*1 INDEMNITY ROYAL CO. v. Inс., CO., al. v. A. et L. BURBANK UNITED STATES. al. WILLARD et No. 48690. Court District States Claims. Court of D.S. New York. 7, 1950. Nov. Oct. Joseph Edwards, D. York 'City, New
plaintiffs.
Louis Saunders, Jersey E. City, J.,N. McDougald, Cornelius Jr., New York
City, for Guzy. defendant
(cid:127)Irving Saypol, H. Atty., U. York S. New
City, for defendant Willard.
COXE, Judge. District nothing
I in 33 find U.S.C.A. § injunction issuance of authorizes compensation proceeding prior compensation of a
making order. Para Cir., Marshall, F. Co.
mino Lumber
203;
certiorari
U.S.
2d
denied
Federal
S.Ct. application. motion of the accordingly Guzy is defendant John J. injunction dated temporary
granted vacated.
August *2 Nicolaides, Washington, P. D. C. J. J. Kelly,
(William C., Washington, on F. D. plaintiff. brief), Colladay, Washington, Edward F. D. C. Walter, (Hugo Steinmeyer A. E. John Cal., Angeles, brief), Los for in- tervenor. Stern, II, C., Washington, A.
William D. Morrison, Atty. Gen., and H. G. Asst. defendant. JONES, Judge, LIT-
Before Chief TLETON, WHITAKER, MADDEN and HOWELL, Judges.
HOWELL, Judge. 19, 1945, March co-partnership
On
of W. A. Foote and W. Russell entered
J.
a contract
into
with the United States for
the construction of a certain fire alarm
sprinkler supervisory system at the Tooele
total
partial
tains the
proved
tractor based
approved
materials
considering work
payments,
of the
tained
at
further
Ordnance
$15,305.00.
least one-half
(Finding
price
project
until
payments
estimates
provides
customary provision that
delivered on the site.
'by
10%
Depot near
final
No.
Article
which,
or some severable
upon
2).
completion
will
accomplished
payable until the work
local
completed
16 of this contract
estimates
be made
in
amount of
modified,
contracting
Tooele,
computing
and
and value
shall
to
part
acceptance
made
Utah,
Article
amounted
monthly
officer, was notified
partial
be re-
there-
con-
con-
and
ap-
the from the
of
by the
terest in the
to
notification
[*]
complied in all
of our contractual
securing
ment of Claims Act of
rights
assignment was
sell
On
Russell,
and transferred
c.
May
[*]
we have
Act,
"
before-mentioned
financing for
who assumed all
12, 1945,
“ * * *
§
partnership
of this
and
1,
respects with
given for
acknowledged receipt of
law
Stat.
rights and
assignment, as
Foote sold out
all
with full
or
*3
1940, 31 U.S.C.A. §
right,
business
1029.
equity as
contract.
existing
title,
project
the.
any and
reservation
The
purpose of
and assets
required
Assign
to
and
liabili-
surety
surety
Rus-
This
in-
all
ties. The
notified
this trans-
was
Act,
required by
40 U.S.
As
the Miller
action.
270a,
the con-
c.
49 Stat.
C.A. §
§
September 5, 1945,
On
the bank made
tractor,
contract,
on the date of the
fur-
security
Russell,
first
relying
loan to
for
bonds,
penal
each in
nished two
sum of
upon
assignment
$5,411.74.
of his
under
ofOne
these bonds was to secure
question
Government
and
contract here in
contract;
of the
the other
proceeds
Rus-
crediting
loan
persons supply-
was
secure
to all
similarly
sell’s checking
Further
ing
prosecution
labor and materials in the
account.
n
varying
secured loans in
were
amounts
provided
the work
said
contract.
May,
August,
September,
made in
Plaintiff, Royal
and
Indemnity Company (here-
the last to cover an
overdraft
Russell’s
inafter
referred to as “surety”) became
upon
There is
substantial
account.
checking
these bonds.
proceeds
the variоus
that'
from
evidence
part
As
of the consideration for the
account were
to Russell’s
loans credited
required bonds,
assigned
Foote &
Russell
project
finance the Tooele
actually used to
surety,
claims,
among other
“all
by
dissipated
Russell
were not
alone and
payments
percent-
deferred
and retained
There is no
lines of endeavor.
along other
ages,
moneys
and
and all
properties
the loan funds were
used
evidence that
may
be
payable
due and
at the time
project.
