Citizens National Bank v. Texas & Pacific Railway Co.

150 S.W.2d 1003, 136 Tex. 333, 1941 Tex. LEXIS 338

• Court: Texas Supreme Court
• Decided: March 19, 1941
• Docket: No. 7580.
• Status: Published

Opinions

Mr. Justice Critz

delivered the opinion of the Court.

R. H. Locke was desirous of entering into a construction contract with the Texas & Pacific Railway Company. Lacking funds with which to finance such contemplated contract, Locke applied to the Citizens National -Bank in Abilene, Texas, for a line of credit. The Bank agreed to extend the credit, provided Locke would deliver to it as security an assignment of all funds accruing to him under the contract with the Railway. This was agreeable to Locke, and the matter was presented to the Railway. The two contracts were then prepared; — one the contract between the Railway and Locke, and the other the assignment contract from Locke to the Bank. The assignment to the Bank was delivered to it, and on the same day it was signed by Locke the Bank mailed it to the Railway at Dallas with a letter, in which the Bank informed the Railway that Locke was mailing to it the construction contract. The Bank’s letter requested the Railway to hold the assignment “until you receive these contracts, and upon your approval mail one of the copies back to us, when we will proceed to make Mr. Locke’s loan if, and when, he needs same.” On August 31, 1936, the Railway returned the assignment contract to the Bank, duly approved by the Railway. It appears that the construction contract was duly signed and entered into between the Railway and Locke.

By the terms of the construction contract, Locke agreed to do certain grading and culvert work for the Railway. This contract then provided: “The Railway shall pay the Contractor in current funds for the performance of this contract the following rates and prices, grading quantities to be measured in excavation.” Then follows a schedule showing the rates and prices that the Railway was to pay Locke for the things he was to do and perform under the contract.

We deem it important to here quote in full subdivisions 5 and 6 of the contract between Locke and the Railway. They are as follows:

“5. As soon as possible after the first day of each month, the Engineer shall estimate the quantities of work completed under this contract, and by applying unit prices shall determine the total work performed and the amount due the Contractor. The Railway shall as soon thereafter as such estimate can be audited and passed for voucher in the course of the Railway’s business, pay the Contractor the amount of such estimate less previous payments and less fifteen (15) per cent.

“6. Upon completion of the work herein provided, the Chief Engineer shall have an inspection made and if the work is complete and satisfactory, a final statement of all the work done and moneys due the Contractor shall be made by the Railway Engineer, whereupon, after the Contractor has furnished written evidence satisfactory to the Railway, that he has paid in full all amounts that may be due by him to any and all persons who may have performed labor or furnished materials or supplies to the Contractor in connection with the work to be done hereunder, the Railway shall pay to the Contractor the full amount earned under this contract, less payments previously made, as soon as final statement can be audited and passed for voucher in the course of the Railway’s business.”

The assignment contract from Locke to the Bank identifies • the contract between the Railway and the Bank; it recites that Locke has arranged with the Bank for funds to carry out the contract with the Railway, and states that in order to protect the Bank he desires to assign and transfer to said Bank any and all sums of money that may become due under such contract by the Railway. The assignment contract then assigns all money to become due under such contract to the Bank, with full authority on the part of the Bank to collect and receive the same. As already stated, this contract was duly approved by the Railway.

In due time Locke complied with his contract with the Railway, and same was accepted by it. In the meantime Frank Parrott, Fort Worth Sand & Gravel Company, and F. C. Crane Company had furnished Locke with materials and machinery used in and on this project, for which Locke has never paid. It appears that the amounts respectively of such claims are: to Frank Parrott, $555.11; to Fort Worth Sand & Gravel Company, $175.32; and to F. C. Crane Company, $137.77. It also appears that on February 16, 1937, Locke owed the Bank $2,-173.30, which sum, with accrued interest, is the amount of Locke’s indebtedness to the Bank. It conclusively appears that .none of the parties above mentioned, who furnished Locke with material and machinery, have ever fixed, or attempted to fix, any lien against the Railway, and that when this suit was filed and tried in the district court, the time had long since passed when, under applicable statutes, any lien could be fixed against the Railway for any matter arising out of this contract. It also appears that at the time this case was tried the Railway had in its hands, unpaid on the Locke contract, the sum of $2,259.11. This sum was the amount of the 15% retainage. If the Bank is entitled to collect this fund under its assignment, its claim, including interest, is greater than the fund.

