National Sur. Co. v. United States

• Decision Date: 14 January 1916
• Docket Number: 2651.
• Parties: NATIONAL SURETY CO. v. UNITED STATES, for Use of PITTSBURGH & BUFFALO CO. et al.
• Court: U.S. Court of Appeals — Sixth Circuit

228 F. 577

NATIONAL SURETY CO. v. UNITED STATES, for Use of PITTSBURGH & BUFFALO CO. et al.

No. 2651.

United States Court of Appeals, Sixth Circuit.

January 14, 1916

The Standard Contracting Company received an award from the United States for deepening the channel in a portion of St Mary's river, and entered into a contract to do the work pursuant to the award. It gave to the United States the bond required by the act of August 13, 1894, as amended February 24, 1905, with the National Surety Company as surety, and in the sum of $25,000. Before completing the work, the contractor failed, and the job was finished by its receiver. In the court below, sitting as a court of law, suit was commenced by summons by the Pittsburgh & Buffalo Company, as plaintiff, but in the name of the United States, against the contractor and the surety, as defendants. The suit was based upon the bond, and was to recover an unpaid balance of $4,200 owing for coal furnished by the Pittsburgh & Buffalo Company to the contractor company for its necessary use in the dredging and other work required by the contract. Subsequently there were ten intervening claims: By Hanna &amp Co., for coal, $4,200; by the Pluto Powder Company for dynamite and electric exploders, $6,180; by the Pattison Supply Company for iron, machinery, hardware, and general supplies, $3,500; by George Kemp for coal, $3,000; by the Soo Hardware Company for supplies for dredges, tugs, and drill boat, which supplies consisted of oil, paint, nails, rope valves, round iron, etc., $500; by the George Worthington Company for hardware, and supplies, $1,900, which hardware and supplies consisted of nuts, bolts, valves, packing files, iron pipe, square iron, etc.; by the Upson-Walton Company for cordage, tackle, ship supplies, and ship chandlery articles, $900; by the Cleveland Steel Casting Company for miscellaneous castings as ordered, $200; by J. P. Brogan for groceries and supplies for the company boarding house, $4,600; by David Helman for oak timbers, $600. The surety appeared and pleaded to the merits to the original claim and separately upon each intervention. The summons was served by publication against the contractor, but the record does not show either its appearance or its default for not appearing. Such omission in the record is not relied upon by any party, and so will not be further noticed.

A jury was waived, and the court made findings of fact to the effect that there were unpaid claims as above recited, and findings of law to the effect that supplies consumed or used up by the contractor in the progress of the work were within the security contemplated by the bond, but that materials which became a part of the permanent equipment of the contractor and survived the completion of the work were not secured. Under this classification the claims of plaintiff and eight interveners were allowed, in amounts aggregating about $28,000; and since the penalty of the bond was only 90 per cent. of the liability, each claimant was given a judgment for 90 per cent. of his allowed claim. This judgment took the form of a single entry, giving the name of each successful claimant, and reciting the 90 per cent. allowed to him, forming a total of $25,000, and adjudging that the United States, for the use and benefit of the claimants whose claims had been allowed, recover from the contractor and Surety Company $25,000 for its damages, and also recover the costs of each intervener. To review this judgment, the Surety Company brought this writ of error, alleging as errors that a court of law had no jurisdiction, because the statutory proceeding could be only in equity, and that the conclusion of law as to the liability to each successful claimant was erroneous. The sufficiency of the assignments will be further mentioned.

J. M. Garfield and Tolles, Hogsett, Ginn & Morley, all of Cleveland, Ohio, for plaintiff in error.

J. A. Cline, of Cleveland, Ohio, E. S. B. Sutton, of Sault Ste. Marie, Mich., B. H. Davis, Smith, Taft, Arter & Smith and Thompson, Hine & Flory, all of Cleveland, Ohio, and John W. Shine, of Sault Ste. Marie, Mich., for defendants in error.

Before KNAPPEN and DENISON, Circuit Judges, and McCALL, District judge.

DENISON Circuit Judge (after stating the facts as above).