Tooele
entirely in the
default,
such breach or
may
or that
there-
received,
assign-
bank has
under its
The
after
payable
become due and
to said under-
ment,
a draft from the Government
contract,
signed
account
said
or on
which,
$2,533.12,
applied against
amount of
sup-
work and materials
account of extra
indebtedness,
total
leaves
the contractor’s
therewith, hereby
plied
agree-
in connection
$2,215.49,plus
owing
-bank
interest
still
moneys,
and the
ing that all such
November
1946.
at
from
payments
properties,
of such
shall be
5%
Royal
property of the
Indem-
the sole
said
3, 1947,
com-
January
having
after
On
Company,
it credited
nity
contract,
pleted
the contractor
99%
loan, cost,
damage, charge, and
upon
default,
held to be in
Govern-
was
expense sustained,
or incurred
it as above
stepped
completed
necessary
ment
suretyship.”
its bond of
deducting
work. After
the cost of com-
remaining
pletion from the funds
in its
7, 1945,
contractor, by
May
On
W. J.
hands,
$1,223.85
the United States still holds
Russell,
executed
delivered
inter-
upon
admittedly due
the contract.
vener,
National Trust and
Bank America
unpaid
сontractor left
Savings
(hereinafter-
Association
various labor-
referred
.
suppliers,
lia-
became
ers
“bank”)
assignment
of all
to as
them under its
and was forced
ble to
against
claims
United States
arise
private individuals,
$2,276.02
con- actions of
to creditors
but to prevent
out
tractor,
Treasury.
Bayou
has
been frauds
of which
none
ever
amount
Buffalo
surety by
States, 1880,
or
the con- B. & C. R.
paid to the
Co. v. United
refunded
Although
is,
anyone
tractor or
else.
Ct.Cl.
an assignment
such
by force of
statute,
void as
surety,
plaintiff here
it is enforceable betwеen the
from
to recover
the United States
seeks
parties,
equities
and the
recognize
courts will
admittedly
amount
due
held
it and
thereby.
cr eated
Bank v.
Prairie State
bank
inter-
the contract. The
has
States, supra.
amount under
vened
claims the same
from the contractor.
*4
Payment
performance bonds
and
defendant,
States, nominally
United
the
required by
Miller Act of all Gov
the
are
merely
considers itself
stakeholder.
charged
The bank is
contractors.
ernment
question
is
The
before this court whether
its
knowledge of
-law. It took
this
with
assignmеnt
surety
the
to the
or
to the
money
after
and
assignment
advanced
prevail
respect
bank should
to unex-
between
been entered into
the contract had
pended- funds in the
of the United
hands
It
contractor and
United States.
the
the
States.
of
apparent
knew the sure
that the bank
is
was,
or
ty’s
the
at the
interest in
transaction
chron
Examining the transaction
very-least,
possi
to the
put
notice as
first
appears that the
readily
ologically,
possessed
surety
bility-
by
equity
of an
the
consummation
the
was
here
step pertinent
prоceeds
the contract.
-The con
in the
of
&
Russell
between
to build
of the
surety
and
the contractor
the
tract between
insepar
An
States.
and the United
Foote
surety
equity
an
in
clearly created
posting
the
was
transaction
part of that
able
equity
any proceeds of the
This
-contract.
payment
for
and
for
bonds
of
only
could be
when
contrac
dissolved
the
rights
suppliers. Whatever
of laborers
obligations
had met all the
secured
tor
out of its
may
growing
the
the bonds.
liability upon
attached from the
these bonds
Bank
Prairie State
v.
of the contract.
date
assignment
7,May
The contractor’s
227,
1896,
States,
164
17 S.Ct.
U.S.
1945, of all
-claims under the contract to-
his
142,
412.
41 L.Ed.
security
the bank as
for -credit
ad-
to be
vanced and used
of the
financing
part
for the
A
of
consideration
(cid:127) complied
every respect
contract work
in
'required performance
of
issuance
Assignment
-Claims
of
Act of
assignment by
was
bonds
supra.
good
The bank thus took
legal title
to the
of
contractor’s
contractor
question
proceeds.
to the contract
The
payments, -re
to all defеrred
rights
legal
subject
to whether it took
title
moneys
prop
percentages and all
tained
equity
of 'the
is
final
crucial to
payable
due
might be
to the
erty that
rights
parties
of
determination of
time of
at the
breach or
-contractor
necessitates an examination of the effect
might
or
thereafter become
-default
Assignment
of
Claims Act of
assignment
payable.
