The opinion of the court was delivered by: ZAVATT
These are two suits on two Miller Act payment bonds, 40 U.S.C.A. § 270(a)(2). After New Hampshire Fire Insurance Company and Charter Electric Co., Inc., were made third-party defendants in Action No. 16718 pursuant to an order of this court dated August 17, 1956, the two suits were consolidated by an order of this court made and filed December 29, 1985. The third-party defendant, Charter Electric Co., Inc., was not served with a copy of the third-party summons or the third-party complaint and has not appeared. The defendant, Seacoast Repair Co., Inc., is in default of appearance and pleading and took no part in the trial. The defendant, Seacoast, filed a petition for an arrangement under Chapter XI of the Bankruptcy Act, 11 U.S.C.A. § 701 et seq., and was later adjudicated bankrupt in September, 1958.
In action No. 16717 the use plaintiff is suing the defendant, Seacoast Repair Co., Inc., as the contractor and the defendant, New Hampshire Fire Insurance Company, as the surety, pursuant to 40 U.S.C.A. § 270b, claiming a balance due of $ 16,500. In action No. 16718 the use plaintiff is suing the same contractor and its surety, The Home Indemnity Co., on a separate bond pursuant to 40 U.S.C.A. § 270b, claiming a balance due of $ 22,080. In action No. 16718 the Home Indemnity Company is suing New Hampshire Fire Insurance Company for the sum of $ 14,755 which it claims should have been credited to the contractor with reference to the contract covered by its surety bond, whereas the said sum of $ 14,755 is claimed to have been improperly credited to the contract covered by the surety bond of the third-party defendant, New Hampshire Fire Insurance Company. In each of these actions the use plaintiff claims to be the assignee of the contractor's subcontractor, Charter Electric Co., Inc., hereinafter referred to as Charter.
In action No. 16717 the surety denies all of the material allegations of the complaint and pleads, affirmatively, payment and estoppel. In action No. 16718 the surety denies all of the material allegations of the complaint and pleads a setoff for sums which it claims the subcontractor received from the contractor that should have been credited to the improvement covered by its surety bond but which were improperly credited by the subcontractor to the improvement covered by the surety bond of the New Hampshire Fire Insurance Co. It also pleads as a counterclaim that it is entitled to judgment against the use plaintiff in the sum of $ 14,755, because the use plaintiff so improperly applied payments received from the contractor. In action No. 16718 the third-party plaintiff (Home) demands judgment against the third-party defendant (New Hampshire) in the sum of $ 14,755, claiming that payments totaling that amount, which should have been credited by the subcontractor and the plaintiff to the improvements covered by its bond, were improperly credited to the improvements covered by the bond of the third-party defendant.
On the trial both surety companies stipulated that the subcontractor did all of the work required to be done by it under each of its subcontracts with the contractor; that written notice was given to the contractor within ninety days from the date when the subcontractor performed the last of the labor and furnished the last of the material for which the respective claims are made by the use plaintiff in each action, all as required by § 270b, and that each suit was commenced by the use plaintiff within one year after the date of final settlement of each contract between the contractor and the National Shipping Authority of the United States Department of Commerce, hereinafter referred to as the Government. On the trial, Home and New Hampshire stipulated that the third-party action of Home against New Hampshire be adjourned to a date for trial thirty days after the final determination of the issues between the use plaintiff and these two sureties and that the minutes of the trial of the said issues may be offered in evidence on the trial of the third-party action.
Home and New Hampshire, as defendants, claim that the assignments by the subcontractor to the use plaintiff are invalid and that, therefore, he has no capacity to sue them on their payment bonds. Home, as a defendant, claims that the subcontractor received payments from the contractor to the extent of $ 14,755 with knowledge that they derived from the contract between the contractor and the Government covered by its payment bond and that the subcontractor was under a duty to credit those payments to his subcontract with the contractor relating to that contract; that, because the subcontractor credited those payments to a subcontract with the contractor relating to a contract between the contractor and the Government covered by the payment bond of New Hampshire, Home is entitled to set off the sum of $ 14,755 against any sum found due to the use plaintiff in action No. 16718 or, in the alternative, to judgment in that amount against the use plaintiff, if the use plaintiff has the capacity to sue as assignee of the subcontractor.
After a trial to the court without a jury, the court makes the following findings of fact:
1. On March 1, 1954 the United States of America (hereinafter referred to as the Government) entered into a master contract with the contractor for the repair and alteration of its vessels. This contract, designated as contract No. M.S.T.-3096, established the terms upon which the contractor agreed to effect repairs, completions, alterations of and additions to vessels and parts thereof of the Government under job orders to be issued thereunder from time to time. The contractor agreed to furnish all necessary material, labor, services, equipment and such other things and services as would be necessary to accomplish the work specified in each job order and agreed that, prior to the commencement of the work specified in any job order, it would furnish a performance or payment bond, or both, if required by the Contracting Officer.
