State ex rel. E.I. Du Pont De NeMours & Co., Inc. v. Coda

• Citation: 138 S.E. 324,103 W.Va. 676
• Decision Date: 17 May 1927
• Docket Number: 5780.
• Parties: STATE, for Use of E. I. DU PONT DE NEMOURS & CO., Inc., v. CODA et al.
• Court: West Virginia Supreme Court

138 S.E. 324

103 W.Va. 676

STATE, for Use of E. I. DU PONT DE NEMOURS & CO., Inc., v. CODA et al.

No. 5780.

Supreme Court of Appeals of West Virginia.

May 17, 1927

Submitted May 10, 1927.

Syllabus by the Court.

A materialman creditor of a public highway contractor who has given bond to the state road commission conditioned, among other things, that he will well and truly pay all persons who have furnished material or labor in the construction of the highway, has an equitable lien on the money retained by the commission under the contract until the completion of the work, and is entitled to be paid therefrom upon default of the contractor, in preference to a creditor who, upon the completion of the work, has obtained from the contractor an assignment of a part of the fund to pay for money loaned the contractor to be used by him in performing his contract.

In such case the equities of the surety on the contract bond, under its right of subrogation to the rights of the contractor, are superior to the money lending creditor, who is only entitled to be paid under his assignment the remainder of the fund after paying the materialmen and laborers for whose claims the surety has become liable under the contract bond.

Where, in such case, the contractor has agreed with the surety that he will reimburse the surety for attorney's fees expended by reason of such suretyship, and will confess judgment therefor whenever the surety shall become liable to pay the same, no lien is thereby created against the money due the contractor from the commission, and it is error to direct payment of such fees therefrom in preference to a valid assignment of such fund to another who has taken such assignment without notice of the surety's claim for fees.

Appeal from Circuit Court, Cabell County.

Suit by the State, for the use and benefit of E. I. Du Pont de Nemours & Co., Inc., against S. C. Coda and others. From a decree directing distribution of a fund retained by the state road commission, P.J. Riley appeals. Modified and affirmed.

Hogsett & Sheets, of Huntington, for appellant.

Brown, Jackson & Knight and Herman L. Bennett, all of Charleston, for AEtna Casualty & Surety Co.

Meldahl, Pool & Mauzy, of Charleston, for Standard Oil Co.

Vinson, Thompson, Meek & Renshaw and Harry Scherr, all of Huntington, for Hagen, Ratcliff & Co.

LIVELY J.

S. C. Coda and C. A. Nash were partners as road contractors, and were successful bidders before the state road commission for the construction of "Seng creek toward Seth" road, in Boone county, executing to the state a bond in the penalty of $21,800, with AEtna Casualty & Surety Company as surety, conditioned for the faithful performance of the contract and for payment of laborers and materialmen. Having signed the contract and bond, Coda and Nash, partners as Coda-Nash Company, a few days later incorporated as Coda-Nash Company and proceeded to build the road. Upon its completion, the state road commission owed it $4,011.06 against which Coda-Nash Company had given orders and assignments to creditors, amounting to $4,010.71, and it is over the distribution of the fund held by the commission that the litigation arises. The decree directed distribution of the fund to the creditors in the order of dignity and priority ascertained by a commissioner in chancery, from which decree P.J. Riley appeals.

The application for the surety bond contained a provision that, should the principal fail to carry out the contract whereby the surety became liable, any balance due from the obligee after completion of the contract was assigned to and should be paid to the surety to protect it against liability, and after all liability of the surety had been paid, including costs and attorney's fees incurred, any balance remaining should be paid to Coda and Nash, the applicants for the bond. This application was kept by the surety company in its files and the assignment therein was not claimed by it until after this suit was begun. The contract and bond for its performance were entered into February 8, 1923, and the road work progressed until about the beginning of the year 1925. In 1923, the Coda-Nash Company purchased explosives from E. I. Du Pont de Nemours & Co., on which payments were made leaving a balance due the Du Pont Company of $2,637.15; in October, 1923, the corporation owed the Standard Oil Company $137.70 for oils; and during the progress of the work became indebted to Hagen, Ratcliff & Co. for $410.53 for groceries used in the boarding house to feed the laborers on the project. In the spring of 1924, the road was nearly completed, but the contractor was without funds to pay the laborers and applied to appellant P.J. Riley for money for that purpose, promising to pay him out of the next estimate allowed by the commission, and when the work was completed to give him an assignment of the funds due it, if he had not been paid. Riley advanced $4,000, May 19, 1924, and a further sum of $1,200, October 14, 1924, all of which went to pay the laborers. Prior to the final estimate Riley was paid by order on the commission on funds due the corporation on road work in Logan county (another project) the sum of $3,160, leaving a balance due him, with interest, of $2,218, for which sum he received an order and assignment on the commission on December 12, 1924, which was immediately filed with the commission.

