American Surety Company of New York v. Hinds, 5939.
| Decision Date | 11 October 1958 |
| Docket Number | No. 5939.,5939. |
| Parties | AMERICAN SURETY COMPANY OF NEW YORK, Appellant, v. Oscar HINDS, Trustee, Appellee. Matter of MILE HIGH PLUMBING & HEATING COMPANY, Bankrupt. |
| Court | U.S. Court of Appeals — Tenth Circuit |
John C. Mott, Denver, Colo. (McComb, Zarlengo & Mott, Denver, Colo., on the brief), for appellant.
John W. Low, Denver, Colo., for appellee.
Before BRATTON, Chief Judge, and HUXMAN and LEWIS, Circuit Judges.
By motion filed in the bankruptcy proceedings of the Mile High Plumbing & Heating Company1 the appellant, American Surety Company of New York,2 sought an order requiring the Trustee in Bankruptcy to turn over to appellant monies received by the Trustee from the United States for work done by the bankrupt and the Trustee under a contract coming within the purview of the Miller Act, 40 U.S.C.A. §§ 270a-270d. Appellant's motion was denied by the referee and this appeal followed the affirmance of the referee by the District Court for the District of Colorado.
In 1952, the contractor entered into an agreement with the United States to install heating equipment in a federal building project at Denver, Colorado. A payment bond was furnished the United States as required by the Miller Act, written by the appellant surety, the terms of which now premise appellant's claims. In 1953, the contractor was adjudicated a bankrupt. At such time the contractor had completed 94.86% of the agreed work, had earned an unpaid contract credit with the United States in the sum of $10,145.34, but had unpaid labor and material bills in excess of $15,000. As required by the terms of the payment bond, the surety paid all such material and labor bills incurred by the contractor. The project was completed by the Trustee pursuant to an order of the Referee in Bankruptcy at a cost of $994.79 and by so doing the Trustee earned $3,201.54, a sum representing 5.14% of the original contract plus certain extras.
Subsequent to the completion of the work by the Trustee and his request for final payment, the General Accounting Office of the United States certified that the total sum due the Trustee was $13,346.88. In making payment to the Trustee the government deducted a cost item of $10 and as a partial set-off for a government tax claim against the contractor3 an additional $5,470.98 representing retained percentage earned by the contractor prior to adjudication. The sum now in the possession of the Trustee is $7,875.90. This sum, less the costs incurred by the Trustee in completing the contract, is the amount in dispute.
A single question is thus presented: Did the surety, by reason of its payment of labor and material bills incurred by the contractor prior to its adjudication as a bankrupt, acquire any rights to the net contract funds superior to the rights of the Trustee?
Both the appellant surety and the appellee Trustee recognize that the determinative question cannot be answered except by an interpretation of the holding in United States v. Munsey Trust Co., 332 U.S. 234, 67 S.Ct. 1599, 91 L.Ed. 2022. The controversy in Munsey, as here, arose after the surety, pursuant to the obligation of a payment bond furnished under the Miller Act, had paid laborers and materialmen. By so doing the surety asserted equitable rights to the retained contract funds held by the United States and denied the right of the United States to deplete the retained funds by set-off through an obligation of the contractor to the government arising from an entirely independent transaction. The Supreme Court, pointing out that a surety claiming through its principal cannot abrogate the right of a creditor to apply credits in his hands in extinguishment of debts due him, upheld the right of the United States to a set-off. And the present appellant surety would have us limit the holding of Munsey to the narrow scope of its facts and the rule that the right of set-off by the sovereign is superior to the claim of a surety in a direct controversy between the two. Indeed the contention is not unsupported in authority.
Under facts undistinguishable in substance...
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