.




             THE     A       ORNEY            ;ENERAL

                            OFTEXAS
                           Arrn~rrv ~LTEXAS




    Honorable D. C. Greer
    State Highway Engineer
    Texas Highway Department
    Austin, Texas
Dear Sir:                Opinion No. O-6291
                         Re: Is a freight demurrage charge, pre-
                              sented to the Highway Department by
                              a rallroadcomoanv aizalnsta highway
                              contractor, a iiehabie claim?
              We are In receipt of your letter of a recent date
    requesting the opinion of this department on the above stated
    question. Your letter reads, in part, as follows:
             "In order that the Texas Highway Department
       may correctly handle freight demurrage claims
       against Highway Contractors, when submFtted to us
       brrRailroad Companies, we request that you please
       render an official opinion on the following-ques-
       tion:
             "Is a freight demurrage charge , presented
           to the Highway Department by a RaIlroad
           Company against a Righway Contractor, a
           lienable claim?"
          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:
              "That any person, firm or corporation, or trust
       estate, furnishing any 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,-
       such person, firm, corporation, or stock association,
       shall, before any payment is made to such contractor,
       notify in writing the officials of the State, county,
       town or munlcipallty whose duty It is to pay such
       Contractor of his.claim. Acts 1925, 39th Leg., ch.
       17, p. 44, 81."
                                                          . .   .




Honorable D. C. Greer, page 2        o-6291


         Article 547213,V. A. C. S., provides:
         "That no public official, when so notified in
   writing, shall pay all of said moneys, bonds or war-
   rants, due said contractor, but shall retain enough
   of said moneys, bonds or warrants to pay said claim,
   in case it is established by,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 filed under the provisions of Chap-
   ter 17, of the General Laws of the State of Texas,
   passed by the Thirty-ninth Legislature in Regular
   Session, that the contractor or contractors against
   whom such claim or claims are made, may file a bond
   with the officials of the State, county, town or mun-
   icipality whose 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 shall be payable to the claimant or claimants. It
   shall be executed by the party filing same as principal,
   and by a corporate surety authorized under the laws of
   Texas to execute such bond as surety, and shall be con-
   ditioned substantially that the principal and surety
   will pay to the obllgees named, or their assigns, the
   amount of the claim or claims, or such portion or por-
   tions thereof as may be proved to have been liens, under
   the terms of Chapter 17, General Laws of the State of
   Texas , passed by the Regular Session of the Thirty-
   ninth Legislature. The filing of said bond and its
   approval by the power official of the State, county,
   town or municipality, shall release 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
   send by registered mail an exact copy of said bond
   to all clalmants.
         "Sec. 2. At any time within six months from
   the date of filing of said surety bond, the party
   making or holding such claim or claims may sue upon
   such bond, but no actlon shall be brought on such
   bond after the expiration of such period. One action
   upon said bond shall not exhaust the remedy thereon,
Honorable D. C. Greer, page 3         o-6291


    but each obligee or assignee of an obligee named
    therein may 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
    Chafiter17 of the General Laws of the State of Texas,
    passed at the Regular Session of the Thirty-ninth
    Legislature, and shall recover judgment for not less
    than the full amount for which claim was made, the court
    shall fix a reasonable attorney's fee in favor of the
    claimant or claimants, which shall be taxed as'part of
    the costs in the case. The bond provided in Section One
    of this Act shall also be conditloned that the principal
    and surety will pay all court costs adjudged against the
    principal in actions brought by claimant or claimants
    thereon. Acts 1929, 41st Leg., 2nd C.S., p. 154, ch.
    78.”
          Article 6674m, V. A. C. S., provides:
          "Said contracts may provide for partial payments
    to an amount not exceeding (90%) of the value of the
    work done. Ten per centum of the contract price shall
    be retained until the entire work has been completed
    and accepted, and final payment shall not be made until
    If is shown that all sums of money due for any labor,
    materials, or equipment furnished for the purpose of such
    improvements made 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 those who 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 contractor makes in lieu of said
lien.
          With reference to your question as to whether a
charge for demurrage Is a lienable claim, it is necessary to
determine whether demurrage is included withln the meaning
of the language, "furnishing any material, apparatus fix-
tures machinery or labor to any contractor . . .' tArticle
5472aS, and whether money due a railroad company for demur-
Tage charges comes within the meaning of the language,
 . . . all sums of money due for any labor, materials or
equipment furnished for the purposffof such improvements
made under any such contracts. . . (Article 6674m). Although
Honorable D. 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
language by 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 demur-
rage charges are to be construed as a part of the charges for
transportation service. Philadelphia B. & W. R. Co. v. Quaker
City Flour Mills Co., 127 A. 845, 846; 282 Pa. 362; Mllne
Lumber..Co.v. Michigan Cent. B. Co., MO. App., 57 S. W. @d),
732, 735. In many of the cases hereinafter cited, "freight
and "demurrage" are considered together in the determination
as to whether a claim for transportation costs is an allow-
able claim within the meaning of statutes providing additional
security for the payment of those who furnish labor, material
or equipment to a public works contractor.
          In the federal statute (40 U. 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 lan-
guage similar to that of our statutes: 'Supplying him or them
with labor and materials in the prosecution of the work."
The early construction of these words 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 rail-
road were not "labor". This decision was followed in Mandel
v. United States (C.C.A.) 4 F. (2d) 629. But the foregoing
strict rule of construction has 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 statute required con-
tractors for public work to execute a bond with the obliga-
tion that 'such contractor, or contractors, shall promptly
make payments to all persons supplying him, or them, labor,
material and supplies, used directly or indirectly by the
said contractor . . . or sub-contractors in the prosecution
of the work provided for in said contract." Under this
statute, suit was brought against a contractor's surety to
recover7for freight, switching and demurrage charges on car-
load material used in the oerformance of said contract. In
this case it was held that-such charges were within the
liability of the contractor's bond.
          In discussing the matter as to whether charges for
freight and demurrage were claims charged against the con-
tractor's bond within the meaning of the language, 'supplying
him or them, labor,material and supplies" (40 U.S.C.A., Sec.
2703, the court, in part, said:
Honorable D. C. Greer, page 5         o-6291


