Oregon Surety & Casualty Co. v. U.S. Nat. Bank of Eugene

• Decision Date: 16 June 1931
• Citation: 136 Or. 573,300 P. 336
• Parties: OREGON SURETY & CASUALTY CO. v. UNITED STATES NAT. BANK OF EUGENE.
• Court: Oregon Supreme Court

300 P. 336

136 Or. 573

OREGON SURETY & CASUALTY CO. v. UNITED STATES NAT. BANK OF EUGENE.

Supreme Court of Oregon

June 16, 1931

Department 1.

Appeal from Circuit Court, Lane County; G. F. Skipworth, Judge.

Suit by the Oregon Surety & Casualty Company against the United States National Bank of Eugene, Or. Decree for defendant, and plaintiff appeals.

Affirmed.

This is a suit for an accounting of the sum of $15,250.07, received by the defendant from the highway commission of this state in which the plaintiff claims an interest. The findings and decree of the circuit court were in favor of the defendant. Plaintiff appeals.

S. J Bischoff, of Portland (Wilbur, Beckett, Howell & Oppenheimer of Portland, on the brief), for appellant.

Lawrence T. Harris, of Eugene (C. A. Hardy and S. M. Calkins, both of Eugene, on the brief), for respondent.

ROSSMAN J.

No question of pleading being involved, we shall proceed forthwith to state those facts which reveal the issues between the parties.

March 26, 1925, one George W. Read and the state highway commission executed a contract wherein the former undertook the construction of a section of the Pacific Highway, and the latter promised to pay him therefor $105,207.25. Pursuant to the requirements of sections 49-701 and 67-1101, Oregon Code 1930, Read supplied a bond in the sum of $52,603,63 containing covenants upon the part of the surety (this plaintiff) that Read "shall promptly pay all laborers, mechanics, subcontractors and material men, and all persons who shall supply such laborers, mechanics or subcontractors with material, supplies or provisions for carrying on such work, and all just debts, dues and demands incurred in the performance of such work. * * *"

Simultaneous with the execution of the bond, Read and his wife executed an instrument wherein they promised to pay to the plaintiff an annual premium of $1,578.10 on said bond, to save the plaintiff harmless against all loss, to transfer to it, as security, all of Read's plant, materials, equipment, etc., and agreed that "the said Oregon Surety & Casualty Co., shall, as surety on said bond, be subrogated to all my rights, * * * as principal and otherwise in said contract, and I do hereby assign, * * * to said company all the deferred payments, and retained percentages, and any and all moneys and properties that may be due and payable to me * * * on account of said contract, * * * hereby agreeing that all such moneys * * * shall be the sole property of the said Oregon Surety & Casualty Co., and to be by it credited upon any * * * expense sustained or incurred by it as above under its bond of suretyship."

Having undertaken these obligations, Read requested a loan from the defendant which it agreed to grant, provided he would assign to it as security the sums payable to him by the highway commission, pursuant to the terms of his contract. In order to render the contemplated assignment effective, the plaintiff, on April 6, 1925, wrote, signed, and forwarded to defendant the following letter:

"United States National Bank, Eugene, Oregon,

"Gentlemen: Mr. George W. Read, who has the contract for paving the section of Pacific Highway between Junction City and Harrisburg, has requested that we write to you our consent to his making assignment of amount accruing to him from the State Highway Commission on this work, said assignment to cover any advances made by you to him on this job. This letter will serve as our formal consent to these assignments.

"Very truly yours,

"Oregon Surety & Casualty Co."

May 13, 1925, Read signed the following assignment:

"Eugene, Oregon, May 13, 1925.

"I hereby transfer, assign, sell and set over unto the United States National Bank of Eugene, Oregon, all payments due me under that certain contract with the State Highway Commission of Oregon, for the construction and pavement with concrete of that certain four and two-tenths miles connecting Junction City with the paving at Harrisburg, and I hereby direct and authorize the State Highway Commission of Oregon to make all warrants and all payments to the United States National Bank of Eugene, Oregon, on said contract and on all estimates as the same shall be made. The contract is numbered 785 and * * *"

When the above-mentioned instrument of assignment, together with the plaintiff's assent thereto, was sent to the office of the highway commission it expressed its approval thereof, May 16, 1925, by indorsing thereon, over the signature of its chief clerk, the following: "We hereby assent to the above assignment."

