Petition for Writ of Certiorari — Dakota Electric Supply Co. v. St. Paul Fire & Marine Insurance

Supreme Court brief1963

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WIBRARY, 7 | Gepen cn us

= CoOuPT, q¢. 2. 4

JAN 23 1963

JOHN F. DAVIS, CLERK |

In The

@usceme Court of the Bnited States

No. 769

UNITED STATES OF AMERICA for the use of DAKOTA.

ELECTRIC SUPPLY COMPANY, a North Dakota cor-

poration,

sahniier,

aN . vs.

ST. PAUL FIRE AND MARINE INSURANCE |

COMPANY, ass

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

EIGHTH CIRCUIT CQURT OF APPEALS

‘

PHiuir B. VoGEL

Fargo, North Dakota

(Counsel of Record )

Myron H. Bsicut

.. Fargo, North Dakota oe

| Attorneys for Petitioner eee

1963--Northwest Brief Printing Co., 22 S. Fourth St., Minneapolis 15, Minn. FE. 86-5078,

9°

INDEX :

| 7 Page

Jurisdiction of This Court : l

Questions Presented for Review 2

Statutes =

A Concise Statement of the Case 2

Argument ene peck 4

Appendix : te Lae

Opinion , Seiad 11

Judgment ; 7 26

Statutes ; 27

TABLE OF AUTHORITIES

CASES: < ; Page

Colunrbia Digger Co. v. Sparks (thi. Cir. 1915 »), 297 Fed.

Se 7

R. P. Farnsworth & Co. v. Electrical Te Co. (5th_

Cir. 1940), 1t2 F.2d 150, cert. den. 311 US. 700, . ay ;

Ed. 454, 61 S.C. 139 5,6, 7,9

Koehring Company v. United States ae Cir. 1962),

303 F.2d 468 5,7

F. H. McGraw & Co. v. Mileor Steel Co, (2nd Cir. 1945),

149 F.2d 301, cert. den. 326 ToS, 753, 90 L.Ed. 452, 66

S.C, 92 nae 9

Standard Oi] Co. vy. Day (sup Ct. Minn, 19: 24), 201 N.W.

ES settiawacaas x 9

_United States v. Beck (eh Cir. 194: >), 151 F.2d O64 5,6

United States v. Johnson, Smathers and Rollins (4th -

Cie, 1003), 67 P38: 121.22... 5,6

Utah State Building Commission v, Great “American In-

demnity Co. (Sup. Ct. Utah, 1943), 140 P.2d 763 9

TEXT Books:

Restatement of the Law, Contracts, Sec, 887, p. 729 4

- In The a

Supreme ‘Court of the Anited States

UNITED STATES OF AMERICA for the use of rs

ELECTRIC SUPPLY COMPANY, @ North Dakota cor-

poration, : .

; se Petition,

ee ee a ae,

ST. PAUL FIRE AND MARINE INSURANCE

COMPANY, e

js ei . Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

EIGHTH CIRCUIT COURT OF APPEALS -

To the Honorable, the Chief Justice and the Associate Jus-

tices of the Supreme Court of the United States: .,

The petitioner, Dakota Electric Supply Company, prays

that a writ of certiorari issue t6 review the judgment of the

Eighth Circuit Court of Appeals entgred and rengdgped

against the petitioner on the 18th day of October, 1962. The

opinion is reported as Case No. 16,914 in 309 F.2d 22. Copy

of the opinion is ineluded in the Appendix. .

: 4 a

JURISDICTION OF THIS COURT

The iudgment sought to be,reviewed is “dated October 18,

1962. It was entered on that date. A petition for rehearing

was denied by order entered November 19, 1962.

The petitioner relies upon the provisions of 28 U.S.C., Sec-

tion 1254 and Section 2101 to sustain the jurisdiction of this -

Court. 7

“* Petitioner believes that now is the: appropriate time to

petition for a writ because the decision of the Court of Ap-

peals is final cone erning the fundamental issues of this ¢ase.

"QUESTIONS PRESENTED FOR REVIEW

In the absence of fraud or bad faith, can the surety under

a “Miller Act;’ payment bond invoke a special rule requiring

application of payments to a guaranteed debt, thus defeating

*-@ materialman’s claim; and if so, can such special rule be

invoked when payments from the subcontractor debtor to the"

materialman creditor are applied, to other matured debts ac-

cording to the debtor’s direc sen, such payments not being

identifiable as having their source in any proceeds of the-gov-

ernment construction contract covered by the bond?

[

STATUTES

~The statutory provisions involved are Sections = yeid)

270b of Title 40, U.S.C%A., as set out at page 296 gnd’ pie

345, thereaf. The provisions of Section 270b(b) of Title 40,

mf S.C. 7 are set out at page 64 of the 1961 pocket supple-

ment of that title. The pertinént text of these sections-is set

out as an appendix to this petition.

A CONCISE STATEMENT OF THE CASE

Thé essential facts are not disputed. -

On April 6, 1959, the Jo&eph A. Bass Company (herein-

after called Bass) contracted with the United States for

dormitory construction at the Minot Aird orce Base in North

Dakota. The respondent, St. Paul Fire and Marine Insur-_

ance Company, was the surety on the required perment bond.

Thereafter, Bass subcontracted with John M.Sc — oder, Ine.

(hereinafter called Schroeder), for the electrical i, . ylation

at a total price of $39,147.00 (R. p. 63). The subcontract

called for a performance bond by Schroeder. This require-

e e

ment was waived by Bass, as the subcontract permitted, and

the bond was not furnished (R. p. 69). Schroeder ordered

supplies for the Bass job from petitioner, which arrived at

the site on various dates between June 17, 1959, and March

_ 24, 1960, The price of these supplies was $6,705.98 (R. pp.

7, 102, 103). earns |

During 1959, Schroeder was performing other contracts

for Federal, State and local governments, either as a prime

contractor or asa subcontractor. It ordered materials for

these jobs from petitioner and other®(R. p. 103). r

Schroeder maintained a ,zeneral control bank account in

which it deposited all receipts from these contracts, as well

as from bank loans and over-the-counter sales. Out of the

general account Schroeder made substantial deposits to a

separate. checking account for payroll. All operating ex-

penses and payments to its creditors were disbursed .out of

the general account (R. p. 108).

On various dates between August 21, 1959, and March 18

1960, Bass made monthly progress pay ments to Schroeder

totaling $80,9! 53.85 in connection with the Minot Air Force

Rase Project (R. p. 104) without specific direction as to ap-

plication by Schroeder. Because of other payments by Bass

to complete .the project, no amount is presently due from

Rass to Schroeder. The Bass progress payments were inter,

mingled in Schroeder's general account. From Angust of

1959 through May® of 1960. deposits of more than a million

dollars were made in this account (Circuit Court Opinion,

p. 3). E

On varions other dates from Angust of 19. no up to March

28,1960, Schroeder made periodi¢ pay menta to petitioner

totaling in excess of $42,000.00. Schroeder specifically desig-

nated that the paynients be anplied against certain,of peti-

tioner’s invoices other and older than those for the Naks job.

This-was in line with Schroeder's policy, followed nince its or-

| ganization, of paying a supplier's oldest invoices first ( R. p.

6). Petifioner knew that Schroeder was receiving progress

payments from Bass and others, but. did not know when these

payments were received (R. p. 51). Petitioner did not have

‘access to the. books and records of Schroeder and did not

know the source of the money paid to it by Schroeder (R.

p. 51). The Schroeder payments to petitioner cannot be

identified or traced as having their source in the Bass pay-

ments to Schroeder, since contemporaneously with. Schroe-

der’s receipt of Bass payments, Schroeder made withdrawals

for payroll and pay rments to other creditors in an amount

greatly in excess of the Bass payments (R. p. 105).

On March 28, ‘1960, petitioner received $380,000.00 from

’ Schroeder, after .petitioner learned Schroeder was insolvent

(R. p. 43). This payment was voluntarily turned over to the

trustee in bankruptey (R. p. 43). me

Petitioner’s account for materials furnished forethe Tass

‘job was not paid and after giving the requisite notice, suit

was filed in Federal District Court pirsuant to the provi-

sions of 40 U.S.C. 270b( b). Petitioner secured judgment. - :

‘The Court of Appeals for the Eighth Circuit reversed.

ARGUMENT

‘The general rules concerning. application of payments to

existing debts are set out in Restatement, Contracts, tion

387 (1932), as follows: : 7

“Where more than one matured contractual duty is owed

to the same person and these duties are for performances

of identical character, such as the payment of money, a

payment or other performance capable of discharging in

whole or in part either one or another of these duties, is

. applied, subject to the rules stated in Sections 388-393. .

“(a) As the debtor, at or before the ‘time of payment

or performance, manifests to the creditor, an intention to .

have it applied; or, ,

““(b) If the debtor makes.no snch manifestation, as’

the creditor within a reasonable time manifests an =

tention to have it applied; or, t

*“i¢) Ifp neither the debtor nor creditor makes a

seasonable manifestation of intention, as q@ just regard

sons makes it desirable that it should be applied.”

These rules have been followed by Federal Courts. Koehring |

Company v. U nited States (10th Cir. i963) , 303 F.2d 468. ¢

The Opinion of the Cc mwah of pew has applied a different

ani £ aay rule stated s as follows:

he debtor is under a duty to a third person to devote

funds paid by him to the. discharge of a particular debt,

the payment must ‘be applied if the creditor knows or

has reason to know of that duty. This is #0 despite the

debtor's contrary direction.” (Cireuit. Cour Opinion,

p. 6, Appendix p. T4.)

The rule was purportedly applied in accordance with the

Miller Act cases of United States v. Beck (6th Cir. 1945), |.

151 F.2d 964; R. P. Farnsworth €& Co. v. Electrical Supply

Company (Sth Cir. 1940), 112 F.2d 150, cert. denied, 311

U.S. 700, 85 L.Ed. 454, 61 8.C: 139, and United States v,

Johnson, Smathers and Rolling (4th Cir. 1933), 67 F.2d 121.

Actually, the special rule adopted by the Court of Appeals

is contrary to and an unwarranted extension of Re doctrine

of the Miller Act cases cited in support of such rule.

As we read Beck, Farnsirorth, and Johnson, in order to

apply the special rule, the following must he established :

(1) The debtor has more than one matured debt owing to

the creditor. §

(2) The debtor receives money from a third party.

(3) The debtor is under a duty to the third party to use

the money received to pay a particular debt.

(4) The debtor makes a payment to the creditor.

(5). The mopey paid the credit ‘r can be established as hav-

ing its sourvesin the third party’s or to the

“debtor. "i °

~ (6) The creditor knows, or should know, the source of the

money received fsom the debtor... .

(7) The creditor is aware of the duty tlie debtor owes to |

*s the third party to pay the: particular debt.) .*

When all of the above are established, this special rule re-

quires that the- debtor's pay mett’ to the creditor-be applied

against the debt which the debtor ‘is under a duty to the

third party to pay, regardless of any attempted designation

by either the debtor or creditor.

' No case applies the special rule unless the third party's

‘funds are used in Payment of the debt between creditor and

debtor. The Court of Appeals acknowledges that in Farns-

worth, Beck and Johnson, “* * * the flow of finds from the

general contractor threugh the subeontractor to the st

plier was more readily identifiable than is the situation here.”

(Cirenit. Court Opinion, page 18, Appendix paze 24.) The ~

stipulated facts and undisputed findings submitted to the

Court of Appeals were that the subcontractor debtor was

engaged in work and received progress payments from a num-

ber of bonded governmental construction jobs, both State

and Federal, that all receipts were deposited in a general

acconnt and disbursements made therefrom. With relation

to the payments made from the general contractor Bass to

the subcontractor Schroeder, the following was the uncon-,

tradicted finding: ia

“That the receipt ‘and disbursement record of John M.

Schroeder, Inc., indicates that its receipts of payments

from Joseph A. Bass Company on account of the Bass

contract were deposited in its general bank’account and

funds were used for the payment of general expenses of

operation -of John M. Schroeder, Inc., including pay-

rolls, payments of accounts, ete., and that said proceeds

are not traceable to the payments received by the Use

Plaintiff front the subcontractor; * * *.” (R. p. 105.)

Thus, it is not possible that the above language, of the Court

of Appeals can be construed as a determination that the

Schroeder payments to petitioner could be‘identified as hav-—

ing their source in the Bass payments .to Se ‘hroeder. The

opinion must stand for the proposition that establishing the

source of pay ments is not an essential prerequisite to apply-

ing the special rule. a ;

In the AKoehring case, which was also a suit under the

‘Miller Act, the 10th Circuit refused to apply the special rule

of application of payments because it was not established

that the creditpr was aware of the duty owed by the debtor

to the third nc to apply the payment ipainst a specific

debt. We see no basis for reconciling the Koeehring case with

the Court of Appeals’ Opinion. Failure to establish the

source of the money paid to the creditor seems equally as

erncial as failure to establish that % § creditor was aware of

the debtor’ s duty to the third party.

