Case Name: National Market Company, Appellant, v. Maryland Casualty Company, Respondent
Court: Washington Supreme Court
Jurisdiction: Washington
Decision Date: 1918-02-21
Citations: 100 Wash. 370
Docket Number: No. 14284
Parties: National Market Company, Appellant, v. Maryland Casualty Company, Respondent.
Judges: Ellis, C. J., Fullerton, and Webster, JJ., concur.
Reporter: Washington Reports
Volume: 100
Pages: 370–383

Head Matter:
[No. 14284.
Department One.
February 21, 1918.]
National Market Company, Appellant, v. Maryland Casualty Company, Respondent.
Municipal Corporations — Improvements — Claim Against Bond —-Assignment oe Claim—Sufficiency. The assignment of laborer’s checks by mere delivery and indorsement constitutes an assignment of the debts owing by the contractor to the laborers for work performed on a public improvement, and of the laborer’s claims against ther contractor’s bond, conditioned to pay laborers and materialmen, and authorizes the assignee to file a claim against the bond; and this, notwithstanding the checks did not show upon their face the nature of the indebtedness for which they were issued (Overruled on rehearing).
On Rehearing.
Municipal Corporations—Improvements — Claim Against Bond —Assignment of Claim—Checks •—■ Bills and Notes. The issuance of ordinary bank checks by a contractor to laborers, and their indorsement and delivery for value to a purchaser having knowledge that they were given for labor claims, does not operate as an assignment of the laborers’ rights' of lien or claims against the contractor's bond; in view of the negotiable instruments law, Rem. Code, §§ 3516, 3457, and 3579, defining bills of exchange and checks, making the same simply an order for the payment of money, and providing the effect of an indorsement, which does not under the law affect the debt or constitute an assignment thereof (Parker, Fullerton, and Mount, XT., dissent).
Appeal from a judgment of the superior court for King county, Mackintosh, J., entered May 19, 1917, upon sustaining a demurrer to the complaint, dismissing an action on a contractor’s bond.
Reversed.
Hotvard 0. Burk, for appellant.
Grinstead S Laube, for respondent.
Reported in 170 Pac. 1009.

Opinion:
Parker, J.
The plaintiff, National Market Company, claiming to be the assignee of certain claims for labor performed upon public work of the city of Se attle, secured by bond executed by the defendant, Maryland Casualty Company, as surety, under Rem. Code, § 1159, seeks recovery against the defendant upon such bond. The defendant demurred to the plaintiff's complaint upon the sole ground that it "does not state facts sufficient to constitute a cause of action." This demurrer was sustained by the superior court, and the plaintiff electing not to plead further, judgment of dismissal with prejudice was rendered against it, from which it has appealed to this court.
The facts as alleged in the complaint may be summarized as follows: Prior to June, 1916, the city of Seattle entered into a contract with C. W. Coit, by the terms of which he agreed to construct for the city a certain public improvement. In compliance with his contract, Coit executed and delivered to the city a bond as prescribed by Rem. Code, § 1159, conditioned that he would pay all laborers performing work upon the contract, which bond was also executed by respondent, Maryland Casualty Company, as surety. Coit entered upon the performance of his contract, and thereafter, in June, 1916, had in his employ upon the work seven laborers, .to whom he became indebted for such work during that month in sums aggregating $221.50. On July 1, 1916, Coit issued to each of these laborers, for the amount due each, his check drawn upon the Guardian Savings Bank. Shortly thereafter each of these laborers transferred his check to appellant, National Market Company, and received therefor, either in money or merchandise, the full face value thereof. These transfers were each made only by delivery of the check and indorsement in blank of the payee's name on the back thereof. Shortly thereafter the appellant presented all of these checks to the Guardian Savings Bank for payment, when payment was refused because Coit had no funds on deposit in that hank with which to pay them. The checks all remain unpaid and are still held by appellant. Thereafter, in due time, the appellant filed with the proper city authorities notice of its claim against the bond executed by Coit with the respondent as surety, making claim for the aggregate amount of $221.50; as assignee of these several laborers. Thereupon appellant commenced this action, seeking recovery against respondent, Maryland Casualty Company, as surety upon the bond.
The real problem here for solution is, Did the assignment of these checks to appellant, by mere delivery and indorsement in blank, constitute an assignment of the debts owing by Coit to the laborers for which the checks were given? And, if so, did such assignments carry with them the claims of the laborers which they had the right to assert against respondent as security upon the bond?
Our recent decision in Northwestern Nat. Bank of Bellingham v. Guardian Casualty & Guaranty Co., 93 Wash. 635, 161 Pac. 473, goes a long way towards answering these questions in the affirmative, though that case differs from this in some respects which we shall presently notice. That case involved the assignment of time checks issued to laborers for labor performed upon public work, the payment for which labor was secured by a bond such as we have in this case. The time checks were simple certificates evidencing that the laborers had worked each a certain time upon the public work and were entitled to a certain amount in payment therefor from the contractor. The time checks were assigned by the laborers to the plaintiff bank, it paying to them the face value thereof. The assignments were indorsed on the back of each time check in this form "For value received, I hereby assign to the Northwestern National Bank all my right, title and interest to the within time cheek." Thereafter the bank filed its claim with the proper public officers and sued the surety, claiming recovery upon the bond as assignee of the laborers. In holding that the claims and security represented by the bond were both assignable, and that the assignments so made were effectual to enable the bank to file its claim as such assignee and recover upon the bond, Chief Justice Ellis, speaking for the court, at page 646, said:
' 'Tt is next urged that the assignment of these labor and material claims, in any event, carried no right to assert them against the bond. It is argued that the right of the laborer or materialman is merely a right to receive his pay under the express or implied contract with the contractors, and this is all the right he has by virtue of his contract; that, therefore, the assignment of the time checks was only the assignment of a right of action against the contractors. This view is too narrpw. It is only by virtue of his right to receive his pay from the contractor that the laborer or materialman has any right assertable against the bond as a contract made for his benefit. His right against the bond is ancillary to and dependent upon his right against the contractors. The first right is dependent upon the second. An assignment of the second, therefore, operates as an equitable assignment of the first. Gilmore v. Westerman, 13 Wash. 390, 43 Pac. 345."
