Maryland Casualty Co. v. Ohio River Gravel Co.

• Decision Date: 05 July 1927
• Docket Number: No. 2602-2604.,2602-2604.
• Citation: 20 F.2d 514
• Parties: MARYLAND CASUALTY CO. v. OHIO RIVER GRAVEL CO. SAME v. OHIO RIVER GRAVEL CO. et al. JOHNSON et al. v. MARYLAND CASUALTY CO.
• Court: U.S. Court of Appeals — Fourth Circuit

20 F.2d 514 (1927)

MARYLAND CASUALTY CO. v. OHIO RIVER GRAVEL CO.

SAME v. OHIO RIVER GRAVEL CO. et al.

JOHNSON et al. v. MARYLAND CASUALTY CO.

Nos. 2602-2604.

Circuit Court of Appeals, Fourth Circuit.

July 5, 1927.

D. H. Hill Arnold, of Elkins, W. Va., and George F. Cushwa, of Baltimore, Md., for plaintiff.

Smith D. Turner, of Parkersburg, W. Va., for defendant Ohio River Gravel Co.

U. G. Young, of Buckhannon, W. Va. (J. C. McWhorter, of Buckhannon, W. Va., and Wm. T. George, of Philippi, W. Va., on the brief), for defendants Westfall and Buckhannon Motor Sales Co.

Before WADDILL, PARKER, and NORTHCOTT, Circuit Judges.

PARKER, Circuit Judge.

W. J. and J. T. Gephart were partners engaged in road contracting. They entered into two contracts with the state of West Virginia for the construction of certain roads in Randolph and Upshur counties in that state, and gave bonds with the Maryland Casualty Company as surety for the faithful performance of the contracts and for the payment of the claims of laborers and materialmen. The contractors, having defaulted under their contracts leaving unpaid a number of these claims, the Casualty Company took over and completed the work and instituted suits for determining its liability under the bonds given. In these suits the District Court entered decrees allowing claims of the Ohio River Gravel Company and Zebedee Westfall, and denying the claim of the Buckhannon Motor Sales Company. The appeals before us challenge the decision of the court with respect to these claims, which we shall consider in the order named.

Claims of Ohio River Gravel Company.

The claims of the Ohio River Gravel Company allowed by the court amount to $14,098.19 and $13,209.74 on the Randolph and Upshur county projects, respectively. The claims are for sand and gravel used in the construction of the roads and for freight paid thereon by claimant. The Casualty Company's objection to the claim filed against the Randolph county bond is that it embraces freight amounting to $8,683.50. Its objection to the Upshur county claim is that it embraces freight amounting to $6,111.90, and also that claimant accepted from the contractor notes extending the time of payment for a part of the amount due. Two questions arise, therefore, with respect to these claims: (1) Whether the freight paid on the sand and gravel by claimant is embraced within the terms of the bond; and (2) whether defendant has been released from liability as to that part of the Upshur county claim for which notes were accepted.

With respect to the payment of freight, the facts are as follows: The sand and gravel were sold to the contractors at a price f. o. b. cars at New Martinsville, W. Va. On the shipments made to the Upshur county project, however, claimant prepaid the freight and charged it to the contractors. This was covered by the written contract of sale which provided that the contractors would pay the freight immediately upon receipt of invoice. There was no written contract covering the shipments made to the Randolph county project. Some of them were made to a prepay station, and, with respect to these, claimant prepaid the freight and charged it to the contractors. Others were made to a pay station, and, upon failure of the contractors as consignees to make payment, the freight was collected by the railroad company from claimant for which, as consignor, it was liable. Coal & Coke Ry. Co. v. Buckhannon River Coal & Coke Co., 77 W. Va. 309, 87 S. E. 376, L. R. A. 1917A, 663. There is no question but that all of the sand and gravel shipped by claimant was used in building the roads whose construction was guaranteed by the bonds in suit, and it appears that a part thereof was used by the Casualty Company after it had taken over the performance of the contract.

With regard to the taking of the notes, it appears that on July 29, 1923, the contractors executed to claimant their 30-day notes for $1,822.22 and $4,123.19, covering indebtedness for shipments of sand and gravel. These notes were later renewed, and interest paid thereon to October 29, 1923. It appears that substantial payments were made to the contractors subsequent to the execution and extension of the notes; but it does not appear that the giving of the notes enabled the contractors to obtain these payments, or that it in any way prejudiced the rights of the Casualty Company.

