Third Nat. Bank v. Detroit Fidelity & Surety Co.

• Decision Date: 11 July 1933
• Docket Number: No. 6890.,6890.
• Citation: 65 F.2d 548
• Parties: THIRD NAT. BANK OF MIAMI v. DETROIT FIDELITY & SURETY CO.
• Court: U.S. Court of Appeals — Fifth Circuit

65 F.2d 548 (1933)

THIRD NAT. BANK OF MIAMI v. DETROIT FIDELITY & SURETY CO.

No. 6890.

Circuit Court of Appeals, Fifth Circuit.

June 8, 1933.

Rehearing Denied July 11, 1933.

Marshall C. Wiseheart and H. H. Taylor, both of Miami, Fla., for appellant.

H. C. Tillman and G. L. Reeves, both of Tampa, Fla., for appellee.

Before BRYAN, FOSTER, and SIBLEY, Circuit Judges.

SIBLEY, Circuit Judge.

Detroit Fidelity & Surety Company became surety upon the bond of Central Station Equipment Company for $532,000 for the performance of a contract with state highway department of Florida to build a bridge and to promptly make payment to all persons supplying labor, materials, and supplies used directly or indirectly in the prosecution of the work. On October 18, 1930, the surety company filed a bill quia timet to ascertain the unpaid bills against the job for which it was liable, and to have applied to them the reserve percentages due to the contractor which were by the highway department held back under the contract as security. The Third National Bank of Miami asserted as assignee labor claims amounting to $48,873, which the master allowed, but the judge rejected because it was thought the bank had acted unfairly to the surety company in accumulating them without notice to it and had thereby released it. The bank appeals.

The facts fairly appearing are that the contractor for the purposes of this job only opened a deposit account with the bank, borrowing from it $15,000, which was put therein, and the highway department by letter agreed to send the monthly installment pay checks to the bank. Materials, labor, and supplies for the job were paid by the contractor checking on the bank, and indorsing and depositing the installment checks as received, and borrowing other funds as needed. The indebtedness became larger than the bank wished to carry, and about December 11, 1929, the bank and contractor agreed that the bank would furnish money for pay rolls on assignment to it by each laborer of his claim as paid to him, and that materials and other expenses for the job should be paid through the checking account as before. It was thought the accumulating reserved percentages would eventually take care of the labor claims. Each week thereafter, when the contractor made out his pay roll, it was sent to the bank, which provided money to cover it, and the paymaster, as he paid each laborer, took a written assignment to the bank of his claim against the contractor. These were by the paymaster turned in to the bank. From time to time the bank, in order to put these claims in bankable shape, took a demand note from the contractor covering them, but not as a payment of them, for the assignments were also retained. In June, 1930, they amounted to some $37,470. At that time a representative of the surety company visited the job and called on the bank, and was informed of this amount due it. The records of the bank were opened to him, but he did not examine them. There was no concealment or misrepresentation. This representative had with him an installment pay check for $10,000, and was asking the bank to release part of it for application to a bill for material. This the bank did, and the balance he turned over to it. He testifies: "If the Bank was agreeable to lend this money I was perfectly agreeable to let them have a portion of this money. * * * Some mention was made about the payroll, that Mr. Hill, (the Bank president), was giving them money to meet the payroll and pay material bills on the job, and that was the primary thing I was interested in, to see that the money was not diverted to other jobs. * * * No mention was made of assignments or anything like that, but Mr. Hill gave me the impression that these boys were to pay him the estimates as they received them, and he was perfectly willing to loan them money from time to time as long as they needed it, and on this assurance that the banking situation in Miami was sound I agreed to give them the money." He told the president, after knowing the amount due the bank, that there would be a profit in the job estimated at $25,000. By October, however, when the job was ended, although the checking account was kept in good shape and the notes due the bank other than for labor debts were paid, the last named had mounted to $48,873. The bank wrote to the chairman and engineer of the highway department, reminding them of the bank's advances, and asking that the warrants for final payment come to it. A few days later the surety company filed this bill. The bank then notified the surety company of the amount and nature of its claim, and was made a party. The surety company collected the final payments amounting to about $60,000 on February 26, 1931. We infer that this sum is not sufficient to cover all claims, though there is no finding of that fact nor evidence thereof in the record.

We think the loss, if any, is on the surety company and not on the bank. There is no dispute but that the wage claims were originally secured by the bond. If by reason of the percentages retained by the highway department the contractor could not at once pay them, and the wage-earners had waited for the final payment, they would not have forfeited their security. Had they definitely agreed to wait and had taken notes payable at a near definite date, the indulgence would not release the surety on a bond such as this. United States Fidelity & Guaranty Co. v. United States, 191 U. S. 416, 24 S. Ct. 142, 48 L. Ed. 242. Instead of waiting, the wage-earners realized their money by selling and assigning their claims and the assignee...