Prairie State National Bank of Chicago v. United States

The real contestants in the controversy below were the Prairie State National Bank and Charles A. Hitchcock, who respectively claimed the right to receive from the government a balance in its hands of $11,850. This balance arose by the retention from time to time of 10 per cent. upon the estimated value of work done under a contract entered into on May 10, 1888, by the government with Charles Sundberg & Co., wherein they agreed, for the consideration of $118,590, to erect a customhouse at Galveston, Tex. The right of the government to retain the reserved sums was founded upon the following provision in the contract:

'Payments to be made in the following manner, viz.: Ninety per cent. (nine-tenths) of the value of the work executed to the satisfaction of the party of the first part will be paid from time to time, as the work progresses, in monthly payments (the said value to be ascertained by the party of the first part), and ten per cent. (one-tenth) thereof will be retained until the completion of the entire work and the approval and the acceptance of the same by the party of the first part, which amount shall be forfeited by said party of the second part in the event of the nonfulfillment of this contract, subject however, to the discretion of the secretary of the treasury; it being expressly stipulated and agreed that said forfeiture shall not relieve the party of the second part from liability to the party of the first part for all damages sustained by reason of any breach of this contract.'

While the respective claims were pending before the comptroller of the treasury, and at his request, the secretary of the treasury transmitted the same to the court of claims, under section 1063, Rev. St.

The bank bases its claim to the fund upon the following state of facts: On February 3, 1890, in consideration of advances made and to be made by the Prairie Bank, Sundberg & Co. gave to one Van Zandt, a representative of the bank, on order or power of attorney authorizing him to receive from the United States the final payment under the contract. The acting secretary of the treasury declined to recognize this nower of attorney, but expressed a willingness, on request of the contractors, to forward, when it became due, the check for the final payment to the address of Van Zandt. Being informed by the latter that this arrangement would be satisfactory to the contractor and himself, the assistant secretary of the treasury gave direction to the disbursing agent of the building to send the final check, drawn to the order of the contractor, to the address of Van Zandt. Between February and May, 1890, upon the faith of the lien upon the final payment alleged to have been acquired by this arrangement, the bank advanced to Sundberg & Co. about $6,000, but, although it was claimed by the bank that the amount of the advances in question were, in large part, actually used in the performance of the contract of Sundberg & Co., the court of claims failed to find such to be the fact. It is true that the court, in one of its findings, gives 'a full and accurate statement of the checking, deposit, and loan accounts between the bank and Sundberg & Co. from January 24, 1890, to August 15, 1890'; but to whom the checks were made payable, or for what purpose they were issued, does not appear.

Hitchcock's claim to the fund was asserted upon the ground that in May, 1890, Sundberg & Co. defaulted in the performance of their contract, and that thereupon he, as surety, without any knowledge of the alleged rights of the bank, assumed the completion of the contract, with the consent of the contractors, and that he had disbursed therein about $15,000 in excess of the current payments from the government. The bond which Hitchock executed as surety was made pursuant to the following provision contained in the contract between Sundberg & Co. and the government:

'It is further covenanted and agreed between the parties to this contract that the party of the second part shall execute, with two or more good and sufficient sureties, a bond to the United States, in the sum of thirty thousand dollars ($30,000), conditioned for the faithful performance of this contract, and the agreements and covenants herein made by the said party of the second part.'

The court of claims held that Hitchcock was entitled to the fund (27 Ct. Cl. 185), and entered judgment accordingly. The Prairie Bank thereupon appealed, and a cross appeal was taken by the United States, in order that it might be protected from a double liability in the event this court should hold that the Prairie Bank was entitled to any part of the fund.

Howard Henderson and A. B. Browne, for the bank.

George A. King, for Hitchcock.

Asst. Atty. Gen. Dodge, for the United States.

Mr. Justice WHITE, after stating the case, delivered the opinion of the court.