Chouteau Trust Co. v. Massachusetts Bonding & Ins. Co.

CourtUnited States Courts of Appeals. United States Court of Appeals (8th Circuit)
Citation1 F.2d 136
Docket NumberNo. 6542.,6542.
PartiesCHOUTEAU TRUST CO. v. MASSACHUSETTS BONDING & INS. CO.
Decision Date05 August 1924

John T. Hicks, of St. Louis, Mo. (F. L. Cornwell, of St. Louis, Mo., on the brief), for appellant.

Walter H. Saunders, of St. Louis, Mo. (John S. Leahy and Lambert E. Walther, both of St. Louis, Mo., on the brief), for appellee.

Before KENYON, Circuit Judge, and AMIDON and SCOTT, District Judges.

KENYON, Circuit Judge.

This is the second appearance of this case in this court. The prior decision will be found in 264 Fed. 793. Parties for convenience will be designated as in the trial court, appellee here being plaintiff there. In brief, this is an action in equity brought by plaintiff in the District Court of the United States for the Eastern District of Missouri on the 13th day of January, 1919, against defendant, Chouteau Trust Company, to enforce a claimed right of equitable subrogation and for an accounting. On the former trial in the District Court the action was dismissed at the close of plaintiff's testimony. Upon appeal the case was remanded to the District Court for a fuller hearing in accordance with the views indicated in the court's opinion. Upon the retrial the court rendered a decision in favor of plaintiff, and referred the matter to a master for an accounting, who duly filed his findings and report, recommending judgment for plaintiff against defendant in the sum of $3,315.59, with interest at 6 per cent. per annum from January 15, 1919, and costs. Exceptions filed to the master's report were overruled, the report confirmed, and final decree entered, from which defendant prosecutes this appeal.

The facts substantially are as follows:

In the early part of 1916 Cooney-Garland Company, a copartnership, having made a contract with the city of St. Louis for the construction of what was known as the Russell Place joint district sewer, made an arrangement with defendant, Chouteau Trust Company, whereby the trust company was to make purchase of special tax bills to be issued by the city of St. Louis to pay for the construction of said sewer, and was to make advancements and loans to said contractors for use in the performance of their contract. Plaintiff was familiar with said arrangement by virtue of a communication addressed to it by defendant. Plaintiff signed the contractor's bond as surety, knowing of defendant's arrangement with the contractor; the same being executed to the city of St. Louis in the penal sum of $12,063.43. This bond was given under the provision of section 1040, Revised Statutes of Missouri of 1919, which required contractors of public work to be performed for the state, county, or city to execute such a bond. Defendant from time to time, up to the completion of the work provided for by the contract, advanced money to the contractor upon estimates of the engineering department of the city; the contractor executing notes to the trust company as evidence thereof.

In July, 1917, representatives of plaintiff at St. Louis brought to the attention of defendant its desire to make arrangement for the disposition of the funds to be realized from the special tax bills then about to be issued by said city to the contractor, and which were to be transferred to defendant under its contract for purchase and advancement of loans. July 16, 1917, a written notice was sent out by appellee (plaintiff), addressed to some of the city officials, defendant and the contractor with reference to the proper distribution of the funds to be realized from the tax bills. Defendant's copy of this letter was received on August 3, 1917. At the time of the receipt thereof there were claims due and unpaid, incident to the performance of the contract for which the special tax bills were issued, exceeding $7,000. These claims were for material furnished and used in the construction of the sewer, and judgment was subsequently rendered therefor against plaintiff as surety on the bond, which it paid. At the time of the hearing before the master other suits were pending against plaintiff as surety for an amount in excess of $1,000.

The face value of the tax bills received by appellant was $33,359.39. They were purchased at 90 cents on the dollar, leaving the amount chargeable against the appellant, $30,023.46. Defendant credited to itself from this amount what was due it on the notes of the contractor, amounting to $20,400 and interest to August 3, 1917, in the sum of $454.34, leaving a balance August 3, 1917, of $9,169.12 in the hands of the defendant. This balance was subsequently turned over by appellant to the contractor and by it deposited in its bank account with defendant. Checks were then drawn by the contractor against such account until it was all disbursed. Of the amounts drawn, $5,728.25 was to the Blackmer-Post Pipe Company for sewer pipe used in the sewer, and $125.28 to the Banner Iron Works for material used and furnished in the work.

The master and the lower court found that these two items constituted proper credits in favor of defendant, as they served to liquidate indebtedness for which plaintiff would be liable on the surety bond. There is no appeal from this holding. Consequently the correctness thereof is not before us. Deducting these two items, then, from the amount on hand August 3, 1917, leaves a balance of $3,316.59. This fund was used to pay certain notes for money loaned by George Baptiste, $1,000; Mary Garland, $500; and J. Anderson, $700 — the same having been borrowed by the contractor to pay for labor performed on the work. $353 was also paid Seneca C. Taylor for hay and grain used in feeding teams on the work, and $250 was paid Frank J. Quinn for legal services rendered in connection with the contract.

The master held, and in that he was sustained by the trial court, that these later items, making up $3,315.59 of the fund, were claims that could not have been asserted as against the plaintiff, and that defendant, by turning over, after the time of notice to it of plaintiff's claims, the funds upon which plaintiff had an equitable lien, was responsible to plaintiff for these disbursements. Section 2 of said decree is as follows:

"(2) That defendant is declared to be a trustee and required to account to plaintiff for the proceeds of all special tax bills issued in favor of said contractor in payment for said construction work, to the extent of the disbursements heretofore made, or which plaintiff will hereafter be required to make, under said bond, and that plaintiff has an equitable lien on said tax bills and the proceeds thereof, which attached as of the date of the execution of its bond."

We consider first the scope and effect of the former opinion. This court held that, under the bond signed by plaintiff, the undertaking was to indemnify the city against what the court termed "lienable items," which would otherwise become a charge against its property, and that plaintiff would not ordinarily be liable for any claims against the contractor, although incurred in the performance of the contract, which were not of that nature. The term "lienable items," which is used in the former opinion and also by the trial court, is used as a mere descriptive or designative term, referring to those claims for work performed and material furnished which would be lienable if existing against a private individual. As the work is a public one, the claims are not strictly lienable, and the statute of Missouri is to protect the laborer, materialman, the city, and the public, by providing for a bond in place of such security as might otherwise be sought by attaching a lien to property. Such statutory provisions are quite common in the various states, and the federal government also seeks by statutes to protect persons furnishing material and labor for the construction of public works.

The Supreme Court, in Equitable Surety Co. v. United States of America, to the Use of McMillan, 234 U. S. 448, 456, 34 Sup. Ct. 803, 805 (58 L. Ed. 1394), speaking of such bonds as to public work says: "The public is concerned, not merely because laborers and materialmen (being without the benefit of a mechanic's lien in the case of public buildings) would otherwise be subject to great losses at the hands of insolvent or dishonest contractors, but...

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