Interfirst Bank Dallas, N.A. v. U.S. Fidelity and Guar. Co.
| Decision Date | 10 July 1989 |
| Docket Number | No. 05-88-00597-CV,05-88-00597-CV |
| Citation | 774 S.W.2d 391 |
| Parties | 9 UCC Rep.Serv.2d 1059 INTERFIRST BANK DALLAS, N.A., Appellant, v. UNITED STATES FIDELITY AND GUARANTY COMPANY, Appellee. |
| Court | Texas Court of Appeals |
Christopher M. Hewitt, John L. House, Dallas, for appellant.
Stephen K. Yungblut, Gary L. White, Dallas, for appellee.
Before STEWART, ROWE, and BURNETT, JJ.
NCNB Texas National Bank (Bank), as successor in interest to Interfirst Bank Dallas, N.A., appeals from a judgment which determined that United States Fidelity and Guaranty Company (USF & G) had a superior right to certain funds owed by various prime contractors to certain related subcontractors 1 (Wallace). In six points of error, Bank complains that the trial court erred in concluding that: (1) Wallace forfeited its rights to funds still held by the prime contractors because Wallace committed a material breach of contract by not satisfying claims of all laborers and materialmen; (2) USF & G, as subrogee of the prime contractors, had priority over Bank to the withheld funds; (3) USF & G, as subrogee of lien claimants with unperfected laborers' and materialmen's liens, had priority over Bank to the funds; (4) certain lien claimants had perfected their liens under applicable state law; (5) the terms of USF & G's payment bonds were incorporated into Wallace's subcontracts; and (6) USF & G was entitled to a $30,000.00 reimbursement for its costs and expenses incident to bond claim handling on the International Pavilion Project. For the reasons given below, we modify the trial court's judgment by deleting the $30,000.00 award for reimbursement and, as modified, affirm.
The issue presented in this case is whether USF & G's subrogation rights in certain funds are superior to Bank's perfected security interest in accounts receivable. The funds in dispute are undisbursed progress payments and retainages withheld by the prime contractors under various bonded subcontracts. 2 This complicated case proceeded to trial on stipulated facts. As an appellate court, we are bound by the facts as expressly stipulated by the parties. See Geo-Western Petroleum Dev., Inc. v. Mitchell, 717 S.W.2d 734, 736 (Tex.App.--Waco 1986, no writ); Trinity Universal Ins. Co. v. Bellmead State Bank, 396 S.W.2d 163, 172 (Tex.Civ.App.--Dallas 1965, writ ref'd n.r.e.).
On October 16, 1981, USF & G and Wallace entered into a Master Surety Agreement. This agreement provides for USF & G to issue payment bonds on all Wallace subcontracts and secures USF & G's interest by subrogating it to all Wallace's rights in the subcontracts. All of the bonds issued under the Master Surety Agreement require USF & G to pay laborers and materialmen without regard to the perfection of liens. All bonded subcontracts between Wallace and the various prime contractors provide that final payments thereunder are not due until all lienable claims of laborers and materialmen have been satisfied. The subcontracts clearly reflect that Wallace was to use funds due from the prime contractors to pay for labor and materials being incorporated into the various projects. The subcontracts do not, however, expressly incorporate USF & G's contractual subrogation rights.
By documents dated December 16, 1981, Bank made loans to Wallace to provide operating capital for its construction business. In exchange, Wallace granted Bank a security interest in its accounts and the proceeds of its accounts. Bank properly perfected this security interest. It is clear that Wallace was to devote all funds advanced by Bank to completing the subcontracts according to their terms. Moreover, the Master Surety Agreement was already in place when Bank first advanced funds to Wallace on December 16, 1981, and Bank was familiar with these contractual undertakings as they occurred. Indeed, payment bond coverage on all Wallace subcontracts was an integral feature of Bank's loan commitments.
On August 6, 1984, Wallace filed voluntary bankruptcy. The bankruptcy court entered an order dated September 6, 1984, directing that all payments owed to Wallace under the bonded subcontracts be made to USF & G. On July 30, 1986, the bankruptcy court entered an order directing Wallace to abandon to Bank all its remaining accounts receivable. This order further provided that "this order shall not prejudice or otherwise affect any rights which any sureties may assert as to any of the accounts receivable so abandoned in which they may assert an interest." Thus, the bankruptcy court released the funds from the debtors' estates without determining whether Bank or USF & G had a superior right to such funds.