This
was not
due
assignment-
unliquidated
of an
Assignment
within the terms
against
contract claim
United Stated.
1940, supra,
Act
inasmuch
as that
Claims
assignment may
provides
urged by
that a
strongly
Act
valid
It is
-counsel for the
bank,
only
company,
trust
be made
or
1940
bank
amendment
institution; which
Assignment
other
the sure
of Claims A-ct
financing
makes it law-
ly
assignment falls,
admittedly
not.
assign-
is
This
for a contractor to make but
ful
one
then,
scope
Stat,
within the
of Rev.
ment of all
from
resulting
its con-
§
203, 206,
It is
that when that
assignment
c.
Stat.
tract.
said
31 U.S.C.A.
§
effect,
provides,
assignment
completed,
acceptance
that an
including
Government,
assignee
question
absolutely
assign-
type here
“shall
under that
The effect
is alone entitled to funds in the
null and void”.
of this statute is ment
Gov-
mot, however,
regulate
possession
assign-
trans-
business
ernment’s
subject
was
performed
the contract
by the words
made valid
ment is
his
performance by
the contractor
con-
laws to the
notwithstanding any
statute
County
Hardin
obligations.
Ex-
contractual
Grove
trary.
decision
Coconut
Casualty Savings Bank v. United
Amsterdam
change Bank v. New
In
577;
F.Supp. 1017,
Modern
supports
106 Ct.Cl.
Cir., 1945,
Assignment
of Claims Act
that, “Notwithstanding
the 1940 Act
assignment
validity
of the contract
contrary
for the
governing
law to the
fund
result
more modest
rather than
assignments,
pursuant
any assignment
up by
set
Rev.Stat.
the bans
removing
§§
following para-
paragraph
and the
this
203, 41 U.S.
31 U.S.C.A.
graph
assignment
§
shall constitute a valid
assignment of claims.
against
C.A.
purposes”
making
for all
has the effect of
§
out of
against
arising
the United States
to it
contractor
this
logical outcome
contracts.
only
allowable
the Govern-
*5
situation where
result in a
assumption could
ment,
suppliers,
superior to the claims of
assign away
proceеds
might
a
laborers,
contractor
surety.
or
loans,
exchange
bank
for
a contract
of
any
“Notwithstanding
law to the
loans,
surety com
dissipate the
render the
contrary”
strong phrase and,
is a
out of
read
bonds,
bow
and then
pany liable
context,
support
seems to
position.
above
pro
The
would then take the
out.
bank
phrase,
however,
next
is “governing the
equities,
from all
ceeds free
validity
assignments”.
of
together,
Taken
only
the bill
have
a worth
foot
would
be,
they
reads,
as
must
the statute
“Notwith
action
the contractor.
of
less cause
standing
to the contrary
law
governing
situation, had there been
In
a
no
such
assignments
validity
sup
[italics
clearly
of
assignment,
the contractor would
plied], any
pursuant
assignment
par
to this
company
have
liable
been
agraph
following paragraph
shall
good outstanding
would have had to make
assignment
pur
constitute
valid
for all
any proceeds for
claiming
claims before
poses.”
govern
What was the law in 1940
Under the doctrine of the Coco
himself.
assignments
ing
validity
claims-
supra,
assign
nut
Bank case
an
of
Grove
of
аgainst the United States? It was the law
Assignment
ment under the
of
Act
Claims
expressed in Rev.Stat.
and 3737
§§
would thus be
1940, supra,
the bank'
of
any assignment
unliqui
that
of an
the effect
taking
position of
enviable
placed
against the
States
dated claim
should
free from
of the contract
The 1940 Act
void.
recites its
be null and
thereto.
incidental
obligations
“To assist in the
to be
national-
purpose
recognized that
generally
.It
program
amending
3477'
defense
sections
Assignment
amendment
permit
Revised Statutes
and 3737
facilitate the
enacted to
Act was
Claims
public
of claims under
con
assignment
But it
not
does
war contracts.
financing of
statutory provisions
It was these
tracts.”