The only difference between that case and this is that the time checks there involved were not negotiable in form, that they showed upon their face that they were issued for work performed upon the public work in question, and that they were assigned by formal words instead of by mere delivery and blank indorsement.
The checks issued by Coit to these laborers, being negotiable instruments in form, of course passed to, and became the property of, appellant by the mere delivery and indorsement in blank thereof by the several payees as effectively as if there had been indorsed over the names of the payees formal words of assignment, as on the time checks in the Northwestern National Bank case above noticed. We think, however, title would have passed to appellant by such delivery and blank indorsements had these checks been mere time checks such as were involved in the Northwestern National Bank case, instead of ordinary bank checks upon a deposit account. In Small v. Smith, 120 Minn. 118, 139 N. W. 133, there were involved assignments of similar time checks to those involved in the Northwestern National Bank case above noticed, by mere delivery and indorsement in blank of the labor claimants. This was held to be an effectual assignment, not only of the indebtedness evidenced by the time checks, but also of the statutory lien rights of the labor claimants securing such indebtedness, and foreclosure of the liens was accordingly awarded in favor of the plaintiff, as assignee of the labor claimants, upon the theory that the time checks, though not negotiable instruments "in the sense of the law merchant," were nevertheless "the evidence and symbol of the. claims for labor of the several persons therein named," and hence were assignable by delivery and indorsement in blank. Now, while it is true, as we have noticed, that the checks here involved do not show upon their face the nature of the indebtedness for which they were issued, they were upon their face evidence of indebtedness from Coit to the laborers, which indebtedness, as pleaded, was, in fact, for labor performed upon the public work. It is plain that, had the checks been reassigned to the laborers by appellant, they could have recovered from Coit upon the indebtedness for which the checks were issued, and also from the surety company upon the bond. It seems equally plain to us that appellant, as assignee of the laborers, could also recover from Coit upon the indebtedness for which the checks were is sued, as well as upon the checks as negotiable instruments, had they so elected. In other words, we think that, while the transfer and delivery of these checks by the laborers to respondent by delivery and indorsement in blank was a transfer of the checks as negotiable instruments, such transfer also constituted an assignment of the indebtedness for which they were issued, apart from any consideration of the law of negotiable instruments. This being the law of appellant's rights as against Coit, as we view it, it would seem to follow that the elementary rule that the assignment of a debt carries with it the security would entitle appellant to recover upon the bond as assignee of the laborers. The following observations of the learned editors of 2 E. C. L. 633, well state the law of this ease determinative of appellant's rights as against respondent:
"The assignment of a debt ordinarily carries with it all liens, and every remedy or security that could have been used, or made available, by the assignor as a means of indemnity or payment, although they are not specifically named in the instrument of assignment, and although the assignment is not by any instrument in writing. In the absence of any provision to the contrary, the unqualified assignment of a chose in action vests in the assignee an equitable title to all such securities and rights as are incidental to the subject-matter of the assignment; and he may enforce them although the assignee at the time was ignorant of their existence."
See, also, 3 E. C. L. 979.
The argument of learned counsel for respondent indicates that they largely rely upon the law of negotiable instruments. For instance, they remind us that a check of the nature here involved does not operate as an assignment of the funds of the drawer which may be in the hands of the drawee, until it is accepted by the drawee. They also remind us that it is only parties to negotiable instruments who may be held thereon, and that respondent is not a party to these checks as negotiable instruments. This, however, is not an action against the respondent upon a negotiable instrument as such. Of course, it could not be held upon any such theory, since it was not a party to these checks. Indeed, there is not here involved any question of the liability of any one upon these checks as negotiable instruments, nor is it a question of the effect of the checks as assignments of any funds belonging to Coit which might be on deposit in the bank on which they were drawn; but it is a question of these checks evidencing an indebtedness from Coit to the laborers, of what that indebtedness was for, of the assignment by the laborers to the National Market Company of that indebtedness, and the security attending it.
It seems quite clear to us that the facts pleaded show an indebtedness from Coit to the laborers for labor performed upon public work; that respondent was liable therefor to the laborers upon the bond; and that appellant succeeded to all the rights of the laborers, both against Coit, their original debtor, and against respondent as surety upon the bond. The fact that the checks were in form negotiable instruments, that they did not, upon their face, show the nature of the debt they evidenced, and that they were assigned by mere delivery and indorsement in blank, we think makes the law of this case no different from that announced in the Northwestern National Bank case above noticed.
The judgment of the trial court is reversed, with instructions to overrule respondent's demurrer to appellant's complaint, and take such further proceedings as are not inconsistent with the view here expressed.
Ellis, C. J., Fullerton, and Webster, JJ., concur.