            "Protection is expressly extended to all oersons
   who furnish the named thinRS. whether under lien or not.
   whether Individual or corp&ation, rich or poor, supplyl
   ingin person or through agents and representatives ....
   A railroad company is not excluded. In point of fact,
   many persons who have a lien enforceable by retention
   have been held to be wlthin the statute. Nor is the
   nature of the work done in transportation such as to
   prevent its being 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 . ...... Trans-
   portion 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.
   In what way can the distance of the transportatlon or
   the fact that it is over a specially prepared rail
   track make it any the less labor? It was held in
   Illinois Surety Co. v. John Davis Co~.,~244U. 3. 376,
   37 3. Ct. 614, 61 L. Ed. 1206, that, where track and
   cars and equipment were 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 contractor does not pay, the freight is
   added to the cost of the material, and protected.
   See Ear land Casualty Co. v. Ohio River Gravel Co.
   (C.C.A.7    20 F.  (2d) 514. The same 'place value' is
   given the material by the transportation, no matter
   who pays the freight, and to the same extent,13
   material furnished.
         "The decisions ,of the Supreme Court reject the
   theory of strict construction, and adopt that of liberal
   construction in the allowance of claims above alluded to.
   Illinois Surety 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, "prompt payment to any
person or persons doing work or furnishing skill, tools,
machinery or materials under ahd for the purpose of said con-
Honorable D. C. Greer, page 6         o-6291


tract', the court stated that railroad transportation of
materials combined the furnishing of work, skill, and machin-
ery for the purpose of the contract, even if not labor in the
narrow sense originally attributed to the word in eariler
cases.
          In Standard Ins. Co. v. United States, 302 U.S. 442,
58 3. Ct. 314, 82 L. Ed., the court held that a claim of a
common carrier by railroad for unpaid charges due for trans-
portation of materials used in the construction of a federal
building is one for "labor and materials' within the meaning
of the Act requiring a bond for the prompt payment by the
contractor to "all persons supplying him, or them, with labor
and materials in the prosecution of the work provided for in
said contract" (40 U.S.C.A., Sec. 270). In this connection
the court said:
         "'Certainly labor is rsqulred for loading
   freight on railroad cars, moving these over the
   road, and unloading at destination. A,carrier who
   has procured the doing of all this in respect of
   material has "furnished labor". If a contractor
   had employed men to move the same kind of material
   in wheelbarrows, there could be no doubt that he
   furnished labor. In principle the mere use of
   cars and track and a longer haul creates no mat-
   erially different situation. Nor do we find reason
   for excluding the carrier from'the benefit of the
   bond because it might have enforced payment by
   withholding delivery. The words of the enactment
   are broad enough to include a carrier with a lien.
   Nothing in its purpose requires exclusion of a
   railroad. Refusal by the carrier to deliver
   material until all charges were paid might ser-
   iously impede the progress of public works, pos-
   sibly frustrate an important undertaking.' ....'
This case was appealed to the Circuit Court of Appeals, Fifth
Circuit, and in Standard Accident Ins. Co. v. United States,
89 F. (2d) 658, April 14, 1937, the Court affirmed the holding
by the district court (82 L. E., supra) and expressly approved
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 there was no substantial difference 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 "supplying him or
Honorable D. C. Greer, page 7        o-6291