We entertain no doubt on the proposition that claimant can recover under the bonds for the freight paid on the sand and gravel, as well as for the price thereof at New Martinsville. It is true that the price fixed by the contract was f. o. b. cars at New Martinsville; but as to shipments made for the Upshur county project it was agreed that claimant should prepay the freight, and it was a part of the contract of sale that the contractors should pay to claimant the freight as well as the f. o. b. price of the material. While there was no written contract as to shipments made to Randolph county, the same agreement seems to have been implied, at least as to the shipments made to prepay stations. Equity regards substance, and not form, and in substance the transaction between the parties was not a loan of money for the payment of freight, but a sale upon an agreement to pay for the material purchased a certain amount in addition to the freight, which claimant was to advance. The freight, therefore, became in effect a part of the purchase price fixed by the contract and recoverable as such. Barker & Stewart Lumber Co. v. Marathon Paper Mills Co., 146 Wis. 12, 130 N. W. 866, 36 L. R. A. (N. S.) 875.

One who furnishes material for a public work such as this is allowed recovery on the bond required in lieu of lien on the theory that to the extent of the value of the material which he furnishes he adds to the value of the completed work or structure. In this case claimant has in effect furnished material necessary to the building of the roads, not at the point of shipment but at the place of use. It had a value there greater by the amount of the freight paid than its value at the point of shipment. In such case, to hold that claimant can recover only the value at the point of shipment, when he has in effect furnished the material at the place of use by paying the freight charges and having it transported there, would, in our opinion, be both unjust and absurd. The general holding is that in such cases recovery may be had for the expense of transportation. U. S. v. D. L. Taylor Co. (D. C.) 268 F. 635; U. S. v. Morgan (C. C.) 111 F. 474; Brogan v. National Surety Co., 246 U. S. 257, 38 S. Ct. 250, 62 L. Ed. 703, L. R. A. 1918D, 776; U. S. F. & G. Co. v. U. S., 231 U. S. 237, 34 S. Ct. 88, 58 L. Ed. 200; Title Guaranty & Trust Co. v. Crane Co., 219 U. S. 24, 31 S. Ct. 140, 55 L. Ed. 72; note 30 A. L. R. 466.

And we think that whether the freight was paid in advance under agreement, or whether exacted of claimant under its liability as consignor, makes no difference. In passing upon a similar point in Barker & Stewart Lumber Co. v. Marathon Paper Mills Co., supra, the Supreme Court of Wisconsin said:

"The Marshall-Wells Hardware Company do business at Duluth, Minn., and as a convenience to Painter they advanced the freight on the hardware which they sold and shipped to him, amounting to $72.81, and the court allowed this amount on the theory that it was in substance a part of the purchase price for the materials. It is objected that it was not agreed in advance that the freight charges were to be part of the price of the goods. Looking at the substance of things rather than their names, we think that the item was properly allowed as a part of the purchase price of the material, although it may be called an advance of money. Had the contract been to deliver the goods in Wausau, freight prepaid, the plaintiffs would unquestionably have added the freight to the purchase price, and it would as unquestionably have been allowed. The exact form of the transaction cuts little figure. We think the amount was properly allowed as part of the delivered purchase price."

The question presented here is not that presented in the cases which pass upon the right of a common carrier to assert a lien for freight under a mechanic's lien statute or to recover under a bond given in lieu thereof. In those cases the questions which arise are whether the lien statute was intended to cover claims for which a lien existed at common law and whether the carrier, by surrendering possession of the property transported and thereby waiving its lien, has not waived also its right against the surety by so placing itself that the surety cannot be subrogated to the security which the law gave. American Surety Co. v. Lawrenceville Cement Co. (C. C.) 110 F. 717; Seventh Nat. Bank v. Shenandoah Iron Co. (C. C.) 35 F. 436. But in the case of a seller of materials, who prepays the freight to the point of destination, no such questions arise. He has no common-law lien for freight, and he relinquishes no rights to which the surety could be subrogated. It is for his protection that the bond is required, and it is settled law that such bond is to be liberally construed, so as to grant him the protection contemplated by the statute. Hartford Accident & Indemnity Co. v. Board of Education (C. C. A. 4th) 15 F.(2d) 317, 320...