We pass by, without deciding, certain considerations affecting the right of the Surety Company to insist that a court of equity had exclusive jurisdiction, and assume that it had-- and has-- the full right to be heard on that question. Its contention is fully supported by the opinion of the Circuit Court of Appeals of the Second Circuit in Illinois Surety Co. v. United States, 212 F. 136, 129 C.C.A. 584, filed since the hearing of this case below. The contrary result has been reached in the Seventh Circuit. Illinois Surety Co. v. United States, 226 F. 653, 664,80>>reached in the Seventh Circuit. . . . C.C.A. . . . . In the present case the bond is not sufficient to pay all the claims, and if, upon a writ of error attacking only certain claims, they are set aside, whereby the fund becomes sufficient to pay all, the other claimants who have not assigned error can get no benefit, according to the common-law rule affecting several judgments. In such a case the defendant surety might go free of part of its liability; and so there is direct force in the argument that a court of equity is the appropriate tribunal, and that therefore it will be presumed that Congress intended to put the jurisdiction there; yet, even since the amendment of the statute, so many courts-- and the Supreme Court so many times ^[1] -- have assumed that there was jurisdiction in the law court that we are reluctant to consider all these decisions inadvertent. It is enough to turn the scale when we observe, as was done in the Seventh Circuit, that, by the enactment of June, 1915, section 274a of the Judicial Code-- and which enactment applies to pending cases-- the only effect of holding in this case that the true jurisdiction was in equity, would be to send the case back to be transferred to the equity side and heard over again by the same judge upon probably the same proofs. Upon the whole we are better satisfied to say that the court below had jurisdiction.

The statute involved has been many times considered, but the Supreme Court has never had occasion to declare broadly the meaning of 'labor and materials.' The standard lien statutes with reference to buildings, in force, probably, in every state, contemplate materials and labor which directly enter into the structure itself. We are not aware of any decisions extending these state statutes so as to reach and create liens for labor or materials which contribute to the construction so indirectly as do the supplies consumed by the contractor in operating his plant. Of course, where the statute, by its words or by judicial interpretation, gives a lien for labor or materials furnished to subcontractors, it carries us one step away from the structure itself; but this does not necessarily mean more than that the rule of direct contribution is to be applied to the work of the subcontractors.

The language of the present federal statute does not seem to be materially different from the typical state lien statute. There is a distinction between the original and the amended act. The act of 1894 directed that the bond given to the United States to secure the completion of the contract should have 'the additional obligation that such contractor or contractors shall promptly make payments to all persons supplying him or them labor or materials in the prosecution of the work,' and further specified that suit might be brought and recovery had upon this bond by any person who had supplied 'labor or materials for the prosecution of such work. ' When the statute was amended in 1905, there was no change in the language fixing the condition of the bond, but it was specified that recovery thereon could be had by the person who had 'furnished labor or materials used in the construction or repair' of the work. The substitution of this language, which adopted the usual phraseology of the lien statutes, in the place of the former more general reference to 'materials for the prosecution of the work,' is not to be overlooked, and at least has a tendency to bring this statute into harmony with the lien statutes of the states. Some of the decisions, even since the amendment to the statute, speak as if it contained only the provisions fixing the form of the bond, and reached all persons 'supplying the contractor with labor and materials in the prosecution of the work,' regardless of whether these things were 'used in the construction'; but it is obvious that the two clauses must be read together, and that the provision which gives a right to an intervener only in case he has furnished labor and materials 'used in the construction or repair' must receive its due force in interpreting the statute as a whole.

The Supreme Court has repeatedly declared that the bond provided for by this statute is a substitute for the lien of the mechanic's lien laws (Guaranty Co. v. Pressed Brick Co., 191 U.S. 416, 425, 24 Sup.Ct. 142, 48 L.Ed. 242; Hill v. Surety Co., 200 U.S. 197, 203, 26 Sup.Ct 168, 50 L.Ed. 437; United States v. Ansonia Co., 218 U.S. 452, 471, 31 Sup.Ct. 49, 54 L.Ed. 1107; Title Co. v. Crane Co., 219 U.S. 24, 32, 31 Sup.Ct. 140, 55 L.Ed. 72; Equitable Co. v. United States, 234 U.S. 448, 455, 34 Sup.Ct. 803, 58 L.Ed. 1394); and this declaration of purpose at least suggests that the scope as well as the purpose may be discerned from comparison with the state statutes. The Supreme Court in the Pressed Brick Company Case extended the protection of the statute to subcontractors, in the Hill Case to materials furnished to a...