2. Pursuant to the master contract, the Government issued separate job orders to the contractor for the repair of each of the following vessels and payment bonds were furnished by the contractor, pursuant to the master contract and 40 U.S.C.A. § 3270a(a)(2), in each of which the contractor was the principal and the defendants, Home and New Hampshire, were sureties as follows:
Job Order No. Vessel Surety
3 U.S.N.S. Lt. James Robinson Home
U.S.N.S. Hodges Home
2 U.S.N.S. Sgt. Jonah Kelley New Hampshire
U.S.N.S. Golden Eagle New Hampshire
3. The contractor issued job orders to the subcontractor to furnish labor and materials necessary to complete certain items under its job orders as follows:
Date of Job Order Vessel Agreed Price
May 13, 1955 U.S.N.S. Sgt. Jonah Kelley $16,500
June 22, 1955 U.S.N.S. Lt. James Robinson 22,080
U.S.N.S. Golden Eagle 22,475
June 14, 1955 U.S.N.S. Golden Eagle 280
4. The subcontractor duly furnished all of the labor and material necessary to complete each of said purchase orders and the labor so performed and the materials so furnished under each of said purchase orders were performed and furnished in the prosecution of the work provided for in the master contract and the job orders between the Government and the contractor with reference to the Robinson, Kelley and Golden Eagle. Work on the Golden Eagle was completed during the latter part of June, 1955. Work on the Kelley started on May 14, 1955 and was completed on or about July 19, 1955. Work on the Robinson started on June 22, 1955 and was completed on or about July 20, 1955.
5. No labor or materials were furnished by the subcontractor with reference to the U.S.N.S. Hodges.
6. On December 1, 1947, before Charter received or performed any of the purchase orders from the contractor with reference to the Kelley, Robinson or Golden Eagle, it entered into an agreement in writing with the use plaintiff by the terms of which the use plaintiff agreed to purchase as 'absolute owner' 'acceptable accounts receivable and other choses in action' from Charter; to pay Charter 75% thereof and to pay the remaining 25% of each account so purchased (less interest and expenses) after he received payment in full of the balance thereof. As to accounts so purchased, Charter agreed to provide the use plaintiff with an assignment. The agreement provided that all accounts so sold by Charter 'shall be the property of' the use plaintiff. As to accounts so purchased, Charter was given the power to collect for the use plaintiff 'any purchased accounts receivable', 'assigned receivables' and all collections so received by Charter (the identical checks, monies or other forms of payment received by Charter) were to be held as the property of and immediately delivered to the use plaintiff. As to any receivable of Charter so sold by Charter and and not paid, Charter agreed to repay the use plaintiff 'promptly for any advances made against such receivable.' Nevertheless every unpaid receivable as to which Charter repaid the use plaintiff or which the use plaintiff charged back to Charter was to remain the property of the use plaintiff until Charter had fully reimbursed him for all receivables so purchased by the use plaintiff who had the right to retain that account as collateral for the obligations of Charter to him, whether those obligations arose under the agreement or otherwise. The use plaintiff had the right to notify Charter's customers that their receivables had been so sold and assigned and to collect the same directly in his own name and charge the collection expenses to Charter. Money coming into the use plaintiff's possession under the agreement could be applied by the use plaintiff to any obligation which Charter might at any time owe to the use plaintiff 'whether arising under this agreement or not.'
7. Charter assigned to the use plaintiff in writing pursuant to the agreement of December 1, 1947, the monies due and to become due to it under said purchase orders as follows:
Date of Assignment Vessel Amount
May 16, 1955 U.S.N.S. Sgt. Jonah Kelley $16,500
July 5, 1955 U.S.N.S. Sgt. Jonah Kelley $16,500
July 7, 1955 U.S.N.S. Sgt. Jonah Kelley $16,500
June 27, 1955 U.S.N.S. James Robinson 22,080
May 24, 1955 U.S.N.S. Golden Eagle 22,475
June 6, 1955 U.S.N.S. Golden Eagle 22,475
June 13, 1955 U.S.N.S. Golden Eagle 280
In each of these assignments Charter agreed to deliver to the use plaintiff all checks received by Charter from the contractor on the respective assigned accounts.
8. On May 18, 1955 the use plaintiff notified the contractor in writing that it was the factor of Charter, and on or about the following dates the contractor was notified that Charter had assigned its accounts under the purchase orders to the use plaintiff as follows:
Notice by: Date of Notice Account Amount
Use Plaintiff May 18, 1955 U.S.N.S. Sgt. Jonah
Charter June 6, 1955 U.S.N.S. Golden Eagle 22,475
Charter June 13, 1955 U.S.N.S. Golden Eagle 22,475
Charter June 13, 1955 U.S.N.S. Golden Eagle 280
Charter July 7, 1955 U.S.N.S. Lt. James
In each such notice, the contractor was requested to pay to the use plaintiff Charter's invoices billed to the contractor with reference to the assigned accounts.
9. Charter billed the contractor for the work done under each purchase order as follows:
Date of Invoice Vessel Amount
June 6, 1955 U.S.N.S. Golden Eagle $22,475
June 13, 1955 U.S.N.S. Golden Eagle 280
July 5, 1955 U.S.N.S. Sgt. Jonah Kelley 16,500
July 7, 1955 U.S.N.S. Lt. James Robinson 22,080
10. The contractor had several job orders under the master contract in addition to and simultaneously with those listed in Finding No. 2. It maintained only one checking account into which it deposited and mingled all monies received from the Government under all of its job orders, loans from its officers, loans and refunds ...