Ottumwa Boiler Works v. O'Meara

• Decision Date: 03 April 1928
• Docket Number: No. 38448.,38448.
• Citation: 218 N.W. 920,206 Iowa 577
• Court: Iowa Supreme Court
• Parties: OTTUMWA BOILER WORKS ET AL. v. M. J. O'MEARA & SON ET AL.

206 Iowa 577

218 N.W. 920

OTTUMWA BOILER WORKS ET AL.

v.M. J. O'MEARA & SON ET AL.

No. 38448.

Supreme Court of Iowa.

April 3, 1928.

Appeal from District Court, Davis County; F. M. Hunter, Judge.

Action to recover against a contractor and his bondsmen for material, labor, and supplies furnished said contractor in the construction of two drainage districts. On motion numerous claimants were impleaded. The trial court allowed certain of the claims and disallowed others. The facts appear in the opinion. Modified and affirmed.Thomas A. Goodson, of Bloomfield, and Thomas J. Guthrie, of Des Moines, for appellant Southern Surety Company.

Oliver & Oliver, of Cape Girardeau, Mo., and M. A. Roberts, of Ottumwa, for M. J. O'Meara & Son.

H. C. & H. C. Taylor, of Bloomfield, for National Bank of Bloomfield and Hercules Mfg. Co.

Jaques, Tisdale & Jaques, of Ottumwa, for Ottumwa Iron Works.

John F. Scarborough, of Bloomfield, for J. P. Toombs estate.

Verne J. Schlegel and E. Rominger, both of Bloomfield, for all other claimants.

FAVILLE, J.

On April 29, 1922, the contractor, O'Meara & Son, entered into two contracts with the board of supervisors of Davis county for the construction of two drainage districts, one known as the Fox River drainage district No. 3, and the other as the Wyancondah drainage district No. 1. The Southern Surety Company furnished the contractor's bond for each of said projects. The contractor entered upon the work of each of said projects and prosecuted the same for a time and incurred expense in so doing. The county, under the contract, retained 20 per cent. of the contractor's earnings. Various notices and negotiations were had, which finally resulted, on July 7, 1924, in the surety company's taking over the contract in each of said projects and prosecuting the same to a conclusion. After taking over said work the surety company paid certan of the indebtedness that had been incurred by the contractor to the amount of $7,231.16. After taking over the work the surety company received in payment of said contracts the total amount of $8,108.82. Lienable claims are conceded and are not involved in this appeal to the amount of $343.71, leaving a balance in the hands of the county auditor of $8,039.47. Certain claims which were established by the trial court are not involved in this appeal.

[1][2] I. We first consider the conflicting claims of the appellant and the National Bank of Bloomfield. The surety company executed the bonds in question on or about April 29, 1922. After entering upon the work of construction of the ditches in question, that contractor borrowed money of the National Bank of Bloomfield, and at the date of the trial there was due from the contractor to said bank, including interest, costs, and attorney fees, as found by the trial court, the sum of $3,546.54. This was a general loan of funds which were checked out and used by the contractor as he saw fit. On November 16, 1923, the contractor made a written assignmentto the said bank of all of his earnings under his contract to secure his indebtedness to said bank. There were certain lienable claims duly filed against the fund due to the contractor under his contract. After the surety company took over the work, it paid the said lienable claims to the parties entitled thereto, and the surety company now claims the right to be subrogated to the rights of said claimants against said fund superior to any claim of the National Bank of Bloomfield therein. This contention of the appellant as to said amount of existing lienable claims so paid by it must be sustained. The contractor was required by statute to furnish a bond. The statute also provides for certain lienable claims which may be filed against the funds accruing to the contractor under such a contract. The bank was bound to know when it took an assignment of said funds from the contractor that the contractor had been required by statute to furnish a bond for the performance of said contract and that certain classes of claims were by statute lienable against the fund accruing to the contractor. Such lienable claims were superior to any right the bank could acquire in the fund by virtue of its assignment. Where the surety on said bond has paid such lienable claims, it is entitled to be subrogated to the rights of such lienable claimants in said fund to the amount so paid by it, and being so subrogated, its right to the amount of said lienable claims so paid is superior to the rights of the bank as an assignee of the contractor. In the recent case of Monona County v. O'Connor (Iowa) 215 N. W. 803, we said:

“It is the contention of appellant that, as it was compelled as surety to pay provable claims, and to complete the contract at great expense, it is subrogated to the rights of its principal, and that it is entitled to the balance due. The question, therefore, at this point is: Have claimants or the surety the prior right to the fund? An assignee of the contractor occupies the same position as his assignor. The claims of the assignee are no higher or greater than those of the contractor. This being true, the surety, who has paid the obligations of the principal, by right of subrogation, has the prior right to the fund. * * * But two cases directly in point have been called to our attention. Lanstrum v. Zumwalt, 73 Mont. 502, 237 P. 205, and Wasco County v. New England Equitable Ins. Co., 88 Or. 465, 172 P. 126, L. R. A. 1918D, 732, Ann. Cas. 1918E, 656. These cases support the foregoing conclusion.”

