Travelers Indem. Co. v. Clark
| Decision Date | 08 November 1971 |
| Docket Number | No. 46348,46348 |
| Citation | 254 So.2d 741 |
| Parties | 9 UCC Rep.Serv. 1269 The TRAVELERS INDEMNITY CO. and Leflore Bank & Trust Co. v. Travis H. CLARK, Jr., Receiver of Stigler Construction Co., Inc. |
| Court | Mississippi Supreme Court |
Cox & Dunn, Ltd., Jackson, Lott, Sanders & Gwin, Greenwood, for appellants.
Travis H. Clark, Jr., Greenwood, for appellee.
In this case several questions arise involving the laws of suretyship and the Uniform Commercial Code.
In the latter part of 1968, Stigler Construction Company, Inc., (Stigler) a contractor, entered into three separate and distinct construction contracts totaling in excess of three hundred thousand dollars, one to be performed in and for Yalobusha County, one in and for Webster County, and the other with Chiwapa Watershed Improvement Drainage District in Pontotoc County. These contracts will be referred to as Yalobusha, Webster and Chiwapa respectively. Each contract was subject to Mississippi Code 1942 Annotated sections 2919 and 4703, which require the execution by the contractor of a surety bond guaranteeing faithful performance of the contract and prompt payment of persons supplying labor and materials. The contracts provided payments to be made to Stigler as the work progressed (progress payments) in an amount equal to ninety percent of the work completed to the date of each monthly progress estimate, with the balance of the contract proceeds (10%) to be held by the owner as retainage until it was ascertained that all work was completed and suppliers and laborers paid. The Travelers Indemnity Company (Travelers) was the surety on each of these bonds. Each written bond application by Stigler to Travelers contained provisions for indemnification and reimbursement on account of all losses, expenses and attorneys' fees. Each application assigned to Travelers as security all sums that may be due under the contract. The assignment also secured 'the obligations hereunder and any other indebtedness and liabilities of the applicants to the sureties whether heretofore to hereafter incurred.'
Stigler completed each contract in the latter part of 1969, but defaulted by failing to pay all of the claims of persons supplying materials and labor. Stigler filed a statement of intent to dissolve and made application under the authority of Mississippi Code 1942 Annotated section 5309-204 (1956) to the Chancery Court of Leflore County to have its liquidation continued under the supervision of the court. On November 14, 1969, the Chancery Court of Leflore County appointed Travis H. Clark, Jr., receiver of Stigler, and he thereupon qualified and entered upon his duties. This appeal is prosecuted by Travelers, as surety for Stigler, and by the Leflore Bank & Trust Company, a creditor of Stigler.
In the manner and at the times hereinafter stated, the receiver received $7,342.41 of the proceeds of the Webster County project, $8,191.13 of the Yalobusha County contract, and $54,801.94 of the Chiwapa contract, these proceeds consisting of both retainage and progress payments. Travelers claimed priority to these funds, as against general creditors, to the extent of the claims paid by it to suppliers of materials and laborers, plus expenses and attorneys' fees. Its claims were for $8,459.49, plus legal expenses of $793.60, on the Webster County contract; $12,217.35, plus $793.60 legal expenses on the Yalobusha County contract, and $23,943.03, plus $4,761.64 legal expenses on the Chiwapa contract.
Leflore Bank & Trust Company filed claims in the receivership proceedings totaling $132,623.42, claiming priority on certain items and funds as more fully diclosed hereinafter. The chancellor allowed Travelers' claim as a general or unsecured creditor except for $21,974.28, which was the retainage in the hands of the owner on the Chiwapa contract at the time the reciver was appointed. The chancellor disallowed Bank's claim to priority except as to certain real estate on which it had a lien and which is not involved in this appeal. Travelers and Bank perfected appeals to this Court, raising various questions which hereinafter will be considered and decided separately.
