U.S. Fidelity & Guar. Co. v. Ryan

• Decision Date: 09 April 1923
• Docket Number: 17326.
• Citation: 124 Wash. 329,214 P. 433
• Court: Washington Supreme Court
• Parties: UNITED STATES FIDELITY & GUARANTY CO. v. RYAN.

214 P. 433

124 Wash. 329

UNITED STATES FIDELITY & GUARANTY CO. v. RYAN.

No. 17326.

Supreme Court of Washington

April 9, 1923

Department 2.

Appeal from Superior Court, Thurston County; John M. Wilson, Judge.

Suit by the United States Fidelity & Garanty Company against C. W Ryan, as trustee in bankruptcy of the Puget Sound Engineering Company. From a judgment for plaintiff, defendant appeals. Reversed in part, and remanded, with directions.

McMaster, Hall & Schaefer, of Vancouver, and Sidney Teiser, of Portland, Or., for appellant.

McClure & McClure, of Seattle, for respondent.

PARKER J.

This equity suit was commenced in the superior court for Thurston county by the plaintiff guaranty company, looking to the adjudication of a number of claims asserted against it as surety upon a bond executed by it to the state of Washington to secure the performance of a public highway construction contract by the Puget Sound Engineering Company. We are here concerned only with the claim of title asserted by the defendant C. W. Ryan, as trustee in bankruptcy of the engineering company, to certain equipment and supplies belonging to it and taken over by the guaranty company upon the abandoning of the contract. A trial in the superior court resulted in a judgment and decree which, in part, awards to the guaranty company a lien, and foreclosure thereof, upon the equipment and supplies, upon the theory that the guaranty company has a lien thereon in the nature of a pledge or chattel mortgage accompanied by possession superior to the claim of title asserted by Ryan, as trustee in bankruptcy for the engineering company. From so much of the judgment as decrees such award of lien to the guaranty company, Ryan, as trustee, has appealed to this court, claiming that he is entitled to a money judgment against the guaranty company for the value of such equipment and supplies so taken over by it from the engineering company, as for conversion thereof.

On July 21, 1919, the engineering company entered into a construction contract with the state for the grading and paving of a section of the Pacific Highway in Clarke county, agreeing to do such construction work and furnish all necessary labor, equipment, and supplies therefor for a stated consideration. The following provisions of the contract are the only portions thereof we need here particularly notice:

'IV. Should the contractor at any time refuse or neglect to supply a sufficiency of properly skilled workmen, or of material of the proper quality, or fail in any respect to prosecute the work with promptness and diligence, or fail in the performance of any of the agreements herein contained, the state highway commissioner shall be at liberty, after three (3) days' written notice to the contractor, to provide any such labor or materials and deduct the cost thereof from any moneys then due or thereafter to become due to the contractor under this contract; and if the state highway commissioner shall consider that such refusal, neglect or failure is sufficient ground for such action, he may, by written notice to the contractor and to his surety or its representative, terminate the employment of the contractor for said work, and enter upon the premises and take possession of all materials, tools, and appliances thereon, for the purpose of completing the work included under this contract, and employ, by contract or otherwise, any person or persons to finish the work, and provide the materials therefor; and in case of such discontinuance of the employment of the contractor, he shall not be entitled to receive any further balance of the amount to be paid under this contract until the work shall be fully finished, at which time, if the unpaid balance of the amount to be paid under this contract shall exceed the expense incurred by the state highway commissioner in finishing the work, such excess shall be paid by the state to the contractor, but if such expense shall exceed unpaid balance, the contractor shall pay the difference to the state treasurer.'

On the same day, in pursuance of stipulations in the contract, the engineering company, as principal, and the guaranty company, as its surety, executed a bond to the state in the sum of $205,485, conditioned, following appropriate references to the contract, as follows:

'Now, therefore, if the principal herein shall faithfully and truly observe and comply with the terms, conditions, and provisions of the said contract in all respects, and shall well and truly and fully do and perform all matters and things by it undertaken to be performed under said contract, upon the terms proposed therein, and within the time prescribed therein, and shall indemnify the state of Washington against any direct or indirect damages that shall be suffered or claimed, for injuries to persons or property during the construction and improvement of such highway, and until the same is accepted, and shall pay all laborers, mechanics, subcontractors, and materialmen, and all persons who shall supply such contractor or subcontractors with provisions and supplies for the carrying on of such work, and shall in all respects faithfully perform said contract according to law, then this obligation to be void; otherwise, to remain in full force and effect.'

On the same day the engineering company executed and delivered to the guaranty company an indemnity agreement reading in part as follows:

'In consideration of the United States Fidelity & Guaranty Company (hereinafter called the company) becoming surety on the bond of the Puget Sound Engineering Company (hereinafter called the applicant) herein applied for, the applicant hereby covenants and agrees: * * * And for the better protection of said company the applicant does, as of the date hereof, hereby assign, transfer, and convey to the said company all the right, title, and interest of the applicant in and to all the tools, plant, equipment, and materials of every nature and description that it may now or hereafter have upon said work, or in, on, or about the site thereof, including as well materials purchased for or chargeable to said contract, which may be in process of construction, on storage elsewhere, or in transportation to said site, * * * authorizing and empowering said company, its authorized agents or attorneys, to enter upon and take possession of said tools, plant, equipment, materials, and subcontracts, and enforce, use, and enjoy such possession upon the following conditions, viz.: This assignment shall be in full force and effect, as of the date hereof, should the applicant fail or be unable to complete the said work in accordance with the terms of the contract covered by said bond, or in event of any default on its part under the said contract.'

This indemnity agreement was never officially recorded, either as a bill of sale or chattel mortgage. Soon thereafter the engineering company entered upon the performance of the contract and continued in such performance until about September 20, 1920, when it abandoned the work before completion thereof. On September 23, 1920, the engineering company, by written communication, notified the state highway board as follows:

'We are very sorry to have to advise you that for reasons beyond our control we are unable to proceed further with our contract for the construction of [here follows an appropriate reference to the work to be done under the contract].'

Thereupon the state highway board notified the guaranty company of the abandonment of the work by the engineering company and demanded of the guaranty company that it complete the work according to the construction contract for the performance of which it became surety. On September 25, 1920, in pursuance of a resolution of the board of directors of the engineering company, that company executed a bill of sale conveying to the guaranty company all of its equipment and supplies located along, upon or about the portion of the highway covered by the construction contract. That bill of sale contained, among other things, the following recital:

'It is understood that the party of the second part became a surety upon the bond which the party of the first part was required to give unto the state of Washington, for the faithful performance of a road contract between the points mentioned and heretofore described, and that the party of the first part has been unable, and is unable to complete the said road contract, and that the same has been required to be completed by the party of the second part, under the terms of its bond given unto the state of Washington, and that for the consideration above mentioned, and in pursuance to the contract existing between the party of the first part and the party of the second part entered into at the time the bond was given, all of this said personal property is being delivered and sold and transferred to the party of the second part for the purpose of enabling it to have and to hold the same, and the better to equip it to perform the said contract in accordance with the contract existing between the party of the first part, the party of the second part, and the state of Washington.'

On the same day, and in pursuance of the same resolution of its board of directors, the engineering company executed a second bill of sale, conveying to the guaranty company five certain automobile trucks and one trailer, then at the place of the work, evidently not intended to be conveyed by the first bill of sale, which trucks and trailer were held by the engineering company under conditional sales contracts, and hence liable to be reclaimed by the original vendors thereof; it being recited in that bill of sale that the guaranty company assumes no obligation to pay any balance due upon such conditional bills...