Glades County, Fla. v. Detroit Fidelity & Surety Co.

• Decision Date: 23 April 1932
• Docket Number: No. 6441.,6441.
• Citation: 57 F.2d 449
• Parties: GLADES COUNTY, FLA., v. DETROIT FIDELITY & SURETY CO. et al. I. W. PHILLIPS & CO. et al. v. SAME.
• Court: U.S. Court of Appeals — Fifth Circuit

57 F.2d 449 (1932)

GLADES COUNTY, FLA., v. DETROIT FIDELITY & SURETY CO. et al.

I. W. PHILLIPS & CO. et al. v. SAME.

No. 6441.

Circuit Court of Appeals, Fifth Circuit.

March 31, 1932.

Rehearing Denied April 23, 1932.

E. D. Treadwell, of Arcadia, Fla., for Glades County, Fla.

Gates Ivy, of Tampa, Fla., for I. W. Phillips & Co. and Union Metal Manufacturing Co.

H. C. Tillman and Fred T. Saussy, both of Tampa, Fla., for Detroit Fidelity & Surety Co.

Claibourne M. Phipps, of Tampa, Fla., for H. C. Dwiggins.

Pasco Altman, of Tampa, Fla., for American Cyanamid Co.

Charles F. Blake, of Tampa, Fla., for Franz Safe & Lock Co.

Hilton S. Hampton and Jno. W. Bull, both of Tampa, Fla., for Kinnear Mfg. Co. and Cooke & Co.

Before BRYAN, SIBLEY, and HUTCHESON, Circuit Judges.

SIBLEY, Circuit Judge.

Marshall-Jackson Company contracted with Glades county, Fla., to build a courthouse, with Detroit Fidelity & Surety Company, as surety on its bond. The county failed to pay when due certain sums owing to the contractor, he terminated the contract, and becoming bankrupt left a number of debts to materialmen unpaid. The surety company filed a bill in the District Court in which the bankruptcy case was pending to have the sum owed by the county accounted for and paid to the materialmen in exoneration of the bond, making the trustee in bankruptcy a party by consent of his court, together with the county and the materialmen. The right to exoneration was upheld as against the county's motion to dismiss the bill and against its answer that it owed nothing, and the county appeals. Two of the materialmen, I. W. Phillips & Company and Union Metal Manufacturing Company, were awarded less sums than they claimed, and they also appeal.