Based upon the security of the aforementioned assigned moneys, the defendant bank advanced to Read on August 10, 1925, $1,075; August 22, 1925, $4,000; October 8, 1925, $8000; October 27, 1925, $3,000; and on November 9, 1925, $2,000.

October 20, 1925, after Read had completed the performance of his contract, the state highway engineer made his final estimate showing a balance of $15,250.07 due to him. In the early part of November, 1925, Read disappeared leaving unpaid bills for materials aggregating $14,299.26, and also owing to the defendant $14,467.20 upon the above-mentioned notes. When this circumstance developed, the bank requested the highway commission to honor Read's assignment by paying to it the aforementioned balance in the commission's possession. The fact that Read had absconded leaving unpaid large sums of money, had been promptly called to the attention of the surety and of the highway commission. December 1, 1925, the latter addressed to the plaintiff a letter stating: "Please be advised that it is the intention of the State Highway Commission to make final payment to George W. Read on contract No. 785 for the construction of the Harrisburg-Junction City section of the Pacific Highway in Linn and Lane Counties. This payment will be made on or after December 11th, 1925. Kindly acknowledge receipt of this letter."

December 3, 1925, the plaintiff, through its attorneys, acknowledged receipt of this letter in a communication which stated:

"On behalf of the Oregon Surety & Casualty Company we demand that you do not pay the final sum or any sum to George W. Read for the following reasons:

"First--He is an absconding debtor and owes an enormous sum of money, and

"Second--A petition in bankruptcy has been filed against the said Read and no doubt he will be adjudicated a bankrupt in a few days.

"If this money is paid to him it will no doubt go like the other amounts have, that is, his creditors will not receive a bit of it."

December 4, 1925, the commission acknowledged receipt of the letter just mentioned and added: "We will honor your demand and will withhold payment of further moneys due Mr. Read until the matter has been further adjusted."

Following the exchange of the above communications the attorneys representing the commission, the plaintiff, and the defendant held several conferences. December 9, 1925, Mr. J. N. Devers, the attorney for the commission, sent to counsel for the surety company the following letter:

"I have before me your letter of the 3rd concerning the balance due George W. Read for work performed under his contract with the State of Oregon, and I note your instructions that no funds be paid to Mr. Read.

"The records in this office disclose that Mr. Read, more than four months ago, assigned to the United States National Bank of Eugene, Oregon, all of the money or funds due, or to become due, under and by virtue of his said contract with the state. The records further disclose that that assignment was consented to by the surety company.

"In view of these facts I take it that the Highway Commission is at liberty to pay the balance due under the contract to the assignee, which is the U.S. National Bank of Eugene, Oregon.

"The bank has filed its claim with the Commission and has made its demand that the funds be paid to the bank as the assignee of Mr. Read. I know of no reason why the commission should not comply with the demand. If the surety company has any valid objection to such procedure it should make the same known at once."

Neither the plaintiff nor its attorney made any written reply to the latter letter, but Mr. F. C. Howell, its attorney, testified that he told the defendant's counsel that the plaintiff would oppose payment. In the meantime, the bank forwarded to the commission, under the verified signature of Read, documentary proof that $15,250.07 was the correct balance remaining unpaid under the contract. This proof contained no statement that Read had paid all claims arising out of the performance of his contract. December 23, 1925, the commission delivered to the defendant its warrant in the sum of $15,250.07 and, since this payment exceeded to the extent of $812.87 the amount owing to the bank, the latter paid this excess sum to the trustee in bankruptcy of Read. The latter was adjudged a bankrupt January 16, 1926.

Since the defendant freely concedes that the sums loaned by it to Read were commingled by him with his other funds, and since it likewise admits that it cannot prove that all of the borrowed money was consumed by Read in the performance of this contract, the plaintiff contends that the defendant was not entitled to receive the above payment of $15,250.07.

While Read was performing his contract with the highway commission he was also engaged in the performance of some work for the city of Eugene. He deposited in the defendant bank, October 20, 1925, $8,271.38, and on November 10, 1925, $29,349.62 proceeds from municipal warrants. Various sums, however, were withdrawn by him in the transaction of his business to such an extent that on November 16th, when the bank received its first intimation that he had been guilty of irregular...