Court Opinion

ID: 3624885
Source: CourtListenerOpinion
Date Created: 2016-07-06 00:05:43.754684+00
Date Added: 2024-06-11T13:44:25.986224
License: Public Domain

The condition of the bond was that the principal, the Church Construction Company, "shall promptly make full payments to all persons supplying it labor and materials in the prosecution of the work provided for in said contract." Indisputably, that condition was broken before the commencement of this action to dissolve the surety for its insolvency. The principal had not only failed to make payments as stipulated in the bond but had itself been dissolved for insolvency. The contract, for the performance of which the bond was given, was completed on September 28th, 1908, more than three months before this suit was brought. The full extent of the principal's default was fixed and determinable on that date. The liability of the surety was no longer contingent. The event upon which it had been contingent, a breach, had happened. Its liability may not have been liquidated, but there is a vast difference between a contingent, and an unliquidated liability or claim. If the surety's liability was contingent when this suit to dissolve it was brought, then every claim not reduced to judgment is contingent. In People v.Metropolitan Surety Co. (205 N.Y. 135) there had been no breach of the condition of the bond when the surety was dissolved. The liability was, therefore, contingent upon an event which might never happen, and the court applied the rule that a claim arising on a subsequent breach was not provable. That rule is applied exnecessitate because the assets of dissolved corporations have to be distributed sometime. But no case has yet decided that an unliquidated claim, or one not due, is not provable or that the recovery of a judgment is a condition precedent to the proving of a claim against such assets. *Page 119 
The surety could have determined and paid all claims arising on the bond before this suit was brought. It did not have to wait to be sued. Its liability arose on the default of its principal. A suit against it would be based on its default in failing to discharge that liability. The mere fact that an exclusive remedy was provided for its default in not paying as agreed did not make its liability contingent on the event of such a suit. To be sure, the claimant could not sue for six months after the final completion of the contract. A suit may not be brought on a debt not due, but the debt is none the less a fixed liability. In this case the debt was due. For obvious reasons an independent right of action on it was suspended or not given for six months. If the United States had brought suit within that time, the debt or the "claim" would have been provable in that suit; but the claim was in no sense contingent upon the bringing of such a suit. The statute plainly recognizes the claim as existent, not contingent, during the six months. It merely provides in effect that nothing can be done to enforce it during that time unless the United States sees fit to bring a suit.
I quite agree that the statute and the bond are to be construed together. My brother COLLIN construes the contract of the surety as one to become liable for the default of its principal but only after a judgment has been procured against it in the manner specified. I construe its contract as one to be liable absolutely within the sum named in the bond for the default of its principal upon the condition, however, that that liability, in case of its failure to discharge it, shall be enforced only as provided by the statute. There is a vital distinction between a condition of liability and a condition of the enforcement of that liability. It will introduce a novel and dangerous doctrine in the law of suretyship, especially in view of the extent to which that has become a business, to hold that the liability of a surety on a statutory bond does not arise *Page 120 
until resort has been had to the statutory method of enforcement. The contract of the surety is to pay on the default of its principal, and it should not be construed as one to pay only after a judgment has been recovered against it. The rule applied in People v. Metropolitan Surety Company (supra) would be doubly harsh if applied to a case like this. The necessity for its application in that case and in the many cases cited therein by Judge VANN does not exist in this case, because in this case the event, upon which liability depended, had happened and was no longer contingent and uncertain.