After the completion and acceptance of Locke’s contract with the Railway, the Bank made demand on it for the payment of the $2,259.11. The Railway refused payment, and this suit was filed by the Bank to collect the same. Frank Parrott, Fort Worth Sand & Gravel Company, and F. C. Crane Company intervened, respectively claiming the right to collect their claims against Locke out of the fund in the hands of the Railway.

On final trial in the district court judgment was entered for the Bank against the Railway. It was also adjudged that the three interveners above named take nothing against either the Bank or the Railway. The judgment adjudged costs. The Railway and the interveners appealed to the Court of Civil Appeals at Eastland. On final hearing in the last named court the judgment of the district court was reversed and the cause remanded to the district court for a new trial. 126 S. W. (2d) 765.

As we interpret the opinion of the Court of Civil Appeals, it holds:

(a) That that part of the contract between the Railway and Locke which provides for final payment to Locke “after the Contractor has furnished written evidence satisfactory to the Railway, that he has paid in full all amounts that may be due by him to any and all persons who may have performed labor or furnished materials or supplies to the Contractor in connection with the work to be done hereunder, * * *” made it unnecessary for such laborers and materialmen and supply-men to fix liens on the fund here involved, because the above-quoted contractual provision was made for their benefit.

(b) That even if such contractual provision were not made for the benefit of such laborers, materialmen and supplymen, nevertheless the Railway was under no duty to pay the Bank until Locke had complied with the letter of his contract with' the Railway, and furnished it with written evidence that he had paid in full all amounts due by him to any and all persons who may have performed labor or furnished material or supplies on the project.

(c) That “Since the Railway Company has no property right in the fund but is entitled to withhold the payment thereof to the bank until compliance with the condition upon which such payment was promised; and since such condition cannot be met except by payment of the claims of intervenors, we are of the opinion that, in the right of the Railway Company, if not in their own right, the intervenors were properly permitted to come in and to have their several judgments against the Railway Company in pro tanto discharge and acquittance of the Railway Company’s obligation to the bank.”

Before proceeding further we deem it appropriate to state certain well-established rules of law, which we consider germane to the decision of this case:

(1) Rules of construction as applied to contracts are for the purpose of enabling the court to ascertain from the contract itself, that is the language used, the manner and extent to which the parties intended to be bound. Courts do not resort to arbitrary rules of construction where the intention of the parties is clearly expressed in unambiguous language. Magnolia Petroleum Co. v. Connellee (Com. App.), 11 S. W. (2d) 158.

(2) The cardinal rule of construction as applied to all contracts is to ascertain the intention of the parties as expressed in the language used in the instrument itself. In this connection, it is the intention and purpose of the contracting parties, as disclosed by the instrument, which should control. 10 Tex. Jur., p. 272, Sec. 159.

(3) A contract must be construed in accordance with its language. Its terms, when free from ambiguity and not in conflict with law, establish the rights of the parties. 10 Tex. Jur., p. 279, Sec. 163.

(4) It is the duty of the court, in determining the meaning and intent of a contract, to look to the entire instrument; that is, the contract must be examined from its four corners. Stated in another way, the contract must be considered and construed as an entire instrument, and all of its provisions must be considered and construed together. It is not usually proper to consider a single paragraph, clause, or provision by itself, to ascertain its meaning. To the contrary, each and every part of the contract must be construed and considered with every other part, so that the effect or meaning of one part on any other part may be determined. 10 Tex. Jur., p. 282, sec. 164.

(5) It is the law of this State that a person not a party to a contract may enforce it if it appears that it was made for his benefit. 10 Tex. Jur.-, p. 478, sec. 278; 12 Am. Jur., p. 833, sec. 281; 17 C. J. S., p. 1121.

(6) Parties are presumed to contract for themselves. It follows that a contract will not be construed as having been made for the benefit of a third person unless it clearly appears that such was the intention of the contracting parties. 17 C. J. S., p. 1129.

