.



### THE A ORNEY ;ENERAL

OFTEXAS

Arrn~rrv ~LTEXAS

Honorable D. C. Greer StateHighway Engineer TexasHighway Department Austin, Texas

Dear Sir: OpinionNo. O-6291 Re: Is a freightdemurrage charge,presented to theHighway Department by
a rallroadcomoanv aizalnst a highway contractor,a iiehabie claim?

We are In receipt of your letter of a recent requesting the opinion of this department on the above question. Your letter reads, in part, as follows:

"In order that the TexasHighway Department may correctlyhandle freightdemurrage claims against Highway Contractors,when submFtted to us brr Railroad Companies,we request thatyou please date stated

render an official opinion on tion:

"Is a freightdemurrage to the Highway Department Company against a Righway lienable claim?" the following-quescharge,presented by a RaIlroad Contractor,a

Articles 5472a, 547213,5472b-1 and 6674m,Vernon's Annotated Civil Statutes, are the Texas Statutes pertinent to your inquiry.

Article 5472a,V. A. C. S., provides:

"Thatany person, firm or corporation, or trust estate, furnishingany material, apparatus, fixtures, machinery or labor to any contractor for any bubllc improvements in this State, shall have a lien on the moneys, or bonds, or warrants, due or to become due to such contractors for such Improvements;provided,- suchperson, firm, corporation, or stockassociation, shall, before any payment ismade to such contractor, notify in writing the officials of the State, county, town or munlcipalltywhose duty It is to pay such Contractor of his.claim. Acts 1925, 39th Leg., ch. 17, p. 44, 81.". . .

HonorableD. C. Greer, page 2 o-6291

Article 547213,

V. A. C. S., provides:

"Thatno public official,when so notified in writing, shallpay all of saidmoneys, bonds or warrants, due said contractor,but shallretain enough of saidmoneys, bonds orwarrants to pay said claim, in case it is establishedby,judgment in a court of proper jurisdiction. Acts 1925, 39th Leg., ch. 17, p. 44, 8 2."

Article 5472b-1,V. A. C. S., provides:

"Sec. 1. That whenever any claim or claims shall be filed attempting to fix a lien, secured or claimed by any instrument filedunder the provisions of Chapter 17, of the General Laws of the State of Texas, passed by the Thirty-ninthLegislature in Regular Session, that the contractoror contractorsagainst whom such claim or claims are made, may file a bond with the officials of the State, county, town or municipalitywhose duty it Is to pay the moneys, bonds
or warrants to such contractor or contractors. Said bond shall be double the amount of the claims filed, and shallbe payable to the claimant or claimants. It shallbe executedby the party filing same as principal, and by a corporate surety authorizedunder the laws of Texas to execute suchbond as surety,and shall be conditioned substantiallythat the principaland surety will pay to the obllgeesnamed, or their assigns, the amount of the claim or claims, or such portion or portions thereof as may be proved to have been liens, under the terms of Chapter 17, General Laws of the State of Texas,passed by theRegular Session of the Thirtyninth Legislature. The filing of saidbond and its approvalby the power official of the State, county, town or municipality, shallrelease and discharge all Nens fixed or attempted to be fixed by the filing of said claim or claims,and the official or officials whose duty it is to pay the moneys, bonds or warrants shall pay or dellver the same to the contractor or contractors or their assigns. Said official shall sendby registeredmail an exact copy of saidbond to all clalmants.

"Sec. 2. At any time within sixmonths from the date of filing of said suretybond, the party making or holding such claim or claimsmay sue upon such bond, but no actlon shallbe brought on such bond after the expiration of such period. One action upon said bond shallnot exhaust the remedy thereon,Honorable D. C. Greer, page 3 o-6291

but each obligee or assignee of an obligee named thereinmay maintain a separate suitthereon in any court and In any jurisdiction. If any claimant or claimants in an action establish the fact that they
were entitled to a lien under the provisions of Chafiter

17 of the General Laws of the State of Texas, passed at the Regular Session of the Thirty-ninth Legislature, and shallrecover judgment for not less than the full amount for which claim was made, the court shall fix a reasonableattorney's fee in favor of the claimant or claimants,which shallbe taxed as'part of the costs in the case. The bond provided in Section One of this Act shallalso be conditloned that the principal and suretywill pay all court costs adjudged against the principal inactions brought by claimant or claimants thereon. 78.” Acts 1929, 41st Leg., 2nd C.S., p. 154, ch.

