United States v. Federal Surety Co.

• Decision Date: 02 October 1934
• Docket Number: No. 3612.,3612.
• Citation: 72 F.2d 961
• Parties: UNITED STATES, to Use of COLONIAL BRICK CORPORATION, v. FEDERAL SURETY CO. et al.
• Court: U.S. Court of Appeals — Fourth Circuit

72 F.2d 961 (1934)

UNITED STATES, to Use of COLONIAL BRICK CORPORATION, v. FEDERAL SURETY CO. et al.

No. 3612.

Circuit Court of Appeals, Fourth Circuit.

October 2, 1934.

Leonard J. Ganse, of Washington, D. C. (Sykes, Nyburg, Goldman & Walter, of Baltimore, Md., on the brief), for appellant.

Roszel C. Thomsen, of Baltimore, Md. (Edmond M. Cook, of Davenport, Iowa, and Walter L. Clark, of Baltimore, Md., on the brief), for appellees.

Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.

SOPER, Circuit Judge.

The appeal in this case was taken from an order of the District Court granting a motion of E. W. Clark, receiver of Federal Surety Company, to quash the writ of summons issued against the corporation and to vacate and set aside the return of the writ, on the ground that the corporation had been dissolved and its existence had been completely terminated under the laws of the state of Iowa wherein it had been incorporated. The contention is that the right to sue the corporation persisted, notwithstanding its dissolution, because the action was brought against it under the Hurd Act, 40 USCA § 270, by one who supplied labor and material for use under a contract for the construction of certain public works for the United States.

The case was heard in the District Court upon the allegations of the declaration which was filed in the name of the United States, to the use of the Colonial Brick Corporation and other intervening creditors of the Federal Surety Company, against the Surety Company and its receiver; and upon exhibits filed with the motion to quash, consisting of certified records of the district court of the state of Iowa in and for Scott county in a suit brought by the state of Iowa through its Attorney General against the Federal Surety Company to secure its dissolution. The following facts appear:

On September 11, 1930, the National Contracting Company entered into a written contract with the United States to furnish the labor and material required for the construction of officers' quarters at Fort George G. Meade, Md., and on September 24, 1930, gave a bond as principal with the Federal Surety Company, as surety, in the sum of $94,937, the condition of which was that the principal should perform all the terms of the contract, and promptly make payment to all persons supplying labor and materials in the prosecution of the work. After the contract was signed, the Colonial Brick Corporation furnished labor and materials to the contractor in the amount of $6,159.36, but was paid on account thereof only $3,218.40, leaving a balance due on December 31, 1930, of $2,940.96, whereupon the Brick Corporation refused to supply and deliver further material or labor. On January 29, 1931, the Surety Company agreed that if the Brick Corporation would continue shipment, the Surety Company would pay the balance of $2,940.96, and also make payment for all future supplies. The unpaid bills were actually paid on February 9, 1931, and additional material and labor was furnished by the Brick Corporation to the amount of $6,803.04, but no part of this sum was ever paid. The contractor was declared in default by the United States on August 31, 1931, and the surety company was called upon to fulfil its obligation under the bond and complete the work; but it failed to do so, and on September 17, 1931, was likewise formally declared to be in default. The work was finished by another contractor and final settlement was had on February 4, 1932. The pending suit for the sum of $6,803.04 was brought on October 12, 1932, after the expiration of the six months' period during which the right of action was reserved to the United States, and before the expiration of the one-year limitation prescribed by the statute.

Prior to the completion of the work, the state of Iowa had commenced the proceeding for the dissolution of the Surety Company and the appointment of a receiver; and on September 25, 1931, the state court passed a decree wherein it was found that the Surety Company had been organized under the laws of the state, and that it was insolvent; and it was adjudged that it be dissolved and its effects distributed, and that E. W. Clark, commissioner of insurance of the state, be appointed permanent receiver of the company, with authority and direction to take charge of its property and wind up the business. All creditors of the Surety Company were ordered to file proof of their claims on or before April 1, 1932, or be debarred from participation in the distribution of assets. The proceeding was taken under the authority of sections 8402, 8964, 8613-c1, and 10761 of the Code of Iowa of 1931.

On December 22, 1932, the state court passed another order wherein it adjudged that the Surety Company had ceased to exist on September 25, 1931, and that all debts to or from it became extinguished, and any judgment rendered against it thereafter was a nullity, and that the receiver held title to all of the property owned by the Surety Company at the time it ceased to exist; and it was ordered that the receiver refrain from entering a general appearance for the Surety Company in any action against it, but be given leave to appear specially for the purpose of presenting a plea in abatement or motion to quash; and that any person asserting a claim against the surety company should share in the assets to the extent that his claim should be allowed by the court.

The effect of the Iowa statutes, as applied to the dissolution of the Federal Surety Company, was considered by the Supreme Court of the United States in Clark v. Williard et al., 292 U. S. 112, 54 S. Ct. 615, 78 L. Ed. 1160, decided April 2, 1934, where the question was whether full faith and credit had been given by the courts of Montana to the statutes and judicial proceedings of Iowa in determining the rights of creditors who, long before the dissolution of the Surety Company, had brought suit against it in a Montana court to recover damages due upon a bond, and after the dissolution, had gotten judgment against it by default. The Supreme Court of Montana, in Williard v. Federal Surety Co., 91 Mont. 465, 8 P.(2d) 633, held that the dissolution of the Surety Company did not abate the suit; and subsequently in Mieyr v. Federal Surety Company, 94 Mont. 508, 23 P.(2d) 959, wherein the Iowa receiver intervened, that the judgment was lawfully rendered although the Surety Company was dissolved, and that an execution thereon against assets discovered in Montana was good as against the receiver appointed by the Iowa court. The decision was based on the ground that the intervener was not a statutory receiver, clothed with the title derived from the statutes of the domicile, but merely a chancery receiver created by the Iowa decree. The Supreme Court of the United States refrained from passing upon the rights of the judgment creditors under the Montana...