United States v. Illinois Surety Co.

• Decision Date: 05 January 1917
• Docket Number: 2.
• Citation: 238 F. 840
• Parties: UNITED STATES v. ILLINOIS SURETY CO. et al.
• Court: U.S. Court of Appeals — Fourth Circuit

238 F. 840

UNITED STATES v. ILLINOIS SURETY CO. et al.

No. 2.

United States District Court, E.D. North Carolina.

January 5, 1917

A. B Dickinson, of Richmond, Va., H. G. Connor, Jr., of Wilson N.C., and J. H. Pou, of Raleigh, N.C., for plaintiffs.

Mark W Brown, of Asheville, N.C., for defendants.

CONNOR District Judge.

The complaint, as amended, discloses this case:

On July 31, 1913, defendant W. J. Brent Construction Company, of the city of Norfolk, state of Virginia, entered into a contract with the United States, whereby it undertook to construct a post office building in the town of Greenville, N.C. The Construction Company, executed a bond, as provided by the statute, with the defendant Illinois Surety Company, a corporation chartered pursuant to the laws of, and having its principal office in, the state of Illinois, surety, in the penal sum of $26,000, containing, among other conditions, the obligation to 'promptly make payment to all persons supplying labor or material in the prosecution of the work contemplated by said contract. ' The bond was duly accepted by the United States in the manner prescribed by law. Defendant W. J. Brent Construction Company on or about October 16, 1913, contracted with the Ford-Whitehurst Manufacturing Company for material to be used in the construction of the post office building, consisting of window and door frames, doors, windows, lumber, and other mill work, for which the Construction Company promised to pay the sum of $2,360.68, of which it paid the sum of $1,050, leaving unpaid, at the time this action was instituted, and due said Manufacturing Company, the sum of $1,310.68, with interest. This indebtedness was, for value, assigned and transferred to Ellison & Guy, Incorporated. They prosecuted the claim to judgment against the Construction Company, in the law and equity court of the city of Richmond, state of Virginia. Prior to the assignment, and the rendition of the judgment, to wit, on the 17th day of January, 1916, the Ford-Whitehurst Manufacturing Company made affidavit, as required by the provisions of the act of Congress entitled 'An act for the protection of persons furnishing materials and labor for the construction of public works,' approved August 13, 1894 (28 Stat. 278, c. 280, 6 Fed.Stat.Ann. 125), as amended by Act Feb. 24, 1905, c. 778, 33 Stat. 811, 10 Fed.Stat.Anno. 343 (Comp. St. 1913, Sec. 6923), and forwarded same to the Secretary of the Treasury of the United States, and in all other respects complied with the provisions of said statute, and amendments thereto, and thereby became entitled to the benefit of the provisions of said statute, and to prosecute this action against the Construction Company and the Surety Company. The post office building at Greenville, N.C., was completed and turned over to, and accepted by, the United States, and final settlement made for the construction thereof, on the 4th day of August, 1915. A period of more than six months and less than one year from the date of settlement elapsed before the institution of this action, and no suit has been instituted by the United States on its own behalf, or for the use of any other person, firm, or corporation, on account of said contract, or the bond given for securing the performance thereof. Notice has been given by Ellington & Guy, Incorporated, of the pendency of this action to all known creditors of the W. J. Brent Construction Company.

In an action pending in the superior court of Cook county, Ill., wherein H. A. evans and others are plaintiffs, and the Illinois Surety Company is defendant, on or about April 19, 1916, Jas. S. Hopkins, of the city of Chicago, was duly appointed receiver of said Surety Company, and qualified as required by law and the orders of said court, and was, at the time of the institution of this action, acting as such receiver, having in his possession, and under his control, the assets, rights, credits, and all other property of said Surety Company, for the purpose of administering such assets in accordance with the orders and decrees of said court. Process was duly issued in this action and served as provided by the statutes in such cases made and provided.