Article 

### 6674m,V. A. C. S., provides:

"Said contractsmay provide for partialpayments to an amount not exceeding (90%) of the value of the work done. Ten per centum of the contractprice shall be retained until the entirework has been completed and accepted, and final payment shallnot be made until If is shown that all sums ofmoney due for any labor, materials, or equipment furnished for the purpose of such improvementsmade under any such contract have been paid."

Articles 5472a, 5472b, 5472b-1, and 6674m, are in pari materia and should be construed together. Huddleston & Work v. Kennedy, Civ.App., 57 S. W. (2d) 255. These articles, in general, provide additional security for the payment of claims against a contractor in favor of thosewho furnish any material, equipment or labor to any contractor for any public improvements in this State, by means of either (1)a lien against funds designated for the pavment of said contractor,
or (2) a bond which the contractormakes in lieu of said lien.

With reference to your question as towhether a charge for demurrage Is a lienable claim, it is necessary to determinewhether demurrage is includedwithln the meaning of the language, "furnishingany material, apparatus fixtures 5472aS, machinery or labor to any contractor

. . .' t Article and whether money due a railroad company for demurTage charges comeswithin themeaning of the language,

. . .all sums ofmoney due for any labor,materials or equipment furnished for the purposffof such improvements made under any such contracts.

. . (Article6674m).AlthoughHonorableD. C. Greer, page 4 o-6291

the precise question here raised has not been passed upon by the appellate courts of this State, the construction of similar languageby our federal courts and the courts of other states is highly persuasive as to the construction to be given the above language In our statutes.

We point out here that it has been held that demurrage charges are to be construedas a part of the charges for transportation service. PhiladelphiaB. & W. R. Co. v. Quaker City Flour Mills Co., Lumber..Co. 127 A. 845, 846; 282 Pa. 362; Mllne

v. Michigan Cent. B. Co., MO. App., 732, 735. 57 S. W. @d),

In many of the cases hereinafter cited, "freight and "demurrage"are considered together in the determination
as to whether a claim for transportationcosts is an allowable claimwithin themeaning of statutesproviding additional security for the payment of thosewho furnish labor,material
or equipment to a publicworks contractor.

In the federal statute (40U. S. C. A., Sec. 270) which required the contractor to make a bond to secure the payment of the claims of those who furnished labor or materials to contractors on public works, we find the following language similar to that of our statutes: 'Supplyinghim or them with labor and materials in theprosecution of the work." The early constructionof thesewords by the federal courts
were rather strict. In United States v. Hyatt (C. C.A.) 92 F. 442, the court concluded that the services of a railroad were not "labor". This decision was followed in Mandel
v. United States (C.C.A.) 4F. (2d) 629. But the foregoing strictrule of constructionhas been set aside by the holdings in later cases.

In case of City of Stuart v. American Surety Co., 5 Cir., 38 F. (2d) 193, 194, a Florida statuterequired contractors for publicwork to executea bond with the obligation that 'such contractor, or contractors, shallpromptly make payments to all persons supplyinghim, or them, labor, material and supplies,used directly or indirectlyby the said contractor

. . .or sub-contractorsin the prosecution of the work provided for in said contract." Under this statute, suitwas brought against a contractor's surety to recover7for freight, switchingand demurrage charges on carload material used in the oerformance of said contract. In this case it was held that-such chargeswere within the liability of the contractor'sbond.

In discussing the matter as to whether charges for freight and demurragewere claims charged against the contractor'sbond within themeaning of the language, 'supplying him or them, labor, material and supplies" (40U.S.C.A., Sec. 2703, the court, in part, said:HonorableD. C. Greer, page 5 o-6291

"Protection is expressly extended to all oersons who furnish the named thinRS.whether under lien or not. whether Individualor corp&ation, rich or poor, supplyl ingin person or through agents and representatives

.... A railroad company is not excluded. In point of fact, many personswho have a lien enforceableby retention have been held to be wlthin the statute. Nor is the nature of the work done in transportation such as to prevent itsbeing labor. Much of what 1s done by the agents of the railroad company is hard labor, and the doing of the work, even by the use of machines, is recognized as labor under the statute

. ......Transportion of materials by cart and towboat is uniformly allowed as labor. United States Fidelity & Guaranty CO. V. United States, 231 U. 5. 237, 34 9. Ct. 88, 58 L. Ed. 200; Title Guaranty & Trust Co. v. Crane Co., 219 U. S. at page 34, 31 3. Ct. 140, 55 L. Ed. 72. Inwhat way can the distance of the transportatlonor the fact that it is over a speciallyprepared rail trackmake it any the less labor? Itwas held in Illinois Surety Co. v. JohnDavis Co~.,~244 U. 3. 376, 37 3. Ct. 614, 61 L. Ed. 1206, that,where track and
cars and equipmentwere rented by the contractor,and used by him in transportation for the job, the rental
was protected by the bond. If he should charter a rallroad or a train, the railroad company could,under this decision, recover. Why not when it furnishes single cars? By all the cases~,when a furnisher of material pays the freight,whether bound to do so or because the contractordoes not pay, the freight is added to the cost of thematerial, and protected. See Ear land Casualty Co. v. Ohio River Gravel Co. (C.C.A.7 20 F. (2d) 514. The same 'placevalue' is given the material by the transportation,no matter who pays the freight, and to the same extent,13 material furnished.

"Thedecisions ,ofthe Supreme Court reject the theory of strict construction,and adopt that of liberal construction in the allowance of claims above alluded to. IllinoisSurety Co, v. John Davis Co., 244 U.S. 376, 37
s. ct. 614, 61 L. Ed. 1.206; United States Fidelity & Guaranty Co. v. United States, 231 U.S. 237, 34 S. Ct. 88, 58 L. Ed. 200; Brogan v. National Surety Co., 246 U. 3. 257, 38 S. Ct. 250, 62 L. Ed. 703, L.R.A. 1918D, 776.

. . . ."

In construing the language, "promptpayment to any person or persons doing work or furnishing skill, tools, machinery ormaterials under ahd for the purpose of said con-Honorable D. C. Greer, page 6 o-6291

tract', the court stated that railroad transportationof materials combined the furnishing of work, skill,and machinery for the purpose of the contract, even if not labor in the
narrow sense originallyattributed to the word in eariler
cases.

In Standard Ins. 58 3. Ct. 314, 82 L. Ed., Co. v. United States, 302 U.S. 442, the court held that a claim of a common carrier by railroad for unpaid chargesdue for transportation of materials used in the construction of a federal building is one for "laborand materials'within the meaning of the Act requiring a bond for the prompt payment by the contractor to "allpersons supplyinghim, or them, with labor and materials in the prosecution of the work provided for in said contract" (40U.S.C.A., Sec. 270). In this connection the court said:

"'Certainlylabor is rsqulred for loading freight on railroad cars, moving these over the road, and unloading at destination. A,carrierwho has procured the doing of all this in respect of material has "furnishedlabor". If a contractor had employedmen to move the samekind of material inwheelbarrows, there could be no doubt that he furnished labor. In principle themere use of
cars and track and a longer haul creates no materiallydifferent situation. Nor do we find reason for excluding the carrier from'thebenefit of the bond because itmight have enforcedpayment by withholdingdelivery. The words of the enactment
are broad enough to includea carrierwith a lien. Nothing in itspurpose requires exclusionof a railroad. Refusal by the carrier to deliver material until all chargeswere paid might seriously impede the progress of publicworks, possibly frustrate an importantundertaking.'

....'
This casewas appealed to the Circuit Court ofAppeals, Fifth Circuit,and in StandardAccident Ins. Co. v. United States, 89 F. (2d) 658, April 14, 1937, the Court affirmed the holding by the district court (82L. E., supra)and expresslyapproved the ruling in City of Stuart v. American Surety Co., supra.

In the recent (1940)case of Sommers Const. Co. et al. v. Atlantic Coast Line R. Co., 7 3. E. (2d) 429, Court of Appeals of Georgia,Division No. 2, February 15, 1940, the court held that therewas no substantialdifference between the phrase" doing work or furnishing skill, tools,machinery
or materials under or for the purpose of such contract",as used in the state statute,and the phrase "supplyinghim orHonorableD. C. Greer, page 7 o-6291

themwith labor and materials in the prosecution of the work",
as used in the federal statute (40U.S.C.A., Sec. 27O), under which a claim for unpaid freight charges has been construed to he a claim for "laborand materials". The court further held that a claim by a railroad company for unpaid freight and demurrane charges for shipmentsused in construction of a state highway urojectwas a claim for 'doingwork
or furnishing sklli, toois,-machineryor materials"wythin the State statuteand the contractors'bond given pursuant thereto, and that the railroad company could recover on the bond, notwithstanding it had a carriers's lienwhich it could have exercisedby withholding delivery.

The fact that a railroad company already has a special lien which it could exerciseby withholdingdelivery, when a charge for freight or demurrage is unpaid, does not excludea railroad company from the securityafforded those who furnish labor,material, or equipment to a contractor on public improvements. City of Stuart v. American Surety Co., supra. State ofDelaware v. Aetna Casualty & Surety Co. (Del.) 145 A 172, 176; Sommers Const. Co. v. Atlantic Coast Line R. Co., supra. In this connection, in the case of State of,Delawarev. Aetna Casualty & Surety Co. (Del.) 145 A. 172, 176, the court said:

"'Theargument that itwould be inequitable to allow a carrier to surrender the lien and collect from the suretydoes not appeal to us. What is a carrier's lien? It is simply the right to hold the consignee's cargo until payment is made for the work of transporting it. In simple terms it is the right to withhold the enjoymentby another of the fruits of work done in his behalf until he pays therefore. The carrier is authorized by the law of liens to say in substancewhat an ordinary laborer or vendor of goods is In position to say, VIZ., pay me for my labor in advance or for my goods before delivery, otherwise you shall not enjoy the benefits of the one or passess the other. The carrier, notwithstanding the cargo is the consignee's,can similarly say--before I complete the labor of transportationby delivery to you, pay me for my work. That is all the lien Is. It does not follow the goods when delivered, nor can the consigneebe compelled to pay until they are delivered. Now what reason can there be in holding that a laborer or a materialmanmay deliver his labor
ormaterials on credit and go against the surety In case of nonpayment,but a transporter If he surrenders the cargomay not? If he may not, then this is the result, the very a,ctof surrenderingthe cargowhichHonorable D. C. Greer, page 8 o-6291

will give rise to the debt, will relieve the surety company of its guaranty of payment, and carrierswhen they are afraid to extend credit to the contractor will therefore hold back the materials and obstruct the work, a resultwhich must be inharmoniouswith the statute'spurpose'".

That our Texas statutes,providing additional security for the payment of claims of those who furnishmaterials, equipment or labor for public Improvementscontractors
are to be liberally construed is shown by severaldecisions. In Smith v. Texas Co., Comm.App., 53 S.W. (26) 774, it was held that article 5472a, giving a lien in favor of persons furnishingmaterials, equipmentand labor to public improvements contractors shouldbe liberally,not strictly construed,and that the benefits of said act were applicable to thosefurnishing materials to sub-contractors. In Foty v. Rotchstein, Civ. App., 60 S.W. (2d) 892, It was held that when grocerieswere furnished a contractorand consumed by laborers on publicwork, the seller is entitled to a lien on funds due the contractor, if it is shown that necessity exists for furnishing such supplies In the construction of public improvements. In Thurber Construction Co. v. Kemplin, Civ. App., 81 S.W. (2d) 103, itwas held that claims for feed furnished for teams of subcontractorswere allowable as lien against funds due general contractor in the hands of the State Highway Commission.

