Levinson v. Linderman, 33974

• Decision Date: 07 March 1958
• Docket Number: No. 33974,33974
• Citation: 322 P.2d 863,51 Wn.2d 855
• Parties: Dave LEVISON and Victor Osina, d/b/a Victor Osina Company, a partnership; and The National Bank of Commerce of Seattle, Respondents, v. C. R. LINDERMAN et al., Defendants, United States Fidelity and Guaranty Company, a corporation, Appellant.
• Court: Washington Supreme Court

Page 855

51 Wn.2d 855

322 P.2d 863

Dave LEVISON and Victor Osina, d/b/a Victor Osina Company, a partnership; and The National Bank of Commerce of Seattle, Respondents, v. C. R. LINDERMAN et al., Defendants, United States Fidelity and Guaranty Company, a corporation, Appellant.

No. 33974.

Supreme Court of Washington, Department 2.

March 7, 1958.

Lester T. Parker, Aberdeen, Ralph E. Franklin, Seattle, for appellant.

Zelasko & Zelasko, Aberdeen, Nordquist & Schnatterly, Centralia, for respondents.

FOSTER, Justice.

The United States Fidelity and Guaranty Company appeals from a judgment subordinating its claim to moneys in the court's registry, representing the final payment on school construction contracts, to the claims of respondent Victor Osina Company, a judgment creditor, and respondent The National Bank of Commerce of Seattle, a contract creditor, whose assignment caveat was filed in the office of the secretary of state.

On March 22, 1953, the Grays Harbor County Consolidated School District No. 97 executed separate contracts for the construction of a school building and teachers' cottage with the L. & L. Construction Company, a partnership. On the same day, the contractor filed separate statutory performance bonds (RCW 39.08.010), on which the United States Fidelity and Guaranty Company was surety. Thereafter, the contractor started the construction.

On July 29, 1953, respondent, The National Bank of Commerce of Seattle, filed in the office of the secretary of state a statutory notice (RCW 63.16.020) that the contractor intended to assign accounts receivable to it. On April 19, 1954, the bank loaned the contractor fifteen thousand dollars upon its promissory note, secured by an assignment of a single progress payment. Neither the school district nor the surety was advised of the assignment. The note remains unpaid.

On July 7, 1954, the school board's architect advised the board that the contractor had breached its contract in four particulars. On the following day, July 8, 1954, the school board, by resolution, found the contractor in default in the particulars specified by the architect and gave the contractor written notice thereof, and, at the expiration of the contractual ten-day grace period, demanded the completion of the buildings by the surety under its bond, which it did at a cost of $89,159.70.

The application for the performance bond provides, among other things, that in case of the default of the contractor, the surety shall have the right to complete the contract at the expense of the principal.

The supplemental special conditions of the contract ¹ require the contractor to furnish proof of payment of all bills before final payment; otherwise, the school district may itself pay the bills. Both construction contracts, which are in identical form, provide, in the event of the contractor's default, the school district may itself complete the work or employ others to do it, and take and use the contractor's equipment and materials for that purpose, in which event no further money shall be due the contractor unless a surplus exists after payment of all expenses. ²

Respondents Dave Levinson and Victor Osina, doing business as the Victor Osina Company, obtained a judgment against the contractor for $3,413.54, and thereafter, on October 24, 1955, served a writ of garnishment upon the school district which answered; but, by stipulation of the parties, the unpaid balance on the construction contracts of $62,200.29 was deposited in the court's registry, and the school district dismissed.

By stipulation of the parties, the court retained sufficient funds in its registry to satisfy the claims of both respondents, but released the balance to the surety.

Briefs were submitted, and, subsequently, the trial court, in a memorandum opinion, determined that the respondents had priority. The court's thesis was that, while the plans and specifications prohibited the assignment to the bank in very specific terms, such were not part of the contract; therefore, having filed its caveat in the office of the secretary of state to accept assignments from the contractor under the accounts receivable act, and because the surety failed to do so, the bank's claim was adjudged superior to that of the surety. The decision is fundamentally erroneous because the act has no application.

The contracts for both the construction of the school building and the teachers' cottage contain the following provision:

'First. The Contractor under the direction and to the satisfaction of Architect Charles A. Baylon, acting under this contract as agent of the said Owner, shal and will provide all the materials and perform all the work mentioned in the specifications and shown on the drawings prepared by the said Architect for construction of a Teacher's Cottage at Lake Quinault, Grays Harbor, State of Washington, * * * which drawings and specifications are identified by the signature of the parties hereto.' (Italics ours.)

