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ATLANTIC REF. CO. v. CONTINENTAL CAS. CO.

April 7, 1960

ATLANTIC REFINING COMPANY
v.
CONTINENTAL CASUALTY COMPANY, Joseph M. Smith, and Greensburg Concrete Block Company, Defendants and United States of America, Intervenor



The opinion of the court was delivered by: MARSH

The facts as disclosed by the pleadings and stipulated by the parties, except as hereinafter specified, are adopted by the court as if found pursuant to Rule 52, Fed.R.Civ.P., 28 U.S.C.

Atlantic Refining Company, hereinafter called the Owner, on November 8, 1954 and May 16, 1955 entered into two no-lien construction contracts with Joseph M. Smith, hereinafter referred to as Contractor, to furnish labor and materials for the construction of two service stations located, respectively, in Mt. Pleasant, Westmoreland County, Pennsylvania, and Connellsville, Fayette County, Pennsylvania. The contracts were filed of record in the respective counties before visible commencement of work was begun on the ground. A construction and payment bond furnished by Continental Casualty Company, hereinafter referred to as Surety, accompanied each contract.

 The Contractor completed the construction of the service stations but failed to pay certain materialmen on each job. As of November, 1956, the balance withheld by the Owner on the contract price was $ 6,027.68 for the Mt. Pleasant station and $ 6,626.26 for the Connellsville station, or a total of $ 12,653.94.

 Greensburg Concrete Block Company, a judgment creditor of the Contractor, served a writ of attachment execution on the Owner, as garnishee, attaching the fund allegedly due to the Contractor to satisfy its judgment of $ 737.65, with interest and costs.

 The Surety claimed the balances withheld on the contract prices by reason of its liability on the bonds to unpaid materialmen.

 Faced with these conflicting claims, the Owner on November 15, 1956 filed a 'Complaint for Interpleader and Declaratory Relief' against the United States, the Surety Company, Greensburg Concrete Block Company, and the Contractor, and thereupon paid $ 12,653.94 into the registry of this court.

 A default judgment was entered against Contractor Smith and Greensburg Concrete Block Company for failure to appear, answer or plead, and the Owner was discharged from any claim that they might assert against the funds paid into court.

 The complaint was dismissed as to the United States, and the United States was permitted to intervene as a party plaintiff. The government's complaint in intervention alleges that the Contractor is indebted to it for certain withholding and F.I.C.A. taxes in the sum of $ 11,632.06, plus interest, and claims by virtue of the 1955 assessments that it has a prior lien on the fund allegedly due to the Contractor from the Owner. Hence, it demands the funds paid into court by Owner.

 By amendment to its complaint, the government also sues the Surety directly on the bonds for all withholding and F.I.C.A. taxes due it from the Contractor in the sum of $ 11,632.06, plus interest. This suit, however, is pressed only for the sum of $ 1,114.81, plus interest, that amount being the withholding and F.I.C.A. taxes incurred by the Contractor in the construction of the service stations at Mt. Pleasant and Connellsville (see government's brief, pp. 32-34).

 After the fund was paid into court, the Surety paid claims of materialmen on the Mt. Pleasant station in the sum of $ 6,004.51, leaving a balance of $ 23.17 unclaimed except by the United States. The Surety paid claims of materialmen on the Connellsville station in the sum of $ 12,285.53. The Surety took assignments from the materialmen which it paid.

 The Surety presses it claim on the following grounds:

 (1) The Contractor had no property or property interest in the fund upon which the government liens might attach.

 (2) The Surety is subrogated to the rights of the Owner and materialmen in the fund created by the contract between the Owner and the Contractor.

 (3) The Surety is entitled to the fund under equitable assignments given by the Contractor to the Surety at the time of the execution of the bonds. *fn1"

 In my opinion the Surety is entitled to the fund on the first ground, and on the second ground, i.e., because it is subrogated to the rights of the Owner. It is, therefore, unnecessary to discuss the third ground, although I am of the opinion that the Surety's contentions with respect to the effect of its equitable assignments would not, succeed against the federal liens. *fn2"

 The pertinent provisions thereof are as follows:

 (1) 'Contractor shall, during the progress of the work, pay all valid charges of all his sub-contractors and other persons furnishing labor and/or materials in the performance or prosecution of the work * * * when and as such charges become payable and in their full amount.'

 (2) 'When the contract has been completed, the Contractor shall deliver to the Owner a full Release of Liens signed by himself and all sub-contractors and other persons who have furnished any materials, labor, or both, in the performance of the contract or prosecution of the work. * * * Such release, with accompanying affidavits, shall be in such form as the Owner may require and its presentation to Owner shall constitute a representation by Contractor that all sub-contractors * * * have joined in the proper execution thereof as having been paid. * * * Until such releases and affidavits are delivered properly executed, the final schedule of payments may be withheld.'

 (3) 'Waiver of Liens and Claims: * * * In the event that notice is given of any claim * * * which is chargeable to the Contractor * * * the Owner shall have the right to retain out of any payment then due, or to become due, an amount sufficient to completely indemnify the Owner against such claim. * * * In the event of * * * (the Contractor's) failure to have such claims * * * paid * * * the Owner shall have the right to take such action as is necessary to have the same done, charging the cost thereof * * * to the Contractor.'

 (4) 'The Owner shall retain ten percent (10%) pending completion of the job and full compliance with the contract. * * * The final payment shall be made within thirty (30) days after final test and acceptance of the work, provided the Contractor shall have submitted to the Owner a satisfactory Release of Liens showing that all claims and bills for labor and material have been met and paid as hereinbefore provided.'

 The surety bonds are identical in their material provisions. Each contract was incorporated by reference in the accompanying bond.

 Each bond was conditioned upon faithful performance of the contract and upon prompt payment of all just charges for labor and material furnished by Contractor.

 No release of liens was furnished the Owner by the Contractor with respect to either job as required by both contracts. The Owner withheld the balances due on the contract ...


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