Belknap Hardware & Mfg. Co. v. Ohio River Contract Co.

• Decision Date: 06 April 1920
• Citation: 264 F. 676
• Parties: BELKNAP HARDWARE & MFG. CO. et al. v. OHIO RIVER CONTRACT CO. et al.
• Court: U.S. District Court — Western District of Kentucky

264 F. 676

BELKNAP HARDWARE & MFG. CO. et al. v. OHIO RIVER CONTRACT CO. et al.

United States District Court, W.D. Kentucky.

April 6, 1920

On Motion to Dismiss, May 20, 1920.

John B Baskin, of Louisville, Ky., for plaintiffs.

Helm Bruce, of Louisville, Ky., and O. W. McGinnis and W. M Wheeler, both of Evansville, Ind., for defendants.

WALTER EVANS, District Judge.

On Motion to Substitute Party.

The act of February 24, 1905 (33 Stats. 811, 7 U.S.Comp.Stats. 1916 Sec. 6923), so far as present purposes require a statement provides: 'That hereafter any person or persons entering into a formal contract with the United States for the construction of any * * * public work, shall be required, before commencing such work, to execute the usual penal bond, with good and sufficient sureties, with the additional obligation that such contractor or contractors shall promptly make payments to all persons supplying him or them with labor and materials in the prosecution of the work provided for in such contract; and any person, company, or corporation who has furnished labor or materials used in the construction * * * of any * * * public work, and payment for which has not been made, shall have the right to intervene and be made a party to any action instituted by the United States on the bond of the contractor, and to have their rights and claims adjudicated in such action and judgment rendered thereon, subject, however, to the priority of the claim and judgment of the United States. If the full amount of the liability of the surety on said bond is insufficient to pay the full amount of said claims and demands, then, after paying the full amount due the United States, the remainder shall be distributed pro rata among said interveners. If no suit should be brought by the United States within six months from the completion and final settlement of said contract, then the person or persons supplying the contractor with labor and materials shall, upon application therefor, and furnishing affidavit to the department under the direction of which said work has been prosecuted that labor or materials for the prosecution of such work has been supplied by him or them, and payment for which has not been made, be furnished with a certified copy of said contract and bond, upon which he or they shall have a right of action, and shall be, and are hereby, authorized to bring suit in the name of the United States in the Circuit Court of the United States in the district in which said contract was to be performed and executed, irrespective of the amount in controversy in such suit, and not elsewhere, for his or their use and benefit, against said contractor and his sureties, and to prosecute the same to final judgment and execution: Provided, that where suit is instituted by any of such creditors on the bond of the contractor it shall not be commenced until after the complete performance of said contract and final settlement thereof, and shall be commenced within one year after the performance and final settlement of said contract, and not later; and provided further, that where suit is so instituted by a creditor or by creditors, only one action shall be brought, and any creditor may file his claim in such action and be made party thereto within one year from the completion of the work under said contract, and not later. If the recovery on the bond should be inadequate to pay the amounts found due to all of said creditors, judgment shall be given to each creditor pro rata of the amount of the recovery.'

In Illinois Surety Co. v. Peeler, 240 U.S. 214, 223, 36 Sup.Ct. 321, 324 (60 L.Ed. 609), the Supreme Court said:

'It is contended that the right given by the statute to the described creditors is of an equitable nature, and that the court erred in permitting recovery at law. * * * The question has not been raised heretofore in this court, but it has been assumed in many cases that the action to be brought under the statute upon the contractor's bond, whether the action were instituted by the United States * * * or by creditors in the name of the United States, was an action at law. * * * In the Circuit and District Courts and the Circuit Courts of Appeals, while it seems that objection has rarely been made, there has been almost complete uniformity in treating the creditors' action under the act of 1905 as one at law.'

