United States v. Brent

• Decision Date: 08 August 1916
• Citation: 236 F. 771
• Parties: UNITED STATES, to Use of JACKSON ORNAMENTAL IRON & BRONZE WORKS, v. BRENT et al. UNITED STATES, to Use of CONKLING ARMSTRONG TERRA COTTA CO., v. SAME.
• Court: U.S. Court of Appeals — Fourth Circuit

236 F. 771

UNITED STATES, to Use of JACKSON ORNAMENTAL IRON & BRONZE WORKS, v. BRENT et al.

UNITED STATES, to Use of CONKLING ARMSTRONG TERRA COTTA CO., v. SAME.

United States District Court, W.D. South Carolina.

August 8, 1916

Logan &amp Grace, of Charleston, S.C., for New York Central Iron Works co.

Whaley Barnwell & Grimball, of Charleston, S.C., for W. J. Brent Const. Co.

Smythe & Visanska, of Charleston, S.C., for National Surety Co.

Ansel &amp Harris, of Greenville, S.C., for Southwestern Surety Co.

JOHNSON District Judge.

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 contractor gave another bond, in the sum of $23,000, with the Southwestern Surety Insurance Company as surety. This bond was made to cover all obligations theretofore or thereafter made in the erection of the Gaffney post office. On September 18, 1912, National Surety Company made a contract of reinsurance with the Empire State Insurance Company. By this contract, the National Surety Company agreed to repay the Empire State Insurance Company, its successors or assigns, any sums which said company might be liable to pay in consequence of default of the principals on certain bonds, including bond of the Brent Construction Company for the erection of the post office at Gaffney, S.C. On December 12, 1912, Empire State Insurance Company was placed in the hands of a receiver and its affairs liquidated, and it was finally dissolved September 23, 1913. W. J. Brent Construction Company also had a contract with the United States to erect a public building at Darlington, a town in the Eastern district of South Carolina. For the faithful performance of the Darlington contract, Brent Construction Company gave bond to the United States, with Fidelity Deposit Company as surety. Work on the post office at Darlington and work on the post office at Gaffney was going on at the same time. Jackson Ornamental Iron & Bronze Works furnished materials to Brent Construction Company for each of the buildings, and kept separate accounts on their books, charging to the Gaffney account materials furnished for the Gaffney post office, and charging to the Darlington account materials furnished for the Darlington post office. On July 8, 1913, W. J. Brent Construction Company remitted to Jackson Ornamental Iron & Bronze Works the sum of $250 in payment of its account. The construction company at that time was largely indebted to the Jackson Ornamental Iron & Bronze Works on both accounts. With the remittance the debtor gave no directions as to its application. Upon receiving it, the Jackson Ornamental Iron & Bronze Works applied it as a credit to the Gaffney account. Thereafter, on December 10, 1913, Jackson Ornamental Iron & Bronze Works received a statement from W. J. Brent Construction Company, by which it appeared that the construction company had placed the credit of the $250 on the Darlington job. Thereupon the Jackson Ornamental Iron & Bronze Works changed the credit on their books from the Gaffney account to the Darlington account, and wrote W. J. Brent Construction Company that they had already applied the money to the Gaffney account, but that in order that their books might correspond with those of the construction company, they had changed the credit from the Gaffney to the Darlington account. An action similar to this has been brought in the Eastern district for South Carolina against the contractor and the surety on the bond on account of the public building at Darlington. The contractor is bankrupt. Each surety claims the benefit of this $250 payment. The record shows that the special master in the Eastern district of South Carolina reports the credit should go to the Darlington account. The special master for the Western district of South Carolina reports that the credit should go to the Gaffney account. The only two questions in this claim before the court are: First, for what amount shall Jackson Ornamental Iron & Bronze Works have judgment? Second, is the National Surety Company liable?

The determination of the first question depends upon the application of the $250 payment. The debtor who pays his own money has the right to direct its application. If the debtor gives directions, his directions are controlling. If the debtor pays his creditor who has more than one claim and gives no directions as to the application, the creditor has the right to make the application, and whatever application the creditor makes is controlling. In neither case has the surety any control over the application. The decisions are not uniform in all the states as to the time within which the creditor may make the application. In South Carolina it is well settled that the creditor can exercise his right of application at any time before verdict or judgment. When payment has been made and applied, that completes the transaction. If payment is applied to a secured debt, the debt is extinguished pro tanto and to the extent of such payment the surety is discharged. Payment, once made and applied, cannot be recalled and otherwise applied without the consent of the surety. It is contended in this case that the surety knew nothing of this payment until long afterwards and that as the debtor and the creditor without any thought or suggestion of fraud practically agreed to the change in credit, it should stand. The answer to this contention is that the law does not require notice of partial payments or total payments to be given to the sureties. When a payment is made, it inures to the benefit of the surety whether he knows about it or not. It has been argued in this case that the change of credit from the Gaffney account to the Darlington account was tantamount to correcting a mistake, as the Brent Construction Company intended the payment to go to the Darlington account. There was no mistake. W. J. Brent Construction Company had a right to direct the application of the money. What W. J. Brent Construction Company may have intended to do is immaterial as it is an undisputed fact in this case that the W. J. Brent Construction Company did not direct the application of the payment. Failing to direct the application of the payment, the creditor had the right to make it and did make it. 'As the tree falleth, so shall it lie. ' I stated above that while the doctrine in South Carolina allows the creditor until verdict or judgment to make his application, that does not, by any means, imply that he can change the application from time to time until verdict or judgment. I have not been able to find any authority which allowed an application once made to be changed. Of course a change could be made as between the debtor and creditor if no surety was involved, if they consented to it, or a change could be made where there is a surety, provided he consented. This in effect would be a new contract. In United States Fidelity & Guaranty Company v. Eichel, 219 F. 803, 135 C.C.A. 473, the parties sought to change an application of payment and the court declined to allow it. In Columbia Digger Company v. Rector (D.C.) 215 F. 618, the court said:

'Rector and Daly had 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 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 &amp Insurance Company (D.C.) 198 F. 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 ...