Maryland Cas. Co. v. Philbrick & Nicholson, Inc.

• Decision Date: 02 April 1928
• Docket Number: 21048.
• Citation: 147 Wash. 277,266 P. 142
• Court: Washington Supreme Court
• Parties: MARYLAND CASUALTY CO. v. PHILBRICK & NICHOLSON, Inc., et al.

266 P. 142

147 Wash. 277

MARYLAND CASUALTY CO. v. PHILBRICK & NICHOLSON, Inc., et al.

No. 21048.

Supreme Court of Washington

April 2, 1928

Department 2.

Appeal from Superior Court, Thurston County; D. F. Wright, Judge.

Action by the Maryland Casualty Company against Philbrick &amp Nicholson, Inc., and others. Judgment for defendants, and plaintiff appeals. Affirmed.

Roberts & Skeel and Elwood Hutcheson, all of Seattle, for appellant.

W. H Abel, of Montesano, and Troy & Yantis, of Olympia, for respondents.

FULLERTON J.

In May 1926, the defendant Philbrick & Nicholson, Inc., a corporation, entered into a contract with the state highway commission of the state of Washington for the completion of a part of state road No. 9, lying and being between Agnew and Port Angeles, in Clallam county. The contract is not in the record, and we are not advised as to its precise terms. Enough does appear, however, to show that it was in form that is usual in such cases; the contractor agreed to furnish the necessary labor and material, and grade and hard surface the road in accordance with plans and specifications adopted by the highway department of the state. The contract was of considerable magnitude. The estimated contract price seems to have been $179,833.12. The work was substantially performed by the contractor, and was accepted by the state after making some deductions in the contract price for minor portions of the work remaining uncompleted; the allowance made by the state to the contractor being $178,617.05.

On entering into the contract, the defendant gave a bond to the state of Washington, in the penal sum of $179,833.12, with the appellant, Maryland Casualty Company, as surety; the bond being in the following form:

'Know all men by these presents that Philbrick & Nicholson, Inc., a corporation, existing under and by virtue of the laws of the state of Washington, of Tacoma, Wash., as principal, and Maryland Casualty Company, as surety, are jointly and severally held and bound unto the state of Washington, in the penal sum of $179,833.12, for the payment of which we jointly and severally bind ourselves, our heirs, executors, administrators and assigns, and successors and assigns, firmly by these presents.

'The condition of this bond, is such that whereas, on the 3d day of May, A. D. 1926, the said Philbrick & Nicholson, Inc., principal herein, made and entered into a certain contract with the state of Washington, by the terms, conditions, and provisions of which contract the said Philbrick & Nicholson, Inc., principal herein, agree to furnish all material and do certain work, to wit: That it will undertake and complete the construction of a portion of state road No. 9, between Agnew and Port Angeles, federal aid project No. 138-B, in Clallam county, Wash., between Station 535-90 and Station 869-50, as per maps, plans, and specifications made a part of said contract, which contract as so executed is hereunto attached, is now referred to, and by reference is incorporated herein and made a part hereof as fully for all purposes as if here set forth at length.

'Now, therefore, if the principal herein shall faithfully and truly observe and comply with the terms, conditions, and provisions of said contract in all respects, and shall well and truly and fully do and perform all matters and things by it undertaken to be performed under said contract upon the terms proposed therein, and within the time prescribed therein, and shall indemnify the state of Washington against any direct or indirect damages that shall be suffered or claimed, for injuries to persons or property during the construction and improvement of such highway, and until the same is accepted, and shall pay all laborers, mechanics, subcontractors, and materialmen, and all persons who shall supply such contractor or subcontractor with provisions and supplies for the carrying on of such work, and shall in all respects faithfully perform said contract according to law, then this obligation to be void, otherwise to remain in full force and effect.

'Witness our hands this 3d day of May, 1926.

'Philbrick & Nicholson, Inc. [Seal.]

'By C. E. Philbrick,

'P. O. Nicholson, Secy.-Treas.

'Maryland Casualty Company

'By A. Van R. Schermerhorn

'Surety Attorney in Fact. [Seal.]

