Opinion ID: 1752024
Heading Depth: 1
Heading Rank: 3

Heading: Travelers' Claims on the Webster and Yalobusha Projects

Text: The next question is whether Travelers waived its right to subrogation and indemnification on the Webster and Yalobusha County projects. On July 31, 1969, Travelers wrote the owner of the Yalobusha County project that This will be your authority to pay to the above contractor, all monies due under the above project. A similar letter was written to the owner of the Webster project. At that time Travelers did not know that Stigler had not paid suppliers of material and labor. Pursuant thereto the owner, on October 13, 1969, made final payment of the Yalobusha County project, and on November 12, 1969, made payment of the final amount due on the Webster County project. Stigler deposited said sums of $8,191.13 and $7,342.41 respectively, in the special bank account already mentioned, which was taken over by the receiver and which account is still intact without intermingling with other funds not connected with the three construction contracts. There is no statement in the letters from Travelers to the owners that it intended to waive indemnification if required to pay materialmen and laborers. It only authorized final payment with no knowledge of default on the part of Travelers that Stigler was in default or would fail to use the funds to pay the suppliers of material and labor. The chancellor held that the said letters amounted to a waiver on behalf of Travelers of its rights to subrogation and indemnity from said funds thus paid to Stigler by the owners, and that Travelers would share on these claims only as a general creditor. The suppliers of materials and labor on private contracts are a favored class of creditors and have a lien on the thing created. Although not allowing liens on public works, the legislature has provided that the contractor on public contracts shall furnish a surety bond assuring faithful performance of the contract and prompt payment of suppliers of materials and labor. These materialmen and laborers are thus favored over other creditors of the contractors by virtue of the bond requirements under the statute, the surety bond itself, and the contract. When Webster and Yalobusha Counties paid the final payments under the contracts to Stigler, it became Stigler's duty to turn over the payments to the unpaid materialmen and laborers. The surety had a right to assume that this duty imposed by law and contract would be discharged in the event they had not already been paid. Stigler failed to pay the materialmen and laborers and a receiver was appointed. The surety, who paid the materialmen and laborers in accordance with the statute, the contract, and the surety bond, acquired an equitable lien on the funds in the hands of the contractor. Martin v. National Surety Co., 300 U.S. 588, 57 S.Ct. 531, 81 L.Ed. 822 (1937); 17 Am.Jur.2d, Contractor's Bonds § 42, 221 (1964); 43 Am.Jur., Public Works and Contracts § 200, 943 (1942). In our opinion the segregated funds in the contractor's hands were subject to the equitable lien on the surety against common creditors of the contractor, and the intervention of the receivership did not affect the surety's equitable lien. Cf. L'Hote, Receiver v. Boyet, 85 Miss. 636, 38 So. 1 (1905). We hold, therefore, that Travelers did not waive its right to indemnification. Since its claims exceeded the amounts held by the receiver as final payments on the Yalobusha and Webster County projects, the full amounts held shall be paid to Travelers.