City of Topeka v. Federal Union Surety Co.

• Decision Date: 19 March 1914
• Docket Number: 3943.
• Citation: 213 F. 958
• Parties: CITY OF TOPEKA v. FEDERAL UNION SURETY CO. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

213 F. 958

CITY OF TOPEKA v. FEDERAL UNION SURETY CO. et al.

No. 3943.

United States Court of Appeals, Eighth Circuit.

March 19, 1914

Rehearing Denied June 18, 1914.

W. C Ralston, City Atty., and Frank G. Drenning, both of Topeka Kan., for appellant.

John L Baker, of Indianapolis, Ind., and John S. Dean, of Topeka, Kan. (Ferry, Doran & Dean, of Topeka, Kan., and Henley & Baker, of Indianapolis, Ind., on the brief), for appellees.

Before HOOK and SMITH, Circuit Judges, and AMIDON, District Judge.

SMITH Circuit Judge.

This action in equity was brought by the Federal Union Surety Company against the city of Topeka, Kan., John Ritchie, Clarence A. Ritchie, the Topeka Vitrified Brick & Tile Company, the Capital City Vitrified Brick & Paving Company, Fred Luttjohan, and H. H. Folks. The complaint was filed March 18, 1911, in the Circuit Court of the United States for the District of Kansas. The facts as they existed at the date of the filing of the bill, March 18, 1911, are substantially as follows:

On February 6, 1905, the city of Topeka let a contract to a partnership composed of John Ritchie and J. D. Hanley to construct a sewer system in sewer district No. 26 in that city. This contract was performed by the partnership, and shortly thereafter the city made payment. In 1907 the city claimed to discover that, without its knowledge, authority, or consent, large overpayments had been made to the partnership on that contract, and on December 18, 1907, an action was begun in the state court to recover on that account $23,665.50 against Ritchie & Hanley. For aught that appears in the record that case is still undisposed of. On April 19, 1909, John Ritchie was awarded the contract for certain grading, rolling, curbing, guttering, and paving on certain streets in Topeka for $72,878.04. These were all improvements the expenses of which were chargeable to the adjoining property in 10 equal annual installments, and bonds were issued pursuant to section 1018 of the General Statutes of Kansas of 1909.

'Such bonds shall not be issued in amount in excess of the contract price of the work or improvement, except that the installment coupons shall include the interest on such installments to the maturity thereof.'

It also, after providing for payment of the amount necessary to pay the sum required to redeem an owner's land to the city treasurer, stated that:

'All sums so paid shall be applied solely to the payment of such improvements or the redemption of the bonds issued therefor.'

Independently of statute there is no mechanic's lien at law or in equity, and ordinarily there is no statutory lien as against a municipality, but under early Kansas statutes it was held that contractors or subcontractors could obtain mechanics' liens as against a municipal corporation. In the chapter on Liens of Mechanics and Others the law provides, in General Laws of Kansas, Sec. 6255 (Code Civ. Proc. Sec. 660), that contractors may execute a bond to the state of Kansas for the use of all persons in whose favor liens might accrue by virtue of the act conditioned for the payment of all claims which might be the basis of liens, and when said bond is given, 'no lien shall attach under this act.'

On the date of this contract the contractor gave bond with the Federal Union Surety Company as surety to the state of Kansas, conditioned:

'Now, therefore, if the said John Ritchie shall pay all indebtedness incurred for labor and material furnished in making said public improvements as provided by the laws of the state of Kansas then this obligation shall be void, otherwise it shall be and remain in full force and effect.'

