236 F. 771 | W.D.S.C. | 1916
This is an action brought on the bond of a contractor under the act of Congress of 1894, as amended by the act of February 24, 1905, to subject the principal and the surety to the payment of sums due to persons who furnished labor or materials in the construction of a public building at Gaffney, S. C., payment therefor not having been made. Proceedings were filed July 23, 1914, for the use of the Jackson Ornamental Iron & Bronze Works, claiming to be a party entitled to the benefit of the bond. There have been a number of interventions, setting up accounts for labor or materials and -claiming the benefit of the bond. Some of these claims have been settled. There are left before the court for consideration two claims, namely: First, Jackson Ornamental Iron & Bronze Works; and, second, New York Central Iron Works Company, Incorporated.
The facts are as follows: W. J. Brent Construction Company made a contract with the United States for the erection of a public building, namely, a post office, in the town of Gaffney, in the Western district of South Carolina. On May 16, 1912, in order to secure the faithful performance of the contract, a bond was given by W. J. Brent Construction Company, with Empire State Surety Company as surety thereon. On October 16, 1912, the Treasury Department notified the contractor that the government had revoked the authority of Empire State Surety Company to sign bonds running to the United States and that other security must be given. On December 3, 1912, the
“Rector and Daly bad a right to make application of this payment and, in the manner indicated, have done so. This operated instanter to discharge the liability of the sureties pro tanto and, while plaintiff and Rector and Daly*775 might thereafter, as between themselves, change the application of such payment, it would not operate to revive the extinguished obligations of the defendants.”
That court proceeded to say:
“It is true, as a general proposition, that a surety cannot direct the application of payments made by its principal, and is bound by any application made by the principal and creditor, or either of them.”
In the case of the United States v. Massachusetts Bonding & Insurance Company (D. C.) 198 Fed. 923, on a contractor’s bond where the rights of the surety company were involved, it was held that, the application of credits having been once made by the parties, there was no authority to make any other application thereof. It is contended in this case that the debtor and creditor agreed upon the application that was made in December to the Darlington account. Did the debtor and creditor not agree to the application of the credit to the Gaffae> account in July? It seems to the court that that is the only legal effect, for Brent Construction Company sent a check for $250 to the Jackson Ornamental Iron & Bronze Works without any direction as to its application, which was tantamount to saying, “We agree to whatever application you make,” and the moment the Jackson Ornamental Iron & Bronze Works applied the credit to the Gaff-ney account, the legal effect was, in no mariner, different from what it would have been if there had been a long parley preceding the application. The court holds, therefore, as a matter of law that the application of the payment having been made by the creditor to the Gaffney account, the account was extinguished pro tanto, and the surety is entitled to the benefit of such payment.
“Whereas the Empire State Surety Company has heretofore issued and now has outstanding unexpired surety and fidelity bonds; * * * whereas the Empire State Surety Company wishes to relieve itself from any and all liability that may accrue under said unexpired bonds * * * and the National Surety Company is willing to assume such liability in the manner hereinafter stated; therefore this agreement witnesses: * :S The National Surety Company agrees to fulfill all the obligations of the Empire State Surety Company under the bonds * * * and agrees to adjust all claims arising as aforesaid under any of such bonds * * * at its own expense and to pay as aforesaid all valid claims arising under said bonds * * * in accordance with their terms and conditions occurring after August 22, 1912. The Empire State Surety Company hereby transfers to the National Surety Company all its rights, interests, powers, and privileges under all such bonds * * * so that the National Surety Company may act thereon in all respects as if it had itself issued such bonds * * # and said National Surety Company may*776 give any notices in relation to said bonds that the Empire State Surety Company could give, such notices to be given in its own name or in the name of the Empire State Surety Company or both; and all notices, proofs of loss, and other papers which the obligees in any of the said bonds shall have the right to give to the Empire State Surety Company may be given in like manner to the National Surety Coippany with like effect as if given to the Empire State Surety Company, it being the intention of this agreement that the National Surety Company shall take the place of the Empire State Surety Company as to all said unexpired bonds * * * in all respects with regard to all obligations therein, etc. * * * The Empire State Surety Company also sells, assigns, and transfers to the National. Surety Company all its good will and interest of every kind in the bonds herein reinsured; and also sells and transfers to the National Surety Company all its applications, indemnity agreements, collateral, and other like securities, schedules or statements, papers, records, books of records and accounts, and the covers containing the same of every kind relating to the bonds * * * hereby reinsured and further agrees to forthwith furnish to the National Surety Company a list of its agents and managers representing it, together with the transcripts of the agency contracts made with such agents. * * * The Empire State Surety Company further agrees with the National Surety Company that it may appoint as its agents all or any of the agents of the Empire State Surety Company with whom the National Surety Company may desire to negotiate.”
The contract further provided that all losses should be adjustéd and all litigation conducted by the National Surety Company at its own expense. Under circumstances of this kind it seems clear from the meager authority that I can find that the reinsurer assumes to the insured all the obligations of the original obligor. Under the subject of Reinsurance, in 24 American & English Encyclopedia of Law at page 258,. it is said:
“The holder of an original policy of insurance acquires a right of action on a contract of reinsurance where the original insurer sells its business and good will to another company and the latter company in consideration thereof reinsures the risk of the first company and contracts to pay the losses under the first company’s outstanding policies.”
As authority for that statement the author refers to a number of decisions in Kansas, Wisconsin, New York, and California. It seems to me that this doctrine is sound.
