Full opinion text
MEMORANDUM OPINION AND ORDER WARREN H. YOUNG, District Judge. Plaintiff American Fidelity Fire Insurance Company (hereinafter “AFFIC” or “surety”) has moved this Court pursuant to Fed.R.Civ.P. 56 for an order compelling defendant Carla A. Hills, Secretary of Housing and Urban Development (hereinafter “HUD”), to pay some $220,-268.00 in retainages, allegedly owing on the “Thomasville” Project, into court. Defendant HUD, in addition to opposing the granting of AFFIC’s motion, has moved for a dismissal of plaintiff’s complaint pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(2). Finally, defendant Construcciones Werl, Inc. (hereinafter “WERL”) has also moved for an order of dismissal alleging, like HUD, that this is not a proper interpleader action. I BACKGROUND FACTS The history of this litigation is rather long and complex. Back in December of 1971, plaintiff AFFIC, a New York bonding company, became a surety on two federally subsidized housing projects in the Virgin Islands [the construction contracts for which had been awarded to Quantum Development Corporation (hereinafter “QUANTUM” or “CONTRACTOR”) by the Virgin Islands Foundation for Housing and Economic Development (hereinafter “FOUNDATION” or “MORTGAGOR”) by issuing payment and performance bonds. The furnishing of such bonds, in satisfaction of the requirements of the Miller Act, 49 Stat. 793 (1935), as amended 40 U.S.C. §§ 270a-e (1970), is standard practice when awarding construction contracts for public buildings to private contractors. The payment bond guarantees that any materialmen or subcontractors remaining unpaid by the general contractor will be remunerated by his surety up to a certain amount (in this instance, $387,500.00 at each project) while the performance bond assures the owner and his mortgagee that in the event that the general contractor defaults before completing the project, they will be saved harmless up to a contractually prescribed monetary limit (also $387,500.00 per project in this situation). Forming the predicate for this litigation, QUANTUM, the general contractor, ran into financial difficulties and filed for an arrangement under Chapter XI of the Bankruptcy Act, 11 U.S.C. § 701 et seq., on June 30, 1972. Thereafter, on November 30, 1973, it was adjudged a bankrupt. As part of the denouement of the bankruptcy hearings, the referee entered an order on August 24, 1972 requesting the surety to fulfill the requirements and obligations expressed in the construction contracts for the housing projects. AFFIC thereupon entered into two separate contracts with defendant WERL regarding completion of the “Thomasville” project — which completion was allegedly effectuated in June of 1973. Since that time, AFFIC has attempted to obtain first from the original mortgagee, Berens Mortgage Bankers, Inc. (hereinafter “BERENS” or “MORTGAGEE”), and then from its assignee (HUD), some $220,268.00 in retainages in order to apply these unpaid sums towards the substantial losses which it suffered in fulfilling its role as surety. In addition to actively pursuing first BERENS and then HUD, plaintiff AFF-IC apparently also attempted some “self-help” cost-cutting measures of its own for on September 11, 1973, defendant WERL filed suit in the Superior Court of Puerto Rico, District of San Juan, alleging that AFFIC owed it in excess of $80,000.00 for its part in finishing the “Thomasville” project after QUANTUM’S default. This filing, it may be assumed, was the catalyst precipitating AFFIC’s own breach of contract action against WERL which was filed in this Court on November 15, 1973. Following some intricate procedural jockeying in which AFFIC sought to amend its complaint in order to sound in rule inter-pleader and WERL moved to dismiss the suit for AFFIC’s failure to state a compulsory counterclaim, I allowed AFFIC to amend in view of the possibility that the retainages in question might be subject to multiple adverse claims, denied WERL’s Fed.R.Civ.P. 13(a) motion, and stayed the Puerto Rican action while enjoining all interpleader defendants from instituting, maintaining, or prosecuting any suit at law or in equity against AFFIC with respect to the Thomasville retainages. (See Memorandum Opinion and Order filed by this Court on December 18, 1974.) Ten months have come and gone and the parties are before this Court again. The procedural posture of this litigation has changed in the interim and several parties have been added or dropped. But the basic issues, like “Old Man River”, just keep rolling along. It should be apparent that in developing a matter for trial, some time needs be expended in clarification and crystallization of the disputed points. Admittedly, the period of gestation for this stage of preparation will vary depending, among other factors, upon the number of parties to the lawsuit and the complexity of the issues. But at some ill-defined mark on the time-space continuum, the scales of justice are thrown