Milwaukie Construction Co. v. Glens Falls Insurance Co.

• Decision Date: 24 October 1966
• Docket Number: No. 21022.,21022.
• Citation: 367 F.2d 964
• Parties: MILWAUKIE CONSTRUCTION CO. (Inc.), a corporation, F. H. St. Pierre and Mary St. Pierre, Appellants, v. GLENS FALLS INSURANCE COMPANY, a corporation, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

367 F.2d 964 (1966)

MILWAUKIE CONSTRUCTION CO. (Inc.), a corporation, F. H. St. Pierre and Mary St. Pierre, Appellants, v. GLENS FALLS INSURANCE COMPANY, a corporation, Appellee.

No. 21022.

United States Court of Appeals Ninth Circuit.

October 24, 1966.

Robert Morgan, of Erlandson & Morgan, Milwaukie, Or., for appellants.

Marshall C. Cheney, Jr., of Mize, Kriesien, Fewless & Cheney, Portland, Or., for appellee.

Before HAMLEY, HAMLIN and BROWNING, Circuit Judges.

HAMLIN, Circuit Judge.

In 1964 F. H. St. Pierre and Mary St. Pierre were officers and directors of Milwaukie Construction Company (Milwaukie), a general construction firm. Between April and July, 1964, Milwaukie had four contracts to build public buildings and made application to Glens Falls Insurance Company, appellee herein, for performance and payment bonds as required by the contracts. To secure the issued bonds totaling more than $600,000, Glens Falls required Milwaukie and the St. Pierres to execute a contract of indemnity. Paragraph four of this contract was as follows:

"* * * that if the surety shall set up a reserve to cover any claim, suit or judgment under any such bonds, the indemnitors will, immediately upon demand, deposit with the surety a sum of money or acceptable security equal to such reserve, such sum to be held by the surety as collateral security on said bonds; * * * and if the surety shall bring suit to enforce any obligation of the indemnitors under this instrument, the indemnitors shall be liable for the costs and expenses, including fees of attorneys, incurred in prosecuting such suit, and such costs and expenses shall be included in any judgment that may be rendered against the indemnitors."

Milwaukie defaulted upon these construction jobs.

On July 20, 1965, appellee filed an action in the United States District Court for the District of Oregon against Milwaukie and the St. Pierres, appellants herein, asking for specific performance of the above provision of the indemnity agreement. At the time of trial it was admitted that Milwaukie was in default under four construction contracts and that demand had been made upon appellee for performance and payment under each of its bonds.

At the time of trial appellee estimated that it would be obligated to pay approximately $83,000 to the beneficiaries of the bonds, but since the contracts had not yet been completed the exact amount of the loss could not be determined. Appellee had previously set up a reserve to cover its contingent loss. It was also admitted that demand had been made upon appellants under the indemnity agreement to deposit with appellees money or acceptable security in the amount of $83,000, but the appellants had not complied.

After trial the district court made findings of fact in accordance with the above statement and concluded as follows:

"Under the contract of indemnity entered into between plaintiff and defendants plaintiff is entitled to a decree of this court requiring defendants and each of them to specifically perform the agreement set forth in paragraph 4 of the findings of fact hereinabove by exonerating plaintiff and by depositing with plaintiff money or acceptable security in the amount of $83,000."

The district court entered a decree in accordance with the above conclusion of law and in addition fixed the sum of $3,500 as attorneys fees to be awarded to appellee.

The district court had diversity jurisdiction, the appellee corporation having been organized and existing under the laws of New York and the appellants being citizens of the state of Oregon. This court has jurisdiction under 28 U.S. C. § 1291.

Appellants' only specification of error is "the court erred in assuming equitable jurisdiction of this matter, as the facts and circumstances of the immediate case do not justify the application of equitable relief, and furthermore plaintiff has a remedy at law which is adequate." We see no error in the action of the district court, and affirm.

Appellant contends that since appellee had an adequate legal remedy the district court should not have assumed equity jurisdiction. The facts indicate there was not an adequate remedy at law at the time the suit was brought. "The test of the jurisdiction of a court of equity is whether facts exist at the time of the commencement of the action sufficient to confer jurisdiction on the court." Flaherty v. Bookhultz, 207 Or. 462, 291 P.2d 221, 224 (1955).

At the time of the commencement of this action appellee could not determine its liability resulting from Milwaukie's default on its contracts. The contracts had not been completed and it was not known what recoveries might be made and what further payments would be received. In the complaint the liability of appellee was estimated at approximately $45,000. At trial on February 25, 1966, the exact amount of appellee's liability as surety still could not be definitely determined, but the estimate of the ultimate liability had risen to approximately $83,000.

It is clear that where appellee knew it was going to have liability claims filed against it but did not know the amount of those claims, the legal remedy of money damages would not be adequate.

The right to equitable relief under the circumstances of this case is discussed in many authorities. In 50 Am.Jur., Suretyship § 225 (1944), it is said:

"Not only does a bill quia timet lie to compel the principal to pay the debt after it has become due, but its use has also been extended to compel the principal to furnish the surety indemnity against possible loss where the surety has reasonable grounds for anticipating that his rights are being jeopardized and that he will incur a liability by threatened conduct of the principal. Applying similar principles, the courts have sustained a right on the part of the surety to sue for specific performance of an agreement to furnish him indemnity. Thus, where the principal agreed that he would turn over choses in action to indemnify his surety in consideration of the suretyship, it was held that a court of equity would decree specific performance where the principal was in failing circumstances."

Similarly, in 72 C.J.S., Principal and Surety § 303 (1951), it is said:

"Before maturity of the debt, or accrual of liability, for which he is surety, the surety has no

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