Board of Commissioners v. Diebold Safe Lock Company/Opinion of the Court

Before proceeding to consider the merits of this case, it is necessary to dispose of the objections taken to the jurisdiction assumed by the circuit court of the United States.

1. It was contended that that court had not cognizance of the suit, because the plaintiff's assignors could not have prosecuted it, inasmuch as one of them was a citizen of the same state as the defendant. But that restriction was applicable only to suits commenced in the federal court, and did not extend to suits removed into it from a state court. Act March 3, 1875, c. 137, §§ 1, 2, (18 St. 470;) Claflin v. Insurance Co., 110 U.S. 81, 3 Sup. Ct. Rep. 507.

2. It was further objected that the assignors were necessary parties to the suit, because they had assigned to the plaintiff part only of their original contract with the defendant, and because the statutes of Indiana, while they require every action arising out of contract to be prosecuted by the real party in interest, provide that 'when any action is brought by the assignee of a claim arising out of contract, and not assigned by indorsement in writing, the assignor shall be made a defendant, to answer as to the assignment or his interest in the subject of the action.' Rev. St. Ind. 1881, §§ 251, 276. But this objection was rather to the non-joinder of defendants than to the jurisdiction of the court, and presented no valid reason why the court should not proceed. The assignors were not parties to the suit at the time of the removal into the circuit court, and as soon as they were made parties in that court they disclaimed all interest in the suit; and, as no further proceedings were had, or relief sought or granted against them, their presence was unnecessary. Walden v. Skinner, 101 U.S. 577; Morrison v. Ross, 113 Ind. 186, 14 N. E. Rep. 479. Besides the first paragraph or count of the complaint, upon which alone the trial proceeded, alleged that the defendant not only had notice of the assignment to the plaintiff, but consented to that assignment. If that were so, there would be a new and direct promise from the defendant to the plaintiff, and the assignors would be in no sense parties to the cause of action.

3. It was also objected that the petition for removal was filed too late after the case had been tried and determined by the board of county commissioners. But, under the statutes of Indiana then in force, although the proceedings of county commissioners, in passing upon claims against a county, are in some respects assimilated to proceedings before a court, and their decision, if not appealed from, cannot be collaterally drawn in question, yet these proceedings are in the nature, not or disallowance, by officers representing the county, of a claim against it. At the hearing before the commissioners, there is no representative of the county, except the commissioners themselves. They may allow the claim, either upon evidence introduced by the plaintiff, or without other proof than their own knowledge of the truth of the claim; and an appeal from their decision is tried and determined by the circuit court of the county as an original cause, and upon the complaint filed before the commissioners. Rev. St. Ind. §§ 5758-5761, 5777; State v. Commissioners, 101 Ind. 69; Commissioners v. Ritter, 90 Ind. 362, 368. It follows, according to the decisions of this court in analogous cases, that the trial in the i rcuit court of the county was 'the trial' of the case, at any time before which it might be removed into the circuit court of the United States, under clause 3, § 639, of the Revised Statutes. Boom Co. v. Patterson, 98 U.S. 403; Hess v. Reynolds, 113 U.S. 73, 5 Sup. Ct. Rep. 377; Railway Co. v. Kansas City, 115 U.S. 1, 18, 5 Sup. Ct. Rep. 1113; Searl v. School-Dist., 124 U.S. 197, 199, 8 Sup. Ct. Rep. 460.

The only ruling upon evidence, which is excepted to, is to the exclusion of the complaint in an action brought by the present plaintiff against its assignors. But there is no material difference between the facts stated in that complaint and those stated in the complaint in the present suit; and the former complaint, not under oath, nor signed by the plaintiff, but only by its attorneys, was clearly incompetent to prove an admission by the plaintiff that upon those facts it had not a cause of action against this defendant. Combs v. Hodge, 21 How. 397; Pope v. Allis, 115 U.S. 363, 6 Sup. Ct. Rep. 69; Dennie v. Williams, 135 Mass. 28.