Ritchie and the Federal Union Surety Company gave a second bond to the city of Topeka, but that requires no further consideration at the hands of the court. Ritchie performed this new contract with the city, except that he did not complete it in the time specified. He was paid by the city on the contract from time to time, except a balance of $10,941.33. Upon the completion of the contract, however, he owed subcontractors, Clarence A. Ritchie, Topeka Vitrified Brick & Tile Company, the Capital City Vitrified Brick & Paving Company, and Luttjohan and Folks an aggregate of $10,378.34. On January 7, 1911, John Ritchie brought suit in the state court for the balance alleged to be due him on this contract, and on January 21, 1911, the city filed answer and a counterclaim or set-off for the alleged overpayments on the contract of 1905 for $23,665.50. On January 13, 1911, the Capital City Vitrified Brick & Paving Company brought suit in the state court against the complainant surety Company for $6,377.18, the amount alleged to be due it as a subcontractor. This suit was removed to the federal court by the surety company. On February 21, 1911, Fred Luttjohan and H. H. Folks brought suit in the state court against the surety company and John Ritchie for the sum of $711.29, alleged to be due them as subcontractors. At this stage this suit was brought.

The bill after alleging some of the facts continued:

'XI. Your orator further avers that in equity and good conscience said defendant city should be required to pay said balance for the benefit of the subcontractors and materialmen made defendants herein, and such others of the same class as may become parties to this suit, to the end that said contractors and materialmen should be paid out of the funds in the hands of said defendant city, lawfully appropriated to such use. And your orator avers that said city has no lawful right to divert said fund, or any part thereof, to the payment or satisfaction, in whole or in part, of any obligation or liability of the said John Ritchie growing out of any other transactions between the said city and the said John Ritchie, wholly apart and disconnected from the public improvements provided for by the terms of said agreement of April 19, 1909.'

And the bill prayed that all the parties be required to litigate their claims to this fund in question, being the balance due upon the new contract and against the surety in this suit, and that the city be required to pay said balance into the registry of the court, and that the same be applied first to the payment of the subcontractors. This brings the facts down to the date of the commencement of this suit, but the following additional facts appear: On March 28, 1911, the Topeka Vitrified Brick & Tile Company brought suit in the state court against the surety company and John Ritchie for the amount alleged to be due it as a subcontractor, and has since recovered $863.45. Clarence A. Ritchie never brought a separate action but filed an answer to this suit on June 2, 1911, in which he claimed from John Ritchie and the surety company $2,535.50 as a balance due as a subcontractor. Subsequently the surety company paid the claims of the Capital City Vitrified Brick & Paving Company, and Luttjohan & Folks, but so far as the record shows has not yet paid the claims of Clarence A. Ritchie or the Topeka Vitrified Brick & Tile Company. On September 29, 1911, the state court, in the case referred to of Ritchie v. City, appointed Robert Stone as referee to report to the court his findings of fact and conclusions of law, and on October 23, 1912, he filed his report. On December 28, 1912, the court rendered judgment in favor of the city of Topeka and against John Ritchie, crediting him with $10,941.33 on account of the contract of April 19, 1909, charging him with $2,000 liquidated damages thereunder, and with $20,173.48 as overpayments on the contract of 1905 and interest, for $16,209.20, balance. This case was appealed to the state Supreme Court and there modified by deducting the $2,000 allowed as liquidated damages, thus making the judgment, as we understand it, in favor of the city after taking out the balance due him on the contract of April 19, 1909, $14,209.20. Ritchie v. City of Topeka (Dan.) 138 P. 618. In the meantime, but after the appointment of the referee in the state court, on October 11, 1911, the United States District Court appointed J. T. Hazen master to take the proofs and report his conclusions of fact and recommendations as to a decree. Upon his report the District Court entered a decree for plaintiff on February 20, 1913.

It is claimed by the surety company that this suit was commenced as ancillary to the case of the Capital City Vitrified Brick & Paving Company, which had been removed to the United States District Court, as before stated. There is nothing in the bill suggesting such ancillary character, but that point is not material to the disposition of this case.

Before proceeding to a consideration of the law questions directly involved, it may not be amiss to point out in a degree the status of the complainant. It is entitled to just the same consideration as ordinary litigants. Generally the surety is a favorite of the law, and should be held only where his liability is fixed by the most strict law. That is to say what is known as the rule of strictissimi...