Maryland Cas. Co. v. Hill

• Decision Date: 08 February 1918
• Docket Number: 14323.
• Citation: 170 P. 594,100 Wash. 289
• Court: Washington Supreme Court
• Parties: MARYLAND CASUALTY CO. v. HILL. City Treasurer, et al. INDEPENDENT SAND & CRAVEL CO. v. MARYLAND CASUALTY CO. HUMBARGER v. MARYLAND CASUALTY CO. (N. NELSON & SON et al., Interveners.

170 P. 594

100 Wash. 289

MARYLAND CASUALTY CO. v. HILL. City Treasurer, et al.

INDEPENDENT SAND & CRAVEL CO. v. MARYLAND CASUALTY CO.

HUMBARGER v. MARYLAND CASUALTY CO. (N. NELSON & SON et al., Interveners.

No. 14323.

Supreme Court of Washington

February 8, 1918

Department 1. Appeal from Superior Court, Grays Harbor County; Ben Sheeks, Judge.

Consolidated actions by the Maryland Casualty Company against T. H. Hill as Treasurer of the City of Aberdeen, and others, by the Independent Sand & Gravel Company against A. R. Eichler and another, and by L. G. Humbarger against A. R. Eichler and another; N. Nelson & Son and the Grays Harbor Construction Company interveners. From the judgment rendered, the Maryland Casualty Company and the interveners appeal. Affirmed.

Grinstead & Laube, of Seattle, Stewart & Tucker, John C. Hogan, and A Emerson Cross, all of Aberdeen, W. H. Abel, of Montesano, and A. M. Avel, of Aberdeen, for appellants.

John C Hogan and A. Emerson Cross, both of Aberdeen, for respondents.

WEBSTER J.

On November 30, 1915, A. R. Eichler entered into a contract with the city of Aberdeen for certain repair work on the A. J. West bridge belonging to the city; the agreed price for the work being $4,548.91. The contract contained no provision for the retention by the city of any reserve percentage or balance to insure performance of the work by the contractor, and was silent as to the payment of claims for labor, material, and supplies furnished the contractor, it merely providing for the payment to the contractor of the full contract price in current expense fund warrants upon completion and acceptance of the work, he provision in that regard being as follows:

'In consideration of the full performance of said work by said contractor, said city agrees to pay said contractor at the following rates as measured and estimated by the city engineer of the city of Aberdeen, to wit: [Schedule of prices.] That payment shall be made to said party of the first part by said party of the second part in current expense fund warrants of said party of the second part drawing 6 per cent. interest; such payment to be made after the full completion and acceptance of said work by the city council of the city of Aberdeen upon a final certificate of completion by the city engineer of the city of Aberdeen.'

On February 9, 1916, A. R. Eichler entered into a second contract with the city of Aberdeen for further repairs to be made on the same bridge--the agreed price of this work being $13,771.87. As in the case of the former contract, the agreement contained no provision for withholding any reserve percentage or balance, and contained precisely the same provision with respect to the payment of the contract price upon completion of the work as above stated with reference to the first contract. Each contract provided that the contractor should furnish a bond conditioned for the faithful performance of the contract and for the protection of all laborers, mechanics, subcontractors, and materialmen, and all persons furnishing the contractor or any of his subcontractors labor, provisions, and supplies for carrying on the work. Pursuant to this agreement separate bonds in the form prescribed by statute in such cases were furnished by the contractor, upon which the Maryland Casualty Company became surety.

Upon securing the first contract Eichler applied to respondent Hayes & Hayes Bankers for financial assistance, and an arrangement was made whereby the bank advanced funds to the contractor as needed in the prosecution of the work; the understanding being that the money so loaned should be used exclusively for that purpose. At this time it was also agreed that the payments to accrue under the contract were to be assigned to the bank for its security and protection. When the second contract was obtained a similar arrangement for advances was made, at which time the contractor deposited with the bank his original duplicates of the contracts. Shortly thereafter the bank notified the city that it held assignments from Eichler of all payments to become due on both contracts; a formal written assignment of the warrants being filed by the bank with the city on May 10, 1916.