In the non-Miller Act case of Columbia Digger Co, ».

Sparks (9th Cir. 1915), 227 Fed. 780, the source of the pay-

ments was established. The majority opinion apparently

did not require that the creditor have notice as to the source,

as a prerequisite to invoking the special rule concerning ap-

plication of payments. To this extent the Opinion seems in

conflict with Farnsirorth, and was criticizel therein as ap-

- parently going too far. In the present case, not only does the

Court of Appeals waive the requirement that the source of

the Schroeder payments to petitioner be established, -but also

charges the petitfoner with knowledge that these payments

had their.sonrce in the Bass payments to Schroeder. The com-

ment of the dissenting jndge in Sparks, as follows, seems

“y

even more appropriate when applied to the Opinion of the

Court of Appeals: | ;

“The decision of the majority exhibits a tender regard

for the rights of sureties, but a woeful disregard for the

obligation of private contracts.” 227 Fed. 780 at 76.

Petitioner does not construe‘the Opinion of the Court of

Appeals as including a finding that during the period from

June of 1959 through March of 1960, petitioner controlled

Schroeder so that Bass payments to Schroeder coutd be

treated as payments to petitioner. The Opinion does not say

this. The trial court rejected respondent’s proposed find-

ings concerning control (R. p. 110). There is substantial

evidence in the record indicating that petitioner did not

control Schroeder (R. pp. 36, 38, 59,51, 54,60). Admittedly

there was a close relationship between Schroeder and _peti-

tioner.. The Court of Appeals considered the facts of this

relationship and petitioner’s knowledge of Schroeder's op-

eration as a bar to petitioner's rights under the Miller Agt

(Cirenit Court Opinion, pages 8-11, 16, 17, Appendix pages

16-19, 22-24). The Distriet Court deemed these facts un-

necessary to its decision (Cirenit Court Opinion, page 8, Ap-

pendix page 16; R. Pp. 108-111). One of petitioner's officers

stated that he knew that Schroeder was probably receiv:

_ ing progress payments from Bass during the period in

; question (R. p. 51). Advance payments and progress pay-

ments area normal method of financing construction projects,

both public and private. All materialmen know or should

know that these payments are made. The close relationship

between petitioner and Schroeder provided information which

petitioner was alresdy aware of as a material ne a in the

construction industry. We do not believe that this knowl-

edge can be used as a substitute for estahlislfing that Bass

money was used by Schroeder th pav petitioner. Tf it can,

the result will be a substantial impact on the protection Con-

‘

gress provided subcontractors, laborers and materialmen in

government construction, an area of ever-increasing import-

ance to the nation’s economy.

There are a substantial nimber of cases which reject the

special rule of application used in Farnsiwerth and compan-

ion Federal cases. ‘These include F.. 11. MeGraw & Co. v.

Milcor Steel Co, (2nd Cir, 1915), 149 F.2d 301 (applying

New York law), cert. denied, 326 U.S. 753. 90 L.Ed. 452, 66

S.C,.92; Utah State Building Commission vr. Great Ameri-

can Indemnity Co, (Sup. Ct. Utah, 1943), 140 P.2d 763; and

Ntandard Oil Co. vr. Day (Sup.-Ct.. Minn. 1924), 201 NW.

410. These cases take the position that money paid to a con-

tractor (or ao subeontrattor is received without “attaching

equities” in favor of a surety. In the Great American In-

demnity Co, case, the Utah Supreme Court stated that the

role requiring application of payments to the debt for which

the surety was liable had its origin in the days when sureties

were gratuitous and were given) special consideriitjon hv

courts of equity. Concerning modern day sureties, the Court

sid as follows: . | ’ e

“Sureties in modern business are quite able to take care

of themselves, They select their own risks and can, by

contract, maintain surveillance over the disposition of

the funds received on the contract upon which they are

surety. The misapplication of funds is one of the haz-

ards of suretyship.” 140 P.2d 763 at 770

Petitioner submits that the special rule concerning appli-

cation of payments to existing debts as ennneiated in the

cited Federal cases is not in accord with the modern day

realities of the construction industry, well illustrated by the

textiniony of the.president of Schroeder that contractors must

necessarily use spec ifie contract monies for payment of other

obligations such as other payrolls and stock items (R. pp.

62-63). By allowing sureties to avoid their contractual ob-

ligations under the guise of “attaching equities” the very

purpose of the Miller Act is defeated, in that unpaid sup-

pliers remain unpaid. In the absence of fraud or bad faith,

we see no reason why sureties should be afforded this special

protection. We note that the Court of Appedls did not ques-

tion or impugn the honesty of petitioner or its representa-

tives (Circuit Court Opinion, pp. 17, 18, Appendix pp. 24-25) ..

We realize that writs are sparingly granted. Nevertheless,

we believe that the following factors weigh heavily in favor

of granting a writ in this case:

(1) The conflict hetween the Opinion of the Court of Ap-

peals and the Opinions of the 4th, 5th, 6th and 10th

Circuits concerning application of an important rule

of law to an important Federal statute.

(2) The impact that the Opinion of fhe Court of Appeals

will have on, the protection provided subcontractors,

laborers and materialmen under the Miller Act.

(3) The continuing uncertainty as to the validity of the

special rule of application of payments to guaranteed

debts as reflected in both the Federal and State cases

* of the past fiftv or more vears.

’ WHEREFORE, it is respectfully submitted that petitioner's

prayer for a writ of certiorari to review the judgment of the

Eighth Cirenit Court of Appeals should he granted.

Dated this 18th dav of Jannarv, 1963.

Respieetfully submitted,

Prmir B. Voer. °c «@

Fargo, North Dakota °

< (Counsel of Record)

Myron H. Bricut

Fargo, North Dakota

Attorneys for Petitioner

’ APPENDIX:

4 .

—_—_

(Opinion) —

UNITED STATES‘COURT OF APPEALS

For THE CicuTn Crmcvir

-_—__—— 4

\ No. 16,914

St. Paul Fire and Marine Insurance Company,

. >} Appellant,

VS.

United States of America for the Use of Dakéta Electric

Supply Company, a North Dakota Corporation,

Appellee.

Appeal from the United States District Court for the

District of North Dakota.

é f-

[October 18, 1962]

sefore VAN OosTPRINT and BLACKMUN, Cirenit Judges,

and HENLEY, District Jndge.

