Fort Worth Independent School Dist. v. ÆTNA C. & S. CO.

• Decision Date: 29 April 1931
• Docket Number: No. 5962.,5962.
• Citation: 48 F.2d 1,77 ALR 222
• Parties: FORT WORTH INDEPENDENT SCHOOL DIST. v. ÆTNA CASUALTY & SURETY CO.
• Court: U.S. Court of Appeals — Fifth Circuit

77 ALR 222, 48 F.2d 1 (1931)

FORT WORTH INDEPENDENT SCHOOL DIST. v. ÆTNA CASUALTY & SURETY CO.

No. 5962.

Circuit Court of Appeals, Fifth Circuit.

April 1, 1931.

Rehearing Denied April 29, 1931.

R. M. Rowland, of Fort Worth, Tex., for appellant.

Robert W. Harrison and John T. Pearson, both of Fort Worth, Tex. (Hubert Blalock, of Hartford, Conn., and Lassiter, Harrison & Pearson, of Fort Worth, Tex., on the brief), for appellee.

Before BRYAN and FOSTER, Circuit Judges, and DAWKINS, District Judge.

DAWKINS, District Judge.

The Ætna Casualty & Surety Company (hereinafter called surety company) brought this suit in equity to recover of the Fort Worth independent school district (hereinafter called school district) the sum of $41,985, alleging that, as surety upon the bond of H. K. Muse, contractor, for the erection of a school building of the school district, it had been compelled to pay to laborers and material men the said amount; that the school district had wrongfully turned over to the contractor funds which should have been applied to the satisfaction of said claims; that, under the contract and bond, defendant was required to retain in its hands 15 per cent. of the contract price of the work and all extras added thereto until the building was completed and all bills paid; and that plaintiff "became equitably entitled to and should receive from said defendant * * * the aforesaid retained percentage that should have been retained by the said School District." Plaintiff prayed for an accounting and for judgment "for such sum with legal interest thereon, as plaintiff may be entitled to either in law or equity."

Defendant first pleaded in abatement of this suit the pendency in a state court of Texas of an action wherein certain furnishers of material had sued it, the contractor, and the surety company upon their claims, previous to the filing of this bill, and averred that, after the surety company had appeared and answered, the school board had filed its cross-bill against said surety and "prayed that all interested parties * * * be required to plead and have adjudicated all their claims and demands; * * *" that the subject-matter involved therein was and is the same as in the present suit; that the jurisdiction of the state court had attached and it had power to afford full relief to all concerned, and for which reasons the instant case should be abated. Secondly, defendant averred that the present proceeding was essentially an action at law, and should be transferred to the law side of the court. Upon the merits, defendant justified its payment of the funds to Muse under the terms of the contract and bond, and prayed that, if it should be found that plaintiff was entitled to receive the sum of $7,129.90 still in its hands, the judgment be without costs.

Both the plea in abatement and motion to transfer were denied. The case was submitted below upon an agreed statement of facts with attached exhibits, and there was judgment in favor of the surety company for the sum of $39,819.90, with 6 per cent. interest on $35,000 thereof from April 1, 1927. The school district has appealed.

Appellant has made ten assignments of error — the first being to the overruling of the plea in abatement; the second to the refusal to transfer the case to the law side of the docket; the third to ninth, inclusive, to the striking from the school board's answer of certain allegations; and the tenth to the awarding of judgment in plaintiff's favor upon the facts.

