Silver Hill Concrete Corp. v. THOMASON INDUSTRIES

• Decision Date: 20 July 1982
• Docket Number: Civ. A. No. 81-2542.
• Citation: 556 F. Supp. 291
• Court: U.S. District Court — District of Columbia
• Parties: SILVER HILL CONCRETE CORP. (United States of America for Use and Benefit of Silver Hill Concrete Corp.), Plaintiff, v. THOMASON INDUSTRIES CORPORATION, Curtin & Johnson, Inc. and Peerless Insurance Company, Defendants.

556 F. Supp. 291

SILVER HILL CONCRETE CORP. (United States of America for Use and Benefit of Silver Hill Concrete Corp.), Plaintiff, v. THOMASON INDUSTRIES CORPORATION, Curtin & Johnson, Inc. and Peerless Insurance Company, Defendants.

Civ. A. No. 81-2542.

United States District Court, District of Columbia.

July 20, 1982.

John I. Heise, Jr., John P. Rhody, Jr., Steven P. Henne, Silver Spring, for Silver Hill Concrete Corp.

Jack Rephan, Washington, D.C., for Thomason Industries Corp. and Peerless Ins. Co.

Leon William Dunn, Jr., Manuel A. Palau, Beltsville, Md., Robert J. Sheridan, Washington, D.C., for Curtin & Johnson, Inc.

MEMORANDUM

GESELL, District Judge.

This is a Miller Act claim by a materialman arising out of the construction of Pershing Park, a Pennsylvania Avenue Development Corporation (PADC) project. Plaintiff Silver Hill supplied cement to Curtin & Johnson, a first-tier subcontractor of Thomason Industries Corporation. Thomason, the prime contractor for the project, is sued along with Peerless Insurance Company, the surety on the bond. The case was tried to the Court and this Memorandum constitutes the Court's findings of fact and conclusions of law.

The cement was delivered and met all specifications. Thomason paid Curtin & Johnson for the cement through periodic progress payments based on Thomason's receipt of payments from PADC for work completed.

Curtin & Johnson was a long-standing customer of Silver Hill. It purchased large quantities of cement from Silver Hill. It was handling several jobs at the time and directed Silver Hill to deliver cement to each of them. It maintained a running open account with Silver Hill primarily on 60-day credit. Almost every month Curtin & Johnson sent money to Silver Hill in payment for cement. It never designated the job or jobs against which the funds should be applied. Silver Hill using a computerized system always credited the most delinquent accounts first, applying the funds progressively forward against Curtin & Johnson jobs to the extent the money was received. Curtin & Johnson was then advised by return receipt how each periodic payment had been applied.

Curtin & Johnson had contracts on a number of government jobs. During the period in question most of the active jobs being supplied by Silver Hill involved public rather than private work.¹ The company's operations were apparently only marginally profitable and it was often in need of extended credit. During the Pershing Park job Curtin & Johnson lacked credit with some other suppliers of different materials and was unable to purchase its requirements and Thomason made the necessary arrangements so the job could go forward. About the time the Pershing Park job was ending Curtin & Johnson's affairs were winding down and it failed to pay the $70,890.51 which Silver Hill's records showed it still owed Silver Hill for cement used on the Pershing Park job. Curtin & Johnson went out of business and Silver Hill sues Thomason on the bond after timely notice.

Silver Hill argues that these facts lay out a classic claim for recovery under the Miller Act. Defendants Thomason and Peerless assert two defenses. First, they claim Silver Hill is estopped from recovery because it made false representations regarding the status of the Curtin & Johnson accounts, upon which they relied to their detriment. Second, they contend that Silver Hill cannot claim the protection of the Act because it knowingly misapplied funds paid for materials used in the Pershing Park project to other accounts. The Court rejects these defenses for reasons stated below.

Sometime in November of 1980, representatives of Thomason contacted Silver Hill's credit manager by telephone and inquired about the status of the Curtin & Johnson account. According to testimony, Thomason was advised that Curtin & Johnson's accounts were "up-to-date" or "current." Thomason and Peerless assert that this statement was false, that Curtin & Johnson's accounts were in fact substantially overdue at the time and that they relied upon this misrepresentation to their detriment.

Through most of November, Curtin & Johnson's account with Silver Hill was, in fact, current; the terms of the account did not demand payment until 60 days after delivery, and until the end of November there were no accounts more mature than this. Defendants Thomason and Peerless cannot be estopped from pursuing their rights upon the basis of a representation that is true. United States for the Use of General Electric Supply Co. v. Wiring, Inc., 646 F.2d 1037, 1046-47 (5th Cir.1981). Silver Hill at no time misled either Curtin & Johnson or Thomason as to the state of Curtin & Johnson's accounts or the application of payments thereto.

As to the defense of misapplication, the general rule relating to allocation of payments from the prime contractor in Miller Act cases was stated in St. Paul Fire and Marine Ins. Co. v. United States for the Use of Dakota Elect. Supply Co., 309 F.2d 22, 25 (8th Cir.1962), as follows:

(i) The payment is applied as the debtor intends and so manifests to the creditor before or at the time of the payment.

(ii) If the debtor fails so to indicate, the payment is applied as the creditor, within a reasonable time, determines.

(iii) If neither the debtor nor the creditor seasonably so indicates, the payment is applied as a just regard to its effect upon the debtor, the creditor, and third persons makes it desirable that it should be applied. This usually results in its application to the oldest unsecured account.

(iv) If the debtor is under a duty to a third person to devote funds paid by him to the discharge of a particular debt, the payment must be so applied if the creditor knows or has reason to know of that duty. This is so despite the debtor's contrary direction.

See United States for the Use of Clark-Fontana Paint Co., Inc. v. WIBCO, Inc., 396 F.Supp. 1253, 1255 (D.D.C.1975), aff'd, 539 F.2d 243 (D.C.Cir.1976). See also, United States for the Use of Hyland Electrical Supply Co. v. Franchi Bros. Construction Co., 378 F.2d 134 (2d Cir.1967); United States for the Use of C.H. Benton, Inc. v. Roelof Construction Co., 418 F.2d 1328 (9th Cir.1969).

Referring to the tests noted in St. Paul, Curtin & Johnson neglected to direct their payments to particular job accounts, although the Silver Hill invoices gave them the opportunity to do so. Rather, Curtin & Johnson sent checks from their general account to cover all of Silver Hill's deliveries. Silver Hill was consequently entitled to apply the payments in a rational manner to all Curtin & Johnson open accounts so long as the application was made "within a reasonable time." Silver Hill had in fact followed a policy of promptly applying undirected payments to the creditor's oldest account for at least several years prior to this suit.

Thus, tests (i), (ii) and (iii) are satisfied. The issue of misapplication turns on (iv). This last exception has frequently been phrased, "the law is well settled that if a Miller Act creditor knows or has reason to know that money paid him is received from a particular bonded job, he has the duty to apply the funds so received from the debtor upon that account," Roelof, supra, at 1330. The issue to be addressed thus is: Did Silver Hill apply payments received from the Pershing Park job to other accounts, knowing or having reason to know that the payments had in fact come from the bonded Pershing Park project? Indeed it would defeat the purpose of the Act if suppliers were able to take advantage of the Act by knowingly applying payments received from a bonded job to an unbonded account and thereafter claiming against the bond.

The burden of proving misapplication as an affirmative defense in a Miller Act case lies on the party seeking to raise that defense. Wiring, supra, at 1037. This does not mean that the party claiming a misapplication is required to trace...