226 F. 653 | 7th Cir. | 1915
Lead Opinion
On July 30, 1908, William H. Schott entered into a contract with the United States for a certain part of the work involved in the erection of the naval training station at North Chicago. He gave bond, dated August 3, 1908, with the Illinois Surety Company as surety, in the penal sum of $31,047.18, conditioned in accordance with the provisions of “An act for the protection of persons furnishing materials and labor for the construction of public
Prior to January 2, 1909, much work was done under the contract, for which considerable sums were owing by Schott. On that day, under the advice of a creditors’ committee, which had been assisting him even before July 30, 1908, Schott transferred his entire business to a newly formed corporation, the Schott Engineering Company, which assumed $50,000 of his indebtedness, agreed to carry out the contracts, and ga.ve him its common stock and part of the preferred stock. The balance of the preferred stock was reserved for sale. The president of the John Davis Company, a creditor of Schott, was particularly active in bringing about the assignment and became one of the directors of the company. Schott continued as president to manage the affairs of the company, including the performance of the government contract, subject, however, to the control of a creditors’ board of directors. In January, 1910, the company became bankrupt, and the receiver, which had sought the advice of creditors on the question of fulfilling the contract, but had secured the consent of only a few of them, continued the work under authority of the court, completing it in October, 1910. Schott became a bankrupt in March, 1910, and received his discharge therein in October, 1.910.
The Surety Company knew nothing of the assignment of the contract or of the Engineering Company until the bankruptcy proceedings were begun. The United States never assented to the assignment of the contract, but continued to make all of its payments to and to deal directly with Schott alone. The moneys received from it were, however, paid by Schott to the Engineering Company. The accounts between the United States and Schott were finally adjusted between February 6 and 10, 1911; 5 per cent, of the contract price be’ing retained by the government pursuant to the contract, which contained, among others, the following provisions:
“Ton per cent, of the amount of each, monthly estimate will be witlield until the completion and acceptance of the wort. One-half the amount of the reservations thus withheld will then be paid upon public bills certified and approved as above, the remaining one-half of said reservations to be so paid at the expiration of one year from the time of the completion and acceptance of the work, subject, however, to the provisions of paragraph 56 of these specifications, * * * The contractor shall guarantee all work and materials and keep same in perfect repair and condition for a period of one year after the completion and acceptance, unless hereinafter, or in the contract, otherwise stipulated. * *
K'cgervation. — One-half of the 10 per cent, reservation hereinbefore provided to bo made on all payments will be held for a period of one year after the completion and acceptance of the work. And the contractor agrees that should he fail to make necessary repairs the same may be done by the government at his expense.”*658 ‘In tlie Circuit [now District] Court of the United States in the district in which the contract was to he performed * * * and not elsewhere, * * * if no suit should be brought by the United States within six months from the completion and final settlement of said contract: * * * Provided, that [such] suit ;;s * * shall not be commenced until after the complete performance of said contract and final settlement thereof.”
Demurrers to certain pleas of the Surety Company were sustained, on the ground that all defenses could be made under other pleas. Each of the parties having requested direction of a verdict in its favor at the close of the evidence, the court made special findings of fact and conclusions of law, refused some propositions offered by each of the parties, and entered judgment in favor of Schott on his special plea of discharge in bankruptcy, and in favor of the Surety Company against all but five of the claimants. As to these five, judgment was rendered in their favor and against the Surety Company for the balance due for materials furnished to Schott prior to January 2, 1909, with interest thereon at 5 per cent, from the commencement of the suit, but not for those furnished thereafter either to Schott or to the Engineering Company, except in the case of one claimant, which, unlike the others, had no knowledge of the assignment at the time the goods were supplied. The claims of those who supplied materials only after January 2, 1909, or who had been paid in full for all goods theretofore furnished, were denied, regardless of whether such goods were consigned to Schott or to the Engineering Company.
The claim of the United States Equipment Company for rental at $42.82 per month after June, 1909, and for return freight paid by it in October, 1909, in accordance with its contract with Schott for the use of cars, track, and equipment at the station, and for the expense of loading and the freight thereon to and from the station from September 1, 1908, to the end of October, 1909, was denied, on the ground that this use, for the hauling of work and materials upon and about the grounds, was not labor or materials of such kind or character as to entitle it to recover.
