Citizens National Bank v. Texas & Pacific Railway Co. ( 1941 )

I do not agree with the opinion of the majority. As I view the case, the questions presented are simple and are governed by elementary and well-established principles. Briefly stated, the case is this:

Locke contracted with the railway company to construct certain improvements on its property and to furnish all labor and material required for the work. By the terms of the contract the railway company was to pay for the work as it progressed, in monthly installments, based on the amount earned less fifteen per cent. retained. When the work was completed and accepted the retained fund amounted to $2259.11. By an instrument of even date with the contract, which was prepared and approved by the railway company, Locke assigned to the bank as security all funds to become due him under the contract. The instant suit was filed by the bank as assignee of Locke to recover the amount of the retained fund above named. The intervenors furnished Locke materials and machinery used in the work, but fixed no liens to secure their claims. The contract between Locke and the railway company with respect to the retained fund provided in paragraph 6 thereof as follows:

"* * * 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, * * *."

Before expressing my views on the main question presented, it is deemed proper to observe here that, as assignee of such funds, the bank acquired no better right than Locke himself possessed. 5 Tex. Jur., p. 43, and authorities there cited. The case, therefore, must be determined just as if Locke himself were the plaintiff. The majority opinion states, "We here pause to note that there are no claims for labor here involved." I do not understand the meaning of the sentence, for surely it could not be held that laborers would occupy a different status from the intervenors, in view of the language of paragraph 6 above quoted, which certainly places them in the same classification.

The majority opinion announces six rules of law with which I am in complete harmony. That my view of the applicable principles of law may be made clear, I quote from the authority cited by the majority in support of the first rule, Magnolia Petroleum Co. v. Connellee, 11 S.W.2d 158, as follows:

"* * * There are some rules applicable for the construction of written contracts, for the purpose of ascertaining from the language used the manner and extent to which the parties intended to be bound. Courts, however, are not permitted to resort to arbitrary rules of construction where the intention of the parties is expressed in clear and unambiguous language (Pierce-Fordyce Oil Ass'n. v. Warner Drilling Co. (Tex. Civ. App.) 187 S.W. 516), but will enforce the contract according to its terms (Benskin v. Barksdale (Tex. Com. App.) 246 S.W. 360; Perry Co. v. Langbehn, 113 Tex. 72, 252 S.W. 472; Rankin v. Rhea (Tex. Civ. App.) 164 S.W. 1095). As is well said by Chief Justice Cureton in Texas Farm Bureau Cotton Ass'n. v. Stovall,113 Tex. 273, 253 S.W. 1101:

"'The primary test of the character of a contract is the parties' intention as manifested by its terms.'"

Rule 2 of the majority opinion cites in support thereof 10 Tex. Jur. p. 272, sec. 159, the first paragraph of which reads as follows:

"The cardinal rule in construing a contract is to ascertain and give effect to the intention of the parties, as expressed in the language which they have used, provided that such intention is not in conflict with the rules of law, and this is the general purpose of all rules for the construction of contracts."

Rule 3 cites 10 Tex. Jur., p. 279, sec. 163. That entire section expresses so clearly my views of the controlling principle of law applicable that I quote it in full as follows:

"A contract is to be construed in accordance with its plain language. Its terms, when free from ambiguity and not in conflict with the policy of the law, establish the rights of the parties.

"The law leaves the contract just where the parties themselves have put it, and the courts will enforce it as made, without regard to questions as to whether the parties contracted wisely or foolishly, or as to whether, in the light of subsequent events, a hardship may be worked.

"Accordingly the courts have often said that they cannot make a new contract for the parties, nor add to, modify, vary or change in any particular the contract as made, nor restore a contract which has become valuless through the operation of its terms."

My difference with the majority appears not to be on the controlling principles of law, but upon their application. To my mind, the majority opinion announces sound rules of law and then departs altogether from them. Our point of departure is reached when we begin to apply the rules. If there is any ambiguity whatever in the language employed by the parties, I have been unable to detect it; and the majority opinion does not point out wherein it lies. Could language be plainer, simpler, and more easy of understanding than the language of paragraph 6 above quoted? The majority opinion, to my mind, assumes the issues which we must decide. The key sentence in that opinion is: "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." Just why a court would be warranted in saying that that provision was for one party alone, I am unable to understand. To my mind, it certainly was also for the benefit of the contractor. By its terms, had he met the condition prescribed within one day after completing the work, he would have been entitled to receive the retained fund immediately. Under the construction given by the majority, it would certainly have been a benefit to the contractor to have received the balance of his pay before the expiration of ninety days.

But, conceding for the purpose of this opinion that the contract was made for the benefit of the railway company alone, I ask what benefit? The majority opinion assumes the answer to that question in this language: "* * * 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." What right have we to make that assumption? The majority opinion does not point out the applicable lien statutes. Presumably the reference was intended to be to Article 5452 et seq., R.C.S. 1925. To my mind one insuperable barrier to the conclusion of the majority is the very material difference between the language of Article 5452 and that employed in paragraph 6 above quoted. The parties to this contract provided for retaining a part of the amount to be paid until evidence was furnished that payment had been made "to any and all persons who may have performed labor or furnished materials or supplies to the contractor in connection with the work." The statute clearly gives no lien for supplies, and to assume that the parties intended to protect from a lien when no lien was possible would hardly be warranted.