It seems, therefore, to be clearly established that the actions provided for in the act are actions at law on the bond, and not suits in equity. Nevertheless the plaintiffs (63 in number) on December 12, 1919, jointly brought in their own names, not an action at law on the bond of a contractor executed to the United States, but a suit in equity against a receiver of this court appointed in another action, with whom they joined as defendants the contractor referred to and the sureties on the bond it had executed. The claims and objects of their suit are clearly set out in the bill, in which it is stated that a contract, variously modified, was entered into between the United States, on the one side, and the Ohio River Contract Company (hereinafter called the Contract Company), and Madison J. Bray and Jacob Eichel, its sureties, on the other, whereby the Contract Company agreed to furnish the necessary material, labor, and appliances to construct lock No. 41 in the Louisville & Portland Canal, adjacent to the Ohio river at the city of Louisville, Ky. The penal sum named in the bond to insure its performance was $255,000, and the contractor and its sureties bound themselves in that sum to the United States. The bond also stipulated that the Contract Company should in all respects duly and fully observe and perform all the covenants, conditions, and agreements made by said contract according to the intent and meaning thereof, as well during any period of extension of said contract that might be granted as during the original term of the same. It stipulated that suit thereon might be brought in the courts of the United States for the district in which the canal was located and in which the contract was to be executed, and that process might be served and notice given in the way provided by the statutes.

The Contract Company failed to complete its work under its contract, and in a separate action by one of its creditors this court appointed a receiver for it, and the work under the contract was fully and satisfactorily completed by him and was accepted by the United States on December 23, 1918. It was then ascertained that a balance of $98,694.64 was due under the contract, and the government then paid that sum to the receiver, who now holds it subject to the orders of this court. The United States never brought any suit on the bond of the Contract Company and has no interest in this action.

The plaintiffs allege in their bill that there were a large number of general creditors of the Contract Company, whose names are set forth. The bill then shows that Madison J. Bray, who was a general creditor, has been adjudicated a bankrupt, that George D. Heilman is his trustee in bankruptcy, and that the Contract Company owed said bankrupt $438,868.23. It also alleges that Jacob Eichel is insolvent, but makes no allegation as to whether or not a trustee has been chosen for his estate. The plaintiffs then conclude their bill as follows:

'The plaintiffs hereby claim that they and all others who furnished labor or materials in the prosecution of the construction of said lock 41 are entitled to the whole of the fund aforesaid in the hands of said receiver, after the payment of the expenses and allowances which may be made by this court, and they further claim that they are entitled to be subrogated, to the exclusion of all other creditors of said Madison J. Bray and Jacob Eichel, against the Ohio River Contract Company and the funds in the hands of the receiver as aforesaid. The claims of the plaintiffs above set forth became due and payable on the . . . day of December, 1915, and plaintiffs demanded payment of the Ohio River Contract Company at that time, which payment said Contract Company refused and still refuses to make.

'Wherefore, plaintiffs pray that the costs and expenses against the fund in the hands of the receiver may be ascertained, and that the receiver may be required to pay into court the balance of said fund, and that the same may be distributed among the plaintiffs and all persons who may have supplied labor and materials in the prosecution of the work of constructing said lock. Plaintiffs pray that the court may by order provide what notice shall be given to the aforesaid creditors not before this court for the filing of any claims which they may have against the fund aforesaid, and further provide in what time such claims shall be filed herein, also providing what notice shall be published and in what newspaper. And plaintiffs pray for all such proper relief as to equity belongs.'

It will be noted that the plaintiffs claim, first, that they are entitled to the whole of the money in the hands of the court's receiver after payment of expenses and allowances; second, that they are entitled to be subrogated, to the exclusion of all other creditors of Madison J. Bray and Jacob Eichel, to the claims of Bray and Eichel against the Contract Company; third, that the receiver be required to pay into court the balance of said fund, that the same may be distributed among the plaintiffs and such other persons as may have supplied labor and material; and, fourth, that they may have all other proper relief as to equity belongs.

It will be observed that there does not appear in the bill a single feature of an ordinary action at law. It will also be observed, while plaintiffs' action was brought on the 12th day of December, 1919,...