United States Fidelity & Guaranty Co. v. Sweeney

• Decision Date: 10 December 1935
• Docket Number: No. 10280.,10280.
• Citation: 80 F.2d 235
• Parties: UNITED STATES FIDELITY & GUARANTY CO. v. SWEENEY et al.
• Court: U.S. Court of Appeals — Eighth Circuit

80 F.2d 235 (1935)

UNITED STATES FIDELITY & GUARANTY CO. v. SWEENEY et al.

No. 10280.

Circuit Court of Appeals, Eighth Circuit.

November 18, 1935.

Rehearing Denied December 10, 1935.

James A. Potter, of Jefferson City, Mo. (W. T. Ragland, of Jefferson City, Mo., and James E. Garstang and Carter & Jones, all of St. Louis, Mo., on the brief), for appellant.

Hampton Tisdale and La Roy O. Schaumburg, both of Booneville, Mo., for appellee Sweeney.

Before GARDNER, WOODROUGH, and FARIS, Circuit Judges.

GARDNER, Circuit Judge.

This is a suit in equity brought by the trustee in bankruptcy of Lahar Construction Company, a corporation, to set aside as fraudulent, preferential, and without consideration, an alleged transfer of $5,860.98 of the bankrupt's funds to appellant. The decree adjudged that the trustee in bankruptcy "be and he is hereby vested with full and complete right of possession in and to" the account in which the funds were deposited. The bank, the Central Missouri Trust Company, was ordered and directed to set over and deliver possession of the account to the plaintiff. From the decree so entered, appellant prosecutes this appeal.

It appears from the court's findings of fact, or is established by undisputed evidence, that in 1932 the Lahar Construction Company was engaged in building roads under contracts with the state highway department of the state of Missouri; that on or prior to July 14, 1932, it gave bonds for the faithful performance of its duties under these contracts, including the payment for labor and materials. Appellant, United States Fidelity & Guaranty Company, was sole surety on these bonds. These contracts provided that the highway commission might retain a certain per cent. of the contract price until final acceptance of the entire work. They also provided that the state authorities might withhold and decline to release such funds until the contractor had satisfied the state highway commission that payments had been made to all subcontractors and materialmen, and such other charges as might be recoverable under the bond of the contractor, and that in the event of the contractor's default on his contract, the state highway commission might take over the contract and apply the retained percentages and unpaid estimates on the expense of completing the work. Prior to the execution of the bonds by appellant, the president of the Lahar Construction Company, at the request of appellant, signed separate applications and contracts called "Subrogation Agreements" and "Indemnity Contracts." Neither the board of directors of the construction company, nor any of its by-laws conferred specific authority upon the president to execute such contracts. By these instruments, the construction company agreed to assign to appellant "all the deferred payments and retained percentages and any and all moneys and properties that may be due and payable" to the principal at the time of default or thereafter for construction of highways. These contracts also provided that appellant should be subrogated to all rights of the principal in the construction contracts as of the date of the subrogation agreement and indemnity contract.

On or about November 1, 1932, it became apparent to appellant as surety on these bonds, that the construction company must inevitably default on its payments for some of the labor and materials used under certain of these contracts. It was then agreed that all retained percentages and deferred payments on the contracts should be deposited to the joint account of the construction company and the appellant in the Central Missouri Trust Company. The state highway commission was notified of this arrangement and made payments accordingly to the amount of $19,613.12. As a check upon payments, it was agreed that all accrued bills on the construction contracts should be paid by check of the construction company drawn against this deposit and countersigned by the surety company, and in accordance with this arrangement bills were paid until December 10, 1932, at which time an involuntary petition in bankruptcy was filed against the construction company, and it was adjudged a bankrupt.

Prior to bankruptcy, the construction company completed all of the road construction contracts. The money involved in this suit is the balance on deposit at the time of the filing of the petition in bankruptcy. A sum in excess of the amount of the balance on deposit was expended and paid by appellant in payment of charges for labor and materials used in the performance of these construction contracts. All these payments were made by appellant after the filing of the involuntary petition in bankruptcy. The construction company became insolvent on or about August 12, 1932, and continued thereafter to be insolvent. At the time arrangements were made to deposit the funds in the bank, appellant had reasonable cause to believe the construction company was insolvent.