We are then brought to the main question, of the liability of the defendant to the plaintiff, depending upon the validity and effect of the partial assignment to the plaintiff from the original contractors of their contract with the defendant. By the law of Indiana, the assignee, by a valid assignment of an entire contract, not negotiable at common law, may maintain an action thereon in his own name against the original debtor; and the assignee, by valid assignment of part of a contract, may sue thereon jointly with his assignor, or may maintain an action alone, if no objection is taken by demurrer or answer to the non-joinder of the assignor. Rev. St. Ind. § 251; Groves v. Ruby, 24 Ind. 418. These rules govern the practice and pleadings in actions at law in the federal courts held within the state. Rev. St. § 914; Thompson v. Railroad Cos., 6 Wall. 134; Steel Co. v. Lundberg, 121 U.S. 451, 7 Sup. Ct. Rep. 958; Arkansas Valley Smelting Co. v. Belden Mining Co., 127 U.S. 379, 387, 8 Sup. Ct. Rep. 1308. The case at bar was therefore rightly treated by the court below as an action at law; and the real question in controversy is not one of the form of pleading, but whether the plaintiff has any beneficial interest, as against the defendant, in the contract sued on. A contract to pay money may doubtless be assigned by the person to whom the money is payable, if there is nothing in the terms of the contract which manifests the intention of the parties to it that it shall not be assignable. But when rights arising out of contract are coupled with obligations to be performed by the contractor, and involve such a relation of personal confidence that it must have been intended that the rights should be exercised, and the obligations performed, by him alone, the contract, including both his rights and his obligations, cannot be assigned without the consent of the other party to the original contract. Arkansas Valley Smelting Co. v. Belden Mining Co., 127 U.S. 379, 387, 388, 8 Sup. Ct. Rep. 1308. And the fact that that party is or represents a municipal corporation may have a bearing upon the question whether the contract is assignable, in whole or in part, without its assent. By the Revised Statutes of Indiana, it is the duty of the county commissioners to cause jails and other county buildings to be built and furnished, and to keep them in repair. Rev. St. Ind. § 5748. But they are forbidden to contract for the construction of any building, the cost of which exceeds $500, except upon public advertisement for bids, and to the lowest responsible bidder, and taking from him a bond, with sureties, to faithfully perform the work according to the contract, and to promptly pay all debts incurred by him in the prosecution of the work, including labor and materials furnished; and any laborer or material-man having a claim against the contractor may sue upon that bond. Id. §§ 4244, 4247.

It has been held by the supreme court of Indiana that the only remedy of laborers and material-men is against the contractor, or upon his bond, and that they have no lien upon the building, or right of action against the county, as well as that a county cannot be charged by process in the nature of garnishment or foreign attachment for the debts of its creditors to third persons; and the reason assigned in each class of cases, is that it would be contrary to public policy that a county should be involved in controversies and litigations between its contractors and their creditors. Commissioners v. O'Conner, 86 Ind. 531; Secrist v. Commissioners, 100 Ind. 59; Wallace v. Lawyer, 54 Ind. 501. In Machine Works v. Commissioners, 115 Ind. 234, 17 N. E. Rep. 593, where a contractor to whom the county commissioners had let a contract for the construction of a courthouse and jail sublet the iron-work to the plaintiff, and, after partially completing the buildings, abandoned the work, and declared his inability to resume it, and it was alleged in the complaint, and admitted by demurrer, that the commissioners agreed with the plaintiff to pay it for such work, it was held that it was within the incidental power of the commissioners, without letting a new contract, to take charge of the work, and complete the building, and to bind the county to pay the plaintiff the actual and reasonable value of iron-work done by him at their request, but that they had no power to assume, on behalf of the county, debts due from the contractor to the plaintiff and the court, after referring to the statutes above cited, said: 'In the event that a contractor should abandon his contract when the work was at such an incipient stage as that to complete it would amount practically to the construction of a courthouse by county commissioners, without regard to the contract previously let, it might be a question whether contracts made by them for labor and materials would be binding as such upon the county' 115 Ind. 243, 17 N. E. Rep. 597. In Commissioners v. Jameson, 86 Ind. 154, cited for the plaintiff, the assignment was of an entire sum due to the assignor for personal services. In Smith v. Flack, 95 Ind. 116, likewise cited for the plaintiff, the municipality was not a party to the suit, nor were its rights or liabilities brought in question, but the controversy was upon the effect of an assignment as between the parties to it and persons claiming under them.

