The opinion of the court was delivered by: BRODERICK
BRODERICK, District Judge.
Presently before this Court are Motions for Summary Judgment filed by all parties in the above-captioned matter pursuant to Rule 56 of the Federal Rules of Civil Procedure. After having fully considered the pleadings, the stipulation of facts of the parties hereto and the memoranda of law in support of these motions, this Court has determined that there is no genuine issue as to any material fact and that certain of the parties are entitled to judgment as a matter of law.
This civil action was commenced on behalf of the United States of America (hereinafter referred to as Federal Government) against the Commonwealth of Pennsylvania, Department of Highways (hereinafter referred to as State) for failure to honor a levy for unpaid taxes. State, in turn, sued the National Surety Corporation (hereinafter referred to as National) because National is the party to which State paid the funds upon which Federal Government now claims a valid levy. National then sued two entities to which a portion of the funds, which it had received from State, had been paid, to wit, a partnership of lawyers, Saul, Ewing, Remick and Saul (hereinafter referred to as Saul, Ewing), and a surety company, Hanover Insurance Company (hereinafter referred to as Hanover). J. Paul Martin (hereinafter Trustee), Trustee in Bankruptcy of James J. O'Brien and Daniel L. Redmond, Jr. Ind. and t/a O'Brien and Redmond (hereinafter referred to as O'Brien and Redmond), then intervened in this action claiming not only title to the fund upon which Federal Government claims a valid levy but also claiming title to all other funds which National received from State as the balance due on certain contracts between State and O'Brien and Redmond.
In essence, this action involves nine contracts between State and O'Brien and Redmond and the issues presented this Court are which entity or entities have the right to the proceeds from these contracts.
During the years of 1958 to 1961, State entered into nine contracts with O'Brien and Redmond for improvement of certain sections of highways and/or bridges. These nine contracts were for Delaware County, Beaver County, Erie County, Wyoming-Susquehanna County, Bradford County, Somerset County-Route 55144, Somerset County-Route 55028, Cambria County and Bedford County. Hanover was the surety on labor and material bonds for the Delaware and Beaver County contracts; Globe Indemnity Co. (hereinafter referred to as Globe) was surety on a labor and material bond for the Erie County contract; and National was surety on labor and material bonds for the remaining six contracts. O'Brien and Redmond completed all of the work which was required to be performed in connection with all of the above-described contracts but failed to pay certain claims for labor and materials in connection with each of the above-described contracts. O'Brien and Redmond were declared bankrupt. The balance due on all nine of the contracts was paid by State to National; Trustee now claims the right to all of these proceeds, while Federal Government claims the right to the proceeds paid by State to National on only the Delaware, Beaver and Erie County contracts.
Each of the contracts entered into between the State and O'Brien and Redmond were identical in form and contained the following provision, as set forth in pertinent part, in respect to payment of labor and material claims by O'Brien and Redmond:
2. The contractor further covenants and agrees that all of said work and labor shall be done and performed in the best and most workmanlike manner and that prompt payment will be made in full for labor and materials used in the work, and that all and every of said materials and labor shall be in strict and entire conformity, in every respect, with the said specifications and drawings and shall be subject to the inspection and approval of the chief engineer of the Department of Highways . . . (emphasis added).
8. The bond, given by the contractor, in a sum equal to fifty (50) per centum of the total contract price of the work to be done, to secure a proper compliance with the terms and provisions of this contract and as well as the Additional Bond in like sum for the prompt payment in full of labor and material are hereto attached and made a part hereof.
9. All questions or disputes, where the aggregate amount of such claims exceeds three hundred dollars ($300.00), respecting any matter pertaining to this contract or any part thereof or any breach of said contract shall be referred to the Board of Arbitration . . .