Congress
in
this court
appear to
phrase,
Congress referred to
that the
Grove
far
the Coconut
go as
tended
contrary
“Notwithstanding
law to the
lending
protecting
indicate
assignments”.
validity of
governing
institutions.
principle
assignee
that an
long-established
prior equity
only
takes
the-
of a
notice
holding of this
been the
court
It has
legislated:
assignor was
acquires
interest of
the 1940Act
assignee under
an
purpose
Act. The
by the 1940
away
rеspect
due
to amounts
right
greater
was to make a
assignor
(the
1940.Act
con
than
effect of the
assign
.right
against the United States
and that the
contractor)
the tract
had
maturity
single
to some
finan
payment by the
able before
demand
Govern
assignee to
securing:
purpose of
due from it
cial institution
an amount
for work
ment
perform
credit;
view
No other
since was not retained
secure
nothing more.
surety dis
wording
obligation
ance of
compatible with the
would seem
expressions
charges.”
Schmoll United
history
the Act
it into
Congress
F.Supр. 753, 757,
who enacted
105 Ct.Cl.
Members
also,
Munsey Trust
law.
See
United States v.
Company,
67 S.Ct.
332 U.S.
bank,
which took the
intervening
The Schmoll and
L.Ed. 2022.
legal
knowledge
assignment with
of an
Munsey
deny the existence
cases
money
surety’s prior equity
on the
and lent
equitable
by subrogation
favor
lien
posi-
faith thereof stands
in the exact
now
paid
sureties who
laborers
occupied 'by the
tion that would have been
of their
obligation
under the
materialmen
had there
contractor
been no
bonds,
where the United
(sureties’)
and were the
himself now before
contractor
mоney
a claimant
both
and is
holds
this court.
surety.
are
adverse
Both Cases
Act,
requires
supra,
The Miller
two bonds
there
proposition
bottomed
of those undertaking Government contracts.
subrogation
right and
can be no
without a
bond;
One
is the
other
materialmen never
that the laborers and
guaranty that laborers and materialmen will
right against the United States.
possessed a
commonly
paid.
contracts
Government
Superficially, these cases
to indicate
seem
periodic progress
provide
payments
Congress requiring
Acts of
Gоvern-
withholdings (usually
for certain
10%
protection
furnish
ment contractors to
made,
payments
prog-
the first one-half of
if
suppliers
create
for laborers
exclu-
satisfactory)
project
ress
until the
or
remedy for
eliminat-
sive
such claimants
part
completed
*6
some divisible
thereof is
and
supplier
or
possibility
the
laborer
ing
a
accepted for
in
use. The contract here
equitable
acquiring
against
lien
funds
an
question
type.’
of this
by
position
States. That
held
the United
holdings
this court’s
that re-
It has been
novel;
not
it antedates the Schmoll and
designed to
percentages
protect
are
tained
least,
Munsey
thirty years, at
some
cases
,
it
to
States should
forced
the United
be
having
specifically recognized,
been
ana-
complete
at more than
a defaulted contract
lyzed,
by
clarified in 1921
the Circuit
and
price;
surety step
that
a
should
the contract
Appeals
the
in
Court of
Sixth Circuit
per-
complete
and
the contract
its
in
Belknap
Mfg.
&
Co.
Hardware
v. Ohio
subrogated
bond,
becomes
to
formance
it
Co.,
C.
