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SHAPIRO v. ROYAL INDEM. CO.

December 30, 1954

Louis SHAPIRO, Trustee in the Consolidated Bankruptcy Proceedings of the Estate of Dorothy Hubbard and Grover D. Still, Individually, and the Partnership known as Industrial Contracting Company, Composed of said Dorothy Hubbard and Grover D. Still, and the Estate of Frank Edmund Hubbard, Individually, and as a former partner in the Partnership known as Industrial Contracting Company,
v.
ROYAL INDEMNITY COMPANY, a New York Corporation



The opinion of the court was delivered by: MARSH

Findings of Fact

In this case, the Trustee in Bankruptcy brought an action against the defendant, a corporation, to recover $ 10,955.84, together with interest and costs. Following pre-trial conferences, the parties agreed upon the facts and submitted the same for the opinion of the court together with two questions of law which were also set forth. The facts agreed upon by the parties are adopted by the court as if found pursuant to Rule 52, Fed.Rules Civ.Proc. 28 U.S.C. They are:

 '1. Louis Shapiro, plaintiff, is a resident of the City of Pittsburgh, County of Allegheny and Commonwealth of Pennsylvania, and, according to the bankruptcy records of this court, is the duly qualified Trustee in the consolidated bankruptcy proceedings of the District Court of the United States for the Western District of Pennsylvania, at Bankruptcy No. 21863, of the Estate of Dorothy Hubbard and Grover D. Still, individually, and the partnership known as Industrial Contracting Company, composed of said Dorothy Hubbard and Grover D. Still, bankrupts, and the Estate of Frank E. Hubbard, Individually, and as a former partner in the partnership known as Industrial Contracting Company, bankrupt.

 '2. Royal Indemnity Company, defendant, hereinafter referred to as 'Royal', is a corporation organized under the laws of the State of New York, doing a general surety business.

 '3. Jurisdiction of this action (a) is founded on diversity of citizenship; and (b) the plaintiff's allegations that it falls within the provisions of the Bankruptcy Act, Sections 60(b), 70(a)(4), and 70(e), 11 U.S.C.A. 96(b); 110(a) and 110(e), as amended, making voidable by Trustee in Bankruptcy any transfer of any bankrupt's property made for the benefit of any creditor on account of an antecedent debt within four months of the filing of a petition in bankruptcy, the effect of which transfer is to enable such creditor to obtain a greater percentage of his debt than some other creditor of the same class, and also giving the Trustee in Bankruptcy a right to avoid as against any one but an innocent purchaser for value, any other transfer made or suffered by bankrupt which, under any applicable Federal or State law, constitutes a fraud of the bankrupt's creditors.

 'The matter in controversy exceeds exclusive of interest and costs the sum of Three Thousand ($ 3,000.00) Dollars.

 '4. On or about May 14, 1949, and subsequently by amendment on June 29, 1949, Frank E. Hubbard, acting for and on behalf of himself and Grover D. Still, trading as Industrial Contracting Company, entered into a written contract with Bechtel International Corporation, a Delaware corporation having its principal place of business in San Francisco, California, for sandblasting and painting certain steel in the freight yard of the Reading Railroad at Landsdale, Pennsylvania, which steel was there transported by Bechtel preparatory to being transported by sea to Saudi Arabia, where it was to be used in the construction of a pier.

 'True and correct copies of this contract and its amendment constitute Exhibits 'A' and 'B' appended to plaintiff's complaint.

 '5. The aforesaid contract provided, among other things:

 "1. Contractual Relationship: In the performance of this Subcontract, Subcontractor shall operate as an independent Contractor and not as agent of Contractor. Subcontractor shall hold Contractor and Owner free and harmless from all liability, costs and charges arising out of or in connection with any act or representation of its agents or employees.'

 "2. Items to Be Furnished by Subcontractor: Subcontractor shall supply and furnish at the location where the work is to be performed all items, including labor, materials, and equipment, necessary for the complete and satisfactory performance of this subcontract. * * *'

 "12. Liens and Claims: Subcontractor shall indemnify and save harmless Contractor and Owner from all claims, demands, causes of action or suits of whatsoever nature arising out of the services, labor and material furnished by Subcontractor, or its subcontractors, under this Subcontract.

 "Subcontractor shall immediately pay and discharge, or shall provide security sufficient and satisfactory in itself to its laborers, materialmen or other creditors, or those of its subcontractors, for the payment of any obligation, or alleged obligation, it, or any of its subcontractors may have, in aid of the enforcement of which a lien or right of any kind is established, or is attempted to established, upon or against the work or the real property upon which the work is situated.

 "Contractor may, as a condition precedent to any payment hereunder, require Subcontractor to submit complete waivers and releases of any and all claims of any person, firm or corporation. Such release must be submitted covering all such claims as a condition precedent to final payment.'

 "17. Insurance and Bonds: Subcontractor, at its own expense, shall procure, carry and maintain on all its operations hereunder the bonds * * * in the amounts specified in the Subcontract * * *'

 "18. Compensation and Payments:

 "(d) Payments otherwise due may be withheld by Contractor on account of * * * claims filed, or reasonable evidence indicating probability of filing of claims, failure of Subcontractor to make payments promptly to subcontractors or for material or labor, or a reasonable doubt that the subcontract can be completed for the balance then unpaid. If the foregoing causes are removed, the withheld payments shall promptly be made. If the said causes are not removed on written notice, Contractor may rectify the same at Subcontractor's expense * * *'(Emphasis added.)

 '6. On or about May 18, 1949, the defendant, Royal, as surety and Frank E. Hubbard and Grover D. Still, trading as Industrial Contracting Company, as principals executed a bond, Exhibit 'C' appended to plaintiff's complaint, whereby they bound themselves to Bechtel International Corporation in a certain penal sum conditioned as follows:

 "That if the above bounded principal shall well and truly keep, do and perform each and every, all and singular, the matters and things in said contract (between Bechtel and Frank E. Hubbard and Grover D. Still trading as Industrial) set forth and specified to be by the said Principal kept, done and performed at the time and in the manner in said contract specified, and shall pay over, make good and reimburse to the above named Obligee, all loss and damage which said Obligee may sustain by reason of failure or default on the part of said Principal, then this obligation shall be void; otherwise, to be and remain in full force and effect.'

 '7. On August 30, 1949, Andrew J. Isacco, trading as Puritan Paint and Oil Company, hereinafter referred to as 'Puritan', who had supplied Industrial with all the paint used by Industrial in carrying out its contract with Bechtel, and who then had an unpaid claim against Industrial for the said paint in excess of $ 16,000.00, made a long distance telephone call to D. L. Roberts, an authorized agent of Bechtel, threatening to attach two car loads of Bechtel's steel then in the freight yard at Lansdale, if satisfactory arrangements were not made for the payment of his claim.

 '8. There was no actual basis, in law or in fact, which would have justified Puritan, or any other Industrial creditor, in filing such an attachment against Bechtel's steel, but Puritan, at that time acting through Isacco, believed at the time it threatened such an attachment that it could be enforced.

 '10. If, however, Puritan had attempted to assert such a lien against Bechtel's steel, defendant, Royal, would at once have become liable for its payment under the terms of its bond, even though the lien could have been discharged eventually as improper.

 '11. In response to the threat of Puritan of August 30, 1949, Bechtel, on September 2, 1949, agreed in writing with Puritan to withhold any unpaid balance due Industrial until Industrial should pay Puritan or make arrangements for its payment. At the same time, Bechtel agreed not to release Royal under its bond, plaintiff's Exhibit 'C', ...


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