All of the labor and material payment bonds, on which O'Brien and Redmond was the principal, the State was the obligee, and either National, Hanover or Globe were the sureties, furnished in connection with the above-described contracts were identical in form. The labor and material bonds provided in part that:
The condition of this obligation is such that if the above bounded principal shall and will promptly pay or cause to be paid in full all sums of money which may be due any person, copartnership, partnership, association, or corporation for all material furnished and labor supplied or performed in the prosecution of the work, whether or not the said material or labor enter into and become component parts of the work or improvement contemplated . . . then this obligation to be void, otherwise to remain in full force and effect.
Recovery by any person, co partnership, association, or corporation hereunder shall be subject to the provisions of the Act of June 22, 1931, P.L. 881, which Act shall be incorporated herein and made a part hereof, as fully and completely as though its provisions were fully and at length herein recited.
The bonds of National were executed in reliance on and in consideration of a General Indemnity Agreement executed by O'Brien and Redmond as Indemnitors and delivered to National as Surety on September 26, 1960. The General Indemnity Agreement provides as follows in pertinent part:
4. If any such bond be given in connection with a contract, the Surety in its sole discretion is hereby authorized . . . (c) in the event of any default in the performance of the contract, or the breach of any bond connected therewith, or the failure to diligently prosecute the work under the contract or pay for labor and materials used in the prosecution of the contract, to take possession of the work under the contract, . . . and to take any other action which the Surety may deem appropriate.
5. The Indemnitors hereby assign, transfer, pledge and convey to the Surety (effective as of the date of such bond, but only in the event of default, breach or failure as referred to in preceding Section 4) all of their rights under the contract, including their right, title and interest in and to (1) all subcontracts let in connection therewith and such subcontractors' surety bonds, . . . and (3) any and all sums due or which may thereafter become due under such contract and all sums due or to become due on all other contracts, bonded or unbonded, in which the Principal or Indemnitors have an interest (emphasis added).
National filed Financing Statements on May 17, 1962 and July 9, 1962, under provision of the Uniform Commercial Code (hereinafter referred to as U.C.C.), covering the assignments to National of all of the right, title and interest of O'Brien and Redmond in the construction contracts between O'Brien and Redmond and the State dated May 23, 1961 and June 7, 1961, in Somerset, Bedford, Cambria, Susquehanna-Wyoming and Bradford Counties, and all money or payments which might be or become due O'Brien and Redmond at the time of any breach or default of these contracts on account of the contracts or on account of extra work or materials supplied therewith, as more fully set forth in the General Indemnity Agreement dated September 26, 1960.
In an action by O'Brien and Redmond against State before the Board of Arbitration of Claims of the Commonwealth of Pennsylvania (hereinafter referred to as Board of Arbitration) O'Brien and Redmond, on April 19, 1963, set over and assigned to National with National's right to collect same, any award that might be made to O'Brien and Redmond in this action. National then filed Financing Statements under provision of the U.C.C. on May 7, 1963 and May 10, 1963, which covered this Assignment of Claim.
On the Somerset-55144, Somerset-55028, Bedford, Cambria, Wyoming-Susquehanna and Bradford County contracts, the total amounts paid by National for labor and material claims are: (a) Prior to O'Brien and Redmond Bankruptcy: $130,085.10 and (b) To Date: $159,629.54. On the Somerset-55144, Somerset-55028, Bedford, Cambria and Bradford County contracts, the total amount paid by National for labor and material claims where the labor and material furnished was on a date prior to March 25, 1962 was approximately $42,498.97.