The performance bond itself makes the contract and the plans and specifications a part of the bond by reference.

It is beyond cavil that the contractor defaulted in the performance of his contract because of which the school board terminated the contract and called upon the surety to complete the buildings pursuant to the performance bond, which it did at a very substantial loss.

The general conditions of the contract and the supplemental special conditions contained in the plans and specifications prohibit the assignment in unmistakable terms; but the respondents contend, and the trial court found, that such were not part of the contract. We hold otherwise, and that all the documents were executed simultaneously and are but one contract.

Although there were separate documents, the two contracts, the two performance bonds, and the plans and specifications were all executed at the same time as part of one transaction and constitute a single contract. The bank and the judgment creditor contend that the reference to the plans and specifications in the two contracts is insufficient to make the plans and specifications a part of the contract. We decide otherwise. The applicable rule of law is stated in 17 C.J.S. Contracts § 298, p. 714, as follows:

'As a general rule, sometimes by reason of express statutory provision, where several instruments are made as part of one transaction, they will be read together, and each will be construed with reference to the other. This is true, although the instruments do not in terms refer to each other. * * *'

Our decisions are in accord. Paine-Gallucci, Inc. v. Anderson, 41 Wash.2d 46, 246 P.2d 1095; Standring v. Mooney, 14 Wash.2d 220, 127 P.2d 401; State ex rel. Noble v. Bowlby, 74 Wash. 54, 132 P. 723.

This is not an ordinary contract, but a printed form copyrighted by the American Institute of Architects, designed for the specific purpose of making all documents one contract. The definition is unmistakable:

'(a) The Contract Documents consist of the Agreement, the General Conditions of the Contract, the Drawings and Specifications, including all modifications thereof incorporated in the documents before their execution. These form the Contract.'

Under such circumstances, although the documents are physically separate, they constitute a single contract. This conclusion was reached under the identical form of contract in Valley Construction Co. v. City of Calistoga, 72 Cal.App.2d 839, 165 P.2d 521.

We said in Young v. Borzone, 26 Wash. 4, 18, 66 P. 135, 139, 421:

Such is the uniform tenor of judicial decision. ³

The bank could not fail to know that the contract was for the construction of school buildings and that a performance bond was required by RCW 39.08.010 at the time of the execution of the contract. Inquiry would have shown that the contract prohibited the assignment in question, and that the school district had the right under the contract, in the event of the contractor's default, to complete the buildings and to use all sums unpaid for that purpose.

The applicable rule of law ⁴ is well stated In A. Farnell Blair Co., Inc., v. Hollywood State Bank, 102 Cal.App.2d 418, 427, 227 P.2d 529, 534:

'* * * Assignees of a contractor of funds to be earned in public work take with notice of the terms of the contract and of the undertaking of the contractor's surety. New Amsterdam Casualty Co. v. City of Astoria, supra, D.C., 256 F. 560. * * *'

The assignment is void under Indemnity Ins. Co. of North America v. Nelson, 173 Wash. 294, 296, 22 P.2d 984, in which we held:

'The contract provides that the contractor shall not either legally or equitably, assign any of the moneys payable under the contract, or his claims thereto, unless with the consent of the city. This is a plain, important provision of the contract, which was known to Fuller & Co. when it took the assignment. To permit Fuller & Co. to recover its so-called superior or preferred claim of $2,045, nearly equal to the total amount of the contract price, would render nugatory the specific prohibition in the contract against the assignment of moneys due under it; thus necessarily, though indirectly, resulting to the detriment of a contract upon which there is a surety, as required by statute, for the performance of a contract which specifically provides against assignment of moneys due under the contract.'

The supreme court of Connecticut recently passed upon the same issue and held in Lewin and Sons, Inc. v. Herman, 143 Conn. 146, 120 A.2d 423, 425, as follows:

'We first take up the question whether the attempted assignment by Hubler to the plaintiff was effective. Hubler had agreed in his contract with Herman that he would not assign any money due or to become due under the contract without Herman's consent. Such a provision is valid. 6 C.J.S. Assignments § 75, p. 1128. Herman refused to sign the proffered assignment, and that refusal rendered the assignment abortive.'

The funds...