American Surety Co. of New York v. Lawrenceville Cement Co.

• Decision Date: 17 July 1899
• Citation: 96 F. 25
• Parties: AMERICAN SURETY CO. OF NEW YORK v. LAWRENCEVILLE CEMENT CO. et al.
• Court: U.S. District Court — District of Maine

96 F. 25

AMERICAN SURETY CO. OF NEW YORK v. LAWRENCEVILLE CEMENT CO. et al.

United States Circuit Court, D. Maine.

July 17, 1899

Henry C. Wilcox and Thomas L. Talbot, for complainant.

Charles F. Libby and Benjamin Thompson, for defendants.

PUTNAM Circuit Judge.

The statute of August 13, 1894 (28 Stat. 278, c. 280), provides that any 'person or persons' supplying labor or materials to one entering into a formal contract with the United States for the prosecution of any public work, which labor or materials were used therein, and payment for which has not been made, 'shall have a right of action, and shall be authorized to bring suit in the name of the United States for his or their use and benefit against said contractor and sureties, and to prosecute the same to final judgment and execution. ' It is further provided 'that such action and its prosecutions (sic) shall involve the United States in no expense. ' The statute also contains a second section authorizing the court 'in which such action is brought' to require security for costs in case judgment is for the defendant.

While the statute uses the plural with reference to the persons whose claims may be protected under its provisions, it uses the singular wherever the suit, action, execution, or judgment are referred to. The statute, however, leaves it for the court to ascertain, as best it may, whether, in the event a bond is given the United States by the contractor for the due performance of his contract, the method of proceeding thereon shall be that always known to the common law; that is to say, by a single suit for the penalty, with such further incidental proceedings as may be necessary to determine and collect the amount due each of the various persons whose interests the bond protects, or whether every person within the purview of the statute may bring a separate suit, as has been done in the history of the case which we have now to consider. The statute is also silent on the question whether or not, with reference to claims of less than $2,000, the suits, which are nominally in the name of the United States but in which the United States have no interest, and which are really for the benefit of individuals, can be maintained in the federal courts, under the rule, firmly established by the supreme court, that on bonds running to nominal plaintiffs the jurisdiction depends on the character of the parties having substantial interests in the litigation. These questions, however, if they are questions, are not raised in the case before us, and, of course, are more properly for consideration in the suits at law with reference to which the case now before us has arisen.

A more serious defect, however, exists in the statute, and that is its failure to declare whether or not the United States retain against the contractor, and the sureties on whatever bond may be furnished, the priority which is customary under the law, especially when insolvency appears, and, further whether, in the event the bond is not sufficient to cover all the claims as to which the contractor is in default, the equitable rule of pro rata distribution exists between individual creditors, or whether priority can be acquired by first bringing suit, or first obtaining a judgment, against the surety. As to both of these questions, we are so clear that the equitable rule of pro rata distribution exists, not only between the United States and individual claimants, but also as between individual claimants themselves, that we do not find it necessary to elaborate the proposition. The United States, by the force of the statute which we have cited, voluntarily make themselves trustee, alike for their own interest and for the interests of the individuals intended to be protected; and, having thus voluntarily created and accepted a trust, they are barred by equitable principles from asserting for themselves any advantage over other beneficiaries. So, also, it must be held that the rights of the individual beneficiaries, as among themselves, relate back to the execution of the bond, and arise, by relation, out of the same transaction (that is, the execution of the bond), and as of the same time (that is, the date of its execution). On equitable principles, all individuals who may acquire rights under the bond stand in the same relation to each other as holders of several obligations secured by the same mortgage or deed in trust, specified therein, but issued at different dates. There is only one underlying equity, which necessarily, on equitable principles, protects all interested, whether it be the United States or individuals, share and share according to the proportions of their several claims. It is possible that, from the necessity of things, there may be exceptional instances, where one creditor has been allowed to proceed to a prior judgment; thus, through some laches, or in consequence of other liabilities being contracted subsequently, obtaining an unavoidable preference. In the case at bar, however, there are no circumstances which would have disenabled this court from compelling an equitable distribution among all the parties interested in the bond in issue here, if it had jurisdiction over them all.

This bill is brought against numerous individuals, over 70 in all, alleged to be creditors of one William Morgan, a contractor with the United States within the purview of the statute which we have cited. It alleges that Morgan, as contractor, gave the bond referred to in that statute, in the penal sum of $18,000; that the bond was executed by the complainant, the American Surety Company, as surety; that Morgan failed to comply with his contract; that the respondents maintain that Morgan has failed to pay them for labor and materials furnished, for which they have rights of action under the statute referred to; and that the respondents and other claimants have brought 81 separate and distinct suits against Morgan and the complainant, under the statute referred to, of which nearly all were brought on the law side of this court and are still pending there. The bill also states that parties have brought suits in the circuit court of the United States for the Southern district of New York; that still other parties assert claims which the statute cited protects, though they have not yet sued; and that the amount of all such claims is $26,993.57, exceeding the penal sum of the bond, besides whatever claim in behalf of the United States is protected by the bond, if anything. As to this, it alleges, in substance, that, Morgan having failed to perform his contract, the United States annulled the same, took possession of the work, and also of the materials on the work belonging to Morgan, and proceeded to complete it, and that the cost thereof, over and above the amount due Morgan in that behalf, could not, when the bill was filed, be ascertained; and there are some further allegations in the same connection which need not be repeated. The bill further alleges that the complainant fears, and has reason to fear, that judgments will be rendered on its bond in favor of the creditors of Morgan to an amount largely in excess of the penal sum thereof; that to defend the suits separately has been, and will be, harassing, vexatious, and embarrassing to the complainant, because the complainant cannot be informed which of the suits will be first brought to trial, and judgments recovered therein against the complainant; that, in case judgements should be rendered amounting to the penal sum of the bond in the suits first brought to trial, the complainant would not, for want of time, be able to set up and plead the same in defense of the remaining suits; that, further, the complainant will be obliged, in the defense of the suits, to unnecessarily lay out large sums of money in court costs, fees, and otherwise; that, by reason of the matters stated, the complainant is in great danger of judgments being recovered against it for sums which may afterwards be claimed by the United States; that, on the whole, the complainant may be compelled to pay far in excess of the penal sum of its obligation; and that, by reason of the premises, the complainant cannot safely pay any of the claims, either of the individual creditors or of the United States, without the aid and protection of the court.

The bill further alleges that one Thomas E. Allen, who, either alone or jointly with another, is one of the alleged creditors of Morgan for a considerable amount, joined with Morgan in an agreement to indemnify the complainant from all loss by reason of the execution of Morgan's bond as surety for him; and, further, that it may be that, on final accounting between the United States and Morgan, there will be a balance due him from the United States. Morgan and Allen are each described in the bill as citizens of New Jersey, and of Trenton, in that state. Allen was made a defendant in the suit, and voluntarily appeared, so that the court has jurisdiction over him; but it does not appear that he has any suit pending against the complainant. The United States have brought no suit against the complainant, and were not sought to be made a party respondent in this bill, and probably could not have been; but in the early stages of the case, by the order of the court, notice was given to the attorney of the United States for this district of its pendency, and afterwards the United States filed a so-called intervention without any pleadings or becoming formally a party, merely stating that the expense of completing the work largely exceeded the contract price, and also that the United States had suffered damages by reason of the nonperformance of the contract, whereby an action had accrued to the United States on the bond, but no attempt has...