The question whether the claim must first be adjudicated in a suit brought in the Circuit Court of the United States for the Southern District of New York requires a closer analysis of the statute. (Chap. 778, 33 Stat. at L. 811; U.S. Comp. Stat. Supp. 1909, p. 948.) It is entitled, "An Act for the protection of persons furnishing materials and labor for the construction of public works." It is to be liberally construed to accomplish that purpose. (Hill v. American Surety Co., 200 U.S. 197; TitleGuaranty  Trust Co. v. Crane Co., 219 U.S. 24.) I agree that it is to be construed as a substituted act for the act of August 13, 1894 (Chap. 280, 28 Stat. 278; U.S. Comp. Stat. 1901, p. 2523); but, in determining the purpose of the changes, the earlier act and the decisions under it are entitled to consideration. The earlier act did not provide for the priority of the claims of the United States and contained no limitations with respect either to the number or the time of commencement of actions or to the place where, or the court in which, they could be brought. Under that statute, it was held that the action might be brought in any proper state court (United States v.Henderlong, 102 Fed. Rep. 2), that the United States was not entitled to priority, and that in case of a large number of actions at law by claimants the surety might bring an ancillary suit in *Page 121 
equity to prevent a multiplicity of actions and to secure an equitable distribution. (American Surety Company v.Lawrenceville Cement Company, 96 Fed. Rep. 25.) It is plain that the purpose of the change was to secure priority of claim to the United States, to prevent a multiplicity of suits and to provide an orderly way of enforcing all claims in one suit and of equitably distributing the recovery among claimaints.
The statute, then, requires a bond to be given for the benefit of those supplying labor and materials. If it stopped there, as the earlier statute did, a claimant could have brought suit in any court having jurisdiction of the parties. Recognizing that, on a breach of the condition of the bond, persons furnishing labor and materials had "claims" against the surety, the statute provided in effect that they could be adjudicated in a suit brought by the United States within six months after the final completion of the contract, or, in case the United States did not sue, in a single suit brought within a year in the Circuit Court in the district in which the contract was to be performed. Undoubtedly, the remedy provided is exclusive. Undoubtedly, the Circuit Court for the Southern District of New York had exclusive jurisdiction of a suit against the surety on a claim arising on the bond. But I insist that this is not such a suit, and that the claim and the exclusive remedy provided for its enforcement are distinct.
The appellant was enjoined from bringing any action against the insolvent corporation or the receiver, the corporation becameciviliter mortuus, and the Supreme Court took possession of its assets to distribute them, not among creditors whose claims had been adjudicated, but "among its stockholders and its fair and honest creditors." An officer of the court took the place of the dissolved corporation, and the duty, theretofore resting on the corporation to pay its debts, without putting creditors to a suit to recover them, devolved on the receiver to the *Page 122 
extent that he had assets. The remedy provided for the recovery of a claim against the corporation before it was dissolved can have no application to a proceeding in an action like this to determine the claims of creditors. I grant that a suit is a proceeding in a court of justice for the enforcement of a right. (Drake v. Gilmore, 52 N.Y. 389, 394.) But this is a suit to dissolve a corporation, and this is a proceeding in that suit to enable the court completely to exercise the jurisdiction which it has assumed. The nature of the action, not of the particular proceeding in the action, determines the extent of the court's jurisdiction. The jurisdiction to dissolve the corporation and distribute its assets draws with it the jurisdiction to determine every question necessary to make a proper distribution. The appellant here is in no sense a plaintiff; if left to itself it could have pursued the exclusive remedy provided for the enforcement of its claim. But the Supreme Court intervened, enjoined it from pursuing that remedy, dissolved its creditor and took possession of the latter's assets for the purpose of distributing them. No other court in any other jurisdiction could thereafter interfere or exercise the slightest control over those assets or their distribution. Pursuant to the invitation of the court — the advertisement for claims — the appellant presented its claim. It was not a voluntary suitor, pursuing an independent remedy for the enforcement of a right. It was virtually a defendant, forced to come in and prove its claim to the only court which could direct the payment to it of a single dollar of its debt. The action to dissolve the corporation and distribute its assets was not thus converted into a suit on the bond by the appellant against the dissolved corporation.
