332 U.S. 234 (1947), 847, United States v. Munsey Trust Co.

Docket Nº:No. 847
Citation:332 U.S. 234, 67 S.Ct. 1599, 91 L.Ed. 2022
Party Name:United States v. Munsey Trust Co.
Case Date:June 23, 1947
Court:United States Supreme Court
 
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Page 234

332 U.S. 234 (1947)

67 S.Ct. 1599, 91 L.Ed. 2022

United States

v.

Munsey Trust Co.

No. 847

United States Supreme Court

June 23, 1947

Argued May 6, 1947

CERTIORARI TO THE COURT OF CLAIMS

Syllabus

1. Notwithstanding claims of a surety on a statutory payment bond (given under 40 U.S.C. § 270a) for reimbursement for sums paid to laborers and materialmen, the Government may set off, against unappropriated percentages of progress payments withheld by it and due to the contractor on the construction contract, a debt owed to it by the contractor as a result of a separate and independent transaction. Pp. 236-244.

2. When a receiver is appointed for a contractor with instructions to collect money owing to the contractor by the Government and to hold it for reimbursement of a surety on a payment bond for payments made to laborers and materialmen, a suit in the Court of Claims by the receiver against the Government for money due the contractor is in the right of the contractor, but the receiver may assert the surety's rights also. P. 239.

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3. Under Judicial Code § 145, 28 U.S.C. § 250, when a receiver asserts in the Court of Claims a contractor's title to a sum owing to him by the Government, that Court is under statutory duty to recognize an undisputed claim of the Government against the contractor. Pp. 239-240.

4. With reference to withheld and unappropriated percentages of progress payments on a construction contract, performance of which has been completed and accepted, the Government is not a mere general creditor, but a secured creditor entitled to withhold what it owes the contractor until it is paid whatever the contractor owes the Government. P. 240.

5. A surety on a payment bond who has paid laborers and materialmen for labor and material furnished under a Government construction contract is not entitled, by subrogation to their rights, to a lien on unappropriated percentages of progress payments retained by the Government for its own protection. Pp. 241-242.

6. The right of the Government to retained percentages of progress payments on a construction contract does not devolve on a surety who has paid laborers and materialmen, so as to prevent the Government from applying the unappropriated sum to the satisfaction of its own claim growing out of a separate and independent transaction. Pp. 242-243.

7. The provisions of 40 U.S.C. § 270a requiring a separate bond for payment of laborers and materialmen were enacted for their benefit, and do not give sureties who have paid them rights to the detriment of the Government. Pp. 243-244.

8. When the work to be done under a Government construction contract has been completed at the contract price and accepted by the Government, the law of damages is not pertinent to the rights of a surety on a payment bond given under 40 U.S.C. § 270a who has paid laborers and materialmen. P. 244.

107 Ct.Cl. 131, 67 F.Supp. 976, reversed.

Notwithstanding the existence of a claim by the Government against the contractor growing out of another transaction, the Court of Claims gave judgment against the Government to a receiver for a contractor for withheld and unappropriated percentages of progress payments on a construction contract, to be used by the receiver in reimbursing a surety on a payment bond for payments made

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to laborers and materialmen. 107 Ct.Cl. 131, 67 F.Supp. 976. This Court granted certiorari. 330 U.S. 814. Reversed, p. 244.

JACKSON, J., lead opinion

MR. JUSTICE JACKSON delivered the opinion of the Court.

This case presents a problem arising out of contracts for public building construction and repair. The rights inter sese of contractor, surety, assignees, and government have been productive of much litigation, but we have not heretofore had to decide whether percentages retained pursuant to contract by the United States may be subjected to its setoff claims despite the claims of a surety who has paid laborers and materialmen.

In May and July, 1940, six contracts were made between the United States and the Federal Contracting Corporation, in which the corporate contractor agreed to paint and repair certain federal buildings. Each contract conformed to the requirements of statute, 49 Stat. 793, 40 U.S.C. § 270a et seq., by providing for two surety bonds, one conditioned on the completion of the work within the contract period and the other on the payment of those furnishing labor and material to the contractor. The Aetna Casualty and Surety Company signed those bonds, each of which assigned to it the contractor's claims against the government for sums due on the contracts whenever the surety should be compelled

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by default of the contractor to fulfill its obligations.1 The work was completed by the contractor, apparently, in 1940, and accepted by the government. The surety therefore was not called upon to make good the promise of the performance bonds. But the contractor did not pay $13,065.93 owed to persons who had supplied labor and material for performance of five of the six contracts. This indebtedness the surety paid between April and September, 1941 as the payment bonds obliged it to do.

Under the customary terms of its contracts, the government had retained percentages of the progress payments due to the contractor. This retained money, on acceptance of the work, amounted to $12,445.03, but it was not disbursed. On October 18, 1940, the Federal Contracting Corporation submitted a bid to the United States for another painting job, in St. [67 S.Ct. 1601] Louis. That bid was accepted, but the contractor then failed to enter into contract for the work. Another contractor painted the building for a price which left the government considerably more out of pocket than it would have been had Federal undertaken performance at its bid price. It is undisputed that $6,731.50 is the amount of damages sustained by the government after it had applied the contractor's deposit of $415.00 in reduction.

Almost inevitably, court process was begun to untangle claims to the money the United States still owed on the six contracts. A stockholder of Federal asked the United States District Court for the District of Columbia to appoint a receiver2 to collect the money. The Aetna

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Casualty and Surety Company was made a party to that action. Respondent here, the Munsey Trust Company, was appointed receiver with directions to demand and authority to receive from the United States the proceeds of the six contracts. The order of appointment also recited that

the proceeds of all collections made by the Receiver pursuant to this order shall be held for the reimbursement of the defendant The Aetna Casualty and Surety Company for expenditures made by it in the payment of furnishers of labor and material under the several contracts of the Federal Contracting Corporation.

On demand by the receiver for the amounts due, the General Accounting Office deducted the government's claim of $6,731.50 and paid over $5,713.53. Aetna, by letter to the Comptroller General, protested the government's settlement by setoff, and asserted its right to an additional $3,568.23.3 The receiver also protested the setoff and demanded $3,143.23 for reimbursement of the surety. It relied upon Maryland Casualty Co. v. United States, 100 Ct.Cl. 513, 53 F.Supp. 436. The Acting Comptroller General declined to follow the opinion of the Court of Claims in the absence of ruling by this Court, and rejected the protests. When the receiver reported its efforts to the district court, it was ordered to turn over to the surety the money collected, less $500. That sum was for prosecution of suit in the Court of Claims for the recovery of whatever other moneys "may be due under the contracts of the Federal Contracting Corporation." This action was begun, and the Court of Claims gave judgment for $3,568.23 to respondent. 67 F.Supp.

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976. We granted the government's petition for certiorari because of the importance and novelty of the question and the cumulative effect of Maryland Casualty Co. v. United States, supra, and the decision below. 330 U.S. 814.

In these cases, it is usual for the rights relied upon to be largely derivative or subrogated ones. Decision...

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