The total claims were in excess of $38,000; the judgments totaled something over $15,000. The aggregate of the claims, without interest, exceeded the penalty of the bond, with interest thereon from the commencement of the suit; that of the claims allowed, with such interest, was less than the penal sum.
In case No. 2092, all but eight of the parties whose claims were denied in whole or in part seek a reversal as against both Schott and -the Surety Company. In case No. 2093, the Surety Company seeks a reversal of the judgments rendered against it in favor of the five claimants.
The claimants maintain that the statute, and the bond executed in accordance therewith, aim to protect all those who furnish labor or material for the work covered by the contract specified in the bond; that the obligation guaranteed by the Surety Company is not Schott’s contractual debt for goods bought by him for the work, but his obligation as principal in the statutory bond to pay for all goods furnished for the work pursuant to his contract with the government, whether bought by him, his assignee, or subcontractor; that as the government never sanctioned the assignment, but continued to deal with and make payments to Schott alone, the original contract, by virtue of R. S. § 3737 (Comp. St. 1913, § 6890), remained in full force and effect, so that there could have been no change of principals in the only contract pursuant to which all labor and material were supplied.
The statute and bond, literally construed, would seem to afford protection only to those supplying the principal therein, the original contractor. Interpreted, however, in the light of the spirit and the purpose of the statute, it clearly aims to give a substitute for the ordinary mechanics’ liens to all who furnish labor or material in the prosecution of the public work involved in the contract and pursuant thereto, whether their contractual relations are with the original contractor, or a subcontractor, or one in a position analogous to that of a subcontractor. On the other hand, it does not protect one who by agreement or assignment endeavors to put himself practically in the place of the contractor, either by assuming the latter’s obligations under the contract or by agreeing to finance the work. This distinction is dearly brought out in the cases of Hardaway v. Surety Co., 211 U. S. 552, 29 Sup. Ct. 202, 53 L. Ed. 321, on the one hand, and Hill v. Surety Co., 200 U. S. 197, 26 Sup. Ct. 168, 50 L. Ed. 437 and Mankin v. Ludowici-Celadon Co., 215 U. S. 533, 30 Sup. Ct. 174, 54 L. Ed. 315, on the other.
In the Hardaway Case, A., B., and C., doing business under the firm name of A. & B., made a contract with the government for public work. Two years later, the firm agreed with C. that he should pay the firm debts, make all future purchases in his' own name, and receive all profits from the contracts. C. did the work, but the government checks continued to be payable to the firm. Two years thereafter, C. entered into a contract with D. and E., which, after reciting C.’s financial inability to complete the work, provided that D. and E. should superintend its completion, finance it, and receive as compensation 15 per cent, of the total cost of completion, out of the reserve funds held and the payments to be made by the government. The court held that D. and E. were not subcontractors but financiers. They were to furnish the funds for the work and to superintend it; and
If, in the instant case, the Engineering Company were the claimant, the Hardaway Case would be in point. Here, however, as in the Hill Case, the claimants have supplied piaterials for the work pursuant to the contract, whether they furnished them before or after the assignment. In our judgment, there is no substantial difference in the legal relation, and therefore none in the rights, of materialmen dealing with a subcontractor and those dealing with an assignee, if the assignment has not been sanctioned by the government. From the standpoint of the materialmen, such an assignment is, in effect, but a subletting; the original contract remains in full force; the original contractor is still responsible for the undertaking.
It follows, therefore, that all of the claimants who supplied material or labor for the work covered by the contract, either to the original contractor or to the assignee, and whether with or without knowledge of the assignment, were entitled to the full benefit of the bond, the statutory substitute for a lien, unless, by some act of his own, one or the other claimant may have released or waived or may be estopped from asserting his right.
While the argument as to the dual charactér of the bond is clearly sound (Equitable Surety Co. v. McMillan, 234 U. S. 448, 456, 34 Sup. Ct. 803, 58 L. Ed. 1394), the conclusion sought to be drawn therefrom does not follow. The obligation guaranteed by the bond is not, as the contention implies, that Schott as purchaser will pay for goods sold to him by each of the assumed obligees, but that he as the contractor (and as long as the assignment is not recognized by the government, the only contractor) will pay for all. goods furnished, by the obligee pursuant to the only contract mentioned in the bond, that between Schott and the United States, regardless of whether Schott
As a materialman’s assent to the assignment could not vary this obligation, the principle contended for is entirely inapplicable.