In the case at bar, by the original contract between Meyers & Son and the county commissioners, the contractors agreed to construct a jail for the county, and to provide all the materials therefor, for a gross sum of $20,000, which the commissioners agreed to pay, partly in monthly payments, on their architect's certificate, and the rest upon the completion and acceptance of the building; and it was expressly agreed that the county should not in any manner be answerable or accountable for any materials used in the work, and also that, if the contractors should fail to finish the work by the time agreed on, they should pay to the commissioners, as and for liquidated damages, the sum of $25 for every day the work should remain unfinished. Meyers & Son executed a bond for their faithful performance of the contract, as required by the statute. By the subsequent assignment, to which neither the county nor the board of commissioners was a party, Meyers & Son undertook to assign to the plaintiff the obligation to construct and put in place in the jail all the iron-work required by the original contract, as if the contract for such work had been awarded directly by the commissioners to the plaintiff, and undertook to fix the contract price for such work at $7,700, to be paid by the commissioners at the times mentioned in the original contract. The plaintiff in fact did the iron-work according to the original contract, and to the acceptance of the commissioners, and to the value of more than $7,700, but not within the time stipulated in that contract. Soon after the plaintiff began to do thatw ork, the commissioners made a settlement with the original contractors, tractors, which, if valid, left in their hands much less than that sum. The court declined to instruct the jury, as requested by the defendant, that the statutes of Indiana required contracts for the construction of jails and other county buildings to be advertised and let by the board of commissioners as an entirety, and not in parts, and that the contract between Meyers & Son and the board of commissioners was not divisible and assignable by the contractors, and their assignment of part of the contract to the plaintiff, and mere notice thereof to the board, did not impose any obligation upon the board to recognize the assignment, and to account and settle with, and pay the plaintiff for, work done and materials furnished by the latter. There was conflicting evidence upon two points: (1) Whether the commissioners, before the settlement, had notice of the assignment to the plaintiff; (2) whether the settlement was made in good faith. The judge instructed the jury that the plaintiff was entitled to recover, either if the defendant had such notice, or if the settlement was in bad faith. Exceptions were taken to the refusal to give the instruction requested, and to the instruction given upon the first alternative only. But it cannot be known on which alternative the jury proceeded in coming to their verdict. Upon the evidence before them, and the instructions given, they may have concluded that the settlement between the defendant and the original contractors was in perfect good faith, and left in the defendant's hands much less than the sum claimed by the plaintiff, and that the defendant never assented to any assignment or division of the contract, and may have found for the plaintiff upon the single ground that they were satisfied that the defendant had notice of the assignment. The decision of the case therefore turns on the correctness of the instructions refused and given upon the effect of the assignment and notice.

This case does not requires us to consider whether an assignment of the entire contract for the construction of the jail would have been consistent with the intention of the parties as apparent upon the face of the contract, or with the intention of the legislature as manifested by the statutes under which the contract was made. The plaintiff claims under no such assignment. Those statutes, and the judicial exposition, of them by the supreme court of the state, as well as the terms of the contract itself, are quite inconsistent with the theory that the original contractors can, at their pleasure, and without the assent of the county commissioners, split up the contract, and assign it in parts, so as to transfer to different persons or corporations the duty of furnishing different kinds of material and labor, and the right of recovering compensation for such material and labor from the county commissioners. Both the statutes and the contract contemplate that the county commissioners shall be liable only to the contractors for the whole work, and not to any person doing work or supplying materials under a subcontract with them. The original contract of the county commissioners was for the construction by Meyers & Son of the building, as a whole, by a certain date; for the payment to them by the commissioners of a gross sum of $20,000 for such construction, upon an accounting with them from time to time; and for the payment by the contractors of $25 as liquidated damages for every day that the building should remain unfinished beyond that date. The assignment was not in the nature of a mere order for the payment of a sum of money; but it was of that part of the contract which related to the iron-work, and required the assignee to perform this part of the work, and assumed to fix at the sum of $7,700 the compensation for this part, which the assignee should receive from the commissioners. There is nothing either in the original contract, or in the evidence introduced at the trial, to sho what proportion the iron-work bore to the rest of the work requisite for the construction and completion of the jail, or that any separate estimate of the cost or value of the iron-work was contemplated by the original contract, or ever made by the defendant, or by any officer or agent of the county. In short, the only agreement which the county commissioners were proved to have made was with Meyers & Son, to pay them a gross sum of $20,000 for the whole work upon an accounting with them, and Myers & Son paying damages as agreed for any delay in its completion. The agreement of Meyers & Son with the plaintiff assumed to compel the commissioners to pay the plaintiff, for its performance of part of the work, a definite sum of $7,700, and made no provision for damages for delay, and thus undertook to fix a different measure of compensation from the original contract. The facts that the iron-work was done by the plaintiff to the acceptance of the commissioners, though after the time stipulated in the original contract, and was of the value of more than $7,700, did not conclusively prove, as matter of law, that the commissioners, on behalf of the county, made or recognized any contract with or liability to the plaintiff in the place and stead of its assignors and employers, or preclude the commissioners from insisting on the right to pay no more than the amount due, according to the original contract, for the whole of this and other work necessary to complete the building, and to ascertain the amount so due by an accounting and settlement with Meyers & Son, in which the sum due for all kinds of work, as well as the stipulated damages for any delay in completing the building, could be taken into consideration. The county commissioners could not, without their consent, and at the mere election of the original contractors and their subcontractors and assignees, be compelled to account with the latter separately, or be charged with a separate obligation to pay either of them a part of the entire price, instead of accounting for and settling the whole matter with the original contractors. It might be within the authority of the commissioners, upon becoming satisfied that Meyers & Son, after having performed a substantial part of their original contract, were unable to complete it, to give their consent to such an agreement with the plaintiff as was described in the assignment; and it is possible that the jury would have been authorized, upon the evidence, to find such a consent. But the difficulty with the instructions given to the jury is that no question of such consent was submitted to or determined by them; and that they were, in effect, instructed, in direct opposition to the request of the defendant, that mere notice to the defendant of the assignment to the plaintiff would prevent the defendant from afterwards making a settlement with the original contractors in good faith, and according to the sums justly due by the terms of the contract from either party to the other, without retaining in its hands enough to pay the plaintiff's claim. This instruction held the defendant bound by a contract to which it was not proved to have ever assented, and requires a new trial to be granted.

