People v. . Metropolitan Surety Co.

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.]

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.]

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.]

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] The statute requiring and prescribing the substance and conditions of the bond is as perfectly binding on the principal and surety as if it had been set forth in the bond in its very words. (McCracken v. Hayward, 2 How. [U.S.] 608.) The bond, conforming to the statute, imposed only such obligations as the statute permits. The statute is in a sense a recognition by Congress of the inability of persons supplying contractors for public works with labor and materials to take liens upon the public property of the United States and a substitute for a mechanic's lien law. (UnitedStates v. Ansonia Brass, etc., Co., 218 U.S. 452; TitleGuaranty Trust Co. v. Crane Co., 219 U.S. 24.)

It should be noticed, in order that there may be a true understanding of the relevant decisions, that the statute takes up the entire subject covered by a prior statute (Act of August 13, 1894, ch. 280; 28 U.S. Stat. L. 278), and, therefore, is to be treated as a substitute act.

Obviously the entire liability of the surety company to the claimant for the materials furnished by it under the contract between it and the Church Construction Company arises through the execution of the bond by the surety company as a surety for the construction company. The claimant could reach the surety company through the bond alone, which, with the statute as a part of it, defines and limits the rights of the claimant as against it, and the method and tribunals through which those rights might be enforced. His right of action against it through any form of legal proceeding was created by the bond and the statute, and must be enforced pursuant to the terms and conditions of the statute and not otherwise. (Stitzer v. United States, 182 Fed. Rep. 513; United States v. Boomer, 183 Fed. Rep. 726;Baker Contract Co. v. United States, 204 Fed. Rep. 390.) It was, however, a qualified and conditional, and not an absolute right or cause of action. An act of Congress, which at the same time and in itself authorizes or creates a new cause of action and prescribes the limitations thereof and of its enforcement, makes those limitations conditions of the liability itself. Such an act is not a statute of limitations, and a compliance with the conditions which it prescribes is indispensable to the enforcement of the right it creates, because they are parts of or elements in the right itself and not limitations of the remedy only. The limitation of the remedy is a limitation to the right. (The Harrisburg,119 U.S. 199; Pollard v. Bailey, 87 U.S. 520; Fourth NationalBank v. Francklyn, 120 U.S. 747; United States v. Boomer, 183 Fed. Rep. 726; Baker Contract Co. v. United States, 204 Fed. Rep. 390; Eberhart v. United States, 204 Fed. Rep. 884.) The cause of action or the rights acquired by the claimant through the statute and bond could not be enlarged, limited or modified by the insolvency of the surety company or the Supreme Court of the state under its jurisdiction in the present action. The limitation to the right of the claimant and the liability of the surety company was fixed at the execution of the bond and stands unchanged and unchangeable before the court and its receiver. To apply to the right the limitation of the prescribed remedy is not to illegally confuse the remedy and the right; it is to apply the real intention of Congress and its act. While insolvency may under certain conditions affect remedies through equitable rules and procedure, it does not change substantive rights or liabilities. Such cause of action or right as the claimant originally had under the statute and bond has remained to it unaltered.

The surety company became the surety for the Church Construction Company as expressed in the bond. The contract between the United States and the Construction Company was completed and finally settled September 28, 1908. Within the six months from that date, terminating March 27, 1909, the United States had not instituted any action upon the bond. The statute contemplated that the rights and claims of all claimants under the bond should be adjudicated in a single action brought upon the bond. (United States v. Congress Construction Co.,222 U.S. 199; Eberhart v. United States, 204 Fed. Rep. 884;Baker Contract Co. v. United States, 204 Fed. Rep. 390;United States Fidelity Guaranty Co. v. Kenyon, 204 U.S. 349; Stitzer v. United States, 182 Fed. Rep. 513.) As we have already stated, the cause of action of the claimant here was given him by the statute and the means and manner of its enforcement as provided by the statute was an essential part of it. The statutory prescription of the remedy was likewise a prescription as to the liability of the surety company. It would not be seriously asserted that the claimant here could have had the liability of the surety company determined in an action or proceeding in the Supreme Court of the state between March 28 and September 28, 1909, in case the surety company had remained solvent. A manifest answer would have been that the liability was subject to the proviso that it be completed and matured by the action to that end prescribed by the statute. Under the statute and the bond, this in essential effect was the contract of the surety company: In case the Church Construction Company failed to promptly make payment to laborers or materialmen employed in the construction of the work, the surety company would be liable, within the penalty of the bond, for the unpaid claims upon the following and the exclusive conditions: (a) That the claimants be made parties to an action brought by the United States upon the bond, by intervention or directly, in order that all rights and claims might be adjudicated; (b) that during the second six months' period from the completion and final settlement of the contract, in case the United States had not brought an action, a claimant should bring suit in the name of the United States in the Southern District of New York, where the contract was to be performed, and not elsewhere; (c) that only one action should ever be brought upon the bond, in which the requisite notice should be given to all known creditors and all creditors should be permitted to file their claims in such action and be made parties thereto within one year from the completion of the work under the contract, and not later; if the recovery upon the bond should be inadequate to pay the amounts found due to all of said creditors, judgment should be given to each creditor pro rata of the amount of the recovery. Until these conditions were exercised the liability of the surety company was not certain and absolute.

The liability of the surety company to the claimant did not become absolute and direct when, after it had supplied the materials to the original contractor, their price became due, or when the contract between the original contractor and the United States was completed and finally settled. It remained qualified and conditional. Its certainty or absoluteness depended upon the possibility that, by means of the only method provided or permitted by the statute and not then instituted, the validity and enforceability of the claim be adjudicated. A judgment for it in an action prescribed by and conducted in accordance with the requirements of the statute could alone render it complete and absolute. The means of enforcement define both the right of the claimant and the liability of the surety which it was the intention of Congress to create.

It is unnecessary to consider whether or not the presentation of the claim to the receiver and the subsequent proceeding is a suit or action brought by the claimant. We are not required to pass beyond the fact that the claimant has no right of action and the surety company no liability cognizable in this action or proceeding. Whatever right of action was in the claimant or liability on the part of the surety was conditioned upon the use of the statutory remedy. Divorced from that remedy the right and the liability are non-existent. The claimant should have conformed with the provisions of the statute and obtained in the statutory action and presented to the receiver a judgment establishing the validity and amount of his claim. His claim as presented was conditional and not absolute, and its allowance was error. (People v. Metropolitan Surety Co., 205 N.Y. 135.)

For the reason stated the order of the Appellate Division should be affirmed, with costs. The first question should be answered in the negative and the second question remain unanswered.