Eberhart v. United States ex rel. First Nat. Bank of Belle Fourche, S. D.

TRIEBER, District Judge (after stating the facts as above). [1] We will first deal with the action of the First National Bank, No. 3,770. By an act of Congress approved August 13, 1894 (28 Stat. 278, c. 280 [U. S. Comp. St. 1901, p. 2523]), every person entering into a formal contract with the United States for the construction of any public buildings, or the prosecution and completion of any public work, was required, before commencing such work, to execute the usual penal bond, with the additional obligations that such contractor or contractors shall promptly make payments to all persons supplying him or them labor and materials in the prosecution of the work provided [887] for in such contract. And such person to whom the contractor was indebted for labor and materials was given a right of action in the name of the United States for his use and benefit against the contractor and his sureties, provided that the United States was to be involved in no expense thereby. By Act Feb. 24, 1905, c. 778, 33 Stat. 811 (U. S. Comp. St. Supp. 1911, p. 1071), the act of 1894 was amended so as to read as follows: “That hereafter any person or persons entering into a formal contract with the United States for the construction of any public building, or the prosecution and completion of any public wort, or for repairs upon any public building or public wort, shall be required, before commencing such wort, to execute the usual penal bond, with good and sufficient sureties, with the additional obligation that such contractor or contractors shall promptly make payments to all persons supplying him or them with labor and materials in the prosecution of the work provided for in such contract; and 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 d.ue the United States, the remainder shall be distributed pro rata among said interveners. 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 the 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 lias 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 Unifed 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 tlie 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.” [888] .This latter act was in force at the time this contract was entered into and the bond sued on executed, and therefore became a part of the contract. Pritchard v. Norton, 106 U. S. 124, 1 Sup. Ct. 102, 27 L. Ed. 104; Edwards v. Kearzey, 96 U. S. 597, 607, 24 L. Ed. 793; United States Fidelity, etc., Co. v. United States, for Use of Struthers Wells Co., 209 U. S. 306, 315, 28 Sup. Ct. 537, 52 L. Ed. 804. [2] It will be noticed that the act of 1905, which takes up the entire subject covered by the act of 1894 and therefore is to be treated as a substitute act; repealing the former, materially changes the former act of 1894. Under the last-mentioned act, a suit on the bond could only be maintained against the sureties on the bond i.n the district where the defendants resided. Davidson Marble Co. v. Gibson, 213 U. S. 10, 29 Sup. Ct. 324, 53 L. Ed. 675. The first act gave no priority to the government of .the United States, while the later act provides for such priority. There was nothing in the act of 1894 requiring all claims to be determined in one action, nor is there any limitation as to when the action is to be commenced, except such as may be prescribed by the laws of the state where the suit may be instituted. By the act of 1905 no suit can be instituted by a creditor on the bond of the contractor until after the complete performance of said contract and final settlement thereof, and it limits the time within which the suit is to be brought to one year, and then only if the government has failed to institute a suit within six months from the completion and final settlement of said contract. The action is to be brought by creditors iñ a court of the United States in the district in which the contract was to be performed and executed, irrespective of the amount in controversy, and not elsewhere. The act further provides that only one action shall be instituted by a creditor or creditors, but any other creditor may file his claim in such action and be made a party thereto within one. year from the completion of the work under said contract, and not later. It also provides that the government shall have priority for any sum found to be due' it, and the residue shall go to the other creditors, and if this balance recovered on the bond shall 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 was also permitted by that act to pay into court for distribution among said claimants and creditors the full amount of his liability, to wit, the penalty named in the bond, less any amount which said surety may have had to pay to the United States, and thereupon the surety was to be relieved from all further liability. Upon the institution of a suit by a creditor under that act, personal notice of the pend-ency of such suit is required to 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. Hill v. American Surety Co., 200 U. S. 197, 201, 26 Sup. Ct. 168, 50 L. Ed. 437; Mankin v. Ludowici-Celadon Co., 215 U. S. 533, 538, 30 Sup. Ct. 174, 54 L. Ed. 315; United States Fidelity, etc., Co. v. United States, for Use of Struthers Wells Co., supra. The contractors having failed to comply with the terms of the con [889] tract, it was declared forfeited, and the government completed the contract, and a final statement of the account made by the government, and a demand therefor on June 16, 1908. The First National Rank, not having instituí ed its suit within one year thereafter, ajjplied to Congress for relief, and Congress enacted the following act, which became a law March 4, 1911 (36 Stat. 1170, c. 236): “Tliat all persons having supplied labor and materials for the prosecution of the work of making the main canal of the Belle i'ourche irrigation project under the contract for the construction thereof, entered into by Widell-Finley Company, under (late of April twenty-sixth, nineteen