As to the plea in abatement, we agree with the court below that it should have been overruled. There was no property or funds in the hands of the state court, neither did the present case seek to gain possession of either, but in each instance the proceedings involve issues of the liability of the parties under the contract and bond. The suit, as originally instituted, was, as stated above, by materialmen to recover of the school board, contractor, and surety, the amount of their claims; the school board by its cross-action, under a statute of the state of Texas, sought to have the surety respond on its bond to these and all other claims which might be asserted against the contractor; the surety, feeling itself bound to pay the laborers and materialmen, discharged all such claims, took assignments thereof, and filed in the state court a dismissal on the part of all of said creditors of the contractor, including W. B. Sloan, who had been drawn into it as indemnitor of the surety company, thus leaving as the only parties before the state court the school board, the contractor, and the surety company. So that as it remained at the time of filing the present suit, the case in the state court was merely a controversy between these parties as to their rights under the contract and bond. The bill in this case was based upon the theory of equitable subrogation to the rights of the materialmen and laborers against the school board and for an accounting of the funds provided for the erection of the building. In this situation, we can see no conflict of jurisdiction or ground for abatement. The cause of action is in personam and arises from the alleged payment of the claims and the asserted right to equitable subrogation against the school board upon its obligations flowing from the contract and bond. It is not the same as the demand made by these creditors against the contractor, surety, and school district in the state court, or by the latter in its cross-action against the surety, but seeks to fasten upon the school district responsibility for its alleged diversion of the funds from the purpose to which they were dedicated. Kline v. Burke Construction Co., 260 U. S. 226, 43 S. Ct. 79, 67 L. Ed. 226, 24 A. L. R. 1077; U. S. v. The Haytian Republic, 154 U. S. 118, 14 S. Ct. 992, 38 L. Ed. 930; Gordon v. Gilfoil, 99 U. S. 168, 25 L. Ed. 383; McClellan v. Carland, 217 U. S. 268, 30 S. Ct. 501, 54 L. Ed. 762; Groom v. Mortimer Land Co. (C. C. A. 5th Cir.) 192 F. 849; Slaughter v. Mallet Land & Cattle Co. (C. C. A. 5th Cir.) 141 F. 282; Ackerman v. Tobin (C. C. A.) 22 F.(2d) 541; International & G. N. R. R. Co. v. Barton, 24 Tex. Civ. App. 122, 57 S. W. 292.

We are also of the view that the case was properly brought in equity. Prairie State Bank v. U. S., 164 U. S. 227, 17 S. Ct. 142, 41 L. Ed. 412; National Surety Co. v. County Board (C. C. A.) 15 F.(2d) 993. It is not a suit upon contract or express obligation to pay by the school board, but arises from equitable subrogation to the rights of laborers and materialmen (who, although not parties to the contract and bond, were nevertheless beneficiaries thereunder) as well as from the alleged duty of the school board to properly administer and account for the funds which were specially set apart to pay for this work.

The subject-matter stricken from the answer and complained of in assignments 3 to 9, inclusive, had to do with the contention of the school board that, while it might have retained the 15 per cent. as stipulated under the contract, it was not compelled to do so; that the check for $35,000 was given to the contractor for the purpose of paying claims of laborers and materialmen, but that, when it was deposited in the Texas National Bank, the latter wrongfully appropriated it to the payment of a debt due by Muse, and the plaintiff in this case had its remedy against said bank; that the provision of the contract authorizing the architect to demand receipts of the contractor, showing payment of all claims, was optional; that at the time of said payment no claims had been filed, nor was there any reasonable evidence that any would be filed, nor had the contractor, so far as the architect and the school board knew, failed to pay all persons having claims against the building; and that in signing the bond, which made the contract a part thereof, plaintiff had authorized the school board and architect to alter the time and manner of payment to the contractor. However, sufficient was left of the answer to fully present what we consider the principal issues of the cause, and we find nothing in these assignments to warrant us in disturbing the rulings of the court below.

As we see it, the principal question presented is as to whether the school board was justified in paying to the contractor the $35,000, as was done under the paragraph of the bond, which we quote as follows:

"And provided, that any alterations which may be made in the terms of the Contract, or in the work to be done under it, or the giving by the Owner of any extension of time for the performance of the Contract, or any other forbearance on the part of either the Owner or the Principal to the other shall not in any way release the Principal and the surety or sureties, or either or any of them, their heirs, executors, administrators, successors or assigns from their liability hereunder, notice to the Surety or Sureties of any such alteration, extension or forbearance being hereby waived."

As stated earlier in this opinion, the facts are stipulated, and the circumstances under which the payment was made, were as follows:

The contract price of...