percentages or retained estimates. It was further contended in the answer, by way of defense to the bank's claim, as follows:

First. That no retained percentages ever became due the contractors, for the reason that they defaulted and abandoned their contract.

Second. That the order and power of attorney, under which the bank claimed, were invalid as an assignment, both in law and equity, as between all of the parties concerned.

Third. That the letters, on which the bank relied, neither attempted to nor constituted a waiver of the respondent's subrogation agreement with the contractors.

Fourth. That the bank had no claim in equity to the reserved percentages, for the reason that it misapplied monthly estimates received by it to pay off a previous loan made to the contractors.

Fifth. That the respondent was compelled to complete the road contracted for, at a loss of $63,000.

Sixth. That the right of the bank to the fund in question was previously adjudicated in the District Court of the United States, for the District of Oregon, which suit as to the present claim is res adjudicata.

The power of attorney from Payne & Padrick to the bank, executed February 16, 1924, and which was duly acknowledged, authorized the bank, as attorney for the contractors, "to indorse my name on and collect money due on checks drawn in my favor by any disbursing officer of the United States for whatever account (Detroit-Niagara Section of Forest Roads)"; such authority to remain in full force until revoked. This power of attorney was filed in the office of the Road Bureau on February 21, 1924.

The contract provided that the government should retain 10 per cent. of the monthly estimates until the completion of the work. On February 14, 1925, the contractors executed, and deposited with the Road Bureau, an order to the Road Bureau to pay to the plaintiff bank the moneys so retained, $6,533.84, pursuant to the authorization of February 20, 1924, when the time should come for such payment.

On July 18, 1924, the contractors abandoned the work and so notified the district engineer of the United States Bureau of Public Roads, by letter.

A copy of the notice which was on the letterhead of respondent was served upon the guaranty company....