898 Guaranty In Co. Fidelity States & paid laborers United had
against a who 1947, 297 Triborough Bridge Authority, equitable lien v. claimed materialmen and 31, 227, 226, N.Y. hands. 74 N.E.2d Court in the Government’s funds Appeals claim expressly in of New York recognized considered This feature is compelled of a to opinion, 332 U.S. which Munsey had been Jackson’s Justice pay 1602, 234, 240, under its bond the claims of labоrers 91 L.Ed. 67 S.Ct. suppliers and the conflicting Bank v. Prairie United “From State States based Income taxes 41 164 U.S. 17 S.Ct. L.Ed. by owed Sampsell, 327 the contractor to earned funds in Surety Company v. American Bridge Authority 571, L.Ed. we have hands of the U.S. S.Ct. concluding of had let recognized equitable claim the contract. After peculiarly rights comple surety’s responsible physical law to be for the settled those superior were to those States paid to from of the United building tion of contracts be (who, tax claim moneys asserting of others whose intervenor a availаble ahead money. against the contractor shoes of claims come from the advance of stood contractor), itself cases, owner was a mere court addressed But in ail those to of Munsey the effect rights had no its own case: stakeholder and supplied.] assert.” [Italics Supreme “The recent decision Court’s U.S., pages 244 of 332 Co., At S.Ct. Munsey Trust [cit- page opinion, the same at a points ation neither nor reaches omitted] that: Government, stated contrary There, result. possession fund, itself asserted a implica- surety] that the argues “It [the and, claim of its own way of set-off among gov- contracts several tion set-off, the extent of that the fund ernment, that the contractor and was surety’s operate which the lien was could repair moneys earned contracts under Quite necessarily reduced. is such different arising be claims available a one present from like However, job. statute did each if —as [quoting Supreme observed —where Court surety, require there could a Munsey “the owner from was case] question government' would rights mere of its stakeholder had no Respondent’s right conten- of set-off. own assert.” requiring this: then comes to tion ' furnish assurances that the contractor courts, In like the federal result was obligations perform his to laborers he'will Judge Chief reached Coleman materialmen, government has delib- District United States Court District ordinary erately safeguards decreased Maryland. re In Const. Cor- Cummins the contrac- it would have had enforce *8 poration, 1948, 193, 81 F.Supp. 200. Refer- nothing in obligations to it. We see tor’s language ring the to of Justice Jackson contract or the stаtute to the words of the (quoted the Munsey above) case that court contrary, On lead us to conclusion. the this said: statutory provisions requiring separate the a nothing language “We find in this laborers material-. for of bond is to taken as changing prior be the settled benefit, for their to were enacted men respect surety law to with the of status a government. It is the. the the detriment of under circumstances such as those before required who to take risk. We. surety Indeed, the Court Munsey us. case to increase risks no warrant of have directly аffirms earlier decisions in this government.” respect where, present case, as ascertained, impact may as far be As a Government ‘was mere stakeholder .and (and Munsey the basis of the' of ” had rights of its own to assert.’ as of Munsey case is the same that appears It upon prior Supreme these aré Court correct' case) Schmoll the., (cid:127)interpretations Munsey of analyzed case. two Had holdings been in but has " intended there to overrule subsequent decisions. Court
899
MADDEN, Judge, dissenting.
Prairie
long
grounded
of
line
cases
Henning
State Bank v. United States
opinion of
agree
am
I
unable to
Guaranty
Fidelity &
sen v. United States
Assignment
of
court.
I think that the
Co.,
supra,
assume
it is reasonable to
both
203,
1029,
54
31 U.S.C.A.
Claims
Stat.
§
Act;
specifically
they
more
have been
would
intervenor,
'giving
had the
to the
effect of
Rather, they are
referred to and discussed.
America,
primary legal
Bank of
applicable
inferentially
where
reaffirmed
right
States
money
to
owed
the United
exist,
Munsey
limited
facts
decision
to the
here in
contractor under the contract
peculiar
where the Govern
to
own
facts
its
other,
legal right,
volved. That
like
more
a stake
ment’s interest is
than
of
might
subject
equities,
be
such
superior
case, supra, is simi
holder. The Schmoll
debtor,
right
States,
as
of
larly
Surety
of
limited. The case
Seaboard
off
to set
due to
from the contrac
debts
1946,
969,
States,
F.Supp.
Co. v.
Munsey
tor. United
v.
Trust Com
statutory
right
turns on the
of
107 Ct.Cl.
pany,
332 U.S.
91 L.Ed
S.Ct.
intervening
creditor
the United States as
F.Supp.
2022. Schmoll United
under
Rev.Stat.
U.S.C.A.
§
§
assignment
if
hold
money which Government’s hands. is in the agree in substantial
What have written I Grove
ment with the decision in Coconut
Exchange Casual Bank Amsterdam v. New Cir.1945,
ty Company, 5
sent. STORES, Inc. v.
SAFEWAY UNITED STATES. 46976.
No. Court of Claims. Dec.
Decided C., Hanson, Washington,
Elisha D. Washing- Hanson, Dale, plaintiff. Lovett & ton, C., on the briefs. D.
Mary C., Fagan, Washington, K. D. Gen., Morison, Atty. whom H. G. was Asst. ; for defendant. Judge, JONES, and LIT- Before Chief TLETON, WHITAKER, MADDEN and *10 HOWELL, Judges.
WHITAKER, Judge. large is a retail
Plaintiff chain store com- pany. just compensation It sues for