We come now to construe this contract. In doing so we apply the rules of construction above announced. An examination of this contract discloses that it was duly entertained into between the Railway and Locke; that it bound Locke to do certain construction work for the Railway; and that the Railway bound itself to pay Locke for such work in accordance with a certain schedule of prices set out in the instrument. It is then provided that the Railway shall make monthly payments for completed work at the scheduled prices, except 15 per cent, should be retained in the hands of the Railway. It is then provided that on completion of the work and “after the contractor has furnished written evidence, * * * that he has paid in full all amounts that may be due by him to any and all persons who may have performed labor or furnished materials or supplies to the contractor in connection with the work done herein, the Railway shall pay to the contractor the full amount earned under this contract, less payments previously made.” We here pause to note that there is no contention that there are any unpaid labor claims. To our minds, when this contract is viewed as a whole and in the light of the above-stated rules, and when the provision providing for final payment “after the contractor has furnished written evidence that he has paid in full” certain named classes of persons, is read in the light of the entire contract, and in the light of our applicable lien statutes, it becomes plain that the provision of paragraph 6 of the contract, just referred to, was not intended as an absolute condition to be enforced regardless of any necessity or reason therefor; or as a contractual provision made for the benefit of third persons. To the contrary, it is evident that the provision was embraced in the contract only to protect the Railway against those who might claim, liens against it under our lien statutes pertaining to railroads. Simply stated, we think that the contract, considered as a whole, shows that the provision of paragraph 6 under discussion was inserted ..therein for the benefit of the Railway alone. We further think that, since the Railway has received and accepted the benefits of this contract in full, and since the enforcement of the requirement of paragraph 6, regarding the furnishing of written evidence of the payment of certain claims, will be of no benefit to the Railway, for whose benefit alone it was written into the contract, there is no reason in law or in equity why it should not now discharge its obligation to pay for the services performed by Locke for it. 40 C. J., p. 365; Getty et al. v. Penn. Inst., etc., 194 Pa. 571, 45 Atl. 333. We think it would be giving this contract an unreasonable construction to say that the provision of paragraph 6 under discussion imposes a condition in favor of the Railway, absolute in its terms and effect, even though the Railway has no further interest in its enforcement and could not benefit thereby; and even though the Railway has received and accepted the full benefits of the contract. “A contract will not be presumed to have imposed an absurd or impossible condition on one of the parties, but will be interpreted as the parties must be supposed to have understood the condition at the time.” 12 Am. Jur., p. 848, sec. 295.

In 40 C. J., 365, supra, the rule is thus announced:

“Likewise contract provisions for the retention by, or on behalf of, the owner, of the contract price, or a part thereof, until claims for work and materials have been paid or liens therefor have been discharged, are construed to be for the benefit of the owner, rather than of laborers, materialmen, or subcontractors, and not to confer on the latter any rights in the fund retained.”

In Getty et al v. Penn. Inst., etc., supra, the Supreme Court of Pennsylvania had before it a construction contract, wherein the owner entered into a contract with a contractor for the construction of a building for the owner. The contract provided for a total consideration of $286,300.00, payments to be made monthly, but the amount to loe paid not to exceed 80% of the certificates of the architect; final installment not to be payable until all mechanics and materialmen “shall have in writing acknowledged that they have been fully paid by the contractors for their work and materials done and furnished.” The building was completed and accepted by the owner, and there remained in its hands the final settlement, amounting to $57,260.00.

Under the above contract certain subcontractors asserted claims against the retained fund. The court held that the clause in the contract above quoted was inserted in the contract for the sole benefit of the owner and not for the benefit of third parties. We quote as follows from the opinion:

“If the contract had provided that, on the failure of the principal contractors to deliver the written acknowledgments specified, the money should be withheld from them, for the benefit of all the subcontractors who had not been paid, it might have been forcibly argued that such provision constituted an equitable assignment of the fund for their benefit. But that is not the contract. It provides that the money shall not be paid to the principal contractors until the written acknowledgments are obtained. Obviously, this is for additional protection to the owner. True, it has secured an express waiver of the right to file liens; but is may choose to take no chance of harassing litigation by wronged subcontractors and material men, and may insert as many provisions, not for the benefit of subcontractors, but for its own protection, as it chooses.”

As against the contention that the above-quoted provision was a condition that the owner could enforce, regardless of any benefit to it in doing so, the opinion says:

“But it is asked, can defendant honestly retain this money, and pay to nobody? We answer, no. Whenever the written acknowledgments are obtained, either by the principal contractors or their assignee, or when, under the limitations of the mechanic’s lien law, defendant is beyond peril as to liens against its buildings and grounds, it owes a debt, in such amount as is yet unpaid of the contract price, personally to the principal contractors, which it is bound to pay to the assignee to whom the assets have passed.”

The judgment of the Court of Civil Appeals is reversed, and the judgment of the district court affirmed.

Opinion delivered March 19, 1941.

Rehearing overruled May 14, 1941.