out of equilibrium when delay and obfuscation are allowed to run unchecked. Justice is poorly served when unnecessary parties are required to needlessly participate ad infinitum and/or non-related claims are forced into juxtaposition with each other. And without expressly declaring that such a point has been reached here, it would be dishonest if the Court did not admit that this factor has played some role in its ruling on the submitted motions. II WERL’S MOTION TO DISMISS On December 18, 1974 I entered an order restraining WERL from maintaining its breach of contract action against AFFIC in the Superior Court of Puerto Rico. In order to arrive at that decision, the Court first found that it was entertaining a Rule 22 interpleader action. Then, having determined the nature of the action before it, the Court buttressed its granting of a preliminary injunction by declaring it to be “necessary in aid of jurisdiction”. I ruled the interpleader action would lose a great deal of its effectiveness if AFFIC were forced to defend, in several jurisdictions, multiple actions all arising out of the same transaction. Both judicial economy and the effective resolution of all claims emanating from the “Thomasville” default led me to believe that all parties asserting a colorable claim to the retainages in question should be compelled to appear before this Court. Shortly thereafter, WERL filed a motion for reconsideration in which it asked me to vacate the aforementioned order and to dismiss the interpleader action as against it. At that time, WERL argued that the funds which AFFIC allegedly owed to it arose out of their post-bankruptcy contract and not from any prebankruptcy transactions. Accordingly, it was not claiming under either the original QUANTUM contract or under the payment or performance bonds executed by AFFIC pursuant to its role as surety. Moreover, mention was also made of the fact that AFFIC had been actively participating in the Puerto Rican suit. Therefore, WERL asserted that it was not a proper interpleader defendant and consequently the Puerto Rican action should be allowed to continue. Upon hearing oral argument and reviewing the submitted briefs, this Court decided to reaffirm its earlier position and accordingly denied WERL’s motion for reconsideration and dismissal. I wrote that the preliminary injunction was only a tentative measure, “essentially insuring that a future determination that Construcciones WERL, Inc. is a proper interpleader-defendant in the instant action would not be rendered meaningless by a prior judgment by the Puerto Rican Court. If, on the other hand, WERL is hereafter determined to be an improper interpleader-defendant, the preliminary stay may be vacated, thereby permitting a continuance of the Puerto Rican action”. (See Memorandum Opinion and Order filed on February 6, 1975.) Now WERL is before the Court again with essentially a repetition of its earlier motion for dismissal of the interpleader action. However, for reasons appearing infra, I feel compelled to consider the motion de novo. Rule 22 is one of two types of interpleader actions which Title 28 of the United States Code authorizes. Both are equitable devices designed to insure that an organization or individual faced with the possibility of conflicting claims of liability can secure a determination concerning its or his liability-in-fact as between the competing complainants. As Moore states: Interpleader is a procedural device which enables a person holding money or property, in the typical case conceded to belong in whole or in part to another, to join in a single suit two or more persons asserting mutually exclusive claims to the fund. The advantages of such a device are both manifest and manifold. A many-sided dispute is settled economically and expeditiously within a single proceeding; the stakeholder is not obliged to determine at his peril which claimant has the rightful claim, and is shielded against the possible multiple liability flowing from inconsistent and adverse determinations of his liability from different claimants in separate suits; even in those cases where there is little threat of multiple liability, the stakeholder is freed from the vexation of multiple lawsuits and may be discharged from the proceeding so that the true dispute will be settled between the true disputants, the claimants; the claimants are benefited as well, since search for and execution upon the debtor’s assets are obviated, the spoils of the contest being awarded directly out of the fund deposited with the court. (Footnotes omitted.) (3A Moore’s Federal Practice § 22.02[1] at 3003-5.) Traditionally, interpleader was restricted to situations where the stakeholder feared two or more mutually exclusive claims on the res. These claims were derived from or dependent upon a common source; the interpleading party claimed no interest in the subject matter; and the stakeholder was not otherwise independently liable to any of the claimants. (4 Pomeroy, Equity Jurisprudence § 1332.) The preceding technical requisites, it should be apparent, seriously undercut the value of the interpleader device. Consequently, the courts became liberal in their approach and gradually interpleader evolved into its now well-settled practice of being invoked whenever two or more claims are mutually inconsistent in the sense that a decision upon the merits in favor of one of the claimants necessarily determines that the remaining claimants are left with no legal entitlement to any portion of the particular fund or property. See Texas v. Florida, 306 U.S. 398, 59 S.Ct. 563, 83 L.Ed. 817 (1939). Recently, however, interpleader’s utility has been extended to cover the situation where the claims asserted, while not being mutually exclusive, are, in the aggregate, greater than the limited liability of the stakeholder. This is the famous “pie-slicing” situation wherein the court assumes the role of pater familias and endeavors to protect the stakeholder against multiple vexation as well as to assure a fair distribution among the clamoring creditors. See State Farm Fire and Casualty Co. v. Tashire, 386 U.S. 523, 87 S.Ct. 1199, 18 L.Ed.2d 270 (1967). Interestingly enough, the most frequently occurring example of this type of interpleader is that of the surety interpleading a string of subcontractors and materialmen on its payment bond. See, for example, Aetna Casualty and Surety Co. v. B. B. B. Construction Corporation, 173 F.2d 307 (2nd Cir. 1949), Massachusetts Bonding and Insurance Company v. Antonelli Construction Co., Inc., et al., 173 F.Supp. 391 (D.Mass.1959), Pennsylvania Fire Insurance Company v. American Airlines, Inc., et al., 180 F.Supp. 239 (E.D.N.Y.1960), National Surety Corporation v. Globe Indemnity Company, 331 F.Supp. 208 (E.D. Pa.1971) and Emmco Insurance Company v. Frankford Trust Company, et al., 352 F.Supp. 130 (E.D.Pa.1972). Regardless of the type of inter-pleader, however, the stakeholder must have a real, reasonable, and bona fide fear of exposure to double liability or to the vexation of conflicting claims upon the same fund or property. In short, the adverse nature of the competing claims must be sufficiently established. See, in this regard, Bierman v. Marcus, 246 F.2d 200 (3rd Cir. 1957), cert. denied sub nom., Milmar Estate, Inc. v. Marcus, 356 U.S. 933, 78 S.Ct. 774, 2 L.Ed.2d 762 (1958); John Hancock Mutual Life Insurance Company v. Beardslee, 216 F.2d 457 (7th Cir. 1954), cert. denied, 348 U.S. 964, 75 S.Ct. 523, 99 L.Ed. 751 (1955); Francis I. du Pont & Co. v. O’Keefe, 365 F.2d 141 (7th Cir. 1966), and Fulton v. Kaiser Steel Corp., 397 F.2d 580 (5th Cir. 1968). As noted, supra, the requisite adversity is normally found to exist in instances where the totality of claims of unpaid materialmen, suppliers, and subcontractors exceeds the face amount of the payment bond required by the Miller Act, 40 U.S.C. § 270a et seq. As such, it represents an effort to balance the equities between the participating surety and the actual suppliers and laborers, security for whom the Miller Act was intended to effectuate. U. S. for Benefit and on Behalf of Sherman v. Carter, 353 U.S. 210, 216-7, 77 S.Ct. 793, 1 L.Ed.2d 776 (1957). The previously mentioned cases, however, uniformly dealt with the situation where the obliging surety was confronted with numerous materialmen, suppliers, and sub-contractors whom the defaulting general contractor had neglected to pay prior to its default. No case has been found which speaks directly to the issue of whether a post-default creditor of the surety should be forced to join the class of pre-default creditors of the principal. But sound reasoning and two helpful cases point the way to the decision which this Court has reached. I will not recite the involved facts in National Surety Corporation v. Globe Indemnity Company, 331 F.Supp. 208, 210 (E.D.Pa.1971), but will quote from that part of the opinion which fairly summarizes and explains the Court’s decision not to grant plaintiff’s interpleader motion. This is found at pages 210 and 211 therein: It is obvious, therefore, that this Court will not grant interpleader where it feels no good will flow from the order. Such is the case here. The plaintiff’s own pleadings make it clear that there are suits pending by the defendants against themselves and plaintiff which are independent of the alleged fund sought to be interpleaded by National Surety. Globe, for example, has sued the Commonwealth for money allegedly due from one county contract, regardless of whether or not the Commonwealth has paid that money to National Surety. The United States claims monies from the Commonwealth by reason of its tax lien, which the United States may be able to recover regardless of the fact that the Commonwealth has paid those monies to National. Globe’s claims against the Commonwealth and National have no relationship to the fund, so that it may continue those actions without regard to the determination made in this case. It is obvious, therefore, that this one action will not settle the many claims outstanding among the parties to this suit. (Emphasis supplied.) Again, without reciting the complicated facts involved in Frank Briscoe Company, Inc., et al. v. Albert Pick Co., Inc., et al., 282 F.Supp. 321, 326 (D.N.J.1968), I quote from the Court’s ratio decidendi: The facts here disclose a situation where there are two funds growing out of a common origin, but with each fund having its own claimants. To entertain this interpleader action merely to further the remedial intent of Congress would be in conflict with the stated jurisdictional requirements set forth in Section 1335 and would moreover under the peculiar set of facts presented, have a diluting effect upon the other remedial provisions of the Bankruptcy Act and the Miller Act as available to the parties presently before the Court. It would indeed be a perversion of the purpose of the Inter-pleader Act to allow it, in the context of this case, to defeat the other remedies presently being pursued by the various claimants before this Court. (Emphasis supplied.) It would appear that these cases provide a sufficient basis upon which to rest a ruling in support of WERL’s motion to be dismissed from the interpleader action. Together, they stand for the proposition that an interpleader action, whether rule or statutory, will not lie where there are independent funds each with its own claimants — even if the two funds arose out of a common origin. In the matter sub judiee, AFFIC’s liabilities to most of the other defendants (see part V, infra), whatever they may be all accrued prior to the date of QUANTUM’S bankruptcy and arose out of the surety’s payment and performance bonds. As such, any liability found to exist would be limited to the face amount of the bonds and the competing claimants would have to share in a prorata distribution. WERL’s rights, on the other hand, do not result from the aforementioned bonds but arise out of the contracts it separately entered into with AFFIC. Hence, should its claim prove successful, it would not be limited in its recovery by the funds which AFFIC is seeking to have deposited in court or to the face amount of the bonds. In fact, WERL has not even argued that it should be allowed to participate in any recovery from the bonds, retainages, or undisbursed mortgage proceeds. (See part III, infra.) In view of the foregoing, WERL’s motion to dismiss should be granted. However, inasmuch as counsel expressed willingness during oral argument to stay before this Court, the previously entered restraining order will be continued— leave being given to WERL to remove its action from the Puerto Rican forum to this one pursuant to 28 U.S. §§ 1441(a) and 1404(a). Ill PLAINTIFF AFFIC’S MOTION TO COMPEL HUD TO PAY THE $220,268.00 “RETAINAGES” INTO THE COURT’S REGISTRY Having determined that WERL should be dismissed from the interpleader action sub judice, I now proceed to the matter pressed by the surety. Plaintiff has moved this Court for summary judgment, pursuant to Fed.R.Civ.P. 56, to compel HUD to pay into the registry of the Court for the benefit of the parties to this Rule 22 action those funds which it is currently holding. The $220,268.00 in question allegedly represents retainages held under the “Thomasville” construction contract which should have been paid to the surety thirty (30) days after the aforementioned project was “fully completed.” HUD, as BEREN’s assignee, argues that the funds are not construction “retainages” but rather constitute “undisbursed mortgage proceeds”. Alternatively, even if they are retainages, HUD contends that they should be subject to a set-off for liquidated damages. Both sides, in support of their respective contentions, have drawn upon the line of cases which represent the progeny of Pearlman, infra. Notwithstanding their best efforts to the contrary, this Court remains unconvinced that the resolution of this hotly contested motion involves an application of the principles enunciated in those cases. Accordingly, I have filed as a supplement to this Opinion a separate historical and jurisprudential analysis tracing the development of Prairie State National Bank v. United States, 164 U.S. 227, 17 S.Ct. 142, 41 L.Ed. 412 (1896); Henningsen v. United States Fidelity & Guaranty Co., 208 U.S. 404, 28 S.Ct. 389, 52 L.Ed. 547 (1908); United States v. Munsey Trust Company, 332 U.S. 234, 67 S.Ct. 1599, 91 L.Ed. 2022 (1947); Pearlman v. Reliance Insurance Company, 371 U.S. 132, 83 S.Ct. 232, 9 L.Ed.2d 190 (1962) and related cases. Because of the length of that analysis, I have chosen not to insert it into the body of this Opinion but rather to incorporate it by reference only. What the Prairie-Henningsen line of cases do indicate, however, is a persuasive judicial philosophy with respect to the surety’s relative position. That philosophy, though never having been expressly articulated, can be stated as follows: First, when the surety is proceeding under its performance bond, it is in a stronger position than when it is relying upon its payment bond; second, the Government down through the years has tried a variety of arguments in an attempt to force the Courts to treat the surety’s posture under both bonds identically; and finally, the only one of those arguments which has been favorably received by the Courts has been that of liquidated damages. However, even in that situation, the surety is entitled to a judicial determination as to whether the Government’s assessment of liquidated damages is proper. When seen from this perspective, the government’s argument in the matter sub judice — that the fund in question represents undisbursed mortgage proceeds under the building loan agreement rather than retainages under the construction contract — can be seen for what it truly is: an attempt to avoid this decisional line of authority giving the surety sacrosanct status when it is proceeding under its performance bond. On the other hand, the line of cases stemming from Prairie and Henningsen all involved instances where the government was a party to the construction contract. In the matter sub judice, the government’s relationship with the parties arises solely out of its position as mortgage insurer and provider of monthly interest reduction payments pursuant to Section 236 of the National Housing Act (12 U.S.C. § 1715z-l). Thus, although the government has not so argued, it is debatable whether the aforementioned decisional authority is even applicable to the situation herein involved. So stated, the tension, between a judicial philosophy of favoring sureties and a clearly distinguishable party postural arrangement, abruptly surfaces. Plaintiff AFFIC makes several arguments in support of its motion to compel HUD to pay the retainages into the registry of the Court. Initially, it cites paragraphs 3(C), 3(D), 5(C) and 10(C) of the construction contract which specify the conditions required, in addition to that of “fully completed”, before the contractor can receive the final payment. These conditions are: (i) Inspection and approval by the appropriate local governmental agency; (ii) Issuance of a certificate of occupancy by the same; (iii) Issuance of an occupancy permit by the F.H.A.; (iv) Disclosure of all unpaid obligations; (v) Survey drawings showing site improvements and utilities; and (vi) A contractor’s Certificate of “Actual Cost” supported by a C.P. A.’s certification of the same. Believing these six conditions have been met, plaintiff contends it should receive the retainages or at least have them paid into the Court’s registry by virtue of its having “fully completed” the project after QUANTUM’S default. HUD does not argue that these six requirements remain unsatisfied. However, its position is that the condition of “full completion” has not yet occurred because there has been no “final closing” of the “Thomasville” project. Plaintiff’s position, on the other hand, is that “full completion” does not mean “final closing” but rather “substantial completion”. Thus, the issue is clearly drawn. I find both positions to be without merit. “Substantial Completion” is defined by paragraph 2(D) of the construction contract as being “the date the FHA Chief Underwriter signs the Final Project Inspection Report (FHA Form No. 2449)”. It would indeed require a tortured reading of this document to determine that two obviously different terms, one of which has been clearly defined in terms of procedural requisites, mean the same thing. This does not mean, however, that I concur with HUD’s definition of the term “fully completed”. That term refers to physical termination of the project. “Final closing”, on the other hand, is a date when papers are shuffled and the legal position of the parties is redefined and clarified. To hold that the two are synonymous would imply that a housing project could be physically completed, have full occupancy, be serving its intended objective, and yet not be “fully completed” if final closing were delayed indefinitely. Accordingly, since neither party’s interpretation of “fully completed” is accepted, I must arrive at one of my own in order to determine whether that event, however defined, has occurred. Unfortunately, the construction contract here in question has not been artfully drafted and this makes the going rougher. Nevertheless, some determination must be made for it is a prerequisite to reaching the next stage of the surety’s argument — i. e., given “full completion” of the project by the performing surety, it is entitled to the retainages. Article 2 of the aforementioned construction contract delimits the time requirements of the contract. Paragraph (A) thereunder specifies a date of “completion” and authorizes an extension of that date in accordance with the terms of AIA Document A201 (“General Conditions of the Contract for Construction”) but only with the prior written approval of the Federal Housing Commissioner. Paragraph (B) provides that “(t)he Contractor shall correct any defects due to faulty materials or workmanship which appear within one year from the date of substantial completion”. And Paragraph (D), as noted earlier, defines “substantial completion”. Given these provisions, I find that “fully completed” refers to the earlier of “final closing”, one year from the date of “substantial completion”, or the date of correction of any defects due to faulty materials or workmanship which appear within one year from the date of “substantial completion”. Accordingly, it is hereby determined that the project is “fully completed” inasmuch as “substantial completion” occurred on June 7, 1974 and all defects of materials and workmanship have since been corrected. Under the circumstances of this case, I rule that it is immaterial that “final closing” has not yet transpired. Having determined that the Thomas-ville project is “fully completed”, I must now decide whether the funds which HUD is holding are contract retainages or undisbursed mortgage proceeds and, depending upon their characterization, whether AFFIC is entitled to them either as a completing surety under the equitable doctrine of subrogation, as a third-party creditor beneficiary of the building loan agreement, as an assuredpromisee under the mortgage insurance commitment agreement, through some equitable lien argument, or under the doctrine of unjust enrichment. Until recently, this question never arose. Funds which the government was found to have in its possession were uniformly treated as either earned but unpaid progress payments or as construction retainages. Apparently relying on all these past cases, plaintiff urges the Court to consider these funds as contractual retainages — for if these funds can be so classified, then the heavy weaponry of Prairie Bank-Henningsen, etc., could be brought in to summarily dispose of this motion. What the surety ignores (and what I have briefly alluded to earlier) is the fact that in the aforementioned line of cases, the contractor had entered into a contract with the government to do one thing or another. The federal government, in short, was the owner of the property, a direct recipient of the contractor’s promise to perform, and a party to the construction contract. In return for the contractor’s promise to build, paint, repair, or whatever, it gave its promise to pay. The situation sub judice is markedly different. The government enters the picture only by virtue of its insurance commitment and periodic interest reduction payments. It is presently holding the funds only because of a statutorily-authorized assignment. [See 12 U.S.C. §§ 1713(g), 1715b, 1715z — 1(a) and (j) and the regulations issued pursuant thereto, to wit: 24 C.F.R. §§ 207.258(b), 236.251, and 236.260.] It is neither the owner of the property nor a party to the construction contract. Moreover, while it undoubtedly benefits indirectly from the successful completion of the housing project, it cannot by any means be said to be a direct recipient of the contractor’s promise to perform. Nor, obviously, is it under any obligation to pay the contractor for the latter’s successful performance of its contractual obligations. The short of the matter is that there is no relationship between the general contractor and HUD based upon the construction contract. HUD, therefore, cannot be said to be holding contractual retainages and, accordingly, the surety, even if subrogated to the rights of the general contractor, cannot go after the funds which HUD is holding on a theory based upon contractual retainages. If the funds which HUD is presently holding pursuant to a statutorily-authorized assignment from BERENS are not contract retainages, then what are they? The answer is that they represent undisbursed mortgage proceeds and whatever cash deposits BERENS insisted that the FOUNDATION place into an escrow account. [See 24 C.F.R. §§ 236.1, 221.540, and 221.542.] Had these funds been paid to the mortgagor by the mortgagee, they would have become contractual retainages in the hands of the mortgagor. Since, however, they never were disbursed but, owing to the mortgagor’s default, were instead assigned to HUD, they retained their initial characterization of undisbursed mortgage proceeds. Having determined that the funds in controversy represent undisbursed mortgage proceeds, the basic issue remains whether the surety can nevertheless reach them. Plaintiff AFFIC relies upon Travelers Indemnity Company v. First National State Bank of New Jersey, 328 F.Supp. 208 (D.N.J.1971) for the proposition that it can recover these funds as a third-party creditor beneficiary of the building loan agreement. AFFIC also argues that it can recover in its own right as a surety through the equitable doctrines of subrogation, equitable lien, and unjust enrichment. Finally, plaintiff’s third theory upon which it premises its right to recoup the funds is that as a promisee-assured under HUD’s commitment of insurance to the mortgagee (BERENS), it benefits from the letter of commitment which undertook not only to insure the ■ mortgagee against loss but also to guarantee the reasonable expectations of the general contractor and its surety that upon full performance on their part, they would receive the agreed upon contractual payments. HUD relies upon the recent case of Trans-Bay Engineers & Builders v. Lynn, 396 F.Supp. 265 (D.D.C.1975) to refute all of the theories under which AFFIC is proceeding. Alternatively, it argues that if the surety is deemed to be a third-party creditor beneficiary of the building loan agreement, then HUD should be considered a third-party beneficiary of the construction contract and be entitled to rely upon the provisions therein — specifically its liquidated damages clause. In reply, the surety contends that the release which it received from the mortgagor (FOUNDATION) relieves it from the onus of the liquidated damages provision of the construction contract and, in any event, since neither HUD nor BERENS were parties to the construction contract, they cannot rely upon any of the paragraphs contained therein to defeat plaintiff’s claim to the withheld funds. Finally, in response to this contention, HUD takes the position that the release itself violated section 9(A) of the construction contract which required the prior written consent of the mortgagee and the Commissioner. Moreover, HUD asserts that it can enforce various provisions of the construction contract as a third-party beneficiary thereof for FOUNDATION’S release does not bind HUD since it was granted without HUD’s approval as required by the 17th article of the building loan agreement. Since the respective positions of the two parties are drawn from and fundamentally depend upon the two district court cases previously cited, I have found it necessary to make another analytical study. Again, however, in the interest of keeping this Opinion from becoming unduly lengthy, that analytical study has been reduced to a separate memorandum, filed separately, but incorporated herein by reference. Since most readers of this Opinion may not read the separate memorandum just described, it will be useful to recapitulate herein certain salient features of the Travelers and Trans-Bay opinions by way of comparison. Travelers involved a suit by the surety and co-trustees in bankruptcy of the general contractor whereas, in Trans-Bay, the general contractor himself was the moving party. In both situations, the project owner (mortgagor) occasioned the default by failing to make monthly interest payments. In both cases also, the contractor satisfactorily completed construction and the project was accepted by the mortgagor with the mortgagee’s and HUD’s approval. In one case (Travelers), the default occurred prior to successful completion of the project but construction continued until completion. In the other, default did not occur until after completion and approval. Both courts held that the plaintiffs (in the one case, the surety and co-trustees in bankruptcy, in the other, the general contractor) to be creditor third-party beneficiaries of the building loan agreement. Both judges also concurred that the suit was one for recovery of undisbursed mortgage proceeds and, as such, was founded upon the building loan agreement and governed by its terms. Any provisions in the construction contract, favorable or otherwise, were not controlling and could not be relied upon. Finally, both Judge Wortendyke and Judge Smith agreed that HUD was the proper defendant by virtue of the statutorily-authorized and contractually-provided for assignment and that the mortgagee could not be held liable for the undisbursed mortgage proceeds because of that same assignment. It is at this point, however, that the similarities cease. In Travelers, the surety was proceeding under its payment bond and the Court held that the surety was entitled to the undisbursed mortgage proceeds by finding the surety to be a creditor third-party beneficiary of the building loan agreement under both traditional contractual and suretyship doctrines governing third parties and explicit HUD regulations and provisions in the building loan agreement specifying the mortgagee’s obligations. However, the Court did hint that had the mortgagor given the requisite notice to the general contractor, the plaintiffs would not have been entitled to assert any claim for monies due and owing for work performed after the notice of default. (328 F.Supp. at p. 217) In Trans-Bay, on the other hand, the Court held that the general contractor could not recover the undisbursed mortgage proceeds because, as a third-party beneficiary of the building loan agreement, it was bound by provisions contained after its default. Furthermore, the Court held that suretyship doctrines or other equitable theories could