7 —-

BLACKMUN, Cirenit Judge.

This Miller, Ast case arises ont of dormitory construction

at the United States Air Force base at Minot, North Dakota.

Tried to the court, it resulted in a jndgment for the plaintiff

supplier and against ghe defendant stirety. The latter has

appealed. 7 :

The general contractor was Joseph A. Bass Company. Its

electrical subcontrator (hereinafter called “Schroeder” ) was

dohn M. Schroeder, Inc. The supplier, or use piaintiff, is

Dakota Electric Supply Company. The defendant St. Paul

Fire and Marine Insurance Company is the surety on the

‘12!

payment bond required .of Bass by §Tia) (2) of the Act, 40)

S.C. §270aia)y (2).

The basic facts are not in dispute and, indeed, the parties

have stipulated here that, with stated exceptions, the find:

ings made by the trial court are acceptable as facts relevant

to the issues of this appeal : ;

(a) The prime contract was executed by the United States

and Bass on April 621959. Bass and Schroeder then entered

into the subcontract for the electrical installation. The sub-

contract cailed for a performance bond by Schroeder; this

requirement, however, was waived by Bass, as the subcontract

permitted, au@ the bond was not furnished.

ib) The electrical equipment ordered by Schroeder from

Dakota for the Bass job arrived at the site on various dates

between June 17, 1959, and March 24, 1960. Tt commanded

a total agreed price of 86,705.98.

te) During 1959 Schroeder was also engaged in electrical

work on several other government and public contracts and

on ventures of a private nature. It ordered materials for

those projects from Dakota and other suppliers. Schroeder

maintained at the First National Bank of Grand Forks a

single general control bank account in which it deposited all

payments received by it in the operation of its entire busi.

ness. From this general account it disbursed operating ex

penses, payments fo creditors, and transfers to another ac

eount it maintained fer payroll, Although Schroeder kept

4 separate record for each of the several projects on which it

was engaged and for its general inventory items, it did uot

maintain a separate bank account for each project

(d) Qn various dates from August, 1959, to March, 1960,

Bass made progress payments to Schroeder for labor and

materials furnished to its job. These totaled more than

£20,000, Schroeder deposited these payments in its general

bank account. Later Bass made some direct payments for

shor and materials in order te complete Schroeder's portion

of the job.

(e) During the same period receipts of more than a million

dollars were deposited in the Schroeder bank account. The

Bass payments were thus about 3% of thestotal deposits.

if) During the same period Schroeder made payments to

Dakota aggregating ln excess of $72,000. These were spe-

cifically designated by Schroeder for Dakota invoices other

and ofder than those for the Bass contract. This was in line

with Schroeder's polic\, followed since its organization, of

paving a supplier's oldest invoices first. Because of interven:

ing withdrawals for operating expenses, repayment of bank

loans, and the like, the Bass payments deposited in Schroe-

der’s general account cannot be traced through that account

to specific payments made from it by Schroeder to Dakota.

ig) Bass did not know that its progress paivments were

net being applied te Daketa’s inveices for the Bass joh. AL

thoneh its checks for these payments carried referefices to

The deb. Rass designated no specific application of the prog:

ress puviments : .

thea hy the end of Pebruary, 1960, Schroeder was, insol-

vent. A trustee in bankruptey was subsequently appointed

for it. Dakota turned over to this trustee S20.000 (ineluded

in the STZ.000 figure mentioned above) which it had obtained

from Sehroeder in March after Dakota had learned of Schroe-

ders inselveney

(it After complying with the notice provisions of the Act,

Dakete brought this suit in Nevember, 1960.

Dakota asserts that these facts add up to the classic sit.

nation which, when present in a Miller Act controversy, pre-

sents a case for recovery against the surety: Dakota supplied

materials to a subcontractor engaged in the performance of

a government contract; it did not receive payment for those

materials; and it complied’ with the notice provisions of the

Act: ,

This prompts us to make at this point some general obser-

vations before setting forth additional facts which the surety

claims are significant:

1. Comments which appear in the authorities te the effect

that a surety is a favorite of the law and ‘that his contract is

to he strietly construed (see, for example, Stete rv. Padgett,

1926, 54 ND) 211, 200 NOW. 38s, 392) have never heen held

het to apply te compensated surety companies, American

Cas. Cn. vr. Bresina Constr. Co. 8 Cir... 1961, 205 F.2d 6028,

607, footnote 6; Massachusetts Bonding & lus. Co. rv. Feuts,

& Cir, 1950, 182 F.2d 752. TH6; T2 CUES.. Principal and

Surety, £102: 50 Am. Jur, Suretyship, $8382, 248.

[ed

2. Although there is diversity of citizenship between Da-

kota and the surety here, this is not a diversity case. The

amount in controversy is Jess than the statutory minimum

prescribed by 28 U.S.C. §13321a). The action, instead, is

instituted under §2(b) of the Miller Act, 40 U.S.C. §270b

ib), which authorizes suit in federal court irrespective of

the amount in controversy, and it is based on, the payment

bond required by $1(a)(2) of that Act. The xituation there.

fore is not one where state law necessarily governs.! BF.

Farnsugiyth & Co. vr. Electrical Supply Co.. 5 Cir., 1940, 112

F.2d 158, 154, cert. den. 311 U.S. 700. Compare United States

er rei erroll r. Beck, 6 Cir, 1945, 151 F.2d 964, 966, and

First Camden Nat'l. Bank & Trust Co. vr. Aetna Cas & Nur.

Co., 3 Cir., 1942, 132. F.2d 114, 116, cert den. 319 U.S. 749.

3. The Miller Act has for its purpose the protectign of

those who supply labor or materiais for: use in goversiipnt

construction. It is to be liberally construed. It is designed

to give the supplier the same protection he weuld ordinarily

receive under state: lien laws., The bond protection it pre-

scribes is in lien of those liens. [onited States ex rel Sher-

man v. Carter, 1957, 343 U.S. 210, 216-7: Continental Cas.

Co. vr. United States ex rel Robertaon Lumber Co.. & Cir.,

» 1962, 305 F.2d 794, 797 (petition for certiorari pending | ¢

Tnited States ex rel Hopper Bros, Quarries vr, Peerless Cas.

fo, & Cir, 198, 255 F.2d 137, 14.8, cert. den. 358 UUS. S31.

It has even been said that the Act was not designed to pro-

tect general contractors.: St. Pael-Mercury Indem. Co. rv.

I nited States ex rel Jones, 10 Cir., 1956, 288 F.2d 917, 921.