On March 4, 1966, State paid $110,946.04 to National, which amount was the sum of the contract balances on the nine above-described contracts. On the Delaware County contract, State paid to National the sum of $18,679.36 which was the balance due on this contract; after National's payments to Hanover and to Saul, Ewing, the balance of money in the possession of National on this contract is $12,334.05. On the Beaver County contract, State paid to National the sum of $23,836.00 which was the balance due on this contract; after National's payments to Hanover and to Saul, Ewing, the balance of money in the possession of National on this contract is $0.00. On the Erie County contract, State paid to National the sum of $10,477.77 which was the balance due on this contract; after National's payments to Saul, Ewing, the balance of money in possession of National on this contract is $9,877.77. Therefore, the total amount of money in the possession of National from the three-county contracts not bonded by National is $22,211.82. However, it can readily be seen that National's collection of the $110,946.04 minus payments which it made to the claimants on the Delaware, Beaver and Erie County contracts still leaves National approximately $79,464.81 short of the $159,629.54 which it has to date paid out on the six contracts which it bonded for O'Brien and Redmond.
Inasmuch as there are two claimants to the funds now in National's possession, we will discuss first the interest of the Trustee in the funds from all nine of the above-described contracts and then we will discuss Federal Government's interest in the funds from the Delaware, Beaver and Erie County contracts.
The Complaint of the Trustee was filed before this Court on December 8, 1971. Therein, the Trustee has alleged: that, although defendant surety (National) and the other sureties were required to and did pay over to certain subcontractors, materialmen and laborers various amounts of monies, all claims of subcontractors, materialmen and laborers have not been paid to date; that certain taxes have not been paid; that at the time the petition in bankruptcy was filed the State owed funds to O'Brien and Redmond for work performed on the nine contracts; that plaintiff Trustee under Section 70 of the Bankruptcy Act, as amended 11 U.S.C. § 110, has title to the funds in the amount of $114,616.55;
that the State paid over to defendant surety (National) the sum of $114,616.55 for which the State holds an indemnity bond against National; that National unlawfully received the money; that when the money was still in the hands of State only the Federal Government was entitled to the money; that National has unlawfully appropriated the bankrupt's property since State owed the money to the Trustee; that National is a trustee ex maleficio of the said funds in favor of the Trustee; and that, therefore, judgment should be entered against the defendant, National, and in favor of the Trustee in the amount of the $114,616.55. National has denied the existence of any such indebtedness to the Trustee.
We find no merit to Trustee's allegation that all claims of subcontractors, materialmen and laborers have not been paid to date. The Federal Government, State, National, Hanover and Saul, Ewing have all stipulated that there are no suits pending against National, Globe or Hanover (the three sureties on the aforesaid nine contracts) by any person who claims to have supplied or furnished labor or materials to any of the nine aforesaid county contracts. No such pending suit has been called to our attention by the Trustee. Moreover, no suit could now be filed by any person for claims on labor and materials under any of the aforesaid contracts. The Commonwealth of Pennsylvania's Act of December 20, 1967, P.L. 869,
the Act of June 22, 1931, P.L. 881
only insofar as the latter act was inconsistent with the former, provides that any person suing on a bond for the payment of material furnished and labor supplied or performed in the prosecution of any public work shall commence suit not later than one year from the day on which the last of the labor was performed or material was supplied upon which he brings suit for payment. This provision was specifically made a part of the labor and material bonds. If we use the date of the final certificate approval on each contract
as the date beyond which no labor would have been performed or material supplied to the contract, or even if we used the date of final settlement on the contract,
it is clear that the time for filing suits against National, or any of the other sureties on these contracts, has long since expired. A limitation in respect to the time in which a suit may be filed is a condition precedent to the action itself, because the limitation on such a liability becomes a part of the right conferred.
Since any claims would now be barred by the one year limitation, there can be no unpaid claims as a matter of law. Moreover, even if there were unpaid claims, the materialmen's sole right for reimbursement would be an action on the bond against the Surety and the fact that there was a failure by the surety to pay a claim would not, in and of itself, defeat the surety's right to subrogation, and thus create priority to a trustee in bankruptcy, on account of amounts it already had paid out on the labor and material claims, to the extent of the funds which it now holds.
We next turn to Trustee's allegation that at the time the petition in bankruptcy was filed the State owed funds to O'Brien and Redmond for work performed on the contracts and that the Trustee has the right of possession, title and interest ...