Northwestern Nat. Bank of Bellingham v. Guardian Cas. & Guaranty Co.

• Decision Date: 12 December 1916
• Docket Number: 13349.
• Court: Washington Supreme Court
• Parties: NORTHWESTERN NAT. BANK OF BELLINGHAM v. GUARDIAN CASUALTY & GUARANTY CO.

161 P. 473

93 Wash. 635

NORTHWESTERN NAT. BANK OF BELLINGHAM v. GUARDIAN CASUALTY & GUARANTY CO.

No. 13349.

Supreme Court of Washington

December 12, 1916

Department 1. Appeal from Superior Court, Whatcom County; W. H Pemberton, Judge.

Action by the Northwestern National Bank of Bellingham against the Guardian Casualty & Guaranty Company and others. Judgment for plaintiff, motion for new trial denied, and named defendant appeals. Remanded for modification of judgment as indicated.

Reeves Aylmore, Jr., and S. H. Kelleran, both of Seattle, for appellant.

Black &amp Black, of Bellingham, for respondent.

ELLIS J.

The facts of this case are in part stipulated and are not disputed. On August 25, 1913, defendant city entered into a contract with defendants Brooks & Olsen for the construction of a certain trunk water main, and at the same time took from Brooks & Olsen a bond signed by them as principals and by defendant Guardian Casualty & Guaranty Company as surety conditioned as follows:

'The conditions of this obligation are such, that if the said principal shall perform said contract which is hereby expressly referred to and made a part hereof, according to its terms, conditions and stipulations, and shall pay as they become due, all just claims for all work and labor so performed, and all skill, or labor and all laborers mechanics, subcontractors and materialmen and all persons who shall supply such person or persons or subcontractors with provisions and supplies for the carrying on of said work, all just debts, dues and demands incurred in the performance of said contract, and shall comply with all the requirements of the charter and ordinances of the city of Bellingham and the statutes of the state of Washington, then this obligation to be void, otherwise to remain in full force and effect.' The penalty in the bond was $25,125.50. The contractor entered upon the performance of the work, and soon after went to plaintiff bank and arranged for loans of money with which to carry on the work. The bank as a condition to the making of the loans required the contractor to execute to it an assignment of all warrants to be issued by the city under the contract, which assignment was to be collateral security for the payment of the loans. The contractor accordingly did execute, on or about the dates they bear, assignments as follows:

'Sept. 8, 1913. City Comptroller, Bellingham, Wash.--Dear Sir: Will you kindly deliver to the Northwestern National Bank, all warrants or amounts due us on account of the new concrete water ditch, which contract was recently awarded to us. Yours truly, Brooks & Olsen, C. M. Olsen.'

'Sept. 24, 1913. Mr. H. J. Korthaur, City Comptroller, Bellingham, Wash., City--Dear Sir: Please pay to the order of the Northwestern National Bank all the water fund warrants for construction of trunk water main from Lake Whatcom to Larsons Station under ordinance No. 2019. Yours truly, Brooks & Olsen, per Brooks & Olsen, by Wesley Brooks.'

These assignments were at once filed with the city comptroller. Thereafter from time to time as the work progressed plaintiff advanced to the contractor various sums upon their 8 per cent. demand notes aggregating $21,700. From time to time, also, as warrants became due for the work they were paid by the city in the sums received by the bank which were applied on these notes in such amount that there now remains due upon the notes the sum of $2,300 with interest. All of the moneys advanced by the bank and evidenced by these notes was used by the contractor in the prosecution of work under the contract. In March, 1914, the bank ceased to make advances upon the notes to the contractors, but from that time on cashed time checks and vouchers issued by the contractors for labor and material entering into the work. Each of these checks bears the indorsement:

'For value received I hereby assign to the Northwestern National Bank all my right, title and interest to the within time check.'