See, also, Carr Hardware Co. v. Chicago Bonding & Surety Co., 190 Iowa, 1320, 181 N. W. 680;Prairie State National Bank of Chicago v. United States, 164 U. S. 227, 17 S. Ct. 142, 41 L. Ed. 412;State ex rel. Southern Surety Co. v. Schlesinger, 114 Ohio St. 323, 151 N. E. 177, 45 A. L. R. 371;New Amsterdam Casualty Co. v. City of Astoria (D. C.) 256 F. 560;Henningsen et al. v. United States Fidelity & Guaranty Co., 208 U. S. 404, 28 S. Ct. 389, 52 L. Ed. 547;Duncan v. Guillet, 62 Colo. 220, 161 P. 299;Maryland Casualty Co. v. Shafer, 57 Cal. App. 585, 208 P. 194;Derby v. United States Fidelity & Guaranty Co., 87 Or. 34, 169 P. 500.

[3] II. The bonds of the surety company in question were executed on or about April 29, 1922. These bonds were executed pursuant to a written application therefore made by the contractor to the surety company. Among other things, the said application contained the following provision:

“And also we, the undersigned, do hereby convey and assign unto the said company any and all payments, funds, moneys, or property due or to become due to the undersigned as provided in said contract, and also all of our rights in and to all subcontracts which may have been or may hereafter be entered into, and the materials embraced therein.”

The application containing this assignment was not filed for record in either the office of the recorder of deeds of Davis county or the office of the county auditor of said county prior to July 7, 1924. On November 16, 1923, the contractor made a written assignment to the bank of all of his earnings under his said contract to secure his indebtedness to said bank. This assignment was filed with the county auditor on December 3, 1923. At this point the question arises as to which of said assignees is entitled to said fund. The question of priority between two assignees of the same fund has frequently been before the courts. There is great diversity in the decisions. The numerical weight of the authorities favors the rule that the assignee first giving notice of his claim to the debtor is preferred to the assignee who is prior in time but who has not given such notice. This rule is recognized by the English courts, and seems to be the rule in California, New Jersey, Ohio, Missouri, Mississippi, Virginia, Tennessee, Vermont, Maine, Pennsylvania, Maryland, and Oklahoma. It is held as between assignees of a common fund that the one prior in point of time has priority, although he has given no notice of his assignment to either a subsequent assignee or the debtor, by the Supreme Court of the United States, and by the courts of New York, West Virginia, Minnesota, Massachusetts, Oregon, Texas, and Kentucky. The cases are collected and reviewed in a valuable note to the case of Salem Trust Co. v. Manufacturers' Finance Co., 264 U. S. 182, 44 S. Ct. 266, 68 L. Ed. 628, as reported in 31 A. L. R. 867.

The only case from this court touching the question, that is cited by counsel, is Merchants' & Mechanics' Bank of Chicago v. Hewitt, 3 Iowa, 93, 66 Am. Dec. 49. In said case it appeared that the defendant Hewitt sold certain corn to one Atwood. The corn was left in the possession of Hewitt. Atwood accepted a draft drawn on him for payment of the purchase price, and the draft was protested and never paid. Hewitt gave to Atwooda written receipt for the corn, which remained in his possession, and this receipt was assigned by Atwood to the plaintiff bank and suit was brought thereon against Hewitt to recover the value of the corn. The discussion in the opinion largely concerned the question of the assignability of the written receipt. We held that the instrument was assignable by indorsement and that the assignee might sue on it in his own name subject to any defense or set-off, legal or equitable, which the maker Hewitt had against Atwood, the purchaser of the corn. In the course of the opinion we said:

“In order to constitute a valid assignment of an instrument of writing like the present, notice must be given to the maker. If without such notice, the maker deliver the property to the assignor, he will be discharged. And if after assignment, another person obtain a second assignment, and first give notice of his equity, he will be preferred to the first assignee. Parsons on Contracts, 196; Richards v. Griggs, 16 Mo. 418 ; Dearle v. Hall, 3 Russell, Ch. 1; 2 Story's Eq. Jurisprudence, §§ 1047, 1057.”

It is to be noticed that the question in said...