At the time of its bankruptcy, Wallace had failed to pay in full its obligations to laborers and materialmen under the subcontracts. Accordingly, USF & G was called upon to satisfy these unpaid obligations under the terms of its bonds. The total of these unpaid obligations exceeded the amount of retainages available under the subcontracts. USF & G contends that it is entitled to apply the retainages to help satisfy Wallace's unpaid obligations. Bank argues that it has a superior right to such funds by virtue of its perfected security interest in accounts receivable.
On April 30, 1982, Carl P. Wallace Company, Inc., entered into a subcontract with Texas Construction, Inc., the prime contractor, whereby Wallace agreed to provide all labor and materials necessary for the installation of plumbing for the Four Allen Center Project. On that same date, USF & G, as surety, and Wallace, as principal, executed a subcontract labor and material bond and subcontract performance bond in favor of the prime contractor. On the date of the bankruptcies, the prime contractor owed Wallace $121,144.47--$86,833.49 in progress payments and $34,310.98 in retainage withheld pursuant to the subcontract. Also as of that date, Wallace owed several subcontractors for labor and materials.
The prime contractor notified USF & G that Wallace had defaulted under its subcontract and made demand upon USF & G pursuant to the payment bond. USF & G paid the claims of the Wallace subcontractors pursuant to its bond obligations. Only one of the subcontractors had perfected a mechanics' lien in the amount of $772.00. The rights of the other subcontractors to perfect liens had expired prior to the dates upon which USF & G received notice of, or paid, the claims. The prime contractor then paid USF & G the entire $121,144.47 balance remaining in the Wallace subcontract. Bank has made demand for $120,372.47, which represents the $121,144.47 balance less the $772.00 paid to the perfected lien claimant.
On September 8, 1981, Carl P. Wallace Company, Inc., entered into a subcontract with the prime contractor, Pavarini Construction Company, whereby Wallace agreed to furnish all labor and materials necessary for the installation of a heating, ventilating, and air conditioning system and plumbing for the Buena Vista project. On September 16, 1981, USF & G, as surety, and Wallace, as principal, executed a subcontract labor & material bond and a subcontract performance bond in favor of the prime contractor. Wallace had completed the performance of the work under its subcontract before its bankruptcy. There was a balance remaining with the prime contractor in the Wallace subcontract in the sum of $88,053.48, which represented retainage withheld pursuant to the terms of the subcontract.
Three subcontractors to Wallace were owed for materials and labor as of the date of bankruptcy. The prime contractor notified USF & G of the money owed to these subcontractors and USF & G paid the claims in full. None of these subcontractors had perfected a mechanics' lien relating to the project. In fact, the rights of each of these subcontractors to perfect a mechanics' lien expired prior to the dates upon which USF & G received notice of, or paid, their claims. The prime contractor paid USF & G the $88,053.48 balance remaining in the Wallace subcontract. Bank has made demand for this balance.
On January 31, 1983, Huffman-Wolfe Company (Wallace) entered into a subcontract with HCB/Peck Contractors, the prime contractor, to provide all labor and materials necessary to furnish and install certain mechanical work for the Farmers Insurance Building. USF & G, as surety, and Wallace, as principal, issued a subcontract labor & material bond and a subcontract performance bond in favor of the prime contractor on February 1, 1983. As of the date of the bankruptcies, certain items of contract, corrective, and warranty work required under the subcontract remained unfinished. At that time, there was a balance remaining in the Wallace subcontract with the prime contractor in the sum of $328,618.75, which represented $39,899.75 in progress payments and $288,719.00 in retainage withheld pursuant to the terms of the subcontract. Also as of that date, certain subcontractors to Wallace were owed for labor and materials furnished pursuant to their subcontracts.
On September 12, 1984, the prime contractor transmitted to USF & G the sum of $187,394.00 from the balance which remained in the subcontract. USF & G distributed this money to Wallace's unpaid subcontractors. The prime contractor incurred $31,030.25 in expenses in completing the contract. After deducting the $187,394.00 paid to USF & G and the $31,030.25 for the prime contractors' expense in completing the subcontract obligations, the balance remaining in the Wallace subcontract totaled $110,194.50.
Three of the Wallace subcontractors paid by USF & G did not perfect mechanics' liens. In fact, the rights of each of these three subcontractors to perfect a mechanics' lien expired prior to the dates upon which USF & G received notice of, or paid, their claims. One...
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