None of the moneys received from the city were credited by the bank to any of these checks. The time checks for labor, exclusive of three, total $5,864.91. The three time checks excluded were issued, one to the contractor Olsen in the sum of $245, another to the contractor Brooks in the sum of $205, and the third to Cora E. Nyman, the contractors' bookkeeper and stenographer, in the sum of $130--total $580. The checks for material total $1,211.96. The contract provided that:

'The said contractor agreed to pay the wages of all persons and for assistance of every kind employed upon or about said work, and for all materials purchased therefor, and the said city of Bellingham may withhold any and all payments under this contract until satisfied that such wages, assistance and materials have been fully paid for.'

It did not contain the usual provision for the payment of a certain percentage of the estimated value of work as it progressed and for a retention of a certain percentage by the city until the work was completed to meet any unpaid labor and material claims, nor did it contain any provision for the holding up of any sum by the city, except that above quoted. This action was brought by the bank to recover the $2,300 balance due upon the notes and the amount of the time checks cashed by the bank. The city answered that, in addition to the payments made to the bank under its assignments, it had paid labor and material claims and still had on hand the sum of $3,383.95, but was unable to determine to whom this sum rightfully belonged, and that it therefore brought the money into court 'for distribution by the court according to the various rights of the claimants therefor.' Defendant guaranty company answered, alleging that it had paid certain claims properly filed against the bond and claimed subrogation to the rights of the contractors. Upon the trial it was stipulated that defendant guaranty company was the assignee of material claimants whose claims aggregate the sum of $2,323.26. The contractors defaulted. The bank first claims the right to have paid from the funds in court the $2,300 and interest still due upon the notes by reason of the assignments of money to become due under the contract. It then claims that the balance of the fund in court should be applied upon its labor and material claims, and finally that it is entitled to judgment against the guaranty company on its bond for the remaining amount. The bank filed no claims against the bond for the $2,300 advanced to the contractors upon the notes. It did, however, file its claim with the city within 30 days after acceptance of the work for the labor and material claims which it had paid and of which it had taken an assignment. Upon these facts the trial court sustained the claims of the bank in full. Motion for a new trial was made and denied. Defendant guaranty company appeals.

As pointed out in the statement of the case, the bank is asserting three classes of claims: (1) The $2,300 and interest due upon the notes for which no claim has been filed against the bond. This it claims solely from the money in court by virtue of its assignments from the contractors. (2) The labor and material claims which the bank has discounted and of which it took assignments, other than the Brooks, Olsen, and Nyman claims. (3) The Brooks, Olsen, and Nyman claims. We shall notice these in their order.

1. Appellant contends that the first item of $2,300 and interest cannot be paid from the money in court because it is inferior to all of the labor and material claims, both those held by the bank and those held by appellant. Respondent bank contends that, as to the $2,300 advanced on the assignments made to it by the contractors and of which the city was notified, it has a right to the fund held up by the city superior to any right of the surety company (for moneys which that company was compelled to pay for labor and material.

This claim is based upon the case of Dowling v. Seattle, 22 Wash. 592, 61 P. 709. The contract and supplemental agreement in that case contained a provision the same as that above set out as found in the contract here involved, that the city 'may withhold any and all payments under this contract until satisfied that such wages, assistance and materials have been fully paid for.' But the contract in that case contained a provision also to the effect that bonds and warrants were to be issued on about the 20th of each month during the progress of the work for 70 per cent. of the contract price upon estimates of the city engineer covering the work done during the preceding month the other 30 per cent. to be retained to secure laborers and materialmen who shall have performed work or furnished materials therefor. The bond in the Dowling Case was conditioned for the faithful performance of the work and for the payment of labor and material furnished upon and for the work in accordance with the contract and supplemental agreement. Prior to his default in the work, the contractor borrowed money from various persons, representing to them that he needed the money to pay for labor and materials consumed in the work. To these persons he gave assignments or orders on the city comptroller for money then due or to become due on estimates for work done under the contract. These assignments and orders were filed with the comptroller. The contractor after having earned $1,895.70 on the contract abandoned the work, leaving laborers and materialmen unpaid. Prior to this he had received from the city a bond of $500 in part payment of work done under the contract. So far as the opinion shows, this was the only bond or warrant issued prior to completion of the work. After the contractor defaulted, the bondsmen completed the improvement in accordance with the...