Angle v. Bankers' Surety Co.

• Decision Date: 02 July 1917
• Docket Number: 198.
• Citation: 244 F. 401
• Parties: ANGLE v. BANKERS' SURETY CO.
• Court: U.S. Court of Appeals — Second Circuit

244 F. 401

ANGLE v. BANKERS' SURETY CO.

No. 198.

United States Court of Appeals, Second Circuit.

July 2, 1917

Daniel Naylon, Jr., and John D. Miller, both of Schenectady, N.Y for plaintiff.

Joseph A. Murphy, of Albany, N.Y., for defendant.

Before COXE, WARD, and ROGERS, Circuit Judges.

WARD Circuit Judge.

This is an appeal by the defendant in a suit brought by the trustee in bankruptcy of Edward F. Garling to set aside a deed executed by him and his wife in the form of a mortgage, and delivered to the Bankers' Surety Company to secure the repayment by Garling of the sum of $13,000 which the Bankers' Company agreed, at his request, to advance to the Mohawk Engineering & Construction Company to be applied by it on account of two specified contracts, and also to indemnify the Bankers' Company against any loss to it as surety upon the said contract.

The Mohawk Company's contracts in question were, one with the village of Matteawan for grading and paving, and the other a subcontract for work on the State Barge Canal, for the state of New York. The Bankers' Company was surety in the sum of $15,000 for performance of the Matteawan contract, and for $13,000 for the performance of the Barge Canal contract having Garling, who was a stockholder, director, and treasurer of the Mohawk Company, as its indemnitor in each case.

The mortgage was dated August 2, 1910, and a petition in bankruptcy was filed against Garling November 29th, within four months thereafter.

The bill goes on three grounds: First, that Garling was insolvent and intended to prefer the Bankers' Company, which had reasonable cause to believe that a preference would be effected. Section 60 of the Bankruptcy Act (Comp. St. 1916 Sec. 9644). Second, that the Bankers' Company had been repaid by the Mohawk Company the $13,000 advanced by it. Third, that the conveyance was made to delay, hinder, and defraud Garling's creditors, and was therefore void under section 67 of the Bankruptcy Act.

The Bankers' Company did advance to the Mohawk Company $13,000 to be applied on the two contracts, and Garling personally never repaid any of it. The question is whether the Mohawk Company did. The burden of proof is on the complainant.

The District Judge found that there was no evidence that Garling was insolvent August 2, 1910, or that he intended to prefer the Bankers' Company, or that the Bankers' Company had reasonable cause to believe that a preference would be effected, or that there was any fraudulent intent upon the part of any one in connection with the transaction. The mortgage was given not for a past, but for a present and future, consideration, and all parties regarded the contracts as profitable.

The Mohawk Company abandoned both these contracts, and the Bankers' Company, in accordance with the suretyship agreement, took over the Matteawan contract in October, 1910, its engineer Paul taking charge October 11th, completing it October 27th, and paying to the Bankers' Company what he testifies was the profit, $1,598.67. It also took over the Barge Canal contract in October, 1910, and completed it at a loss of over $200,000.

The District Judge found that there was no liability on Garling's part as indemnitor to the Bankers' Company on either bond, the Matteawan contract having been completed at a profit, and his liability as indemnitor in connection with the Barge Canal contract having been discharged as follows: The American Pipe & Construction Company had contracted with the state of New York for part of the work on the State Barge Canal and one Warner had subcontracted with the Pipe Company to perform this work. The Bankers' Company was surety to the Pipe Company in the sum of $20,000 for Warner's faithful performance of his contract, and he had indemnified the Bankers' Company against any loss. The Mohawk Company had subcontracted with Warner to do this same work, and the Bankers' Company was surety to Warner in the sum of $13,000 for its faithful performance, Garling and the Mohawk Company indemnifying the Bankers' Company. The Mohawk Company and then Warner abandoned the work. Warner, October 18, 1910, surrendered and canceled the bond of the Bankers' Company of $13,000 to him on the Mohawk Company's contract, and the Bankers' Company released him from his agreement to indemnify it in connection with his bond of $20,000 to the Pipe Company.

The District Judge found that the Bankers' Company was, by this arrangement, discharged of its liability as surety for the performance of the Barge Canal contract by the Mohawk Company, so that no claim survived against Garling. As a result he found, and we entirely concur with him, that the mortgage was a valid and subsisting lien for the $13,000, less the profit of $1,598.67 received from the Matteawan contract.

The District Judge disposed incidentally of another of the complainant's contentions. One Ryan was appointed by the Mohawk Company its attorney in fact to receive the advance to be made by the Bankers' Company to the amount of $13,000 and apply the same to the Matteawan and State Barge Canal contracts. Notwithstanding this, Ryan applied $2,500 out of the first advance of $3,000, with Garling's consent, to a different contract, viz. the Mohawk Company's Road Contract No. 5,028. This loan does not seem to have been returned, but the District Judge rightly held that even so, the Bankers' Company would not be responsible for the diversion, and that neither Garling, who consented to it, nor his trustee in bankruptcy, had any standing to complain.

Upon the petition of the trustee the case was reopened to let in proof that the Bankers' Company had received personal property subsequently valued by the special master at $10,655.28, which should be credited on account of Garling's mortgage debt. The claim comes about as follows: The Mohawk Company had a third contract with the state known as Road Contract No. 5,028, for the performance of which the Bankers' Company was surety in the sum of $31,500. October 7, 1910, the Mohawk Company, having abandoned this contract, adopted a resolution to transfer all its plant in connection therewith at values to be appraised, in consideration of the payment by the Bankers' Company of the Mohawk Company's indebtedness outstanding on the contract, amounting to over $17,000, and of completing the contract without loss to it.

The transfer was in accordance with the contract of suretyship between the two companies, which contained the following provision:

'The undersigned further agrees that upon notice to, or discovery by, the company of any failure to comply with any provision of the contract for the completion of which the company has given its bonds, immediately upon said notice or

...