Maryland Casualty v. United States, 45659.
| Decision Date | 03 January 1944 |
| Docket Number | No. 45659.,45659. |
| Citation | 53 F. Supp. 436 |
| Parties | MARYLAND CASUALTY CO. v. UNITED STATES. |
| Court | U.S. Claims Court |
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John J. Wilson, of Washington, D. C. (Whiteford, Hart & Carmody, of Washington, D. C., and H. Ellsworth Miller, of Baltimore, Md., on the brief), for plaintiff.
J. H. Sheppard, of Washington, D. C., and Samuel O. Clark, Jr., Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, both of Washington, D. C., on the brief), for defendant.
Before WHALEY, Chief Justice, and LITTLETON, WHITAKER, JONES, and MADDEN, Judges.
The plaintiff seeks to recover from the United States $1,987.22 which the plaintiff paid to materialmen and laborers whom the Columbia Foundation Company, Inc., failed to pay. Columbia had, about February 3, 1940, made a contract with the United States for the installation of a condensing water supply connection at the National Gallery of Art. It was required by law to furnish two separate bonds, one guaranteeing its performance of the contract, and the other guaranteeing its payment of materialmen and laborers from whom it might obtain supplies or services in the performance of the contract.1 The plaintiff furnished the payment bond.
Columbia became financially unable to pay its bills and, when it completed the performance of the contract it left unpaid the materialmen and laborers who were later paid by the plaintiff. On January 7, 1941, which was after completion of performance but before the plaintiff, as surety, had paid Columbia's unpaid bills, the Comptroller General of the United States determined that there was a balance of $4,253.63 of the contract price, which the Government had not paid Columbia, but that Columbia was indebted to the United States in a larger amount than that, for income taxes and federal insurance contribution and unemployment taxes. The Comptroller General applied the balance against the taxes, and gave Columbia a receipt for the payment of that amount on its tax bill. When he did this, the Comptroller General did not know that Columbia had failed to pay its bills, or was unable to do so.
On January 22, 1941, the plaintiff, upon becoming aware of what the Comptroller General had done, protested against the setoff and demanded payment instead of the set-off. Columbia at the same time made a similar protest and demand. The plaintiff then paid Columbia's unpaid debts to materialmen and laborers in the amount of $1,984.75, and social security taxes on the wages paid by it, in the amount of $2.47, making the total amount here sued for $1,987.22. It made no attempt to obtain reimbursement from Columbia because it learned that Columbia had no assets. It sought to have the Comptroller General rescind the set-off, and pay it $1,987.22 out of the $4,253.63 which that official had determined was owing Columbia on its contract, but was used up as a credit on Columbia's unpaid taxes. That official, however, adhered to his former decision and denied the request.
Our question is whether the Government has the right to settle the unpaid balance which it owes a contractor for the performance of a certain contract, by setting off that balance against a debt which the contractor owes the Government upon some unrelated account, when there is a surety who has been obliged under its bond to pay debts of the contractor for materials and labor used by the contractor in the performance of its contract. In this case the contractor's debt to the Government was for taxes, but the Government does not claim that it had properly perfected a tax lien, or that the tax debt was different, in any respect material here, from any other debt which the contractor might have owed the Government, as, for example, for supplies sold to him by the Government.
One basis for the Government's asserted defense is that, because of Section 3466 of the Revised Statutes, 31 U.S.C.A. § 191, the United States, as a creditor, had priority over other creditors of Columbia, and therefore its paying itself by set-off gave it no more than it would have been entitled to in any event. That section is as follows: "Whenever any person indebted to the United States is insolvent, or whenever the estate of any deceased debtor, in the hands of the executors or administrators, is insufficient to pay all the debts due from the deceased, the debts due to the United States shall be first satisfied; and the priority established shall extend as well to cases in which a debtor, not having sufficient property to pay all his debts, makes a voluntary assignment thereof, or in which the estate and effects of an absconding, concealed, or absent debtor are attached by process of law, as to cases in which an act of bankruptcy is committed." The plaintiff urges that this statute is not applicable except where, in the case of a living debtor, his insolvency is a formal one evidenced by a bankruptcy, receivership, or assignment for the benefit of creditors.
We agree with the plaintiff as to the construction of R.S. § 3466. A provision in similar language has been in the statutes since 1797 and has always been construed as plaintiff would have us construe it. See United States v. State of Oklahoma, 261 U.S. 253, 43 S.Ct. 295, 67 L. Ed. 638. We conclude, therefore, that the Government, as such, had no statutory preference which would give its claim priority over the plaintiff's claim.
We now reach the difficult legal question in the case. The plaintiff claims that as a surety which has paid the debt of its principal, it is entitled to be subrogated to the rights which its principal had, under the contract, including the right to collect so much of the unpaid balance due its principal from the other contracting party as is necessary to make it whole for payments made by it under its bond. The Government, in response, says that there was nothing for the plaintiff to be subrogated to, because Columbia, its principal, had no rights against the United States, since it owed taxes in a larger amount. The Government cites Globe Indemnity Co. v. United States, 84 Ct.Cl. 587. In that case the surety sued for the unpaid balance due the contractor from the Government, the surety having there, as here, paid labor and material bills of the contractor. But the contractor's claim against the...
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