hundred and live, pur-suaui, to advertisement for said contract, dated February tenth, nineteen hundred and five, and their assigns and legal representatives, are hereby given the full rights and remedies afforded to persons supijlying labor and materials in the prosecution of public works, as sot forth in the act of August thirteenth, eighteen hundred and ninety-four, entitled ‘An act for the protection of persons furnishing materials and labor for the construction of public works,’ to Uie same force, extent, and effect as if the act had not been amended, modified, or repealed, with full right of action in the name of the United States for his or their use and benefit against said contractors and sureties upon the bond furnished to the United States under the said contract: Provided, that such action and its prosecution shall involve the United States in no expense.” This act granted to all persons having supplied labor and materials for the prosecution of the work of making the main canal of the Belle Fourelie irrigation project under the contract entered into by the Widell-Finley Company under date of April 26, 1905, and their assigns and legal representatives, the full rights and remedies which were afforded to such persons by the act of August 13, 1894, to the same extent and effect as if the act had not been amended, modified, or repealed by the act of 1905. After the passage of this act by Congress, the First National Bank on March 18, 1911, instituted its action as assignee of the laborers -whose time checks it had purchased, in the Circuit Court for the District of Minnesota. Demurrers were filed by the defendants in each of the cases, and were overruled, and proper excejitions saved thereto. Thereupon answers were filed by both parties; hut in view of the conclusions reached by us it is unnecessary to set out the issues raised by the answers. In our opinion, the court below erred in overruling the demurrer in case No. 3,770. Linder the act of 1905, which was in force at the time the sureties signed the bond, and which was a part of the bond obligation, any action on the part of laborers or other creditors of the contractors against the sureties on the bond had been barred by the statute of limitations, more than a year having then expired since the government had settled the accounts of the contractor and made a demand upon it and the sureties for the amount claimed to he due it by reason of the breach of the contract. While it has been held in Campbell v. Holt, 115 U. S. 628, 6 Sup. Ct. 209, 29 L. Ed. 483, that a right to defeat any debt by the statute of limitations is not a vested right, so as to he beyond the legislative power in a proper case, that was in an action against the debtor himself. In this case the action is against the sureties; and, as the law is well settled that sureties are favorites of the law, and all their undertakings are construed strictly in their favor (Reese v. United States, [890] 9 Wall. 13, 20, 19 L. Ed. 541; United States v. Freel, 186 U. S. 309, 316, 22 Sup. Ct. 875, 46 L. Ed. 1177; United States v. National Surety Co., 92 Fed. 549, 34 C. C. A. 526). Congress had no right to extend the statutory bar after it had once attached. The sureties, when they signed the bond, knew that under this statute, which was a part of their contract of suretyship, their liability to creditors as such sureties would cease 12 months after the work had been completed. If they held any securities to indemnify them, it was their duty to return them; if no suit was brought within that time, they would have a right to feel that they need exercise no further vigilance over their principal, that they had been released of all liability by operation of law. To extend the statute after they had been thus discharged places upon them a burden which they did not assume at the time they signed the bond. Edwards v. Kearzey, 96 U. S. 595, 24 L. Ed. 793; Pritchard v. Norton, 106 U. S. 124, 132, 1 Sup. Ct. 102, 108 (27 L. Ed. 104). In the last case, in which this question was involved, Mr. Justice Matthews, who delivered the opinion of the court, said: “The principle that what is apparently mere matter of remedy in some circumstances, in others, where it touches the substance of the controversy, becomes matter of right, is familiar in our constitutional jurisprudence in the application of that provision of the Constitution which prohibits the passing by a state of any law impairing the obligation of contracts; for it has been uniformly held that ‘any law which in its operation amounts to a denial or obstruction of the rights accruing by a contract, though professing to act only on the remedy, is directly obnoxious to the prohibition of the Constitution.’ * * * Hence it is that a vested right of action is property in the same sense in which tangible things are property, and is equally protected against arbitrary interference. * * * A vested right to an existing defense is equally protected, saving only those which are based on informalities not affecting substantial rights, which do not touch the substance of the contract and are not based on equity and justice.” In United States Fidelity, etc., Co. v. United States, for Use of Struthers Wells Co., 209 U. S. 306, 315, 28 Sup. Ct. 537, 52 L. Ed. 804, these acts were similarly construed. The demurrer to the complaint of the First National Bank should have been sustained, and the action dismissed. In the action by the government, No. 3,829, the bill of exceptions, as it appears in the printed record, fails to set out any evidence by either party, except some exhibits, which fail to show any right of recovery by the government. Hence there is nothing before us that enables us to determine whether the court below committed any error. The judgment in No. 3,829 is affirmed, and that in No". 3,770 reversed, with directions to set aside the judgment and sustain the motion of the defendants for a judgment notwithstanding the verdict, which is permissible under section 4362 of the Revised Raws of Minnesota of 1905.