The following table shows the significant dates and figures involved in Travelers' claims:
Contract
Contract Proceeds Labor & Attorneys'
Date Proceeds held by Material fees & legal
Contract on each receiver Claims expenses of
proceeds job now that paid on Travelers
paid held by represents each job allocated to
by owner Receiver 10% retainage by Travelers each job
--------- --------- ------------- ------------ ------------
Webster 11/12/69 $7,342.41 $5,613.44 $ 8,459.47 $ 793.60
Yalobusha 10/13/69 8,191.13 5,583.21 12,217.35 793.60
(10/10/69 22,520.24 23,943.03 4,761.64
Chiwapa (
Watershed ( 5/20/70 32,281.70 21,974.21
On July 31, 1969, Travelers wrote the owner on the Yalobusha County contract that 'This shall be your authority to pay to the above contractor, all monies due under the above project,' and on August 28, 1969, a similar letter was sent the owner on the Webster County project. The final payments on these contracts were paid to Stigler on the dates and in the amounts shown on the above table. No such letter was written concerning the Chiwapa contract and the amounts due thereon were paid as shown on the above table. Stigler opened a new bank account and deposited therein the payments made on the three projects before appointment of the receiver. This separate account was taken over by the receiver and continued as a depository. All deposits were made in this account in the amounts shown on the above table and these funds have not been commingled with any other funds.
Was Travelers' claim on the Chiwapa contract limited to the ten percent retainage?
Upon his appointment, the receiver took over a new and separate bank account belonging to Stigler which included $22,520.24, representing the amount Stigler had received from the owner of the Chiwapa contract on October 10, 1969, for partial work completed. At this time the owner on the Chiwapa contract still owned Stigler the sum of $32,281.70, consisting of $21,974.21 retainage and the balance in progress payments. Travelers had paid out for labor and materials claims on the Chiwapa contract the sum of $23,943.03.
The chancellor allowed Travelers' claim only as a general creditor entitled to participate prorata except for the ten percent retainage of $21,974.21, which was allowed and paid to Travelers free and clear of all expenses. In thus limiting Travelers' claim, the chancellor held that Travelers' subrogation rights were limited to the ten percent retainage because its assignment security (in the application for the surety bond) was not perfected by filing as required under the Uniform Commercial Code.
The question first stated has two points of inquiry, the first being whether Travelers' subrogation rights are limited to retainage. In arguing for such limitation, the receiver relies upon State for Use of National Surety Corporation v. Malvaney, 221 Miss. 190, 72 So.2d 424 (1954); Southern Surety Company v. Greenville Bank & Trust Co., 154 Miss. 412, 122 So. 529 (1929); Canton Exchange Bank v. Yazoo County, 144 Miss. 579, 109 So. 1 (1926), and First National Bank of Aberdeen v. Monroe County, 131 Miss. 828, 95 So. 726 (1923). In the Monroe County and Green-ville Bank & Trust Company cases the contest was between an assignee of the contractor and the surety, and the Court held that the surety's subrogation rights were inferior to the Bank's right to the progress funds arising out of the assignment. These cases did not, however, involve a surety's right to be indemnified from unassigned progress funds and, therefore, are no authority for the proposition that unassigned progress funds are not available to indemnify the surety for its losses. The other two cases relied on by the receiver likewise offer no authority for the present question inasmuch as those cases involved only retainage funds.
The unassigned funds in the amount of $32,281.70 still in the hands of the owner of the Chiwapa contract at the time of default and at the time the receiver was appointed were ample to indemnify the surety for its losses on that project. It was not only the right but the duty of all parties to use the full amount of the funds to pay suppliers of materials and laborers. Travelers paid these obligations and was therefore entitled to be indemnified for the sums so paid our. We hold that there is no reason to limit the surety's equitable right of subrogation to the ten percent retainage and that all funds in the hands of the owner at the time of the appointment of the receiver were available to Travelers to the extent necessary to indemnify it for losses sustained on that project. 1
The second point of inquiry is whether the filing requirements of the Uniform Commercial Code apply to the equitable right of Travelers to be indemnified for its losses. We are of the opinion that it does not.
The rights of the surety to subrogation for its losses are founded on equitable principles independent of any assignment of contract proceeds in the application of the contractor. The assignment in a bond application is in aid of an equitable right; it does not create that right. Farmers' Bank v. Hayes, 58 F.2d 34 (C.A. 6 1932). Upon what appears to be the soundest reasoning and the weight of authority, we hold that a surety's right of subrogation is unaffected by the filing requirements of the Uniform Commercial Code. Home Indemnity Co. v. United States, 433 F.2d 764 (Ct.Cl., 1960); National Shawmut...
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