The cases in other states cited for the plaintiff, in which municipal corporations have been held liable to an assignee of a contract upon notice of the assignment, without proof of their consent, expressed or implied, are distinguishable from the case before us, and quite consistent with out conclusion. In some of them, the assignments were of the whole or part of money already due, or to become due, to the contractor; in other words, assignments of a fund, and not of any obligation to perform work. Brackett v. Blake, 7 Metc. 335; Field v. New York, 6 N. Y. 179; Hall v. Buffalo, $40 N. Y. 193; Parker v. Syracuse, 31 N. Y. 376; People v. Comptroller, 77 N. Y. 45. In others, the assignments were of entire contracts for the labor of convicts, or for work upon streets, which wee held, from the nature of the subject, to imply no personal confidence in the contractor. Horner v. Wood, 23 N. Y. 350; Devlin v. New York, 63 N. Y. 8; Ernst v. Kunkle, 5 Ohio St. 520; St. Louis v. Clemens, 42 Mo. 69; Taylor v. Palmer, 31 Cal. 241. The plaintiff much relied on a decision of the supreme court of Pennsylvania, in a case in which a contractor to build a schoolhouse for a city assigned his right to all moneys due or to become due under it. The city, with notice of the assignment, and after the school-house had been built by the assignees, and accepted and occupied by the city, paid the last installment of the price to the original contractor. There was no controversy as to the performance of the work, or as to the amount to be paid, but only as to the person entitled to receive payment; and the court, treating the assignment as one of money only, held the assignee entitled to recover against the city. Philadelphia v. Lockhardt, 73 Pa. St. 211, 216. On the other hand, that court, speaking by the same judge, in a case decided within five years afterwards, and more nearly resembling the one now before us, where a contractor for building a bridge assigned all his interest in the contract, 'except the item of superstructure,' to one who had expended money upon the bridge, held that such a partial assignment of the contract, though notified to the city, did not make it liable to the assignee, because 'the policy of the law is against permitting individuals, by their private contracts, to embarrass the financial affairs of a municipality.' Philadelphia's Appeals, 86 Pa. St. 179, 182. See, also, Geist's Appeal, 104 Pa. St. 351, 354. It thus appears that the supreme court of Pennsylvania has taken the same view as the supreme court of Indiana, as already shown, holding it to be against public policy to permit municipal corporations, in the administration of their affairs relating to the construction of public works to be embarrassed by subcontracts between their contractors and third persons, to which they have never assented. Judgment reversed, and case remanded with directions to set aside the verdict and order a new trial, and to take such further proceedings as may be consistent with this opinion.