4. Where, as here, there are outstanding two or more

matured and similar obligations of a debtor to one creditor

and a payme at by that debtor to the creditor, the question

of proper application of that payment arises. This fact situa:

tion and its variations have provoked widespread litigation

and have resulted in claimed conflict in the cases. It is per

!Nevertheless. we note, for what it may be worth, that §22-05-06 of the

North Dakota Century Code provides as follows

“A surety is exonerated: ° ° °

“3. To the extent to which he is prejudiced by anv act of the creditor

which would naturally prove injurious to the remedies of the surety or

inconsistent with his rights, or which lessens his security. * © °"

haps not incyrrect to say, however, that the law today shapes

up generally as follows: e

(i) The payment is applied as the debtor intends

and se manifests to the creditor before or at the time of

the payment.

(ii) If the debtor fails se to indicate, the payment

is applied as the creditor, within a reasonable time. de-_

\iii) If neither the debtor nor the creditor season-

_ ably so indicates, the payment is applied as a just regard

to its effect upon the debtor, the creditor, and third .per-

sons Inakes it desirable that it should be applied. This

usually tesults in its apylication to the oldest unsecured

account, : : - é

(iv) If the debtor is ‘under a duty to a third person

to devote funds paid by him to.the discharge of a pur:

ticular debt, the payment must be so applied if the credi-

tor knows or has reason to know of that duty. This is

xo despite the debtor's contrary direction,

This “rule of freedom of application rests upon the concept

that the money which the debtor is utilizing to make the pay-

ment is his own and is free for use as he pleases. The noted

exception, phrased in terms of duty, rests on’ equitable con-

siderations. Examples which the cases recognize without

much conflict are where the surety itself makes a payment to

the debtor or where money which comes to the creditor from

the debtor is the same money for the payment of which the

surety is hound and the creditor knows the source of that

fund ‘

These rules? are outlined in detail, and with Mustrations,

in the Restatement of the Law of Contracts, §$387, 38% and

34, and dre noted in such general compendia as 70 C..8.,

Payment, §§50- 80; 72. CUIS., Principal and: Surety, $144;

and 40 Am. Jur., Payment? $§108.150, and dn the notes at

21 ALR. 704 and 57 A.L.R.2d 855, and at 41 A.L.R. 1297,

130 A.L.R. 198 and 166 A.L.R. 641. Representative cases are

cited in these works. We mention.the following only as illus-

trative: Herrman rv. Daffin, Mo. App., 1957, 802 S8.W.2d 313,

2We note also, again for what it is worth, that these rules have’ heen largely

adopted by statute m North Dakota) North Dakota Century Code, §9-12-07.

“16

315-6; Mar yland Cas, Co. v. City of South Norfolk, 4 Cir.,

1932, 54 F.2d 1032, 1038, cert. den. 286 U.S. 562; Firat Nat'l

Bank of Mandan v. Larsson, 1937, “67 N.D. 243, 271 N.W. 289,

291; Depositors’ Holding Co. v. Brown, 1933, 64 N.D. 222,

251 N.W. 295, 298; United States er rel General Electric

Distrib, Corp. v, Bell Constr. Co., 7 Cir., 1955, 226 F.2d 99.

Much of the conflict in the cases revolves about the stated’ .

exception and in the determination whether under the facts

there is a duty toApply a payment in a particular way. Com-

pare, for example, the opposite approaches, taken with re-°

spect to the significance of knowledge on.the part of the credi-

tor of the source of payment ei of an existing surety rela-

tanetin, in Standard Oil Co, vr. Day, 1924, 161 Minn. 281,

5-7, 201 N.W. 410, 412, 4d A. LR. 1291, and in Ash Grore

kane, €& Portland Cement Co. vr. Méran Conatr. Co., 1941, 139

Neb. 176, 296 N.W. 761, 762-3. :

Dakota takes the position that these rules, as applied to -

the undisputed facts outlined above, compel a judgment in

its favor. It entphasizes that Schroeder, as it made its pav-

ments to Dakota, specifically earmarked those payments for

application to older ohiigations owing bv it to Dakota and

not to invoices issned with respect to the Rass contract, and

that Dakota seasonably so applied those payments. It ures,

too, that, althongh Dakota mav have known of the payments

bv Bass to Schroeder, it did not know when those payments

were made and, in anv event, the funds which Dakota received

were not funds which had originated with Bass. The surety's

response is that Senroeder was under a.duty to Bass and to

it to devote the Rass payments to the discharge of the obliga.

tion for which the payment bond was given, that Dakota

knew or ‘had reason to know of that duty, and that Schroe-

der’s designation of the older obligations owing to Dakota

was of no effect.

It is at this point where additional fac ts in the record, also

largelv undisputed, assume importance, These have to do

with knowledge and:claimed control of Schroeder by Dakota

throughout the period of the Bass payments. The trial cort

deemed it unnecessary té®make specific findings with respect

to them. Those facts are the following:

(j) Dakota was organized i in 1954. It pirrchased its inven-

torv and business from Red River Industries, Ine. which

e 17

theretofore had also been known as Dakota Electrie Supply

Company. In that transaction Red River received $225,000

redeemable non-voting stock of Dakota and loaned $100,000

to Dagota on an open note: A part of this loan was still out

standings in June, 1959.

(k) Joseph D. Farnham was president of Red River and

owned about 605 of its shares.

(1) By June, 1959, Schroeder owed Dakota over $120,000.

~(m) John M, Schroeder was Shroeder’s president, He

owned its outstanding 540 shares, Of those shares 520 were

pledged to Red. River to secure Schroeder's note, Mr, Schroe-

der was also personally indebted to Red Riyer. Farnham

had known Mr, Se hrodder since 1951.