'Address of local office and agent of surety company, Hansen & Rowland, Inc., Gen. Agents, 201 Washington Bldg., Tacoma, Wash.

'Approved as to form May 4, A. D. 1926. Tom W. Holman, Assistant Attorney General.

'Approved as to execution by surety (no responsibility assumed for forgery), May 1, 1926, H. O. Fishback, Insurance Commissioner.

'Approved R. H. Hartley, Governor.'

In September, 1926, during the progress of the work, the contractor became unable to meet its current expenses for labor, and applied to its bondsman, through its agents, Hansen & Rowland, for relief. It appears that, in its application made to the bonding company to become surety upon its bond, the contractor had agreed not to mortgage or otherwise pledge its working equipment while the contract was in force. It is inferable, also, that it had theretofore applied to the respondent Montesano State Bank for funds for the purpose of meeting its labor obligations, and had been met with this restrictive clause in the application. The result of the conference with the agents was a consent in writing to placing a chattel mortgage on the equipment to the bank as security for $15,000. The contractor then made another application to the respondent bank for a loan. The bank desired the additional security of the bond for the repayment of any loan it should make to the contractor, and submitted the matter to its counsel as to the method of procedure to secure this end and to draw the necessary contracts. Its counsel at once advised it that under the statutes of the state they could have no lien or claim against the bond for money loaned or advanced to the contractor, even though the money loaned or advanced was used solely in the prosecution of the contract work. Another expedient was then adopted. It was agreed that the bank should purchase the individual accounts of the workmen on the regular pay days, take an assignment of the accounts, and itself file a claim against the bond. This scheme was subsequently carried out. On the regular pay days, the contractor made a list containing the names of each individual workman and the amount earned by him, and forwarded the list to the bank. The bank then drew a check on itself payable to the workman and forwarded it to some bank or person near the place of work with a form of assignment. When the workman signed the assignment, delivery was made to him of the check drawn in his favor. Some seventeen different payments were made in this manner; the first on September 25, 1926, and the last on December 23, of the same year. The totals aggregated $13,529.37. At the time of each several payment the respondent bank filed a statement of the amount paid with the state highway commission, making a claim against the contractor's bond for the amount. The commission, at the time of the receipt of each several claim, acknowledged its receipt in writing, stating the amount of the claim, the name of the contractor, the name of the bondsman, and the fund against which the claim was made, and sent a copy of its acknowledgment to the contractor and to the bondsman.

The contractor incurred obligations to numerous persons furnishing materials and supplies to it, aggregating a large sum. These persons likewise filed claims against the bond. There was due the state from the contractor, also, the sum of $323.46 as premiums payable under the Workmen's Compensation Act. To meet these obligations there remained in the hands of the commission the percentage it had withheld from the contractor under the statutory requirement that it withhold from the payments due the contractor 15 per cent. of the contract price for the benefit of persons performing labor for the contractor on the work, and persons furnishing him with materials and supplies. The sum the state retained for this purpose was $22,081.66. All of the remaining amounts earned had been disbursed from time to time to the contractor.

The present action was instituted by the appellant, Maryland Casualty Company, to have its liability upon its bond determined, and to have the fund in the possession of the state applied to the unpaid obligations. To its action, it made parties defendant the state of Washington and all of the persons, firms, and corporations who had filed claims against its bond. In its complaint, it admitted its liability in some amount to all of the claimants (except the respondent Montesano State Bank), and sought only to have the amounts for which it was liable determined. As to the claim of the respondent, it denied liability in toto. Between the time of the commencement of the action and the time of its final adjudication, the appellant settled with and paid all of the claimants except the respondent, paying in that behalf sums aggregating an excess of $45,000. The question of its liability to the respondent bank was tried out by the court, resulting in a judgment in favor of the respondent for the amount it had paid in the purchase of the laborers' claims. During the course of the trial, a controversy arose between the appellant and the state, which the court determined in favor of the state. Whether the trial court erred in its judgment in these particulars is the question presented by the appeal.

As against the judgment in favor of the bank, the appellant makes a number of contentions. The first is that the bank acquired no right of action against the bond, or claim to the fund withheld by the state, by the assignment to it of the laborers'...