Maryland Cas. Co. v. Washington Nat. Bank

• Decision Date: 16 August 1916
• Docket Number: 13338.
• Citation: 159 P. 689,92 Wash. 497
• Court: Washington Supreme Court
• Parties: MARYLAND CASUALTY CO. v. WASHINGTON NAT. BANK et al.

159 P. 689

92 Wash. 497

MARYLAND CASUALTY CO. v. WASHINGTON NAT. BANK et al.

No. 13338.

Supreme Court of Washington

August 16, 1916

Department 2. Appeal from Superior Court, Kittitas County; Kauffman Judge.

Action by the Maryland Casualty Company against Anderson & McKivor the Washington National Bank, and others. From the decree the complainant appeals, and from a part thereof the bank appeals, and Zentner & Ashman and other lien claimants join in complainant's appeal. Judgment modified, and cause remanded, with instructions.

Short & Gleysteen, of Ellensburg, John W. Roberts of Seattle, and Hovey & Hale, of Ellensburg, for appellants.

E. E Wager and John H. McDaniels, both of Ellensburg, for respondents.

BAUSMAN J.

In 1914 the commissioners of Kittitas county entered into four road-building contracts with certain persons for whom plaintiff is surety, each contract providing that, while the contractor might have current payments to 80 per cent., the final 20 should not be paid until 30 days after the work should be accepted and the board be satisfied by receipts that all debts had been paid to laborers and materialmen. Only one road was built under a statute requiring this last provision, but there is nothing in the statutes under which the others were built (Rem. Code, § 5879-9) forbidding such salutary additions, so, as the commissioners exacted them of the principal, a surety can neither deny his part in their obligation nor be shut out from whatever equities inhere. The county, in turn, cannot escape such liability as may follow from provisions which, not contrary, though purely supplemental, to statute, are appropriate to a public contract. State ex rel. Bartelt v. Liebes, 19 Wash. 589, 595, 54 P. 26, and Pacific Bridge Co. v. U.S. Fidelity Co., 33 Wash. 47, 55, 73 P. 772, to which may be added Rem. & Bal. Code, § 1161, amended by Laws 1915, p. 62, authorizing in these undertakings supplemental conditions not contrary to the statute. This amendment, though after the execution of this bond, was made retroactive in the same session, Laws 1915, p. 548, Rem. Code, § 1161-1. At the close of the work the contractors had received their 80 per cent., but labor and material claimants had filed demands aggregating $15,000, while the county had received from the state warrants of $7,293 payable and yet undelivered to the contractors. Other sums payable by the county itself brought the balance up to $10,728, but before this was delivered the surety notified the commissioners that on account of the debts the whole should be withheld, whereupon by resolution they forbade the county auditor, ex officio their clerk, to make any delivery until they should instruct him further, which they never did. Shortly after the formal acceptance of the work, the defendant bank, having loaned the contractor during the work up to $6,000 on assignments of all payments or warrants that might become due to him, got these warrants, indorsed by the contractor, with the consent of the county auditor and cashed them, acts found wrongful by the lower court and on this record obviously to be condemned. Then the surety brought the present suit in equity against the lien claimants and the county, alleging that the work was completed, the whole $10,728 in the county's hands, and 83 claims filed, which, after adjudication of them, it desired paid from the fund. The claimants by answer and cross-complaint asserted the wrongful diversion to the bank, their right to a lien on the fund and to a judgment against the county, the bank, and the surety company. The county, conceding the delivery to the bank, also asserted that to have been wrongful, but accepted no liability. The bank, brought in as a party, set up the assignment, of which it had given notice in due season. The lower court, allowing the bank a lien on what it had seized, rendered judgment in its favor for $5,395.10, to be satisfied out of the $7,293 in its hands, and ordered it to repay to the county only the difference. Against the surety the court gave judgment to the lien claimants for $7,901.04. The surety appeals from the whole decree, and the bank from that part of it which made it pay back something to the county. The lien claimants joined in the surety's appeal, asserting a right to recover their demands from a fund replenished by the bank in full.

In the Liebes Case, and in First Nat. Bank v. Seattle, 71 Wash. 122, 127 P. 837, we announced a trust to creditors in a contractor's reserved balance. Here, holding the surety liable for the contractor's debts by a contract supplementing statutory obligations, we have a surety's right of subrogation to that balance should he be compelled to pay the principal's creditors, and of his right to prevent the dissipation of the fund. In this portion justice must rigorously protect the surety. His expectation when he goes on the bond is plain; the principal may squander 80 per cent., leaving the surety at the mercy of the creditors, but there is at least 20 that will be applied to the creditors in spite of him. This amount, originally reserved to protect merely the creditors, is a collateral security of the principal...