Henningsen v. United States Fidelity Guaranty Company

R. M. Henningsen and Edward W. Clive, as copartners, in May, 1903, contracted with the United States for the construction of certain buildings at Fort Lawton, in the state of Washington, and entered into a bond with the United States Fidelity & Guaranty Company of Baltimore (hereinafter called the guaranty company (as surety in the penal sum of $11,625 for the faithful performance of the contract, and to 'promptly make full payments to all persons supplying labor or materials in the prosecution of the work provided for in said contract.' The buildings were constructed in accordance with the terms of the contract, but the contractors failed to pay certain just and lawful claims for labor and materials, amounting in the aggregate to $15,409.04. After such default the guaranty company instituted a suit in the United States circuit court for the district of Washington, in which it made the contractors and all persons to whom they were indebted for labor and materials defendants, confessing its own liability to the full amount of the bond. A decree was entered, adjudging the company liable to such creditors of the contractors in the full sum of the bond,-$11,625,-and awarding payment to such creditors pro rata. It also adjudged that, upon such payment, the liability of the company upon the bond should be discharged. On March 16, 1904, pending the performance of the contract, the contractor, or rather Henningsen alone, for Clive had ceased to have any connection with the performance of the contract, made a written assignment of all payments which were then due, or might thereafter become due on account of the contract, to R. R. Spencer, in trust for the National Bank of Commerce of Seattle, to secure payment of a loan made by the bank to the contractors, October 10, 1903, of $3,500, and also subsequent loans, and, at the same time, gave as further security an order addressed to the United States quartermaster, requesting him to deliver to said Spencer all checks of the government on account of said contract. The moneys so loaned were paid directly by the bank to Henningsen, and handled and disbursed by him, without any supervision or control upon the part of the bank or Spencer. This suit was commenced by the guaranty company by a bill in the circuit court of the United States for the district of Washington to restrain the appellants from collecting or accepting the balance due on the contract from the United States. It appeared at the time of the commencement of the suit that there was in the hands of the quartermaster, due upon the contract, the sum of $13,066, which he was about to pay to Spencer under the assignment and order. On June 17, 1904, an arrangement was made between the parties, by which the sum of $8,024.21 was paid to certain creditors, and the balance, $5,041.79, was applied in conditional payment of the indebtedness of the contractors to the bank, with a stipulation that, if it should be finally determined that the guaranty company was entitled to receive it, then the bank should pay it to the guaranty company. This suit proceeded to a decree in favor of the guaranty company for $5,041.79, which decree was affirmed by the circuit court of appeals. February 12, 1906; 74 C. C. A. 484, 143 Fed. 810. The bond of the guaranty company was given under the requirements of the act of Congress of August 13, 1894 (28 Stat. at L. 278, chap. 280, U.S.C.omp. Stat. 1901, p. 2523), which reads:

'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 work, or for repairs upon any public building or public work, shall be required, before commencing such work, to execute the usual penal bond, with good and sufficient sureties, 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 for in such contract; and any person or persons making application therefor, and furnishing affidavit to the department under the direction of which said work is being, or has been, prosecuted, that labor or materials for the prosecution of such work has been supplied by him or them, and payment for which has not been made, shall be furnished with a certified copy of said contract and bond, upon which said person or persons supplying such labor and materials shall have a right of action, and shall be authorized to bring suit in the name of the United States for his or their use and benefit against said contractor and sureties, and to prosecute the same to final judgment and execution: Provided, That such action and its prosecutions shall involve the United States in no expense.'

Messrs. George E. De Steiguer and W. W. Wilshire for appellants.

[Argument of Counsel from pages 406-408 intentionally omitted]

[408]

Messrs. James B. Murphy, Harold Preston, Carroll B. Graves, and Edward B. Palmer for appellees.

[Argument of Counsel from pages 408-409 intentionally omitted]

Mr. Justice Brewer delivered the opinion of the court: