
    THE WESTERN CASUALTY AND SURETY COMPANY, A CORPORATION, v. THE UNITED STATES
    [No. 48819.
    Decided January 13, 1953.
    Opinion amended February 3, 1953]
    
      
      The Reporter’s statement of the case:
    
      Mr. John J. Wilson for the plaintiff. Messrs. Roger Robb and Jo V. Morgan, Jr., were on the briefs.
    
      Mr. Gilbert E. Andrews, with whom was Mr. Assistant Attorney General Holmes Baldridge, for the defendant.
   Madden, Judge,

delivered the opinion of the court:

The plaintiff sues for $19,567.35, the admitted value of certain plumbing and heating materials purchased by the United States. The Government purported to purchase the materials from the Meyer Plumbing and Heating Company, a corporation hereinafter called Meyer, but the plaintiff says that it held a chattel mortgage on the materials at the time they were sold, and that Meyer, therefore, had no right to sell them to the Government. The plaintiff’s asserted chattel mortgage was not recorded, but the plaintiff says that that is immaterial because, it claims, the Government had notice of its interest in the materials, and also because the Government did not pay Meyer for them, but only set off the purchase price against taxes which Meyer owed to the Government.

In March 1942, one Blair, a contractor, made a contract with the Government to perform certain construction work at Camp Atterbury, Edinburg, Indiana. Blair gave two subcontracts for plumbing and heating work to Meyer, one for $363,978.00 for the work in divisions A-1C and A-1D of the project and the other for $390,000.00 for the work in divisions A-2C and A-2D. Meyer gave performance and payment bonds to Blair and the plaintiff became surety for Meyer on those bonds. As a part of the consideration to the plaintiff for becoming surety on the bonds, Meyer, in his application to the plaintiff, assigned to the plaintiff as collateral all of its right, title and interest in all machinery, equipment, plant, tools and materials which were then or might thereafter be about or upon the site of the work to be performed under the subcontracts. The assignment, by its terms, was to become effective upon the happening of any one of several described events, one of which was the abandonment, forfeiture or breach of the subcontracts, or of the bonds.

One of the terms of the payment bonds was that Meyer should promptly make payment to all persons supplying labor and materials for the performance of the subcontracts. Meyer went ahead with the work until September 4, 1942, at which time it was unable to meet its weekly payroll of $9,463.36. It requested Blair by telegram to pay the men. Blair owed Meyer some $85,000 at the time, some $66,000 of which was retained percentages, the balance being then due and payable to Meyer. Blair met the payroll, and on September 5 wrote the plaintiff demanding that the plaintiff complete Meyer’s subcontracts with Blair. The plaintiff investigated Meyer’s financial condition and found that it was bad. Meyer owed material-men approximately $100,000 and owed an individual $75,000 for money borrowed for the performance of the contract. It had no cash or bank credit. Meyer’s spokesman, however, protested the plaintiff’s proposed intervention, saying that Meyer had not defaulted and could finish the job at a small profit. Meyer’s superintendent on the job estimated that Meyer stood to lose approximately $200,000 on the job. The plaintiff anticipated that the work would be completed in two or three weeks and did not wish to incur extra expense by formally taking over the completion of the contract.

An arrangement, agreeable to Blair, Meyer and the plaintiff, was made and confirmed in writing, under which the plaintiff was not to take over the job, but Blair was to make no payments to Meyer except upon the specific approval of the plaintiff. As to the disposition of surplus materials which Meyer had on the job, the arrangement was that Mr. Grover Sales, Meyer’s attorney, was to sell the property, taking in payment checks payable to Meyer which he would turn over to the plaintiff. Pursuant to the arrangement, needed materials were ordered in Meyer’s name, payrolls were submitted to the plaintiff for approval and, when approved, were paid by Blair out of sums due Meyer. Performance of the contract was completed, and the plaintiff incurred no liability to Blair on the performance bonds for nonperformance by Meyer. But the plaintiff did expend $131,984.04 under its payment bonds to pay unpaid bills for materials, and other amounts which brought its loss on its bond obligations to $135,915.70.

The surplus materials which Meyer had caused to be brought to the job were things which had been obtained under Government priorities and were in short supply. They were worth more in the open market than Meyer had paid or promised to pay for them. Two units of the Army Engineers were interested in purchasing them, the Camp Atterbury post engineers, and the Camp Atterbury area engineers. They negotiated with Meyer’s superintendent and purchased some of the materials in September and October 1942. Invoices in Meyer’s name were presented to the engineers, and purchase orders naming Meyer as seller were issued by the engineers. A check of the post engineers for $1,266.51, payable to Meyer, in payment for some of the materials, was given to Meyer’s superintendent, and was deposited, pursuant to the arrangement described above, in a joint account of Meyer and the plaintiff. Its disposition is not in question here.

On December 16, 1942, more than a month after the sales here involved had been made, the plaintiff notified the engineers of its interest in the payment for the surplus materials, and requested that checks in payment for them should be made payable to the plaintiff. Meyer’s attorney advised the engineers in 1945 that the amounts owing for the materials should be set off against Meyer’s taxes, and that if that was not done, the failure to do it would be used as a defense if the Government attempted to collect the taxes from Meyer. The Government has not paid either the plaintiff or Meyer $19,627.92, the agreed price of surplus materials purchased by it. Meyer incurred tax liabilities for 1942 under the Federal Insurance Contribution Act, 26 II. S. C. 1400 ff. and the Federal Unemployment Tax Act, 26 U. S. C. 1600 ff. nearly all of which indebtedness arose out of the Camp Atterbury job. The taxes amounted to $24,825.68 and have not been paid, except by way of the set-off here asserted by the Government.

Meyer’s assignment to the plaintiff, recited above, of materials on the job, as collateral security for the fulfillment of its obligations to Blair, for which the plaintiff became surety, was a chattel mortgage under Indiana law. Maple v. Seaboard Surety Co., 73 N. E. 2d 80, 117 Ind. App. 627. That assignment was to become effective upon stated conditions. We think the conditions were fulfilled. When the plaintiff investigated Meyer’s financial condition in September 1942, and discovered unpaid material bills for $100,000, a debt of $75,000 for money borrowed to carry out the contract, no cash and no bank credit, and some $76,000 owing to Meyer from Blair, it' was evident that the plaintiff would suffer losses on its payment bonds. The plaintiff had a right to protect itself as far as possible against any increase in those losses by taking charge of all payments to be thereafter made by Blair to Meyer. It insisted on and obtained the arrangement described above whereby its approval was required for such payments. Its permitting the Meyer superintendent and working force to continue during the short remaining time required for the completion of the contract was an economical arrangement saving the expense which would have been incurred by a formal taking over of the contract and the recruiting of a new force. The men were paid out of money furnished by Blair, which Blair owed to Meyer but which the plaintiff controlled by insisting upon its not being spent without the plaintiff’s approval. We think that the plaintiff did, in effect, take over the job, and that nothing was lacking except an expensive formality. As between the plaintiff and Meyer, then, the assignment took effect as a chattel mortgage.

The assignment was not recorded. The Indiana Chattel Mortgage Act, Acts of 1985, C. 147 § 4,10 Burns Anno. Ind. Stats. § 51-504, says:

Any chattel mortgage or other pledge of personal property, which has not been filed for record in accordance with the terms and provisions of this act, shall be invalid and ineffectual as against all subsequent mortgagees, purchasers and/or creditors of the mortgagor without actual notice thereof.

The Government urges that it is not bound by Meyer’s chattel mortgage to the plaintiff. It seems to assert that the mortgage was invalid as- to everyone except the parties to it. We think the statute is quite explicit in its statement of what the effect of non-recordation should be, and that only those mentioned in the statute gain an advantage from the non-recordation. The question then is whether the Government was a “purchaser and/or creditor of the mortgagor without actual notice” of the mortgage, within the meaning of the statute. So far as concerns notice, we think the Government did not have notice,' or knowledge which should have put it on notice, of the plaintiff’s interest in the property. The property remained under the control of the same persons who had been, and still appeared to be, Meyer’s agents. The Government was dealing only with Blair, so far as the performance of the contract was concerned, and its agents were under no duty to follow up casual bits of conversation which were of no interest to the Government.

Was the Government a purchaser from Meyer, within the meaning of the statute ? It was, of course, a purchaser within the broad meaning of that word. It bought the materials from Meyer, and promised to pay for them. But the word purchaser, as used in the expression “purchaser for value” in connection with the cutting off of equities of other persons in the property in question, means a person who parts with something of value in reliance upon the apparent good title which the seller has in the property sold. If property subject to a trust or other equity unknown to the purchaser is transferred to him in satisfaction of a pre-existing debt, he does not, according to the weight of authority, have the status of a purchaser for value, and does not acquire rights superior to the equities of which he was not aware. See Scott on Trusts, Section 304, citing to that effect Petry v. Ambrosker, 100 Ind. 510; Tarkington v. Purvis, 128 Ind. 182, 25 N. E. 879, 9 L. R. A. 607; Orb v. Coapstick, 136 Ind. 313, 36 N. E. 278. The instant case varies from the usual pattern of such cases in that the Government probably intended to pay cash for the materials but after they were bought and before they were paid for, Meyer’s indebtedness to the Government for taxes was discovered and the set-off now relied on was asserted. We think that the fact that the property may not have been intended to be transferred in satisfaction of a pre-existing debt does not make the rule described above less applicable. It may be of interest to observe that if the Government had paid for the materials by check, as the engineers probably intended to do, the payment would, under the arrangement described earlier in the opinion, have gone into the fund controlled by the plaintiff, and would have been applied to reduce the plaintiff’s loss on its bond obligation.

We are concerned here, not with the question of who is a purchaser for value within the meaning of the equitable maxim “where the equities are equal the legal title prevails” but of who is a purchaser for value within the meaning of the Indiana mortgage statute. In the absence of a showing of a contrary legislative intent, words in a statute which have a recognized common law meaning are presumed to be used with that meaning. In the Uniform Sales Act and the Uniform Negotiable Instruments Act, the legislative draftsmen decided to change the common law meaning of the words “purchaser for value” to make them include one who took in payment of an antecedent debt, and they said so in specific words. Scott Op. Cit. Sections 304, 304.1. We conclude, therefore, that the Govermnent was not a purchaser for value, and did not, therefore, acquire, by reason of that status, rights superior to those of the plaintiff merely because the plaintiff’s mortgage was unrecorded.

The Indiana statute also names “creditors” among those who acquire rights superior to those of a chattel mortgagee who has not recorded his mortgage. The Government was, or became, a creditor of Meyer with regard to the taxes which it here seeks to use as a set-off. But our understanding is that the word “creditor” as used in such statutes is limited to creditors who have acquired a lien upon the property, such as judgment 'creditors, and does not include general creditors. Our attention has not been called to any Indiana interpretation of its statute inconsistent with the usual interpretation. We think that the United States, as a genera] creditor of Meyer, did not, merely because the mortgage was not recorded, acquire rights superior to those of the plaintiff.

A doctrine, apparently peculiar to the law of Indiana, prevents recovery by the plaintiff. In the case of Universal Discount Corporation v. Brooks, et al., 58 N. E. 2d 369, 115 Ind. App. 591, the Court held that an unacknowledged chattel mortgage, though physically recorded and indexed, had no status whatever as against third persons, in that case general creditors. The Court’s language was even broader and suggested that the instrument had no validity whatever. In Maple v. Seaboard Surety Company, 73 N. E. 2d 80, 117 Ind. App. 627, the Court held that the language used in the Universal Discount case was too broad, and that an unacknowledged and unrecorded chattel mortgage was valid as between the parties, so that the mortgagee could replevin the chattels covered by the mortgage from a third person who had possession of them but no property interest in them. But the Maple decision did not overrule the Universal Discount decision that an unacknowledged chattel mortgage is invalid as against general creditors of the mortgagor. We must take that decision, extreme as it is, as the authoritative construction of the Indiana statute.

Meyer’s application to the plaintiff for the bonds, which application is the chattel mortgage upon which the plaintiff’s rights, if any, depend, was not acknowledged. It was, therefore, both unrecorded and unrecordable. The situation is, therefore, precisely what it was in the Universal Discount case. The Government, as a general creditor of Meyer, may assert its rights as such in complete disregard of any rights which the instrument in question may have created between Meyer and the plaintiff. A fundamental right of any creditor is that of set-off. Since Meyer owes the Government for unpaid taxes more than the Government owes Meyer for the materials purchased, the set-off exhausts the funds, and the plaintiff is not entitled to recover. The plaintiff’s petition will be dismissed.

It is so ordered.

Howell, Judge; Whitaker, Judge; Littleton, Judge; and Jones, Chief Judge, concur.

FINDINGS OF FACT

The court makes findings of fact, based upon the evidence, the report of Commissioner Marion T. Bennett, and the briefs and argument of counsel, as follows:

1. The plaintiff is a Kansas corporation with its principal office located at Fort Scott, Kansas.

2. On March 18 and 14,1942, A. Farnell Blair, of Decatur, Georgia, hereafter referred to as Blair, entered into two contracts with the Corps of Engineers, United States Army, numbered W-559-eng-5888 and W-559-eng-5890, respectively, whereby he agreed to perform certain work in connection with the construction of Camp Atterbury, Edinburg, Indiana. On March 21, 1942, the Meyer Plumbing & Heating Company, Incorporated, of Louisville, Kentucky, hereafter referred to as Meyer, entered into two subcontracts with Blair to furnish all labor and materials for the performance of the plumbing and heating work required under the prime contracts. One of the subcontracts was in the sum of $363,-978 for Sections A-1C and A-1D of the project, and the other was in the sum of $890,000 for Sections A-2C and A-2D thereof. Copies of these subcontracts are in evidence and made a part hereof by reference.

3. Neither of the subcontracts referred to in the preceding finding provided any method or means whereby Blair could terminate the right of Meyer to complete such subcontracts. The manner in which Blair was to pay Meyer was set forth in each contract in the following terms:

In consideration whereof the said Contractor agrees that he will pay to the said Sub-contractor in monthly payments, the sum of (total contract amount) for said materials and work, said amount to be paid as follows, ninety per cent (90%) of all labor and materials which has been placed in position and for which payment has been made by said “Owner” to said Contractor to be paid on or about the Fifteenth of the following month, except the last payment, which the said Contractor shall pay to said Sub-contractor immediately after said materials and labor installed by said Sub-contractor have been completed, approved by the said Architect, and final payment received by the Contractor and satisfactory evidence furnished to Contractor by Sub-contractor that all labor and material accounts for use on this particular work have been paid in full.

4. On March 25, 1942, the plaintiff became surety upon performance and payment bonds given by Meyer to Blair in connection with the subcontracts. A performance and payment bond in the amount of $181,989 was executed in connection with Sections A-1C and A-1D of the project and an identical bond in the amount of $195,000 was executed in connection with Sections A-2C and A-2D of the project. Both bonds, which are by this reference made a part hereof, stated in pertinent part:

Now, therefore, If the Principal shall well and truly perform and fulfill all the undertakings, covenants, terms, conditions and agreements of said contract during the original term of said contract and any extensions thereof that may be granted by the Obligee, with or without notice to the Surety, and during the life of any guaranty required under the contract, and shall also well and truly perform and fulfill all the undertakings, covenants, terms, conditions, and agreements of any and all duly authorized modifications of said contract that may hereafter he made, notice of which modifications to the Surety being hereby waived, then, this obligation to be void; otherwise to remain in full force and virtue.

5. The applications for the aforesaid performance and payment bonds made to the plaintiff by Meyer were executed by Meyer on March 25, 1942. The applications were not acknowledged or recorded. They recited in pertinent part:

The undersigned does * * * hereby represent that the statements made herein as an inducement to the WESTERN CASUALTY AND SURETY COMPANY OP FORT SCOTT, kans. (hereinafter called Company) to execute or procure the bond or bonds herein applied for, are true, and should the Company execute or procure said bond or bonds does * * * hereby agree, for the undersigned, the heirs, personal representatives and assigns of the undersigned, jointly and severally, as follows: * * * third, that the Company shall have the right, and is hereby authorized but not required: (a) In the event of any abandonment or forfeiture of the contract guaranteed by said contract bond or of any breach of .said contract bond, to take possession of the work under said contract, and at the expense of the undersigned to complete, or to contract for the completion of, the same, * * * fourth, to assign, transfer and set over, and does * * * hereby assign, transfer and set over to the Company as collateral, to secure the obligations herein and any other indebtedness and liabilities of the undersigned to the Company, whether heretofore or hereafter incurred, such assignment to become effective as of the date of said contract bond but only in event of (1) any abandonment, forfeiture or breach of said contract or of any breach of said bond or bonds, or any of them, or of any other bond or bonds executed or procured by the Company on behalf of the undersigned; or (2) of any breach of the agreements herein contained; or (3) of a default in discharging such other indebtedness or liabilities when due * * * (6) * * * (a) All the right, title and interest of the undersigned in and to all sub-contracts let or to be let in connection with said contract and in and to all machinery, equipment, plant, tools and materials which are now, or may hereafter lie, about or upon the site of said work or elsewhere, for the purpose thereof, including as well materials purchased for or chargeable to such contract, which may be in process of construction, or storage elsewhere, or in transportation to said site; * * * (d) Any and all percentages retained on account of said contract, and any and all sums that may be due under said contract at the time of such abandonment, forfeiture or breach, or that thereafter may become due; fifth, that liability hereunder shall extend to, and include, the full amount of any and all sums paid by the Company in settlement or compromise of any claims, demands, suits and judgments upon said bond or bonds, or any of them, on good faith, under the belief that it was liable therefor, whether liable or not, as well as of any and all disbursements on account of costs, expenses, and attorneys’ fees, as aforesaid, which may be made under the belief that such were necessary, whether necessary or not; * * *

6. Meyer entered upon the Camp Atterbury job site in March 1942 and prosecuted its work under the subcontracts until sometime in June 1942 under the supervision of its president, Peter Meyer. After Mr. Meyer became incapacitated due to a serious illness, Grover Sales, a Louisville attorney, supervised the job for Meyer. On or about August 26, 1942, David Forman, a recently hired Meyer expediter, was made superintendent and performed in that capacity until the completion of the job. In spite of his title, the evidence is conflicting as to whether Mr. Forman was actually working for Meyer or the plaintiff. Meyer did not personally appear in the picture again and although the subcontract proceeded in his name, under Forman, the latter took some directions on policy and procedure from the plaintiff in connection with completion of the contract although, at other times, his actions were inconsistent with the plaintiff’s interests.

7. Meyer was unable to meet a weekly payroll in the amount of $9,463.36 which was due on September 4,1942. A telegram dated September 4, 1942, sent to Blair by Meyer read as follows:

DO NOT HAVE SUFFICIENT FUNDS TO MEET PAYROLL DUE TODAY REQUEST YOU MAKE DIRECT PAYMENT TO THE MEN ON WRITTEN ORDER OF OUR OFFICE MANAGER STRAUB.

The account of Meyer on the general office records of Blair showed at that time a favorable balance in the amount of !$85,350.41, approximately $66,000 of which consisted of retained percentages for work under its subcontracts. In view of the fact that certain payments were then due and owing Meyer from Blair, the latter met the payroll out of sums due Meyer.

8. Notwithstanding the fact that the payroll had been met from funds due Meyer, Blair wrote to the plaintiff on September 5, 1942, calling upon the plaintiff to complete Meyer’s contract, and stating that the telegram received the previous day was “prima facie evidence” that Meyer was unable to complete the job. A few days after receipt of the above letter the plaintiff referred the matter to its attorneys, Mr. Boehl and Mr. Deindoerfer, of Davis, Boehl, Viser and Marcus of Louisville, Kentucky, who thereupon instituted an investigation of Meyer’s financial condition.

9. The investigation disclosed that approximately $100,000 in bills of material men remained unpaid and that Mrs. Cordelia Meyer was owed approximately $75,000 for sums loaned to the Meyer Company to carry on the work. The Meyer Company did not possess any cash and its bank credit had been exhausted. Mr. Sales, however, insisted that Meyer be allowed to complete its contract and disputed the authority of the plaintiff to interfere in Meyer’s affairs. Mr. Sales maintained that Meyer had not defaulted and that the job could be finished at a small profit. Mr. Forman, Meyer’s superintendent on the job, as outlined in finding 6, estimated at the time that Meyer stood to lose approximately $200,000 on the job. The only apparent concern which Blair had in the matter was that the job be completed as rapidly as possible in order to avoid payment of liquidated damages to the Government. The plaintiff, for its part, anticipating that the job would be completed inside of two or three weeks, did not desire to incur any expenses by taking over the completion of the contract. Satisfactory arrangements were reached among all of the parties concerned, which were confirmed by the following letters dated September 23, 1942, from the plaintiff to Blair and to Meyer:

Kentucky Home Life Building Louisville September 23, 1942
Meyer Plumbing and Heating Co., and Peter H. Meyer, Jr., 635 South Preston Street, Louisville, Kentucky.
Gentlemen :
This letter is being written to follow up and confirm our conversation with, your attorney, Mr. Grover Sales, last week in connection with the contract at Camp Atterbury, Edinburg, Indiana.
The Western Casualty and Surety Company,' which we represent, and which is the surety on your bonds to the general contractor, A. Farnell Blair, was requested to enter into this matter because of the notice which you gave to A. Farnell Blair by telegram on September 4, 1942, that you did not have sufficient funds to meet the payroll due that day and requesting that Blair make direct payments to the men on written order of your office manager.
As a result of this notice, therefore, the Western has been compelled to enter into the picture, but, in accordance with our understanding with Mr. Sales, the Western is not taking over the actual management of the job in any way. The work on this job will continue, so far as the Western is concerned, to be managed, supervised and conducted by Mr. Sales and Blair as heretofore, and the only interest which the Western has is in connection with the finances of the job, that is, the conservation of the proceeds of the contracts and the application of these proceeds to pay proper indebtedness and liabilities in connection with the job. Arrangements entirely satisfactory to the Western have been made to this end with Mr. Sales and everyone concerned is proceeding on the basis of those arrangements.
You may rest assured that the Western and this office stand ready and willing to cooperate with you and Mr. Sales in every way in order to bring the job to an early and successful conclusion and to liquidate all proper indebtedness and terminate the matter for the best interest of everyone concerned.
Yours very truly,
Herbert F. Boehl.
September 23, 1942
Mr. A. Farnell Blair Camp Atterbury Edinburg, Indiana
Ee: Div. A-lc, A-ld and Div. A-2 Columbus Triangular Div. Columbus, Indiana
Dear Sir:
This letter will serve simply to confirm our previous arrangements, as attorneys for the Western Casualty and Surety Company, with your Mr. P. L. Tracy in connection with the work under the above contract.
The Western of course was called into the picture because of the inability of the Meyer Plumbing and Heating Company to meet its payroll on September 4, 1942, and shortly thereafter a working arrangement was set up with Mr. Tracy, which has been satisfactory to the parties concerned and which will continue to be followed.
It was understood that the Western would not take over the job, not take any independent action in directing, supervising or managing the job or any of the operations on the job, but the Western’s only position in the matter is in connection with the conservation of the proceeds of the job and the regulation of the disbursements, so that these proceeds will be applied to proper indebtedness and liabilities of the job and the matter be brought to an early and favorable conclusion.
To this end, we have requested that no amounts whatever be paid by you to the Meyer Plumbing and Heating Company or to Peter H. Meyer, Jr., or to anyone for them, except upon specific approval by us after proper notice to us in connection with any such item.
We also pointed out that under the terms of the indemnity agreement executed by Mr. Meyer, individually and as chief officer of the Meyer Plumbing and Heating Company, at the time the bonds were executed, all equipment and materials on or about the job were assigned to the Western and became the property of the Western subject to all the terms and conditions of said agreement. Photostatic copies of the indemnity agreement executed by Meyer are enclosed herewith for your file. With regard to this property, however, we have reached a satisfactory understanding with Mr. Grover Sales, attorney for Meyer, whereby he may dispose of the surplus materials on hand and the checks for the proceeds of this salvage are to be made payable to Meyer Plumbing and Heating Company and turned over to us. We have already informed you verbally of this agreement, and this will serve to confirm our understanding in that connection.
We take this opportunity again to state that the Western and this office will be more than glad to cooperate to the fullest extent with both yourself and the Meyer Plumbing and Heating Company and Sales to the end that this job may be satisfactorily completed, proceeds thereof preserved and applied to outstanding proper indebtedness, and the entire matter terminated for the best interest of everyone concerned, and we stand ready and willing to assist in every way to bring this about.
Very truly yours,
H. F. Boehl.

10. Needed materials were ordered in Meyer’s name. Payrolls were met by Blair out of sums as they came due under Meyer’s contract in the total of $82,418.37 covering the period from the week ending September 2,1942, until April 14,1943. Pursuant to agreements with Mr. Sales and Blair, the plaintiff checked and approved payments by Blair to Meyer arising out of the proceeds of Meyer’s subcontracts, including weekly payrolls, which Meyer’s superintendent brought to Louisville each week to be checked and approved by Mr. Boehl or Mr. Diendoerfer, counsel for the plaintiff. None of the plaintiff’s personnel ever appeared at the Camp Atterbury job site aside from a Mr. Stopher, who made four or five visits during the early part of September to investigate for Mr. Diendoerfer while the arrangements with Meyer and Blair were being made, nor did plaintiff incur any expense whatsoever under its performance bonds in connection with the completion of the job. The plaintiff did expend $131,984.04 under its payment bonds to persons furnishing materials to Meyer in connection with the work at Camp Atterbury. Additional costs to the plaintiff are enumerated in finding 17.

11. Meyer possessed a large quantity of surplus plumbing and heating materials at the job site. All of these materials had been ordered and purchased by Meyer from the job site at various times subsequent to March 1942. Approximately one-third of the surplus materials had been ordered subsequent to August 26, 1942, and an undetermined smaller amount had been ordered in the name of Meyer, with approval of the plaintiff, subsequent to September 4,1942. The major portion of the surplus materials had been ordered by Meyer employees at various times prior to the hiring of David Forman as expediter. These materials, which were ordered under Government priorities, were in short supply, were worth more on the open market than the prices paid by Meyer, and were of types which form part of a plumbing and heating contractor’s normal inventory. After sales to the post and area engineers in the amounts listed in findings 12 and 13 and smaller Sales to unknown purchasers in amounts of $594.26 and $179.68, several truckloads of remaining surplus materials were transported to Louisville to unknown parties for sale hy the attorney for Meyer.

12. Negotiations regarding the sale of surplus materials were begun between Meyer and the Camp Atterbury post engineers, commanded by Major Lowell Gr. Schweickart, at some time prior to August 1, 1942. As a result of these negotiations, handled in the name of Meyer by its superintendent, the post engineers purchased the following amounts of surplus materials on the dates indicated:

September 24, 1942----------------------- $396. 86
September 30, 1942----------------------- 17. 83
October 2,1942___________________________ 1,266. 51
On or about October 27, 1942-------------- 18, 330. 07

Invoices covering these purchases were drawn up in the name of Meyer by Mr. Forman and Mr. Straub, another Meyer employee, in advance of these purchases, and purchase orders directed to Meyer thereafter were tendered by the post engineers and accepted by Mr. Forman. A check from the post engineers in the amount of $1,266.51 and made payable to the Meyer Plumbing and Heating Company was presented to and accepted by Mr. Forman on or about October 10, 1942, in payment for the purchase made October 2, 1942, and Mr. Forman gave the check to Mr. Sales, attorney for Meyer, for deposit in an account described in finding 14. Mr. Forman did not inform anyone from the post engineers that he was representing anyone other than Meyer in these transactions and, as shown by the evidence, the first notice received by the post engineers regarding the alleged interest of the plaintiff in the surplus materials was contained in a letter from the plaintiff dated December 16, 1942. No evidence has been presented which indicates that the post engineers were aware, prior to December 16,1942, that the plaintiff had any connection with Meyer. Sometime in December 1942 and January 1943 invoices for all the surplus materials and equipment involved were made up by the plaintiff in its own name and submitted by it to the engineers. The invoices included, among others, purchase orders previously directed by the engineers to Meyer.

13. The Camp Atterbury area engineers, an organization separate from the post engineers, was in charge of the construction work undertaken by Blair. The area engineer was Major William Arrasmith, and neither he nor any of his men had occasion to deal directly with Meyer, since Blair was held responsible for the entire job. Negotiations between Meyer and the area engineers regarding the sale of surplus materials were begun on or about August 15, 1942. As a result of these negotiations handled in the name of Meyer by its superintendent, the area engineers purchased $484.66 worth of surplus materials on October 23,1942, and an additional $398.50 worth of such materials on December 3, 1942. Invoices covering these purchases were drawn up in the name of Meyer by Mr. Forman and Mr. Straub, another Meyer employee, in advance of these purchases and purchase orders directed to Meyer thereafter were tendered by the area engineers, and accepted by Mr. Forman. Mr. Forman did not inform anyone from the office of the area engineers that he was representing anyone other than Meyer in these transactions. The first formal notice received by the area engineers from any source whatsoever regarding the alleged interest of the plaintiff in the surplus materials was a letter from the plaintiff dated December 16,1942. Aside from a remark made during the second week of September 1942 by one of Blair’s employees to Major Arrasmith in the course of a general conversation regarding delays under Blair’s contract, which remark consisted of a statement that the plaintiff had been “called in” on Meyer’s subcontracts, there is no evidence that the Major or any of his men were informed from any source of any connection between the plaintiff and Meyer’s completion of the job.

14. The plaintiff knew and approved of the manner in which the surplus materials were sold in the beginning to the area engineers and the post engineers. The sales procedure was the subject of an agreement reached between the plaintiff and Mr. Sales, attorney for Meyer, sometime during the middle of September 1942 to the effect that Meyer would dispose of the surplus materials, and that all sales would be handled by Mr. Forman, superintendent of Meyer. Blair was notified of this agreement by the plaintiff’s letter dated September 23, 1942, set forth in full in finding 9.

Checks, made payable to Meyer for surplus materials, were to be turned over to Mr. Sales by Mr. Forman and placed in a joint bank account in the name of Mr. Sales and Mr. Boehl, counsel for Meyer and the plaintiff, respectively. Mr. Sales deposited one such check, in the amount of $1,266.51 from the post engineers, payable to Meyer, in the joint account. This check, for purchase order U-423 and dated October 10,1942, is not in issue here.

The plaintiff discovered that Mr. Sales was not fully complying with the above-described agreement, and in a letter to Mr. Forman dated October 9,1942, the plaintiff, too, abandoned the plan, stating in pertinent part:

* * * Under our agreement, all checks for the sale of materials may be made payable to the Meyer Plumbing & Heating Company but are to be delivered to this office. Will you please see, therefore, that this agreement is rigidly carried out? * * *
In addition to the above, we will ask that you submit to us identical copies of the invoices on these materials, which will show exactly what the Meyer Plumbing & Heating Company paid for these materials, and also identical bills showing what the Meyer Plumbing & Heating Company is selling these materials for.

The plaintiff knew that sales would be made to the U. S. Government.

15. On December 16,1942, more than one month after the sales here involved had been made, the plaintiff by separate letters to the post engineers and area engineers gave the defendant its first written notice that the plaintiff was surety on the bond of Meyer and advised that all checks covering such payments should be made payable to the plaintiff. A contest thereafter developed between the plaintiff and Meyer as to whom payments for the surplus materials should be made. Meyer’s attorney notified the defendant by letters dated August 3, 1943, and November 23, 1945, that the proceeds of the sales should be applied as a set-off to Meyer’s tax indebtedness. The defendant was further informed that if the requested set-off was not made, the failure of the defendant to effect such a set-off from money in its hands would be raised as a defense in any subsequent attempt by the defendant to collect the taxes from Meyer. Defendant has not paid the plaintiff or Meyer for any part of the $19,627.92 for surplus materials purchased from Meyer by the post engineers and the area engineers.

16. Meyer incurred tax liabilities for the year 1942 under the Federal Insurance Contribution Act, 26 U. S. C. Sec. 1400, et seq. and the Federal Unemployment Tax Act. 26 U. S. C., Sec. 1600 et seq., which taxes have never been paid. Substantially all of this indebtedness arose out of the Camp Atterbury construction job undertaken by Meyer. Taxes due and unpaid, exclusive of interest and penalties, amounted to $24,825.68, as is more particularly set forth in Meyer’s tax returns which are in evidence as defendant’s exhibits 17 and 18 and made a part hereof by reference. In view of the fact that Meyer did not file returns in connection with the above tax indebtedness, returns were made for Meyer by the Commissioner of Internal Revenue pursuant to the provisions of the Internal Revenue Code, 26 U. S. C., Sec. 3612.

17. It cannot be determined from the evidence whether or not the plaintiff paid for any or all of the particular surplus materials sold by Meyer to the post engineers and area engineers. The plaintiff paid material men’s bills due from Meyer in the amount of $131,984.04, making the first such payment on December 31, 1943. The plaintiff also paid a judgment in the amount of $4,094.08 for services rendered to Meyer by Mr. Sales and a judgment in the approximate amount of $90,000 to Mrs. Cordelia Meyer for loans made to Meyer during the course of the Camp Atterbury construction. The first loan made by Mrs. Meyer, in the amount of $34,000, was made on or about June 1,1942, and the total amount of the loans was approximately $78,000. The difference between the total amount of the loans and the amount of the judgment represents interest which accrued during the period in which the plaintiff was contesting its obligation to reimburse Mrs. Meyer. After protracted negotiations, Blair handed over to the plaintiff on February 16, 1944, the sum of $90,162.42, representing the amount owed to Meyer after deduction of $82,418.37 expended by Blair to meet Meyer payrolls. Thus, the plaintiff sustained a net loss of approximately $135,915.70 growing out of its bond obligations on the job.

CONCLUSION OF LAW

Upon the foregoing special findings of fact, which are made a part of the judgment herein, the court concludes that as a matter of law the plaintiff is not entitled to recover, and the petition is therefore dismissed.

Judgment is rendered against the plaintiff for the cost of printing the record herein, the amount thereof to be entered by the clerk and collected by him according to law. 
      
       Amended February 3,1953.
     