(n) In May, 1959, Harold H, Berg, Dakota's credit man-

ager, vice-president and treasifrer, and Fred R. Orth, presi-

dent ef the First National Bank of Grand Forks, requested il

niveting., This was held at Dakota's Fargo office on June 2 I

1959. It was attended by Mr. Schroeder, Berg, Orth, Farn-

ham, and Richard H. Barry, Dakota’s chairman and presi-

dent. Barry presided, The purpose of the meéting, as Berg

testified, “was to make a determination as te how much ma-

terials might-be ordered” by Schroeder, “where the account

would possibly peak, and where it could be reduced to,* * *

we werestrying to determine *.* * could we handle it, and

alse toind out what Mr. Schroeder's plans were as to how

much further hegvas going to go * * *. Ong could probably

say that one of the purposes of the meeting was upgrading

the organization, but there was no thoughts as to changing

the management * * *, We felt that we should be kept close-

iy informed of the over-all operatian” of Schroeder. - It ap-

porrcd at the meeting that Dakota avas the source of-sapplt

of 10 te 50% of Schroeder's. materials and that. what Dakota

did “probably would influenve other sources of supply.” It

‘was decided that a trust of the controlling interest in Schroe-

der should be established: A voting trust agreement was pre-

pared and execnted as of June 24, pFarnham was named sole

voting trustee, The frost res congisted of Mr. Schroeder's

N20 pledged shares, Red River, as pledgee, was a party to the

agreement. By it Farnham received the power to vote the

trusteed shares and thus came into control of Schroeder, Af

ter discussion as to whether Orth or someone from Dakéta

«* P d

18 . k ee

should go on Schroeder’s new board, Farnham elected him- ©

self, Mr. Schroeder (as the agreement specified), and, at the

suggestion of Dakota’s Berg, Maynard Helmeke, who was

Dakota's auditor and who had also done auditing work for

Schroeder. After the estabishment of the voting trust Da-

kota extended additional credit to Schroeder.

{o) Farnham thereupon performed certain general man-

agement activities for Schroeder. He analyzed the company’s

statements and operations, went over accounts payable and

receivable, made recommendations to management, discussed

payrolls, reviewed pending jobs, correspondence and ac-

counts, recommended bidding limitations, and was influen-

tial in management policies and procedures including the

formation of an executive committee.

(p) Schroeder's office was at Grand Forks. From June,

1959, when the voting trust was established, until April,

1960, some of the meetings of Schroeder's board, however,

were held in Fargo at Barry's office. Rarry and Berg were

_ present at a number of the board meetings. There is evidence

that at these meetings Barry participated in discussions of

shipments by Dakota and that company’s anticipated collec-

tions from Schroeder and of other matters, including the

possibility of developing “an ownership situation” so that

two of Schroeder's personnel could become shareholders with

Mr. Schroeder. Berg also conferred about Schroeder's book-

keeping procedures and examined that company’s statements

and progress reports. Schroeder’s $30,000 payment of March,

1960, to Dakota was made at the suggestion and instance of

Rarry and Helmeke. ¥

fq) There was an evident desire on the part of Dakota to

he kept closely informed about Schroeder's operations, After

June, 1959, it was furnished with copies of Schroeder's state-

ments, schedules of payables and receivables, and some re-

ports and correspondence, There were meetings of Schroe-

der people with Dakota representatives, These concerned

Schroeder’s business operations and the status of Schroe-

der’s jobs, Berg frequently stomped at the Schroeder office

to see if there were funds available to ‘make a payment to

Dakota. He was aware that Schroeder was making its pay-

ments on old invoices and net on jobs currently in process.

19 «

The payment of bills was discussed at the directors’ meetings

attended by Barry and Berg. .

(r) «Between the end of July, 1959, and the end‘ of Jan- -

uarvy, 1960, Schroeder's indebtedness to Dakota ine reased

from $140,000 to $228,000.

(s) Farnham retired as a direc ‘tor of Schroeder in April,

1960, *

Dakota asserts that these additional facts disclose only

the doings:of a vigilant creditor ae ting honestly. The surety

. Claims that these facts establisit a complete defense to Dako:

ta’s present action; it cites four cases from four separate

cirenits as its primary authority 1 es this position:

1. The first exe is the Miller Act case of R. P. Farne-

worth & Co, v, Elektrical Supply Co., supra, 5 Cir., 1940, 12

P.2d 150, cert. dan’ 811 U.S. 700, 130 .A.L.R. 192. There the

subcontractor had dealt with the suppliar, Electrical, for

vedrs and owed it about $20,000, The subcontractor was fi-

nane ially shaky and later became’ insolvent. Theajury could

have found on the evidence that the supplier insisted on hav-

ing everything the subcontractor received, net, from the, gen-

eral; that the supplier received permission to inspect the

subcentractor’s books and. did inspect them; and that the

supplier was aware that the funds, received by it came from

the job even thongh paid by personal check of the subcontrac-

tor's officer. The Fifth Circuit held that the direction of a

verdict against the prime contrac tor was error, It said, p.

158 of 112 F.2d: © f :

“We think the question of application of payments was

“ wrongly decided. * * * There is no trust attaching to

the monthly payments made to the contractor which pre-

vents his using them generally as his own; but when he

pays them over to a furnisher of materials for the job

who knows their source, there is a duty to apply the

‘money to the payment of thone niaterials rather than to

some other debt.” "

The surety stresses that here, as in Farnaivorth, the sub-

contractor Schroeder had dealt with Dakota for many years;

that it was substantially indebted to Dakota; that Dakota

checked on Schroeder and inspected its books; that. Schroe-

der was financially shaky and became insolvent; ‘and that ~~

the funds received by Schroeder came from sources which

Dakota knew included the progress payments made by Bass.

Dakota would explain Farnsicorth on the ground that the

eqsiitable doctrine it expresses requires that the surety have

a special interest in the identica] fund used for the payment

to the supplier. It asserts that in Fa¥hsivorth the very funds

paid by the prime contractor to the subcontractor came over

to the supplier and that the supplier knew of this despite

the payment’s being effected by personal check. It claims

that, in contrast, the facts here show that after each payment

by Bass to Schroeder there were payments out from Schroe-

der’s account to payees other than es in amounts exceed-

ing the Bass payments. "

2. The second is the Miller Act case of United States ex

rel Carroll v; Beck, supra, 6 Cir., 1945, 151 F.2d 964, 166

A.L.R. 637. There the supplier also loaned the subcontrac-

tor money for the latter’s payrolls on the job and checks is-

sned by the prime contractor to the subcontractor were in-

dorsed by the latter and delivered to and cashed by the sup-

plier under an agreement that tliev would be credited on the

loan aecount. The Sixth Circuit affirmed a judgment for the

prime, contractor and its surety. It recognized the general

mile that,a debtor may usually apply the payments he re-

ceives as he sees fit and made reference to the Restatement

expressions. It cited Farnsirorth sad apie it, saving, p.

9660f 151 F.2d: | c

“The federal cases * * * generally deny the debtor's

power to control application, ins@far as the interests of

others are affected, when the creditor knows where the

money comes from. This is sometimes grounded upon

abstract considerations of equity and justice, and some-

times upon an implied contractual obligation to the

surety and his principal, in cases bearing similarity to

this.”