Under its agreement with Eichler the bank, between December 7, 1915, and April 14, 1916, advanced to Eichler the sum of $16,288.44; the items aggregating this amount being credited from time to his account, upon which checks were issued and honored for labor and material used in the work. The city accepted the work under the first contract as completed on May 10, 1916, and on May 12, 1916, warrants to the amount of $4,548.91 in payment therefor were issued and delivered by the city to Hayes & Hayes Bankers, by virtue of its assignment. On May 17, 1916, the city accepted as completed the work under the second contract, and on May 18, 1916, it issued and delivered to Hayes & Hayes Bankers warrants in the sum of $13,771.87 in payment therefor. All of these warrants were sold and assigned by the bank to various purchasers thereof prior to May 20, 1916; the proceeds being applied to the satisfaction of the contractor's notes for advances, the payment of certain labor and material claims theretofore discounted by the bank, and the balance deposited to Eichler's credit.

On July 10, 1916, the Independent Sand & Gravel Company, a corporation, and L. G. Humbarger began separate actions against the contractor and Maryland Casualty Company to obtain judgment for various claims for labor and materials furnished in the performance of the contracts. On July 13, 1916, Maryland Casualty Company began its action against T. H. Hill, as treasurer of the city of Aberdeen, city of Aberdeen, a municipal corporation, and Hayes & Hayes Bankers, alleging in substance the execution of the contracts hereinbefore referred to, the giving of the bonds provided for therein, and its suretyship thereon; that the contractor, in his written application for the execution of such bonds, agreed with the plaintiff that 'in event of claim or default under the bond herein applied for all payments specified in the above-mentioned contract to be withheld by the obligee until the completion of the work shall, as soon as the work is completed, be paid to the company, and this covenant shall operate as an assignment thereof, and the residue, if any, after reimbursing the company as aforesaid, shall be paid to the undersigned after all liability of the company has ceased to exist under the said bond, and the company shall at its option be subrogated to all the rights, properties, and interest of the undersigned in said contract or contracts'; that in consideration of such application the plaintiff became surety upon the bonds of the contractor as in the contracts provided; that the contracts were completed and accepted by the city, and warrants in payment therefor were delivered to Hayes & Hayes Bankers under a purported assignment, and that the bank at the time of receiving and filing the assignment had knowledge of plaintiff's rights in the premises as surety upon the contractor's bonds; that prior to the delivery of the warrants by the city claims had been filed on behalf of laborers, mechanics, and materialmen for work, material, and supplies furnished the contractor, and that subsequent to the delivery of the warrants numerous similar claims had been filed with the city, all of which the contractor had failed to pay; that none of the warrants so delivered to the bank had been paid, and the plaintiff, as surety on the contractor's bonds, is entitled to the funds due from the city in payment for the work under the contracts, and because of the default of the contractor in failing to pay labor and material claims it is subrogated to all the rights of the contractor, the city of Aberdeen, and all persons who had filed claims against the bonds; that when funds become available for the purpose of retiring the warrants the treasurer of the city of Aberdeen will pay to Hayes & Hayes Bankers, or its assigns, the amount due under the warrants, unless restrained from so doing, and that Hayes & Hayes Bankers, unless restrained, will sell, assign, or transfer the whole or some portion of the warrants to third parties, who may thereby claim to be innocent holders thereof, which claim, if sustained, will result in the total or partial dissipation of the fund to which the plaintiff as surety is entitled for reimbursement. The relief prayed for is that Hill, as treasurer, and the city of Aberdeen be enjoined from disbursing any funds in the possession of either of them in payment of the warrants theretofore issued; that Hayes & Hayes Bankers be enjoined from selling or transferring the warrants, and that it be adjudged that plaintiff is entitled to the moneys due from the city in payment of the warrants and to the possession of the warrants theretofore delivered to the bank.

The written application for the bond, which contained the assignment relied upon by the casualty company, was no part of the bond, nor was it filed therewith; neither had the city or the bank any notice or knowledge of its existence until the commencement of the action on July 13, 1916.

On motions of Maryland Casualty Company the three separate actions were consolidated for the purposes of trial, and all parties who had filed notice of claim against the bonds with the city were brought into the Consolidated action. Upon the issues joined by the pleadings the cause came on for trial, resulting in a judgment dismissing the action of the Maryland Casualty Company, and fixing the amounts due the several lien claimants, except that the claims of N. Nelson & Son and Grays Harbor Construction company were disallowed. The Maryland Casualty Company, N. Nelson...