People v. Metro. Sur. Co.

• Decision Date: 14 April 1914
• Parties: PEOPLE v. METROPOLITAN SURETY CO. H. B. SMITH CO. v. YAWGER.
• Court: New York Court of Appeals Court of Appeals

211 N.Y. 107

105 N.E. 99

PEOPLE

v.METROPOLITAN SURETY CO.

H. B. SMITH CO.

v.YAWGER.

Court of Appeals of New York.

April 14, 1914.

Appeal from Supreme Court, Appellate Division, Third Department.

Proceeding by the People of the State of New York against the Metropolitan Surety Company. In the matter of the claim of the H. B. Smith Company against John F. Yawger as receiver. From an order of the Appellate Division (159 App. Div. 929,143 N. Y. Supp. 1136) reversing an order of Special Term allowing the claim, the claimant appeals. Affirmed.

See, also, 159 App. Div. 932,144 N. Y. Supp. 1136.

The Appellate Division certified the two questions:

1. At the date of the insolvency of the defendant, the Metropolitan Surety Company, January 6, 1909, had the claim of the claimant, the H. B. Smith Company, so far ripened as to entitle the claimant to any share in the distribution of the assets in the hands of the receiver?

2. If said claim had so ripened, must the defendant's liability thereon first be determined in the manner prescribed by the United States statute under which the bond on which said claim is based was given; that is, by a suit brought in the Circuit Court of the United States for the Southern District of New York?

The questions spring from the following facts: August 26, 1905, the Church Construction Company, a corporation, contracted in writing with the United States to construct named buildings at West Point, N. Y. The statute (Act of February 24, 1905, c. 778, 83 Stat. 811 [U. S. Comp. St. Supp. 1911, p. 1071]) required that the company before commencing the work execute ‘the usual penal bond, with good and sufficient sureties, with the additional obligation that’ it would ‘promptly make payments to all persons supplying’ it with labor and materials in the prosecution of the work, and provided: ‘Any person, company, or corporation who has furnished labor or materials used in the construction or repair of any public building or public work, and payment for which has not been made, shall have the right to intervene and be made a party to any action instituted by the United States on the bond of the contractor, and to have their rights and claims adjudicated in such action and judgment rendered thereon, subject, however, to the priority of the claim and judgment of the United States. If the full amount of the liability of the surety on said bond is insufficient to pay the full amount of said claims and demands, then, after paying the full amount due the United States, the remainder shall be distributed pro rata among said intervenors. If no suit should be brought by the United States within six months from the completion and final settlement of said contract, then the person or persons supplying contractor with labor and materials shall, upon application therefor, and furnishing affidavit to the department under the direction of which said work has been prosecuted that labor or materials for the prosecution of such work has been supplied by him or them, and payment for which has not been made, be furnished with a certified copy of said contract and bond, upon which he or they shall have a right of action, and shall be, and are hereby, authorized to bring suit in the name of the United States in the Circuit Court of the United States in the district in which said contract was to be performed and executed, irrespective of the amount in controversy in such suit, and not elsewhere, for his or their use and benefit, against said contractor and his sureties, and to prosecute the same to final judgment and execution: Provided, that where suit is instituted by any of such creditors on the bond of the contractor it shall not be commenced until after the complete performance of said contract and final settlement thereof, and shall be commenced within one year after the performance and final settlement of said contract, and not later: And provided further, that where suit is so instituted by a creditor or by creditors, only one action shall be brought, and any creditor may file his claim in such action and be made party thereto within one year from the completion of the work under said contract, and not later. If the recovery on the bond should be inadequate to pay the amounts found due to all of said creditors, judgment shall be given to each creditor pro rata of the amount of the recovery. The surety on said bond may pay into court, for distribution among said claimants and creditors, the full amount of the sureties' liability, to wit, the penalty named in the bond, less any amount which said surety may have had to pay to the United States by reason of the execution of said bond, and upon so doing the surety will be relieved from further liability: Provided further, that in all suits instituted under the provisions of this act such personal notice of the pendency of such suits, informing them of their right to intervene as the court may order, shall be given to all known creditors, and in addition thereto notice of publication in some newspaper of general circulation, published in the state or town where the contract is being performed, for at least three successive weeks, the last publication to be at least three months before the time limited therefor.’

