Document: 371 U.S. 132 83 S.Ct. 232 9 L.Ed.2d 190 Chester A. PEARLMAN, Trustee, Petitioner,v.RELIANCE INSURANCE COMPANY. No. 78. Augued Oct. and 10, 1962. Decided Dec. 3, Raymond T. Miles, Buffalo, N.Y., for petitioner. Mark N. Turner, Buffalo. respondent. Mr. Justice BLACK delivered the opinion of Court. 1 This is a dispute between trustee in bankruptcy government contractor contractor's payment bond surety over which has superior right title to fund withheld by Government out earnings due contractor. 2 The petitioner, Pearlman bankrupt estate Dutcher Construction Corporation, April 1955 entered into contract with United States do work on Government's St. Lawrence Seaway project. At same time respondent, Reliance Insurance Company,1 executed two bonds required Miller Act, one guarantee performance contract, other all persons supplying labor material project.2 Under terms was attached made part bond, authorized retain hold percentage estimated amounts monthly until final completion acceptance covered contract. Before had financial trouble terminated its agreement. Another completed job, finally accepted Government. this there left $87,737.35, would have been be paid it carried obligation pay laborers materialmen. Since not met obligation, compelled about $350,000 discharge debts materials. In situation holding $87,000 plainly belonged someone else, turned bankrupt's trustee, who held assumption that property at adjudication therefore vested 'by operation law' under § 70 Bankruptcy Act.3 then filed petition District Court denying alleging it, surety, 'the owner said sum' $87,737.35 'free clear claims Trustee or any person, firm corporation,' seeking an order directing forthwith.4 referee bankruptcy, relying chiefly Court's v. Munsey Trust Co., 332 234, 67 1599, 91 L.Ed. 2022 (1947), no rights fund, refused direct accordingly ordered surety's claim allowed as general creditor only share equality run unsecured creditors.5 vacated referee's cases decided prior established circumstances like accorded priority creditors changed rule.6 Second Circuit affirmed.7 Other federal courts reached contrary result,8 question important recurring one, we granted certiorari decide it.9 3 One argument against controversy governed entirely Act 64, 11 U.S.C. 104, U.S.C.A. prescribes priorities different classes creditors, gives reimbursement. But present dispute—who interests how much—is so simply solved. Ownership before thing; distribution passed unencumbered quite another. Property owned adjudication, whether complete partial, legal equitable, mortgages, liens, simple rights, are course vest trustee. does authorize distribute people's among creditors.10 So here if was, claimed, either outright equitable lien interest never became administered, liquidated, distributed bankrupt. recently reaffirmed such existing than must recognized respected bankruptcy.11 Consequently our entitled distributions but had, ownership of, on, adjudication. 4 statute expressly declares acquire here, seek answer judicial decisions. Some relevant factors determining beyond dispute. Traditionally sureties their principal deemed reimbursement, even without contractual promise had.12 And probably few doctrines better pays debt another person he enforce his reimbursed.13 rule, widely applied country14 generally known subrogation, relied Appeals case. It seems rather plain least decisions security subrogated, unless, argued, rule laid down those passage Those Prairie State Bank States, 164 227, 17 142, 41 412 (1896), Henningsen Fid. & Guar. 208 404, 28 389, 52 547 (1908). 5 case upon default claimed reimbursed expenditure arose from retention 10% value done original That contained almost provisions presently us. Bank, contesting claim, asserted arising moneys advanced bank began work. Court, well-reasoned White, materially tended protect creation raised equity favor, itself asserting could resort securities remedies available protection went quote obvious approval statement state case: 6 'The law subject be, reserved per cent. much indemnity him may guarantor whom performed. great justness adopted. Equitably, therefore, sum agreed they indemnified, and, releases consent, discharges them undertaking.' 239, 147, quoting Finney Condon, 86 Ill. 78, 81 (1877). 