them with labor and materials in the prosecution of the work",
as used in the federal statute (40 U.S.C.A., Sec. 27O),
under which a claim for unpaid freight charges has been con-
strued to he a claim for "labor and materials". The court
further held that a claim by a railroad company for unpaid
freight and demurrane charges for shipments used in construc-
tion of a state highway uroject was a claim for 'doing work
or furnishing sklli, toois,-machinery or materials" wythin
the State statute and the contractors' bond given pursuant
thereto, and that the railroad company could recover on the
bond, notwithstanding it had a carriers's lien which it could
have exercised by withholding delivery.
          The fact that a railroad company already has a
special lien which it could exercise by withholding delivery,
when a charge for freight or demurrage is unpaid, does not
exclude a railroad company from the security afforded those
who furnish labor, material, or equipment to a contractor on
public improvements. City of Stuart v. American Surety Co.,
supra. State of Delaware 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,Delaware v. Aetna Casualty & Surety Co. (Del.) 145 A. 172,
176, the court said:
         "'The argument that it would be inequitable
   to allow a carrier to surrender the lien and collect
   from the surety does 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 enjoyment by 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
   substance what 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 pas-
   sess the other. The carrier, notwithstanding the
   cargo is the consignee's, can similarly say--before
   I complete the labor of transportation by 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 consignee be compelled to pay until they are de-
   livered. Now what reason can there be in holding
   that a laborer or a materialman may deliver his labor
   or materials on credit and go against the surety In
   case of nonpayment, but a transporter If he surrenders
   the cargo may not? If he may not, then this is the
   result, the very a,ctof surrendering the cargo which
Honorable D. C. Greer, page 8        o-6291


    will give rise to the debt, will relieve the surety
    company of its guaranty of payment, and carriers when
    they are afraid to extend credit to the contractor
    will therefore hold back the materials and obstruct
    the work, a result which must be inharmonious with
    the statute's purpose'".
          That our Texas statutes, providing additional se-
curity for the payment of claims of those who furnish mater-
ials, equipment or labor for public Improvements contractors
are to be liberally construed is shown by several decisions.
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
furnishing materials, equipment and labor to public improve-
ments contractors should be liberally, not strictly con-
strued, 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 groceries were furnished a contractor and consumed by
laborers on public work, 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, it was held that claims for feed
furnished for teams of subcontractors were 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 the additional security afforded
those who furnish material, equipment and labor to a contractor
on public improvements is substantially the same as to mean-
ing and purpose as that of the legislative acts 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
intentions of said legislation are twofold: (1) to protect
the honest claims of all persons or corporations who have con-
tributed to the performance of the work in connection with a
contract for public improvements, and (2) to minimize lmped-
iments and delay of the work, and facilitate procurement of
materials,,e uipment and labor through the security afforded
by the lien 't
             Article 5472a) or the bond in liew of said lien
(Article 5472b-l).' If the carrier's legitimate Claims a-
gainst the contractor are included in the benefits provided,
the foregoing purposes and intentions will be better served.
If such claims are not included, the carrier could hold the
freight until payment is made, and if not paid, sell it for
charges, and thereby embarrass the progress of the work. We
can see no intention to 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 transportation as being
    very vital in the prosecution of contracts for public im-
    provements, as demonstrated by their construction of 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 authorities where claims for transpor-
    tation charges have been allowed against the surety under a
    statute requiring a bond for the prompt payment of all
    claims for labor, material and equipment against a public
    contractor are of three classes.
              (1) The first class is where the seller of materials
    furnished has paid the transportation costs or agreed to pay
    the transportation costs, and said materials have been actually
    and practically consumed In the process of construction. In
    these cases, the transportation charges have been allowed the
    seller of the material as representing substantially a part
    of the purchase price, and the claims for transportation
    charges were 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.
    Ohio River 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 par-
    ticular construction. In these instances, the services per-
    formed by the carrier in transportation have 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 ser-
    vices is furnished the contractor and 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.) 145 A. 172, 173.
              (3) Claims have been allowed against the surety
    for transportation costs upon hired teams, tools, machinery
    or plant equipment. The use of such property is deemed labor
    furnished the contractor. The transportatlon costs on such
    equipment are regarded as 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 transporta-
    tion 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 should be noted that, generally, an unpaid claim
    is allowable withln a statute providing additional security
                                                            .




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



for those who furnish labor, materials or equipment In carrg-
ing out the provisions of highway construction contracts, if
it is such that a cost accountant would charge it as a direct
expense item to a particular job, and not to the capital in-
vestment offthe contractor. Margulies v. Ogdie, S.D., 10 N.W.
(2d) 513, 515.
          As stated heretofore, "demurrage charges' have been
held to be an ingredient of and considered in connection with
"transportation charges". A proper charge for demurrage is
considered as a charge incident to transportation (8 Tex. Jur.,
196, 204), and the holdings with reference to claim for trans-
portation services would likewise be applicable to claims for
freight demurrage charges.
          In view of the foregoing, it is the opinion of this
department that a freight demurrage charge, presented to the'
State Highway Department by a railroad company against a high-
way contractor, is a lienable claim within the meaning of our
statutes, provided the claim represents a direct expense item
in carrying out the provisions of a particular highway con-
struction contract.
          Trusting that the above satisfactorily answers your
inquiry, we are
                                 Yours very truly
                            ATTORNEY GENERAL OF TEXAS


                                 By s/J. A. Ellis
                                      J. A. Ellis
                                        Assistant
JAE:fo

APPROVED DEC 7, 1944
s/Grover Sellers
ATTORNEY GENERAL OF TEXAS
Approved Opinion Committee by s/BWB Chairman