In obedience to the statute the company as principal and the Metropolitan Surety Company as surety executed a bond to the United States in the penal sum of $134,000, reciting the contract between the company and the United States and containing the condition, in effect, that it should be void if the company performed in full the contract and ‘shall promptly make full payments to all persons supplying it labor or materials in the prosecution of the work provided for in said contract.’ The contract for the work was completed and finally settled September 28, 1908. The claimant, the H. B. Smith Company, had furnished for it under a contract between claimant and the Church Construction Company apparatus of the agreed price of $3,279.44 of which $1,631.40 has not been paid and constitutes the present claim. A permanent receiver of the Church Construction Company was appointed May 18, 1908, on the ground of insolvency. The action of the people of the state of New York against the Metropolitan Surety Company was commenced on January 6, 1909, and on January 30, 1909, judgment was duly entered therein dissolving the surety company and directing a just distribution of the assets among its stockholders and fair and honest creditors and appointing Yawger, the respondent, permanent receiver, and enjoining and restraining all creditors of the surety company from commencing any action or proceeding against said surety company or receiver without first obtaining leave of the court. The H. B. Smith Company filed the claim on May 13, 1909, with the permanent receiver, who rejected it. The allowance of it by the referee to whom it was referred was confirmed by the Special Term and reversed by the Appellate Division. No suit on the bond has been instituted by the United States or by any creditor of the Church Construction Company in the Circuit Court of the United States for the Southern District of New York, in which district said contract was performed and executed. No payment has been made to the United States by the surety company as surety on said bond, nor has any claim been made by the United States against the surety company as such surety for any amount. The claims of creditors filed with the receiver herein againt the surety company as surety on said bond amount in the aggregate to less than the sum of $134,000, the amount of the liability of the surety company on said bond.Tallmadge W. Foster, of New York City, for appellant.

Edward R. Finch, of New York City, for respondent.

COLLIN, J. (after stating the facts as above),

[1] The statute requiring and prescribing the substance and conditions of the bond is as perfectly binding on the principal and surety as if it had been set forth in the bond in its very words. McCracken v. Hayward, 2 How. 608, 11 L. Ed. 397. The bond, conforming to the statute,imposed only such obligations as the statute permits. The statute is in a sense a recognition by Congress of the inability of persons supplying contractors for public works with labor and materials to take liens upon the public property of the United States and a substitute for a mechanic's lien law. United States v. Ansonia Brass, etc., Co., 218 U. S. 452, 31 Sup. Ct. 49, 54 L. Ed. 1107;Title Guaranty & Trust Co. v. Crane, Co., 219 U. S. 24, 31 Sup. Ct. 140, 55 L. Ed. 72.

It should be noticed, in order that there may be a true understanding of the relevant decisions, that the statute takes up the entire subject covered by a prior statute (Act of August 13, 1894, c. 280, 28 Stat. 278 [U. S. Comp. St. 1901, p. 2523]), and therefore is to be treated as a substitute act.

[2] Obviously the entire liability of the surety company to the claimant for the materials furnished by it under the contract between it and the Church Construction Company arises through the execution of the bond by the surety company as a surety for the construction company. The claimant could reach the surety company through the bond alone, which, with the statute as a part of it, defines and limits the rights of the claimants as against it, and the method and tribunals through which those rights might be enforced. His right of action against it through any form of legal proceeding was created by the bond and the statute, and must be enforced pursuant to the terms and conditions of the statute and not otherwise. Stitzer v. United States, 182 Fed. 513, 105 C. C. A. 51;United States v . Boomer, 183 Fed. 726, 106 C. C. A. 164;Baker Contract Co. v. United States, 204 Fed. 390, 122 C. C. A. 560. It was, however, a qualified and conditional, and not an absolute, right or cause of action. An act of Congress, which at the same time and in itself authorizes or creates a new cause of action and...