Holston Corp. v. Wise County

Sims, J., after making the foregoing statement, delivered the following opinion of the court: The questions presented to us for decision by the assignments of error will be disposed of in their order as stated below. — 157 — [1] According to the agreed statement of facts, the contract in question was made directly between the county and appellant before it had advertised for bids of contractors for the road work, and the contract was that the appellant would furnish the crushed stone to any and !all contractors to whom the road work was subsequently let, to be used for the road work for the county at the special price to the contractors of “fifty cents per ton f. o. b. Quarry flag stop available to the contractors,” and in consideration of such furnishing of the stone for such use at such price the county, on its part, guaranteed to the appellant payment for the same. 1. Does such contract fall .within the inhibition of section 185 of the Constitution of Virginia? This question must be answered in the negative. Section 185 of the Constitution of Virginia, so far as material, reads as follows: “Neither the credit of the State, nor of any county * * shall be directly or indirectly, under any device or pretence whatsoever, granted to or in aid of any person, association or corporation * * *.” The contract in question did not directly or indirectly in any way whatsoever grant “the credit” of the county “to or in aid of any person, association or corporation.” That would have been true if the object of the contract had been to benefit the contractors in any way, as, for example, to enable any of them to obtain the stone on the credit of the county, when upon their own credit they could not have obtained it; or to enable any of the contractors to make a greater profit by obtaining the stone at a reduced price because of the pledge of the credit of the county. But the contractors were not expected and could not in the nature of the case derive any benefit from the contract, and it was not made for their benefit. It was made solely for the benefit to the county itself, and not for or in aid of any — 158 — other. The benefit to the county was that the bids of the contractors for the road work would embrace the item of the cost of the stone at the fixed price mentioned, so that nothing would be added thereto because of the possible fluctuation in price or of inability to obtain the stone at that price; and hence it was expected by the county that by reason of such contract with appellant it would receive a direct benefit in obtaining contracts with the contractors for the road work for a less total contract price than could have been otherwise secured. And doubtless this was the result. But whether it was or not, this expected benefit to the county was the sole reason for its making the contract with appellant, and hence the credit of the county was used by itself and for its own benefit alone. Lynchburg, etc., Ry. Co. v. Dameron, 95 Va. 545, 28 S. E. 951, is relied on by appellee as a holding contrary in principle to the conclusion which we have reached above. We do not so construe that case. The controlling principle upon which that case was decided is that a municipal corporation cannot, under legislative authority merely to make contracts of its own, for its own benefit, become the surety for another corporation or individual for the benefit of the latter, although the municipality may indirectly be benefited thereby, for the reason that such benefit is indirect and uncertain. Whereas, where the contract is authorized and made by the municipality directly for its own benefit, and not at all for the-benefit of another, “the avails or consideration” for the contract cannot be diverted to any illegitimate purpose. The latter, precisely, is the situation with respect to the contract involved in the instant case, and hence it is apparent the case last cited has no application to the case now before us. [2] 2. Is the contract aforesaid made by its engineer and board of supervisors binding upon Wise county? This question must be answered in the affirmative. — 159 — The county, under chapter 47, Acts 1910, page 62, unquestionably had the authority to make such contract through its board of supervisors. According to the agreed statement of facts, the county, through its board of supervisors, ratified and approved the action of the engineer in undertaking to act for the county in making the contract with the appellant; and the county subsequently, through action authorized by the board of supervisors in advertising for bids of contractors and in securing the contracts for the road work at figures embracing those for the stone obtained by means of the contract with appellant, accepted the benefit of the latter contract. It is, therefore, immaterial whether originally the engineer did or did not exceed his authority. The county cannot at the same time approbate and reprobate. It cannot at the same time hold the benefit of and repudiate the contract. [3] 3. Did the second contract entered into between D. J. Phipps and appellant (which alone appears in the record), subsequently to the contract aforesaid between the county and appellant, operate to release the county from the obligation of the contract with appellant? This question must be answered in the negative. The contract of the county with appellant was not limited in its operation to stone furnished to Phipps under any particular collateral contract of appellant with him; nor, indeed, to stone furnished to any particular contractor. The contract with appellant embraced all the stone which appellant might supply to any and all contractors for use in the road work in and for the county of Wise embraced in the road-building undertaking of the county mentioned in the agreed statement of facts, under any and :all contracts of appellant with such contractors. covering the furnishing by appellant to them of the stone at the price stipulated as aforesaid. Further, the second agreement aforesaid in no way operated to increase the liability of the county under its contract with appellant, and so was of no detriment to the county. — 160 — For these reasons, we are of opinion that the second agreement with Phipps did not operate to release the county from the obligation of its contract with appellant. [4] But one other question remains for our consideration, and that is this: 4. Was the action of appellant in merely notifying the board of supervisors of the county on May 12, 1914, that the bill for stone it furnished Phipps in July and August, 1913 (which amounted to $2,425.00, at the price stipulated in the contract between the county and appellant), was then (May 12, 1914) still unpaid, without expressly notifying the county that the appellant held it liable under the contract with him aforesaid, such action as released the county from the obligation of such contract, in view of the fact that Phipps had been adjudged a bankrupt on August 28,1913, and the county did not file its answer in the Phipps bankruptcy proceeding until October 27, 1914, in which answer the county did not set up its liability to appellant under said contract with him, but might have done so and (as is admitted in argument before us for the county) might have had it allowed against the balance then in the hands of the county due Phipps which was in excess of said $2,425.00 claim? Whereas, not having done so, the county was required to pay and did pay such balance over into the hands of the trustee in bankruptcy. This question, too, must be answered in the negative. We think that in view of the fact that Phipps was adjudicated a bankrupt in August, 1913, the notice nine months thereafter which was given by appellant to the board of supervisors of the county of the amount still due him and unpaid for the stone, which the board of supervisors knew appellant had furnished in accordance with his contract with the county, was sufficient notice to the county that the appellant claimed that the county was liable therefor under its contract with appellant. The notice — 161 — could have had no other purpose or meaning, since Phipps was then and had been for nine months a bankrupt with all of his assets under the control of the bankrupt court. The notice to the county, under such circumstances, could not have meant that appellant was looking to Phipps for payment independently of the money the county had in hand to the credit of Phipps. And it could not have meant that the appellant looked to the county to distribute the balance in its hands due Phipps, since the bankrupt court alone had jurisdiction to do that. There was nothing in the conduct of the appellant, therefore, which justified the county in concluding that the appellants made no claim against the county under his contract with it. Hence, we think there is no merit in the claim of the county that it was misled by such conduct and for that reason failed to subsequently protect itself by the aforesaid course which it might have taken when it filed its answer in bankruptcy. The county all along knew or should have known what was the obligation of its contract with appellant. On and after May 12, 1914, it knew that the $2,425.00- due appellant for stone furnished by appellant under the contract with the county had not been and would not be paid by Phipps, and it knew that the only course it could pursue in order to save itself harmless from liability upon its contract obligation to appellant was to obtain leave from the bankrupt court in the Phipps bankrupt proceedings to retain out of the fund in its hands the amount of its liability to appellant. This it neglected to do, through no fault of appellant so far as we can see from the agreed statement of facts in the record. The order under review must, therefore, be reversed, and this court will enter an order in favor of the appellant for the $2,425.00 amount of its claim, with interest thereon from May 12, 1914, and with costs. Reversed, and final order entered.