United States v. Western Contracting Corporation
| Decision Date | 17 February 1965 |
| Docket Number | No. 17742.,17742. |
| Citation | 341 F.2d 383 |
| Parties | UNITED STATES for the Use of FIRST CONTINENTAL NATIONAL BANK & TRUST COMPANY, LINCOLN, NEBRASKA, a Corporation, and First Continental National Bank and Trust Company, Lincoln, Nebraska, a Corporation, Appellants, v. WESTERN CONTRACTING CORPORATION, a Corporation, The Aetna Casualty and Surety Company, a Corporation, Standard Accident Insurance Company, a Corporation, Fireman's Fund Insurance Company, a Corporation, Hartford Accident & Indemnity Company, a Corporation, The Travelers Indemnity Company, a Corporation, Argonaut Insurance Co., a Corporation, and Globe Indemnity Company, a Corporation, Appellees. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Flavel A. Wright, of Cline, Williams, Wright, Johnson, Oldfather & Thompson, Lincoln, Neb., made argument for appellants and filed brief.
Robert L. Berry, and George L. DeLacy, Omaha, Neb., of Kennedy, Holland, DeLacy & Svoboda, Omaha, Neb., made argument for appellees except Globe Indemnity Co., and filed brief.
William C. Hastings, of Chambers, Holland, Dudgeon & Hastings, Lincoln, Neb., made argument for Globe Indemnity Co., and filed brief.
Before VAN OOSTERHOUT, BLACKMUN and MEHAFFY, Circuit Judges.
VAN OOSTERHOUT, Circuit Judge.
This is an appeal by plaintiff First Continental National Bank & Trust Company, Lincoln, Nebraska, hereinafter called plaintiff or Bank, from final judgment dismissing its three count complaint. Defendants named in count one are Western Contracting Corporation, prime contractor with the Government on certain Nebraska missile sites projects, and Aetna Casualty and Surety Company, Standard Accident and Insurance Company, Fireman's Fund Insurance Company, Hartford Accident and Indemnity Company, and The Travelers Indemnity Company, sureties on its performance bond given pursuant to the Miller Act, 40 U.S.C.A. § 270a et seq. The defendant in count two is Argonaut Insurance Co., surety on a performance bond given to Western Contracting Corporation by Hansen-Kashner Co. (hereinafter H. K.), subcontractor on the missile site project. The defendant in count three is Globe Indemnity Company, surety on a Banker's Blanket Bond which it sold and issued to the Bank.
H. K. maintained a checking account in plaintiff bank which it used largely to pay for labor and material bills on the project. In November 1960 three checks aggregating $55,000 drawn by H. K. upon its California bank account were dishonored. Such checks had been shown as a deposit when received by plaintiff bank, and H. K. checks drawn to pay for project material and labor were honored by the plaintiff prior to the clearing of the deposited checks. A loss of $58,331.70 resulted when the deposited checks amounting to $55,000 were returned unpaid.
Jurisdiction on count one, based upon federal statutes is established. Jurisdiction exists on counts two and three based upon diversity of citizenship and the requisite amount.
The same legal principles control the disposition of the appeal as to counts one and two. The defendants involved in such counts include all defendants except Globe. For simplicity in this opinion, the word defendants will be used to describe and include all defendants except Globe. When Globe is involved, it will be specifically named.
It would appear that federal law controls with relation to the count one Miller Act bond and that Nebraska law controls as to the count two bond furnished the contractor by the subcontractor. No claim is made that federal law here materially differs in any respect from Nebraska law, nor do we find any basis for distinction. We shall consider the issues relating to the first two counts together.
Each of the bonds clearly provides for the protection of persons furnishing labor or material for the project. No provision is made either expressly or by reasonable implication for the protection of persons extending credit or loaning money to the contractor or the subcontractor.
In denying relief under a Miller Act bond to a person who furnished materials or credit to a supplier who provided them for the project, the Supreme Court in MacEvoy Co. v. United States, etc., 322 U.S. 102, 107, 64 S.Ct. 890, 893, 88 L.Ed. 1163, stated:
The Court then goes on to say that the right to recovery on a bond is limited to materialmen, laborers and subcontractors who deal directly with the prime contractor or who have direct contractual relationship with a subcontractor, and then observes: "To allow those in more remote relationships to recover on the bond would be contrary to the clear language of the proviso and to the expressed will of the framers of the Act." 322 U.S. 102, 108, 64 S.Ct. 890, 894.
The Nebraska court places a similar construction upon performance bonds of the type involved here. W. T. Rawleigh Co. v. Smith, 142 Neb. 527, 7 N.W.2d 80, 9 N.W.2d 286, 287; Hopewell v. McGrew, 50 Neb. 789, 70 N.W. 397, 399.
Plaintiff does not contend that it is directly covered by the bonds. Instead, it claims that it is subrogated to the rights of laborers and materialmen whose claims were paid by H. K. checks drawn upon and paid by plaintiff bank. Defendants' answer to such contention is that one who loans or advances money to a contractor or a subcontractor to pay for labor or material is not subrogated to the rights of the laborers or materialmen whose claims have been paid with the proceeds of the loan or advancement.
The facts are stipulated and undisputed. H. K., after entering into the subcontract, established an account of $2,000 with the bank. This deposit, like most of the subsequent deposits, was in the form of a check drawn by H. K. against its account in the Bank of America at Fresno, California. At the time of the initial deposit, H. K. was permitted to draw checks of $200 upon its account without waiting for the deposited checks to clear. Subsequently nineteen deposits aggregating some $147,000 were made to the H. K. account. While no express agreement was made permitting H. K. to draw unlimited amounts against uncollected deposits, the bank statement in evidence indicates that the Bank repeatedly honored checks drawn against uncollected deposits. H. K.'s account in plaintiff bank was overdrawn subsequently on a number of occasions prior to the time in controversy but such checks were taken care of by a deposit within a few days.
The first dishonored check here involved, which amounted to $25,000, was dated November 3 and deposited November 5. The overdraft at that time was $6,730. Additional deposits of $10,000 on November 7, $10,000 on November 9 and $20,000 on November 12 were made. After crediting such deposits and before charging back the dishonored checks, the H. K. account in plaintiff bank as of November 16 shows an overdraft of $3,454. The $10,000 check of November 7 was paid. The other three checks, aggregating $55,000, were dishonored upon presentation. The Bank learned of the nonpayment of the deposited checks on November 18. Thereupon the account was promptly closed and payment was demanded from H. K. for $58,331.70. Such payment was never made. Western Contracting Corporation furnished the subcontract work which H. K. was unable to complete for lack of funds.
The checks paid by plaintiff were at least largely for labor and material on the project. All were paid in the ordinary course of business. Some 90% of the checks were cashed at banks other than plaintiff or at business establishments. It is stipulated "there was no conversation, discussion or written or verbal agreement, of any and relating to any assignment by the payees of said checks to the plaintiff bank of any rights or claims the payees thereof had. * *"
It is also stipulated that the Bank itself did not furnish any labor or material for the project and that there was no discussion or agreement between plaintiff and H. K. that the plaintiff in honoring the checks would be assigned any rights the payees might have had.
The trial court found inter alia:
Such findings are supported by substantial evidence, much of which has been heretofore set out. In applying the law to such findings, the court states:
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