Glades county moved to dismiss the bill (1) because without equity; (2) because it sought to enjoin proceedings in a state court by the trustee against the county to collect the balance in dispute; and (3) because the jurisdiction of the bankruptcy court was invaded. The second ground was recognized, and the suit in the state court was left to take its course, but was afterwards abandoned. As to the first ground, the case is pleaded in two aspects. In the one aspect the surety company contends that the county has broken the contract by failure to pay the contractor as promised, and also has made changes in and additions to the work, whereby the surety is released, and that this makes a common defense against the suits threatened by the numerous materialmen, and to avoid a multiplicity of suits the defense should be established against all by one bill. In this aspect the bill has no merit. The exhibited contract for the work which is referred to in the bond and made a part of it provides that the county without invalidating the contract may make changes by altering, adding to, or deducting from the work, the contract price to be adjusted accordingly. The surety cannot complain at that being done which it was agreed might be done. The county's alleged breach of the contract by failing to pay might relieve the surety of obligation to the county, but is no defense against the claims of the materialmen. This is a contract for public work under the laws of Florida. By statute, Comp. Gen. Laws, § 5397, there is required of the contractor a penal bond "with the additional obligations that such contractor * * * shall promptly make payments to all persons supplying * * * labor, material and supplies, used directly or indirectly by the said contractor * * * or sub-contractors in the prosecution of the work provided for in said contract," and provision is made for a suit on the bond by such persons. The bond exhibited by the bill is conditioned that the contractor shall fulfill its contract with the county "and shall fully and promptly pay the wages of all laborers, workmen and mechanics employed by it or its subcontractors on said work, and shall fully and promptly pay the claims of all persons who furnish materials and supplies used in the construction of said building." The bond is plainly given under the statute and to be construed in the light of it. It operates as a security to the county for the performance of the contract, and also as a security to the laborers and materialmen for their payment, and in this sense embraces two bonds. Although the county may have so acted as to release the surety from obligation to it, the release does not affect the obligation to the materialmen. Having sold and delivered their materials on the faith of the bond, they are entitled to the benefit of it unless forfeited by some act of their own. The obligation to them is severable. Equitable Surety Co. v. United States, 234 U. S. 448, 34 S. Ct. 803, 58 L. Ed. 1394. It follows that on the face of the bill the surety is liable to the materialmen, and the defense relied on as common to all turns out to be no defense. In its second alternative aspect, the bill, in case its defense of breach by the county fails, acknowledges liability to the materialmen and professes a willingness to pay them; but sets up the bankruptcy of the contractor, and that the trustee in bankruptcy insists that what is due by the county on the contract is general funds in bankruptcy not specially applicable to the claims of the materialmen, and is suing the county in a state court to collect and so apply them; and that the surety is about to have to pay the materialmen, but in equity is entitled to exoneration by use of the sum due from the county; and it seeks an account of the same and an application of it to the materialmen's claims, the surety to be held only for the balance. In this aspect the bill has equity. We are now dealing with the surety's obligation to the materialmen only. The principal has failed to discharge his obligation when due, is insolvent, and his representative in effect refuses to discharge it. As between the surety and the principal there arises without payment by the surety and without his having even been sued an equity of exoneration. Story, Eq. Juris. (14 Ed.), § 1011; Pomeroy, Eq. Rem., § 919; Stearns on Suretyship, § 281; Pavarini v. Title Guaranty Co., 36 App. D. C. 348, Ann. Cas. 1912C, 367 and note. To have subrogation a surety must have discharged in full the obligation for which he is bound, and he then seeks to recover for himself the subject of the suit. In case of exoneration he proceeds before payment quia timet, and seeks to have payment made to the creditor. If the principal is solvent, the decree need not go further than to require the principal to pay, but, when he is fraudulent, insolvent, or has absconded, the equity of exoneration needs and may have further protection. Injunctions, receivers, and equitable garnishments have been granted, property recovered from third parties, and funds traced and applied. West v. Chasten, 12 Fla. 315; Hayden v. Thrasher, 18 Fla. 795; Bunting v. Ricks, 2 Dev. & B. Eq. (22 N. C.) 130, 32 Am. Dec. 699; Sanford v. U. S. F. & G. Co., 116 Ga. 689, 43 S. E. 61; Cooper v. National Fert. Co., 132 Ga. 529, 64 S. E. 650. Assuredly equity will require to be applied to the obligation a fund which by the very contract of suretyship stands as a security for performance. In Story Eq. Jur., § 1011, after stating the jurisdiction to protect the surety quia timet, there is added: "And generally it may be stated that in case of contracts, express or implied, courts of equity will interpose to preserve the funds devoted to particular objects under such contracts and will decree what is in effect specific performance, security to be given, or the fund will be placed under control of the court." In Walker v. Brown, 165 U. S. 654, 17 S. Ct. 453, 457, 41 L. Ed. 865, it is held that: "Every express executory agreement in writing, whereby the contracting party sufficiently indicates an intention to make some particular property, real or personal, or fund, therein described or identified, a security for a debt or other obligation * * * creates an equitable lien upon the property so indicated." To the same effect is Ingersoll v. Coram, 211 U. S. 336, 29 S. Ct. 92, 53 L. Ed. 208. Such a fund is the reserve on a building contract. Pratt Lumber Co. v. Gill (D. C.) 278 F. 783, 798; Cox v. New England Equitable Ins. Co. (C. C. A.) 247 F. 955; Prairie State Bank v. United States, 164 U. S. 227, 17 S. Ct. 142, 41 L. Ed. 412; Salt Lake City v. O'Connor, 68 Utah, 233, 249 P. 810, 816, 49 A. L. R. 941...