The orders and assignments given by Coda-Nash Company against the balance of $4,011.06 in the hands of the commission, with dates and amounts, are as follows:

Date.	Amount.
Bank of Whitesville .... Oct. 28, 1924.	$ 900 00
P. J. Riley ............ Dec. 12, 1924.	2,218 00
Standard Oil Co......... Dec. 22, 1924.	137 70
Hagen, Ratcliff & Co.... Dec. 22, 1924.	410 53
E. I. Du Pont & Co...... Dec. 23, 1924.	334 48
---------
$4,010 71

The Du Pont Company began the suit by setting up its account of $2,637.15 against Coda and Nash, as partners, and the surety on the bond given by them to protect materialmen, and prayed relief against them and their surety on the bond. The surety company answered in the nature of a cross-bill, bringing in as parties the above-named persons holding assignments on the fund in the hands of the commission, made the commission a party, alleged that the $4,011.06 was a trust fund in its hands to protect the surety and that there were conflicting claimants of the fund, the total amount of whose claims was $6,303.73; set up the application of Coda-Nash Company for the surety bond, alleging that thereby it had assigned all funds to become due it from the commission for the protection of the surety; charged that the attempted assignments later given were without effect and void in so far as the surety was concerned; claimed it was entitled to reasonable attorney's fees from the fund; charged that the claims of Hagen, Ratcliff & Co., Riley, Standard Oil Company, Bank of Whitesville, and Du Pont Company were not for labor or material furnished on the project; and prayed for an adjudication of the conflicting claims against the fund, and for general relief. The commission answered that it had $4,011.06 in its hands, and asked for a decree of distribution. Riley answered, denying that Coda and Nash did any work on the road or purchased any material therefor; alleged that Coda and Nash incorporated February 8, 1924, and took over, by assignment from Coda and Nash, the road contract, did the work and purchased materials, and that the fund in the hands of the commission belonged to Coda-Nash Company, a corporation, subject to its assignments, and did not belong to Coda-Nash Company, a partnership. He charged the inability of the corporation to meet its pay rolls in 1924, its application to him for money for that purpose, his loan to it, and the contract of repayment out of the moneys due and to become due from the commission, and his assignment of December 12, 1924. He denied that the $4,011.06 was a trust fund, denied that the fund had been assigned to indemnify the surety under the application for the bond, or, if an assignment had thereby been made, such assignment was never filed with the commission and could not take preference over his (Riley's) assignment, and prayed for payment of his $2,218 by the commission. Coda and Nash filed separate answers, averring that the corporation purchased materials for the road, and that they were in no way responsible, that the corporation built the road, and that the fund had been rightfully assigned by the corporation. Hagen, Ratcliff & Co. answered, setting up its debt for groceries, charging that it was covered by the surety bond and payable by the surety, and setting up its assignment of December 22, 1924, and praying for payment out of the fund and from the Coda-Nash Company and the surety on its bond. The Standard Oil Company answered, claiming its account as material furnished, setting up its assignment of December 22, 1924, and claiming payment from both the fund and the surety on the bond.

A master commissioner took evidence, from which he reported that Coda-Nash Company, a partnership, after it had taken the contract and given the surety bond for performance thereof and payment of laborers and materialmen on February 2, 1923 assigned its contract to Coda-Nash Company, a corporation, claimed to have been formed on February 8, 1923, and that the corporation built the road. However, it appeared that none of the creditors (with the exception of Hagen, Ratcliff & Co.), the commission, nor the surety had any notice of the formation of the corporation or of the assignment of the contract, and all dealt with Coda-Nash Company as a partnership, and the commissioner reported that for purposes of the...