7 thus followed already doctrine completes 'equitable right' indemnification retained difference incurred losses paying finishing 8 case, 12 years later 1908, still closer ours. contracts construct public buildings. His stipulated perform buildings, also, stated 'pay promptly full prosecution contracted for.'15 buildings according failed paid. principles declared entitle have. Thus rules subrogation were exist whether, though called These together them,16 establish payment. Unless changed, fund. argued Act17 cases. We think not. Certainly language does, pointed legislative history indicates purpose. suggestion is, however, congressional purpose repudiate should implied fact execute instead formerly required. true did require both additional assure payments materials labor. Acts subject, while requiring cover payment.18 Neither slight new old nor presented persuades us Congress passing intended deeply imbedded commercial practices, economy, spelled cases.19 10 effect overruled supra. point issue offset bearing relationship issue. exercise well-established common-law debtors own creditors. held. statements some interpreted20 meaning abandoning can indemnify themselves losses. approved Munsey,21 mentioned. cited opinion. undisturbed. cannot say firmly casually overruled.22 accord above use materialmen; materialmen fund; contractor, job materialmen, become having benefit these extent necessary reimburse it.23 Consequently, since more amount On basis judgment affirmed. Affirmed. 13 WHITE dissents. 14 CLARK, DOUGLAS BRENNAN join, concurring result. 15 holds company funds court theory subrogated I agree. None hold. Indeed, said: 16 'But nothing enforceable compensation. * They line substitute customary protection, various statutes Of these, last now force drawn.' Id., p. 241, 1602. '(I)t elementary what whose *' 242, 1603. 18 funds, follows rain none. appears me today's 'rights' hands might jeopardize serious consequences building operations. provided 19 However, decision laborers' materialmen's stands shoes surplus remaining after completed. first neither cases, find 'Guaranty Company (was) through contract.' Henningsen, supra, 410, 391. 20 Government, apply. each money suit commenced clearly applicable would, my view equities favor grow (in stands), consideration execution bond. agreement event breach construction sums becoming thereunder assigned credited loss damage suffer thereby. Martin National Surety 300 588, 57 531, 822 (1937), identical situation* awarded surety. Cardozo, unanimous 'In law, growing (between contractor) impressed possession court.' pp. 593—594, 533. well note also based announced today, Cardozo chose 'narrower' ground assignment affirming agree believe keep today 'within necessities specific controversy' enlarging Bank. doing fulfill prohecy grounds chosen expected helpful guide cases.' 593, 21 affirm basis. Fire Association Philadelphia. 40 270a, 270a provides follows: '(a) exceeding $2,000 amount, construction, alteration, repair shall furnish following bonds, binding award hereinafter designated 'contractor': '(1) A satisfactory officer awarding deem adequate, States. '(2) person.' 30 Stat. 565 (1898), 110, 110. entire 'liens, assignment,' briefs seem limit net 35 J.N.A.Ref.Bankr. (1961). re Constr. Corp., 197 F.Supp. 441 (D.C.W.D.N.Y.1961). 298 F.2d 655 (C.A.2d Cir. 1962). See, e.g., American Sur. Co. Hinds, 260 366 (C.A.10th 1958); Phoenix Indem. Earle, 218 645 (C.A.9th 1955). 369 847, 82 936, (1962). See Holmes' discussion Sexton Kessler 225 90, 98—99, 32 657, 659, 56 995 (1912). As difficulties inherent phrases lien,' see Glenn, 'Equitable Pledge', Creditors' Rights, Chandler 25 Va.L.Rev. 422, 423 (1939). Durham Lumber 363 522, 80 1282, 1371 (1960). Security Mortgage Powers, 278 149, 49 84, 73 236 (1928), collected Am.Jur., Bankruptcy, 949 (rev. ed. 1950). Cf. Aquilino 509, 1277, 1365 founded creature equity; enforced solely accomplishing ends substantial justice; independent relations parties.' Memphis L.R.R. Dow, 120 287, 301—302, 482, 488, 489, 595 (1887). Hampton Phipps, 108 260, 263, 622, 27 719 (1883); Lidderdale's Executors Robinson's Executor, Wheat. 594, 740 (1827); Duncan, Fox, North South Wales App.Cas. (H.L. 1880). Sheldon, Subrogation, (1882). 50 (1944). U.S., S.Ct., 85 135 (C.A.8th 1936), aff'd, (1937); Scofield 215 F. 45 1914); Corp. 133 381, Ct.Cl. 724, cert. denied sub nom. First Nat. 350 902, 76 181, 100 793 (1955). 2, (1894), amended, 33 811 (1905). Among problems result unsettling usual view, grounded practice, suretyship insurance. distinction discussed Cushman, Bonds Public Private Projects, 46 A.B.A.J. 649, 652—653 8, 240, 22 likewise apply benefits subrogation. 43 Works Contracts, (1942). 23 somewhat closely related speaking similar 597 598, 535, (1937). Our Claims substantially Continental Cas. 169 945, 145 99 (1959); (1955); Royal 93 891, 117 736 (1950). Speidel, 'Stakeholder' Payments Federal Contracts: Payment Bond vs. Assignee, 47 640, 646—648 (1961); note, Reconsideration Subrogative Rights Surety, 71 Yale L.J. 1274 (1962); comment, Cornell L.Q. 443 (1948). 'all deferred percentages, properties payable undersigned thereafter *.' 590—591, 532. Here inter alia, 'Any percentages price account forfeiture breach,

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