We agree with the views expressed by the trial judge on both points. 195 Fed. 306. The statutory phrase “settlement thereof”-does not mean “payment therefor.” When a final accounting was had between Schott and the government, the contract was finally settled, even though payment of part of the balance found due on the accounting was to be withheld for a year as security for a guaranty of the work and the covenant to keep it in repair during that period. Ill. Surety Co. v. United States, 215 Fed. 334, 131 C. C. A. 476.
Obviously, too, such a guaranty and covenant does not prevent complete performance of the work itself. Under a literal construction of the act, action on the bond would be postponed until every collateral guaranty and covenant to repair contained in the contract had expired by limitation, whether it be in one or in many years-. In our judgment, however, the true intent and purpose of the statute are to give legal redress after the public work itself shall have been completed and accounts therefor adjusted.
The statutory provision for only one suit, and that in the District Court of the district in which the work is done, and the further provision that no suit shall be brought by a claimant until six months after completion of the work and final settlement, and then only if the Curled States failed to sue, do not make the liability itself under the bond any the less absolute after breach of the condition, whatever their effect may be as limitations of the right created by the statute (Texas Cement Co. v. McCord, 233 U. S. 157, 34 Sup. Ct. 550, 58 L. Ed. 893), on the time, method, and forum for determining or liquidating any disputed claim.
Ivor does the fact that a claimant may eventually obtain no share in the judgment for the penalty of the bond, because of the government’s right to priority, or only a proportionate part thereof less than his claim, because of the necessity of sharing pro rata with other claimants, affect the absolute character of the liability.
We agree with the ruling of the trial judge, contrary to that in Re Hawley (D. C.) 194 Fed. 751, that Schott’s discharge in bankruptcy is a good defense. The judgment in Schott’s favor will therefore be affirmed, with costs as to him, in case No. 2092.
As to the Surety Company, the judgment will be reversed, at its costs, in both proceedings, and the cause remanded for retrial.
Rehearing
On Petition for Rehearing and on Motion to Modify Opinion and for Entry of Final Judgment.
The able brief filed on the petition for rehearing presents no matter that was not heretofore fully considered by the court. The petition will be denied.
The successful parties move that, instead of remanding the cause for retrial, this court enter a judgment, or direct the District Court to enter a judgment, on the findings heretofore made therein. In opposition thereto, it is urged for the first time, by what may he deemed a counter motion, that this court should dismiss the case, on the ground that it is a suit a.t common law and that the issues can be determined only in a court of equity.
‘See. 274a. That in case any of said courts shall find that a suit at law should have been brought in equity or a suit in equity should have been brought at law, the court shall order any amendments to the pleadings which may be necessary to conform them to the proper practice. Any party to the suit shall have the right, at any stage of the cause, to amend his pleadings so as to .obviate ihe objection that his suit was not brought on the right side of the court. The cause shall proceed and be determined upon such amended pleadings. All testimony taken before such amendment, if preserved, shall stand as testimony in ihe cause with like effect as if the pleadings had been originally in the amended form.”
But even without the new statute the objection could not prevail, for inasmuch as the court of law clearly was not without jurisdiction of the subject-matter, it comes too late. U. P. R. R. Co. v. Whitney, 198 Fed. 784, 787, 117 C. C. A. 392; Reynes v. Dumont, 130 U. S. 354, 9 Sup. Ct. 486, 32 L. Ed. 934. Again, as the case was, in effect, tried by the court without a jury, and its findings of fact are not attacked, it is of no practical importance whether a court of law or of equity was the proper forum. Ill. Surety Co. v. United States, 215 Fed. 334, 131 C. C. A. 476. The counter motion to dismiss will be denied.
The motion to modify the order heretofore made, and to render judgment in accordance with the findings of fact made by the trial judge, and the law as held in the opinion heretofore filed, will be granted. The judgment will be in debt for the face of the bond, with damages for the same amount, for the use of the plaintiffs in error, in case No. 2092. As the total amount due them under the findings exceeds the face of the bond, the damages for the use of each of them will be reduced pro rata, and will be for the several amounts as found by the trial court, so reduced. The reduced damages are specified in the judgment order which we direct to be entered, and bear interest at 5 per cent, per annum from August 16, 1911.
The judgment of the District Court is reversed, and the cause remanded, with directions to enter. therein the judgment which we have entered here and to enforce said judgment by proper process.
Note. — Judge SEAMAN concurred in overruling the petition for rehearing. He did not participate in the consideration of> the motion and counter motion.