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UNITED STATES FIDELITY AND GUARANTY COMPANY v. BRAY.

decided: May 27, 1912.

UNITED STATES FIDELITY AND GUARANTY COMPANY
v.
BRAY.



APPEAL FROM THE CIRCUIT COURT OF APPEALS FOR THE FOURTH CIRCUIT.

Author: Van Devanter

[ 225 U.S. Page 206]

 MR. JUSTICE VAN DEVANTER delivered the opinion of the court.

This appeal brings up for review a decree of the Circuit Court of Appeals for the Fourth Circuit reversing a decree of the Circuit Court for the Northern District of West Virginia in a suit in equity which was intended, inter alia, to affect a fund of $26,000 in the hands of the trustee of a bankrupt's estate then in the course of administration in the District Court of that district. The decree reversed was an interlocutory one granting an injunction, but the decree of reversal was final, for it directed not only dissolution of the injunction but also the dismissal of the bill.

The complainant, the United States Fidelity and

[ 225 U.S. Page 207]

     Guaranty Company, is a Maryland corporation; three of the defendants, the Second National Bank of Parkersburg, the Farmers and Mechanics National Bank of the same place, and the Nicolette Lumber Company, are citizens of West Virginia, resident in the district in which the suit was brought; seven of them, Jacob Eichel and Laura Eichel, his wife, the City National Bank of Evansville, the First National Bank of Evansville, the Citizens National Bank of Evansville, the First National Bank of Rockport, and the Farmers Bank of Rockport, are citizens and resident of Indiana; another, the Riter-Conley Company, is a Pennsylvania corporation; and M. J. Bray, the trustee of the bankrupt's estate, who was sued in that capacity and also as an individual, is a citizen and resident of Indiana. The bankrupt, the Evansville Contract Company, was an Indiana corporation. Of course, the national banks are Federal corporations, but their citizenship and places of residence are, for jurisdictional purposes, as just stated. Act August 13, 1888, 25 Stat. 433, c. 866, § 4.

The jurisdiction of the Circuit Court was invoked on the ground of diversity of citizenship, and on the further ground that the case was one arising under the act of August 13, 1894, 28 Stat. 278, c. 280, amended February 24, 1905, 33 Stat. 811, c. 778; and the right to bring the suit in that district against the defendants who were not resident therein was rested upon § 8 of the act of March 3, 1875, 18 Stat. 470, 472, c. 137, on the theory that the suit was one to enforce a lien and claim upon personal property within the district, that is, upon the fund in the hands of the trustee, which the then had on deposit in the two Parkersburg banks. Section 23a of the bankruptcy act was also relied upon as sustaining the jurisdiction.

The case made by the bill and its exhibits was this: About 1902 the Evansville Contract Company, which will be spoken of as the contractor and as the bankrupt, entered into four several contracts with the United States

[ 225 U.S. Page 208]

     for the construction of certain river improvements, one in South Carolina, two in the Western District of Pennsylvania, and another in the Northern District of West Virginia. Each contract contained, among others, provisions that a designated percentage of the moneys earned thereunder should be retained by the Government until the completion of the contract, and that in case of default by the contractor the Government should have the right to take possession of the work and plant and prosecute the work to completion. The complainant, the United States Fidelity and Guaranty Company, which will be spoken of as the surety company, became the surety on the bonds given by the contractor for its performance of the contracts. Each bond, conformably to the act of August 13, 1894, supra, was conditioned that the contractor should fully perform the contract according to its terms and should promptly make full payment to all persons supplying it with labor or materials for the prosecution of the work named in the contract. As an inducement to the execution of each bond the contractor agreed with the surety company as follows:

" . . . and it does hereby bind itself, its successors and assigns, to indemnify the said The United States Fidelity and Guaranty Company against all loss, costs, damages, charges and expenses whatever, resulting from any of its acts, default or neglect that said The United States Fidelity and Guaranty Company may sustain or incur by reason of its having executed said bond or any continuation thereof. And it does further agree, in the event of its being unable to complete or carry on the aforementioned contract, to assign, and does hereby assign, such plant as it may own, or have upon said work to the said The United States Fidelity and Guaranty Company, under the aforesaid obligation, together with vouchers or other evidence of payment, of all costs and expense whatever incurred by said The United States

[ 225 U.S. Page 209]

     Fidelity and Guaranty Company in adjusting such loss or in completing said contract, as conclusive evidence against it, its successors and assigns, of the fact and extent of its liability under said obligation to the said The United States Fidelity and Guaranty Company. And it does further agree in the event of any breach or default on its part in any of the provisions of the contract hereinbefore mentioned, that The United States Fidelity and Guaranty Company as surety upon the aforesaid bond shall be subrogated to all its rights and properties as principal in said contract, and that deferred payments and any and all moneys and properties that may be due and payable to it at the time of such breach or default or that may thereafter become due and payable to it on account of said contract, shall be credited upon any claim that may be made upon The United States Fidelity and Guaranty Company under the bond above mentioned."

The contractor partially performed each contract, but became embarrassed, and in February, 1904, on the petition of creditors, was adjudged a bankrupt by the District Court for the Northern District of West Virginia, which appointed three trustees of its estate, M.J. Bray being one. The trustees took charge of its property, and, by an order of the referee having the approval of the creditors, were authorized to complete the contracts, to borrow $75,000 on trustee's certificates, which were to be a first lien on the property and moneys of the estate, to pay the annual premiums accruing to the surety company and to save it harmless from any liability on the bonds, to collect from the Government the contract price and all retained percentages, and to employ Jacob Eichel, who had been the president of the contractor, to assist in completing the contracts and looking after the interests of the creditors. At first the surety company was disposed to object to such an order, but the seven banks before mentioned.

[ 225 U.S. Page 210]

     which were unsecured creditors having claims aggregating $115,000, overcame its objection and secured its express consent to the order by executing to it a bond in the sum of $75,000, whereby they undertook to indemnify and hold it harmless from all liability accrued or to accrue by reason of its suretyship. The terms of this bond were such that the liability of the banks thereunder was to be several, not joint, and was to be confined to specified proportions of its penalty.

Thereafter the trustees carried all the contracts to completion, received from the Government the entire contract price and the retained percentages, sold the bankrupt's property, paid all the certificates issued under the order before mentioned, and on December 19, 1905, had on hand a balance of $36,602.96, subject to allowances and costs of administration yet undetermined. The completion of the contracts was undertaken in the expectation of all concerned that a profit to the estate would result therefrom, but the expectation was not realized. In March, 1906, M.J. Bray became the sole trustee; and on September 21, 1907, when the bill was filed, the net amount remaining in the ...


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