The surety here stresses that in Beck it was urged that the

supplier, to be defeated in‘ his suit, “must have known the

source of the money” but that the court ma‘e it clear that

direct knowledge of this was not a prerequisit + for the sure-

tv’s defense and that it was sufficient if the creditor had rea-

son to know of the source of the funds? Dakota explains

Beck, as it did Farnairorth, by pointing to the identity of the

. el

funds flowing fgim the prime contractor to the sub and-on

to the supplier,

3. The re is the Miller Act case of United States er rel

F.2d 120. There the supplier sued for a balance claimed to ad

due for materials furnished to,a post office project. The sub-

contractor received $4,000 from the general contractor and

turned it over to the supplier. The latter applied it on an old

schoolhouse account. Under instructions that if the jury

found that the supplier knew that the funds came from the

veneral contractor in respect te the post ofiice job, the appli-

cation to the schoolhouse acconnt was wrongful, a verdict

acainst the supplier on this $4,000 issne was rendered. The

vPourth Cirenit affirmed. After recognizing the general rule

of free application and its lack of absolnteness where equi-

table considerations appear, the court said, pp. 123-4 of 67

F.2d: x =

“Such an equity exists under the admitted facts of this

case, in accordance with the rule announced by decisions

in this and other federal cirenits, We are in-accord with

these decisions in so far as they hold that when a surety

“ti a creditor, and a payment ismade by the debtor to the

creditor with the identical anoney for the payment of

which the surety is bound, er with the proceeds or fruits

of the very corftract, business, or transaction covered by

the obligation of the surety, the application ef the pay-

ment to some other debt, with or without the direction

or consent of the debtor, does not bind the surety; at

least if the source of tle funds is known to the creditor

or person rereiving the payment. The surety in such-

case is entitled to have the payment applied to the debt

for which he is hound. * * *, P . :

distingpish between cases where the money ues the

identical money for the. payment of which the surety is

bound, and cases where the payment is made merely °

from the proceeus of the contract, business, or trausae-

tion covered by the obligations of the surety. * * *

These.considerations are net without weight, but, invour

view, it places no birden or hardship upon @ creditor

who kas knowledge of the source of the money to require

him to apply the payment to the guaranteed debt * * *.”

The surety here strésses the Johnson case's reference, not

only to “identical money”, but, as well, to the “fruits of the

very contract, business or transaction.” Dakota emphasizes.

that here again was money identifiably received by the sub-

contractor from the general? ,

4. The ee is the non-Miller Ace ase of Columble Dig-

ger Coz v. Sparks,3 Cir., 1915, 227 F. 780. Here the supplier

sued the surety on the céntractor’s bond for materials it had

supplied to a'city job. City funds for, this job which came to

the supplier were applied on the contractor's. preexisting un-

~ secured account with the supplier. The Ninth Circuit decid-

ed the case in favor of the surety and approved the following

statement of the law: ’

“Where a surety has become responsible for the pay-

ment of money by the principal, and the Tatter receives

money under his contract, which he pays over, the credi-

tor or obligee has no right to apply such payments in any.

other way than to the relief of the surety.

One Judge dissented with the observation that the supplier

was without notice of the source from Which the money came.

This, Dakota claims, is g another case of identifiable

funds. Compare our own cise of Cor rv. New England Equit-

able Ins. Co., 8 Cir., 1917, 247 FP. 955.

In summary, then, Dakota takes the position that these

four Cases represent an exc eption to the general rule of free

application ‘by the debtor, that the exception does not apply

anyway unless the money paid by the subcontractor was the

identical or identifiable fund received by it from the general

contractor and arose out of the contract with respect to which

the surety was bound; and that, because the money réceived

by Se -hroeder from Bass was not traceable to the payments

Schroeder made to Dakota, the four cases are nof in point

‘and actually support the judgment for Dakota.

We recognize the existence of certain features which weigh

against the surety’s position here; (a) Bass itself did not

specifically direct the application of its progress payments

to those Dakota invoices covering the materials supplied to

the Bass job; (b) Bass could have obtained a measure of

protection for itself and its surety by enforcing the provision

in the>subcontract calling for a performance bond from

Schroeder; (¢) Dakota did not know exactly when the Bass

‘payments were received by Schroeder; and (d) the four

tases primarily relied upon by the surety all present a degree

of fund tracing.

Nevertheless, we are impressed by what we feel is the over-

riding equity of the situation before us in favor of the surety

and we conclude that this brings this litigation within the

orbit of the Miller Act cases of Farnsworth, Beck and Johun-

son. We have in mind particularly the following:

: 1. Dakota, Schroeder, Mr. Schroeder, Farnham, and Red .

River were, in a very real sense, interrelated during the

period from June 1959 to!March 1960 when the supplies in

question were furnished and when Schroeder reached a state,

of insolvency, Dakota, Schroeder, and Mr. Schroeder were

all indebted to Red Rivers Red River was a shareholder, al-

though a non-voting one,-of Dakota.’ Red River was con-

trolled by Farnham. Mr. Schroeder was also indebted to

Parnham, Schroeder was deeply obligated to Dakota. By the

voting trust agreement, Farnham, as sole voting trustee,

came into contral of Schroeder to a degree not theretofore ex-

istent under the pledge of Mr. Schroeder's shares of Sehroe-

der to Red River.

2. Dakota, through its. officers, Barry sand Berg, and

through Helmeke, iis auditor, during this period came into

close familiarity with the affairs of Schroeder. They knew

its financial situation. They knew the precariouxsness of that

situation and its cohsistent worsening as the’months passed.

They knew or had access to knowledge that progress pay-

ments were being made to Schroeder by Bass on the dormi-

téry job. They knew, inferentially at least, because of Da-

kota’s experience with government projects, of the existence

of a snrety obligation on the Base contract.’

3. Tt was distinctly to Dakota’s advantage to hav@every

available dollar coming from Schroeder applied to its oldest

- obligation to Dakota. :

Under these circumstances we believe that lakota, if it

_ did not have actual knowledge, at least Pad reason to helieve,

taking the realities of the situation seriously into considera-

eae

tion, that, despite the activity in the Schroeder bank account

and, through the accidents of chronology, the consequent in-

ability to trace a particular dollar from Bass through Schroe-

der to Dakota, the receipt of funds hy Dakota was made pos-

sible to the proportionate extent by the progress payments

by Bass. This, we think, is enough to bring this case within

the equitable doctrine expressed in Farnsirorth and its cém-

panion cases.

