FARMERS'BANK v. Hayes
| Citation | 58 F.2d 34 |
| Decision Date | 15 April 1932 |
| Docket Number | No. 5891.,5891. |
| Parties | FARMERS' BANK v. HAYES et al. |
| Court | U.S. Court of Appeals — Sixth Circuit |
J. A. Fowler, of Knoxville, Tenn. (C. J. Cullom, of Livingston, Tenn., and H. G. Fowler and S. F. Fowler, both of Knoxville, Tenn., on the brief), for appellant.
T. G. McConnell, of Knoxville, Tenn. (Frantz, McConnell & Seymour, of Knoxville, Tenn., on the brief), for appellees.
Before MOORMAN, HICKS, and SIMONS, Circuit Judges.
The suit arises out of a contract by appellee Hayes to erect school buildings for the board of trust, a bond executed by the surety company to guarantee performance by Hayes, subsequent loans to Hayes by appellant, an alleged assignment to it of earned estimates and retained percentages under the contract, the default of Hayes, the payment of materialmen by the surety, and the conflicting claims of the bank and surety company to the balance remaining in the hands of the trust. Appellant, as plaintiff, filed its bill in the chancery court of Tennessee; the surety, a New York corporation, removed to the federal District Court, and jurisdiction was there retained over several motions to remand, based on lack of diversity of citizenship, absence of a separable controversy, and the limitations of the assignment statute on the right to remove. The appeal raises the jurisdictional question and challenges the decree sustaining the surety company's claim to the fund.
The facts as found by the District Judge and not here disputed are as follows:
Hayes entered into a contract with the board for the erection of school buildings in Fentress county, and, in accordance with the special act of Tennessee authorizing this construction, executed a bond to the board with the National Surety Company as surety thereon, conditioned for the faithful performance of the contract, and to satisfy and pay all claims and demands incurred for same, and to indemnify and save harmless the board as owner from all costs and damages suffered for failure so to do, and to fully reimburse and pay the owner all outlay and expense incurred in making good any such default, and to pay all persons who have contracts directly with the principal for labor or materials. The contract was referred to in the bond and made a part thereof. The surety required Hayes to make a written application for the bond, and such application embodied a provision assigning to the surety all deferred payments and retained percentages and any and all moneys and property due and payable to the contractor at the time of any breach or default in the contract, "or that may thereafter become due and payable to the undersigned on account of said contract, or on account of extra work or material supplied in connection therewith, hereby agreeing that such money and the proceeds of such payments and properties shall be the sole property of the Company, and to be by it credited upon any loss, cost, damage, charge and expense sustained or incurred by it under said bond." There was a default in the performance of the contract, which required that the buildings be completed by August 1, 1928. They were not completed until the following December, when they were completed by agreement with the surety under an arrangement whereby Sergeant A. C. York furnished the money with the understanding that it was to be repaid out of the balance in the hands of the board of trust, and it is conceded that such repayment be made.
The contract required the contractor to pay for all material and labor used in the buildings. The owner and the architect were authorized to require receipts from material furnishers as a condition precedent to payment of amounts due under the contract. They were authorized to nullify in whole or in part any estimate due the contractor if he failed to pay for materials. The contract provided for the payment of monthly estimates as the work progressed, based upon the amount of work done, materials used and on the ground. Payments were made on the architect's estimates, and the contract required the withholding of 15 per cent. of the estimates until completion. The surety, as a result of the contractor's default and failure to pay materialmen, was forced to pay a sum in excess of $19,000 to the furnishers of material used in the buildings and which the contractor had failed to pay. After the contract was signed and during the progress of the work, the bank loaned Hayes money from time to time, evidenced by his promissory notes, eight of which it now holds, aggregating the sum of $22,444.15. To secure these notes Hayes executed an instrument in writing as follows:
"I further authorize said Farmers Bank to endorse said check or checks for me." — which was submitted to the chairman of the board and accepted in the following language: "I, P. L. Harned as Chairman of the said Board of Trustees, Alvin C. York Agricultural Institute, hereby accept the above order and will comply with same."
Appellant's first challenge to the jurisdiction of the court asserts lack of diversity of citizenship and absence of a separable controversy. To this we cannot assent. The bank is a citizen of Tennessee, and the surety a New York corporation. Each lays claim to the fund retained by the board of trust. The board makes no claim to it. In fact it sought and was given permission to pay the fund into court. A garnishee or stakeholder is a merely nominal party whose citizenship will not affect the question of jurisdiction. Salem Trust Co. v. Mfrs. Co., 264 U. S. 182, 44 S. Ct. 266, 68 L. Ed. 628, 31 A. L. R. 867; Bacon v. Rives, 106 U. S. 99, 104, 1 S. Ct. 3, 27 L. Ed. 69. The individual defendants do not claim such part of it as is here in dispute. Hayes neither claims nor can claim it. The substantial controversy to be decided is which party, the bank or the surety, is entitled to the money. If not the only controversy in the case, it is certainly...
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