The court concluded as a matter of law that the funds had been paid to the bankrupt with the approval and acquiescence of appellant, and that appellant thereby had waived such rights as it might have had to the money under the contracts with the bankrupt; that appellant, as of the date of bankruptcy, had actually paid no obligation of the construction company, and that the $5,860.98 on deposit should be paid over to the trustee, to be administered by him as such trustee under the bankruptcy laws; that the indemnity and subrogation agreements, in so far as the funds in question were concerned, constituted an attempt to transfer future earnings, and for that reason were ineffectual and void under the provisions of section 2969, R.S.Mo. 1929 (Mo.St.Ann. § 2969, p. 1858); that the purported indemnity contracts and subrogation agreements were in the nature of security, and not being filed or recorded as required of mortgages of personal property, were ineffectual and of no force and effect as against the trustee's rights in the fund; that the rights of other creditors intervened between the execution of the indemnity and subrogation agreements; that even if the fund were in the possession of the appellant, the appellant's possession would constitute a voidable preference under the bankruptcy acts; that no right, by way of lien, existed in favor of laborers or materialmen for work performed on or material furnished in road construction projects under the laws of Missouri.

The decree, among other things, adjudged that the trustee "be and he hereby is vested with full and complete right of possession in and to the joint account in the sum of $5,860.98, remaining on hand to the credit of Lahar Construction Company, a corporation, bankrupt aforesaid, and United States Fidelity and Guaranty Company, a corporation, on the date of the bankruptcy of said Lahar Construction Company, a corporation aforesaid, and said defendant Central Missouri Trust Company be and it hereby is ordered and directed to transfer, set over and deliver the possession of said joint account and said sum of $5,860.98 to said plaintiff, P. D. Sweeney, as Trustee in Bankruptcy of the Lahar Construction Company, corporation aforesaid, or pay the same into court for the purpose aforesaid."

It is insisted by appellee that the appeal should be dismissed because the decree was entered against appellant here and the Central Missouri Trust Company, a defendant below, which did not join in the appeal, and no severance was obtained, or anything equivalent thereto. As said by us in McLean v. Jaffray (C.C.A.8) 71 F.(2d) 743, 744: "It is elementary that all persons who appear to have an interest in the judgment or order appealed from must either be made parties to the appeal or proceedings in summons and severance must be had." However, nonjoinder is not fatal if the party not joined has only a nominal interest. Axelrod v. Osage Oil & Refin. Co. (C.C.A.8) 29 F.(2d) 712; Higbee v. Chadwick (C.C.A.6) 220 F. 873.

The Central Missouri Trust Company answered, admitting the deposit of the funds and alleging that the trustee and the appellant each claimed the funds; that it was unable to determine which was lawfully entitled thereto, and that it tendered the money into court for the party which might be adjudged entitled thereto. It prayed the court to make an order permitting it to pay the money into court, and compelling the trustee and appellant to establish their respective claims thereto, and that upon payment of the money into court it be discharged and permitted to go hence with its costs.

In the court's findings, it is recited that, "The Trust Company does not claim ownership of the fund, but has tendered same into court so that the controversy between plaintiff and the other defendant, United States Fidelity and Guaranty Company, might be determined and the amount of the deposit paid to the proper party." We think the trust company had no substantial interest in the controversy. It was a mere stakeholder, and as such was only a nominal party. Farmers' Bank v. Hayes (C.C. A.6) 58 F.(2d) 34. The motion to dismiss the appeal must, therefore, be denied.

On the merits, appellant contends that (1) it had an equitable lien on the fund, acquired more than four months prior to the bankruptcy; (2) the equitable lien created by assignment was not within the purview of section 3097, R.S.Mo.1929 (Mo.St. Ann. § 3097, p. 1919); (3) the deferred payments and retained percentages were not "earnings" within the meaning of section 2969, R.S.Mo.1929 (Mo.St.Ann. § 2969, p. 1858); (4) the agreement under which the fund was paid over and deposited was an appropriation of the money to the payment of claims of laborers and materialmen, who had equitable liens on the fund superior to the lien of appellant; (5) the payment of debts of the bankrupt for labor and materials by appellant after bankruptcy subrogated appellant to rights of laborers and materialmen as of a date more than four months prior to the adjudication in...