Doubtless the Supreme Court might have permitted an action to be brought in the Federal court for the purpose of determining the amount of the claims arising on the bond, but it was not bound to do so. "The court which appoints a receiver of the property of a corporation itself *Page 123 
holds and administers the estate, through the receiver as its officer, and must decide whether it will determine for itself all claims of or against the receiver or allow them to be litigated elsewhere." (Porter v. Sabin, 149 U.S. 473, 479.) "When the object of the action requires the control and dominion of the property involved in the litigation, that court which first acquires possession, or that dominion which is equivalent, draws to itself the exclusive right to dispose of it, for the purposes of its jurisdiction." (Heidritter v. Elizabeth Oil ClothCompany, 112 U.S. 294, 305.) It is a familiar principle of equity that when a court acquires jurisdiction it will retain it for the purpose of completely determining the matters in controversy. (Douglass v. Ferris, 138 N.Y. 192.) While the Supreme Court of this state has no jurisdiction to entertain a suit on a bond given pursuant to the Federal statute, it does have jurisdiction to determine the rights and obligations arising on such bond when incidentally brought in question in a suit of which it has jurisdiction, especially when it is necessary to determine those rights and obligations in order to distribute a fund in its custody. The principle applicable in patent cases is analogous. If a suit arises on a contract the state courts have jurisdiction even though the validity of a patent be incidentally involved, and vice versa, if it arises under the patent laws, the Federal courts have jurisdiction even though the construction of a contract be incidentally involved. (Littlefield v.Perry, 21 Wall. [U.S.] 205; Pratt v. Paris Gaslight  CokeCompany, 168 U.S. 255; Excelsior Wooden Pipe Company v.Pacific Bridge Company, 185 U.S. 282.) The principle is that jurisdiction of the subject-matter draws with it the whole case, even of matters which standing alone the court would not have jurisdiction to decide. Having jurisdiction of the fund and the distribution of it, the court necessarily had jurisdiction to determine the validity of all claims upon it, even of those arising perforce of the laws of another jurisdiction *Page 124 
and by themselves cognizable only by the courts of that jurisdiction. This is not the case of a lien to preserve which it may be necessary to take certain statutory proceedings as was the case of Clifton v. Foster (103 Mass. 233). But in such a case there could be no interference with the proceedings of the court first acquiring jurisdiction of the property, and it is even doubtful whether it would be necessary for a lienor to take the statutory proceedings in some other jurisdiction necessary to preserve a lien in order to prove to the court having jurisdiction of the property his right to a share on its distribution.
Having acquired jurisdiction, the Supreme Court could determine the priority of claims arising on the bond and whether a prorata deduction was necessary because of an excess of claims over the liability of the surety, precisely as that could have been determined in a suit in the Circuit Court of the United States. There is no difficulty on that head, as the total claims are less than that liability. It would have served no useful purpose to require the claimant to bring a suit in the Federal court, and the exclusive remedy provided for the enforcement of a claim against the defendant corporation ceased to apply the moment the Supreme Court dissolved the corporation, took possession of its assets and enjoined all creditors from bringing suits against the corporation or its receiver.
The cases of Fourth National Bank of N.Y. v. Francklyn
(120 U.S. 747), cited by my brother COLLIN, and Flash v. Conn
(109 U.S. 371) illustrate the distinction between a condition of liability and a condition of the enforcement of that liability. The former case arose on a statute of the state of Rhode Island similar to an earlier statute of the State of Massachusetts under which stockholders could be charged by execution or action upon a judgment against the corporation, and it was held that a judgment against the corporation was essential to liability of the stockholder. The latter case arose on a statute of the state of New *Page 125 
York imposing an original liability upon stockholders and allowing a suit to be brought to enforce that liability, but only after obtaining a judgment against the corporation and the return of an execution unsatisfied; and it was held on the authority ofShellington v. Howland (53 N.Y. 371) that the bankruptcy of the corporation excused compliance with the condition requiring suit to be first brought against it. In this case the claim, the liability, arose on the breach of the condition of the bond. The statute imposed conditions on the maintenance of an action to enforce the claim, but when the Supreme Court dissolved the corporation and took possession of its assets to distribute them among its creditors, it was no longer necessary or practical, if indeed it was possible without leave of the court, to bring such an action.
In my opinion, the decision of the Special Term was right.
WERNER, CHASE and HOGAN, JJ., concur with COLLIN, J.; WILLARD BARTLETT, Ch. J., and HISCOCK, J., concur with MILLER, J.
Order affirmed.