It is apparent that the language in the Texas Statutes with reference to theadditional securityafforded those who furnishmaterial, equipmentand labor to a contractor
on public improvements is substantiallythe same as to meaning and purpose as that of the legislativeacts interpreted by the federal courts and courts of other states in the various
cases herein cited. From an analysis of Articles 5472a, 547213, 547213-1,

and 6674m, It is apparent that the broad purposes end intentionsof said legislationare twofold: (1) to protect the honest claims of all persons or corporationswho have contributed to the performance of the work in connectionwith a contract for public improvements,and (2) to minimize lmpedimentsand delay of the work, and facilitateprocurement of materials,,e uipment and labor through the securityafforded by the lien 't

Article 5472a) or the bond in liew of said lien (Article5472b-l).' If the carrier's legitimate Claims against the contractorare included in the benefits provided, the foregoingpurposes and intentionswill be better served. If such claims are not included, the carrier could hold the freight until payment ismade, and if not paid, sell it for charges, and thereby embarrass the progress of the work. We
can see no intentionto exclude those who furnish transporta-.

Honorable D

.C

.Greer, page 9 o-6291

tlon service from the benefits afforded by the Act. The authorities have recognized the transportationas being very vital in the prosecution of contracts for public improvements,as demonstrated by their constructionof the language “labor,materials, and equipment.” In U.S. v. Hercules Co., 52 F. (26) 451, the court pointed out that the instances In the authoritieswhere claims for transportation charges have been allowed against the suretyunder a statuterequiring a bond for the prompt payment of all claims for labor,material and equipmentagainst a public contractorare of three classes.

(1) The first class iswhere the seller ofmaterials furnished has paid the transportationcosts or agreed to pay the transportationcosts, and saidmaterials have been actually and practically consumed In the process of construction. In these cases, the transportationcharges have been allowed the seller of the material as representing substantiallya part of the purchase price, and the claims for transportation chargeswere allowed the seller for "materials"furnished within the intent of that word as used in the statute. U.S.
v. Morgan, (~C.C.) 111. F. 474, 488; Maryland Casualty Co. v. OhioRiver Gravel Co. (C.C.A.)20 F. (2d) 514; 21 F. (2d) 744.

(2) The second class is where the contractor has agreed to pay the transportation costs, and the material is actually and practically consumed in the process of that particular construction. In these instances, the servicesperformed by the carrier in transportationhave been regarded as "labor" furnished the contractor,as that word is used in the statute granting security for the payment of claims against the contractor for "labor",because the full value of the services is furnished the contractorand inures to the benefit of the work. Cite of Stuart v. American Suretv Co. (C.C.A.) 38 F. (2d) 193; state v. Aetna Casualty & Surety Co: (Del Sup.) 145A. 172, 173.

(3) Claims have been allowed against the surety for transportationcosts upon hired teams, tools,machinery
or plant equipment. The use of suchproperty is deemed labor furnished the contractor. The transportatlon costs on such equipmentare regardedas an item of the rental and as a fair rental value for such equipment,during the period of that particular construction,goes into the work, the transportation costs, as an ingredient thereof, are likewise included. U.S. v. Illinois Surety co. (C.C.A.)226 F. 653, 662.. U.S.
v. Post Deposit Quarry Co. (D.C.)272 F. 698; 277 F. 1019.

It shouldbe noted that,generally, an unpaid claim is allowablewithln a statuteproviding additional security.

Honorable D. C. Greer, page 10 o-6291

for thosewho furnish labor,materials or equipment In carrging out the provisions of highway constructioncontracts, if it is such that a cost accountantwould charge it as a direct expense item to a particular job,and not to the capital investment offthe contractor. (2d) 513, 515. Margulies v. Ogdie, S.D., 10 N.W.

As stated heretofore, "demurragecharges' have been held to be an ingredient of and considered in connectionwith "transportationcharges". A proper charge for demurrage is consideredas a charge incident to transportation (8 Tex. Jur., 196, 204), and the holdingswith reference to claim for transportation serviceswould likewise be applicable to claims for freightdemurrage charges.

In view of the foregoing, it is the opinion of this department that a freightdemurrage charge,presented to the' State Highway Department by a railroad company against a highway contractor, is a lienable claimwithin the meaning of our statutes,provided the claim represents a direct expense item in carrying out the provisions of a particularhighway construction contract.

Trusting that the above satisfactorilyanswers your inquiry,we are

Yours very truly

ATTORNEYGENERAL OF TEXAS

By s/J.A. Ellis J. A. Ellis Assistant

JAE:fo

APPROVEDDEC 7, 1944 s/GroverSellers ATTORNEY GENERAL OF TEXAS
Approved Opinion Committeeby s/BWB Chairman