Defendant Jas. S. Hopkins, receiver, demurs to the complaint as amended, and for cause of demurrer says that, upon the allegations contained therein, this court has no jurisdiction of the person of the defendant receiver, or the cause of action, in so far as the same relates to him, for that it is not alleged that the consent of the superior court of Cook county, Ill., wherein the action in which he was appointed receiver is now pending, was first obtained for the institution and prosecution of this action, and, further, that if plaintiff is entitled to any relief on account of the matters and things set forth in the complaint, it should be obtained in said action pending in said court, etc.

The sole question presented by the demurrer is whether the general and well-settled rule applies that a receiver, appointed by one court cannot be sued upon a cause of action against the corporation of which he is receiver, in the same court, or in another court, without the consent or permission of the court, by which he was appointed. The rule is thus stated:

'It is a general principle of equity practice that a suit cannot be brought against a receiver, in his capacity as such, to recover any property in his hands, or to recover on any debt, demand, or claim whatever, against him, unless upon previous leave duly obtained. This rule applies to suits brought either in that court, or in any other court; and, if an unauthorized suit be brought against the receiver, he may successfully plead the disability against the plaintiff.' 3 Street's Fed. Eq. Practice, 2676.

This statement of the rule is sustained by the authorities. In Barton v. Barbour, 104 U.S. 126, 26 L.Ed. 672, the jurisdiction of the court, in the District of Columbia, to entertain an action brought against a receiver of a railroad company, appointed by a court in Virginia, was challenged by a plea averring that the plaintiff had not obtained leave of the Virginia court to sue its receiver. Plaintiff demurred to the plea. From a judgment overruling the demurrer, plaintiff sued out a writ of error. In the opinion of the court, affirming the judgment, Mr. Justice Woods, to the same suggestion made by counsel here, that the jurisdiction of the court was not ousted by the receivership, that the 'only consequence resulting from prosecuting the suit without such leave is that the plaintiff may be restrained by injunction or attached for contempt, and that the rule applies only to cases where the suit is brought to take from the receiver property whereof he is in possession by order of the court,' said: 'We conceive that the rule is not so limited. ' The learned justice proceeds to say that if the plaintiff may, without leave of the court appointing the receiver and having, through its officer, possession of the property, prosecute his action to judgment, he may by execution, or other final process, subject the property to sale, and thereby interfere with or altogether prevent its administration by the court. It has been held by courts of high authority that the receiver cannot, by plea or demurrer, challenge the statutory jurisdiction of the court, in which the action is brought, to proceed to judgment fixing the liability of the person or corporation; that he should apply to the court appointing him for an injunction restraining the plaintiff from prosecuting the action against him, obedience to which could be enforced by attachment for contempt. This view is sustained by many decisions. 23 Am. & Eng.Enc. (2d Ed.) 1125. It is held that, if plaintiff recovers judgment in his action, he must seek satisfaction by taking a transcript to the court having the control and administration of the property of his debtor--always a court of equitable power, which can declare and enforce priorities, liens, etc. However this may be, the case cited by demurrant sustains his contention that, in the federal court, the jurisdiction to entertain a suit against a receiver to recover a debt or demand against the corporation whose property is in his custody as receiver may be attacked by plea or demurrer. In Porter v. Sabin, 149 U.S. 479, 13 Sup.Ct. 1008, 37 L.Ed. 815, the jurisdiction of the court was attacked by a demurrer. The court dismissed the action. These decisions are of controlling and authoritative force.

Counsel for defendants insist that, conceding the rule claimed by demurrant, the instant case does not come within it, by reason of the express provision of the statute which confers the right of action and prescribes in what court and in what venue it must be brought. This contention presents a somewhat novel and interesting question. The statute provides that the action, given to the materialman, or laborer, upon the bond given by a contractor, may be prosecuted in the name of the United States and be brought 'in the Circuit (District) Court of the United States in the district in which the contract was to be performed and executed, irrespective of the amount in controversy in such suit, and not elsewhere ' This provision of the...