We are not content to dismiss or wave aside these interre-

lationships with the conclusion that Dakota's actions were

no more than those of a vigilant. major creditor performing

honestly and ‘participating only in informational meetings’

We do not question or impugn the honesty of Dakota or that

of any of the named individuals in any way whatsoever.

What Dakota and its officers jd constituted steps undoubt-

edly justified by past relations with Schroeder, by the s. '-

contractor’s financial involvement and. by the extent of

Schroeder’s obligations to Dakota. But it does not follow

from this that the steps taken by Dakota did not then result

-in a saving equity for this surety. We merely conclude that

the closeness of the relationship of the named parties during

‘the vital nine month period was such as to create an equity

of the kind.described in the general rules outlined above, and

that that equity required the application of so much of the

Bass progress payments received by Schroeder as was re-

quired for the niaterials supplied I® Dakota to the Bass job.

We may state the matter another way by saving that we

do not see how we ¢ avoid the holdings and the implica-

tions of the Miller Act Pases of Farnsworth, Beck, and John-

son. It is to be admitted, as we have noted, that in these

cases the flow of funds from the general contractor throngh

the subcontractor to the supplier was more readily id@& tifi-

able than is the situation here. But the decisions in those

eases, and their significance for Miller Act purposes, are

broader than the ability to identify funds as they pass from

the prime to the sub to the supplier. The Fourth Cireuit in

Johnson speaks with particularity of “The proceeds or fri Mager

of the very contract, business, or transaction covered by the

obligation of the surety” and does not restrict its observa-

tions to “identical money.” That case broadly applies the

necessary facto? of creditor’s knowledge of the source of

funds to situations where the creditor onght to have known

that source. And Farnsirorth is impressive because of its re-

liance upon the factor of inspection of the subcontractor’s

books; that case seems to us to present a far less significant

fact situation than does the present case where Dakota's in-

volvement with the affairs of Schroeder is more evident and

striking. In no Miller Act case of which we are aware have

Farnsworth; Beck, and Johnson been disavowed. As we have

said above, we conclude that we. cannot avoid their impact

here. |

Finally, we are not convinced by Dakota’s argument that

because the contract price for the Schroeder portion of the

Bass job was Jess than its final cost to Schroeder and because

the difference between that cost and that price was greater

than the price of the materials supplied to the job by Dakota

and for which this action is brought, the surety sustained no

detriment. The answer to this argument lies in the fact that

the amounts paid by Schroeder to Dakota during the period

the Bass payments were being made far exceeded the cost of

the supplies for the Bass job. The surety thus has sustained.

detriment in their non-application to the obligation for;which

it was bound.

The case is reversed and remanded for the entry of appro-

priate additional findings and for further proceedings con-

sistent with this opinion.

Judgment

- Unrrep States Court or APPEALS

For The Eighth Circuit

No. 16,914. September Term, 1962

St. Paul Fire and Marine Insurance Company,

Appellant,

, v8.

United States of America for the use of Dakota Electric

Supply Company, 4 North Dakota corporation.

APPEAL from the United States District Court for the.

District of North Dakota.

THis CAUSE. came on to be he@rd on the record from the

United States District Court for the a District of

North Dakota, and was argued by counsel.

On CONSIDERATION WHEREOF, it is now here ordered and

adjudged by this Court, that the judgment of the said Dis-

trict Court, in this cause, be, and the same is hereby, reversed

with costs; and ‘that St. Paul Fire and Marine Insurance

Company have and recover against United States of America

for the use of Dakota Electric Supply Company, a North Da-

kota Corporation, the sum of Four Hundred Forty-three and

15/100 ($443.15) Dollars for its costs in this behalf expend-

ed, and have execution therefor.

And it is further Ordered by this Cuart that this cause nn

and the same is hereby, remanded for the entry of appropri-

ate additioval findings and for further proc ‘ceedings consis.

tent witli the opinion of this Court this day filed herein,

October TS, 162.

Approved for the Court:

/s/ Rosert C. TUCKER

® Clerk, United States Court of Appeals

for the Eighth Circuit.

Statutes

Tit. 40, $270) Purtic Bur_pines, Prorvertry & Works

“§270a. Bonds of contractors for public buildings or works;

waiver of bonds covering contract paaeee med in foreign

country. ” te

(a) Before any contract, exceeding $2,000 in amount, for

the construction, alteration, or repair of any public building

or public work of the United States is awarded to any per-

son, such person shall furnish to the United States the fol-

lowing bonds, which shall become binding upon the award

of the contract to such person, who is hereinafter designated

as “contractor” : :

+. . Ss *

2) A payment bond with a surety or sureties satisfac-

tory to such officer for the protection of all persons supplying

labor and material -in the prosecution of the work provided

for in said ceatract for the use of each syeh person, * * *

SUT0b. Sania rights of persons furnishing labor or material,

(a) Every person who has furnished laborsor material in

the prosecution of the work provided for in such contract, in

respect of which a payment bond is furnisved under section

2T0a of this title and who has not been paid in full therefor

hefore the expiration of a period of ninety days after the day

on which the last of the labor was done or performed by him

or material was furnished or supplied by him for whie h such

claim is made, shall have the right to sne on such payment

bond for the amount, or the balance thereof, unpaid at the

tine of institution of such snit and to prosecute said action

to figeal execution and judgment for the sum or sums justiy

due him: Provided, howerer, That any person having direct

contractual relationship with a sufeontractor but ne con-

tractual relationship express or implied with the contractor

furnishing said payment bond shall have a right of action

npon the said payment bond opon giving written notice to

said contractor within ninety days from the date on which

such person did or performed tie last of the labor or fur-

nished or supplied the last of dhe material for which sneh

claim is made, stating with substantial accuracy the ameunt

claimed and the name of the party te whom the material was

furnished or supplied or for whom the labor was done or per:

28 ‘

formed, Such netice shall be served by mailing the same by

registered mail, postage prepaid, in an envelope addressed to

the contractor at any place he maintains an office or conducts

his business, or his residence, or in any manner in which the

United States marshal of the district in which the public im-

provement is sitaated is a@thorized by law to urve SHMmMmOns,

(b) Every suit instituted under this sec tion shall he

brought in the ef the United States for the use of the

person suing, Pa States District Court for any

district in which fie contract was to be performed and exe-

cuted and not elsewhere, irrespective of the amount in. con-

troversy in such suit, but no such suit shall be commenced

after the expiration of one vear after the day on which the

last of the labor was performed or material was supplied by

him. The United States shall not be liable for the payment

of any costs or capenass of any such suit.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.