But, be that as it may, and disregarding this apparent barrier, while still assuming that the provision was made for the benefit of the railway company alone, we return to the question, what benefit? Has a court the right to tell parties, contrary to their own construction of their own unambiguous language, that they meant certain unexpressed benefits and no others? There are many ways in which the railway company might have been benefited financially by having this retained fund applied to persons who had performed labor and furnished material and supplies used in connection with this work. Suppose the owner, instead of being a railway company, were an individual, and that the contract related to the erection of some business house in which it was contemplated that the public would go to transact business. It is easy to perceive that such owner might be greatly benefited from a commercial standpoint by the enforcement of such provision. Good will is an asset the same as physical property. Persons and firms who might otherwise become customers might well fail to do so on account of the unpleasant memories that their labor or material which entered into the building had not been paid for. Such owner might be of the opinion that he might experience some difficulty in appeasing his prospective customers by answering to them that they had waited too long to file liens, and for that reason might desire to insert the provisions of paragraph 6 in his contract. To my mind, it is a natural and altogether commendable desire on the part of an individual to make provision that persons who furnish labor and material to erect an improvement for him should be paid therefor; and this quite irrespective of any financial gain that might flow therefrom.

For equal reasons, a railway company would be benefited by the enforcement of the provision in question in ways other than the possible avoidance of liens. The good will of the public means much to a railway company. It is a distinct asset of its business. A railway company might well conclude that its competitors would profit by its failure to protect laborers and materialmen. Besides, if such company desires to do that, why should courts prevent it?

No legislative authorization to insert paragraph 6 in the contract is required, but it is interesting to note that the Legislature recognized that parties might desire to afford greater protection to laborers and materialmen than that afforded by Article 5468, and accordingly provided in said Article that: "* * * Nothing in this law shall in any manner affect the contract between the owner and original contractor as to the amount, manner or time of payment of said contract price." But after all, we get back to the simple, fundamental principle with which we started. It is not for the courts to make contracts between parties, and tell them what they meant by the use of clear unambiguous language. Regardless of why the parties put this provision in the contract, the fact remains that it is there and that it violates no law or public policy; and it is my view that our limited duty is to enforce it as it is written.

The rule in 40 C.J., p. 365, is cited in support of the majority opinion. It will be observed that the rule cited contains this provision: "* * * or liens therefor have been discharged." In my judgment, that changes the entire aspect of the matter, and evidences clearly an intention only to protect the owner against liens. No comparable provision is found in the contract here under review. It will also be observed that a study of the cases cited in the footnotes, in support of the foregoing rule, discloses that this precise question has not been decided in many jurisdictions. I think the reasons advanced in support of the holding in the majority opinion are unsound, and same will annul contracts authorized by law and which should be upheld.

But what of the intervenors? The oft used expression that a contract is made, or is not made, for the benefit of third persons, does not have but one and only one meaning. As used in some instances it means that at the time the contract was made intervenors acquired the right to compel the railway company to withhold payment for their benefit. We question whether the contract in the instant case was made for the benefit of third persons within that sense; but we do not decide that question, because it is not necessary to do so. The railway company is not objecting to the presence of the intervenors in this case. The only person objecting is the assignee of Locke. The railway company's attitude is that it owes the money, but it stands upon its contractural rights not to pay it to Locke's assignee until the condition precedent is met. The majority recognize that a condition precedent was set up. They would deny Locke or his assignee the right to recover the retained amount for ninety days unless he or it complied with the provisions of paragraph 6. Such holding, to my mind, is that there was a condition precedent for ninety days. What I cannot agree to is that there is any language in the contract that would authorize any court to say that the parties intended for that condition precedent to become dead words at the end of ninety days. Under my view, to construe the provision as merely a protection from liens is to give it no meaning; for no court would compel an owner to pay a contractor and then pay off liens.

Since the bank is not entitled to this fund under the plain terms of the contract, and since the railway company neither has nor claims any property right thereto, a situation has arisen which inures to the benefit of the intervenors; that is, the exercise by the railway company of its rights has inured to intervenors' benefit. At the incipiency of this contract the railway company was given the right to retain this fund for the benefit of persons in the position of intervenors. It may not have assumed an obligation to do so, in the sense that it would be liable to such persons had it failed to retain it, but it reserved the right to do so. Therefore, in that sense the contract was made for the benefit of intervenors and others similarly situated. To give it a lesser meaning would be to give to paragraph 6 no meaning at all.

It is unquestioned that the parties had the right to make the foregoing contract. This being so, they had the right to require its fulfillment. It is not the policy of the law to bestow a right without furnishing a remedy for its enforcement. The railway company and the contractor, in plain and specific language, agreed that "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," in that event the railway company shall pay to the contractor the full amount earned under this contract, etc. It is also unquestioned that this plain agreement was not complied with by the contractor or his assignee. The railway company admits that it holds the money, and it is willing to pay same when the contract has been complied with. The dispute as to who is entitled to the money involved in said contract is now pending in the courts for settlement. All parties claiming an interest in such fund are before the court. Courts are established to give to the parties all the relief to which they may be entitled, either in law or in equity. Certainly the railway company has the right to exact that the contract be complied with before it is compelled to pay the money. If the contractor or his assignee refuses or fails to comply with the plain terms of the contract, certainly the railway company should be permitted to have its rights, as well as the rights of all parties interested therein, settled in the courts, and in such settlement obtain the relief provided by such contract, even if the money retained is applied to obtain such relief.

Courts are not powerless to do justice in a situation like that here presented. To my mind, there can be but one disposition of this cause which will be in consonance with sound legal principles, and that is to apply this retained fund first to the payment of the claims of intervenors, and then, if any remains, to the claim of the bank.

I do not mean to imply that, had the claims exceeded the retained fund, and had some of them been secured by liens and others not so secured, the lien creditors would not have been given priority. In such situation I think the law which gives priority to lien creditors would be read into the contract.

It is my view that the judgment of the Court of Civil Appeals should be affirmed, and, so believing, I respectfully enter my dissent.

Opinion delivered March 19, 1941.