Some question has been made about the National Surety Company not being properly made a party to thip suit by the Jackson Ornamental Iron & Bronze Works. There were two actions, in one of which the surety company was made a party; and, as the statute limits the number of actions that can be brought to one, his honor, Judge Smith, consolidated the two actions. The National Surety Company is before the court, asserting its rights with great vigor and ability. The court certainly has jurisdiction of the subject-matter; the only purpose in serving the defendants would be to bring them into the court. I should be inclined to hold that, if the pleadings of the Jackson Ornamental Iron & Bronze Works are not sufficient to allow them to amend nunc pro tunc.
Wherefore it is ordered, adjudged, and decreed that the exceptions to the report of the standing master be overruled, and his report confirmed as to the claim of the Jackson Ornamental Iron & Bronze Works, and that the defendants do pay to the Jackson Ornamental
The questions arising from this state of facts are these: Eirst, is the New York Central Iron Works Company, Incorporated, the inter-vener, the owner of the account due by Earle & Cook Company to the New York Central Iron Works Company? Second, is the inter-vener entitled to the benefit of the surety bonds required by the government under the acts of Congress for the protection of those who furnish materials and labor in public buildings?
In answer to the first question, the court finds as a fact that the intervener herein is the owner of a claim of $399 for material furnished in the construction of the United States post office at Gaffney, S. C., and that the material was furnished at the instance of Earle & Cook Company, a subcontractor, by the New York Central Iron Works Company and no part of the claim has been paid.
The court believes that the intervener is entitled to the benefit of the surety bond. In the case of Hill v. Surety Company, 200 U. S. 197, 26 Sup. Ct. 168, 50 L. Ed. 437, the court held that the statute was highly remedial, and should be given a liberal construction. In every case that has been before the court involving this statute, that same spirit has been manifested. The purpose of the enactment of the law was to insure payment for labor and materials entering into public buildings. The court in the Hill Case said:
The “language could hardly be plainer to evidence the intention of Congress to protect those whose labor or material has contributed to the prosecution of the work. There is no language in the statute, nor in the bond which is therein authorized, limiting the right of recovery to those who furnish material or labor directly to the contractor but all persons supplying the contractor*778 with labor or materials in the prosecution of the work provided for in the contract ought to be protected. The scjurce of the labor or material is not indicated, or circumscribed. It is only required to be ‘supplied’ to the contractor in the prosecution of the work provided for. How supplied is not stated, and could only be known as the work advanced and the labor and material are furnished. If a construction is given to the bond so limiting the obligation incurred as to permit only those to recover who have contracted directly with the principal, it may happen that the material and labor which have contributed to the structure will not be paid tor, owing to the default of subcontractors, and the manifest purpose of the statute to require compensation to those who have supplied such labor or material will be defeated. * * * It is easy for the contractor to see to it that he and his surety are secured against loss by requiring those with whom he deals to give security by bond, or otherwise, for the payment of such persons as furnished work or labor to go into the structure.”
' Our own Circuit Court of Appeals, speaking through Judge Pritch-ard, in construing this act of Congress, held:
“It was the manifest purpose of Congress in the enactment of this statute to protect the rights of parties performing labor as well as those supplying material for the construction of public buildings. Such being the case, this act should be interpreted so as to effectuate the intent of Congress by giving the same a liberal construction.” Bankers’ Surety Company v. Maxwell, 222 Fed. 797, 138 C. C. A. 345.
The master has held that the intervener has not brought himself within the terms of the act of Congress for the protection of those who furnish labor and materials for the construction of public buildings. There can be no doubt under the authorities about the right of the New York Central Iron Works Company which furnished the boiler to recover on the contractor’s bond. The trustee succeeded to all the rights of the New York Central Iron Works Company. It surely would not be seriously contended that the trustee in succeeding to all the rights of the bankrupt could not avail himself of a security which the bankrupt had for the payment of a claim. Nor can it be doubted that when the trustee in bankruptcy sold the accounts with all securities, whether legal or equitable, the purchasers succeeded to all the rights of the trustee, and when the purchasers from the trustee in turn sold and assigned the accounts with all the rights and securities legal and equitable to the New York Central Iron Works Company, Incorporated, that company stood in the same plight as the original New York Central Iron Works Company which furnished the material that was used in the construction of the Gaffney post office. I know of no law that prevents the assignment of an account like this. Even if the assignment had not specifically provided that all securities, whether legal or equitable, should pass, it seems that the only logical position is that the security did pass with the account to the assignee. The assignor never held the bond. It was held in trust by the Secretary of the Treasury for the benefit of those who furnished labor and materials in the construction of the building. The purpose of the statute is to insure payment of accounts for labor and materials furnished the contractor in the- erection of public buildings. The bond is in lieu of the security afforded in practically all the states by what is known as Mechanic’s Lien Law. It has been repeatedly held that the ac
I hold, therefore, that the intervener is the owner of the claim of the New York Central Iron Works Company, and is entitled to the benefit of the bond given by the' contractor and deposited with the Secretary of the Treasury. Wherefore it is ordered, adjudged, and decreed that the report of the standing master of this court be overruled, and that the defendants do pay to the New York Central Iron Works Company, Incorporated, the sum of $399, with interest thereon from January 1, 1913, at 7 por cent., and, if this and the preceding claim be not paid by the defendants in 30 days, that the Jackson Ornamental Iron & Bronze Works and the New York Central Iron Works Company, Incorporated, each shall enter judgment and issue execution thereon.