not be invoked to award the general contractor the proceeds since invocation of those doctrines would nullify the express terms of the building loan agreement. The preceding features of the two aforementioned cases have been emphasized because they are significant when juxtaposed to the circumstances in the matter sub judice. As in Travelers, this is a suit brought by the surety — but here it is proceeding under its performance bond. The instant controversy’s catalyst, as in both Trans-Bay and Travelers, was the mortgagor’s failure to make monthly interest payments. Again, as in both cases, the project was accepted by the mortgagor-owner (FOUNDATION) with HUD’s approval. The default here, as was the situation in Travelers, occurred prior to the successful completion of the project. Here, however, the general contractor went into bankruptcy prior to the mortgagor’s default and it was the surety, not the contractor, who completed construction. Moreover, the surety’s role was not limited to one of merely paying claims. It also undertook to finish physical construction of the housing project. Plaintiff’s first argument, that it is entitled to the fund in question as a performing surety under the equitable doctrine of subrogation fails because, as stated earlier, the funds in question are not contractual retainages but rather undisbursed mortgage proceeds and escrow deposits. The long line of cases which AFFIC has cited in support of its position all deal with situations where the general contractor had entered into a contract directly with the federal government or one of its agencies. Accordingly, both parties owed each other contractual duties which the surety, by being forced to perform pursuant to its statutorily-required bond, was entitled to enforce. The situation here is markedly different. HUD entered the picture only as the insurer of a private mortgage and as the provider of monthly interest reduction payments. These functions did not lift HUD into being a party to the construction contract; neither did the provisions of the construction contract calling for HUD approval. Hence, even if the surety was subrogated to the contractor’s rights by virtue of its having completed the project, there were no rights emanating from the construction contract to which the surety could be subrogated. Therefore, the Prairie-Henningsen line of cases is inapposite and plaintiff cannot recover the funds on this theory. The surety’s second contention is that given the surety nature of the retained fund, it is entitled to payment therefrom by virtue of its having completed performance of the project. The short answer to this argument is that it was the mortgagor who was acting as its own surety. (Travelers at p. 215.) AFFIC was a surety for QUANTUM, the general contractor. By no stretch of the imagination can it be considered a surety for FOUNDATION, the mortgagor. Accordingly, I hold that the performing surety has no claim of entitlement to the undisbursed mortgage proceeds and escrow deposits under this particular theory. Similarly, I hold that the surety cannot recover the funds under its theory of being an assured-promisee under HUD’s commitment of insurance to BERENS. First of all, AFFIC was not a party to the commitment agreement. And secondly, it cannot be considered a third-party beneficiary of this contract for the simple reason that HUD’s commitment to insure was issued over seven and one-half months before the building loan agreement or construction contract came into existence. At that time, AFF-IC could not have known that it would become the general contractor’s surety on the “Thomasville” project. Next, plaintiff relies upon the Travelers holding in support of its contention that it is entitled to the funds as a creditor third-party beneficiary of the building loan agreement. HUD does not dispute the surety’s characterization of itself as a creditor third-party beneficiary of the building loan agreement but argues that Trans-Bay is the relevant case. It offers the holding therein, that a creditor third-party beneficiary is bound by the terms and conditions of the contract it invokes and cannot accept the benefits while avoiding the burdens or limitations, in opposition co AFFIC’s alleged entitlement to the funds which HUD is presently holding after BEREN’s assignment. Since both of these opinions were based, in large part, upon specific provisions of their respective building loan agreements, it becomes necessary to examine the particulars of the BERENSFOUNDATION building loan agreement. The building loan agreement involved herein initially declares that the purpose of the loan provided for is to aid the Borrower in the construction of its housing project. And articles (4)(a), (4)(b), (4)(d), (4)(e), (9) and (18) go on to define the rights and obligations of the various parties thereto. It should be noted that articles (4)(a) and (4)(e) are identical to the same numbered paragraphs found in the Trans-Bay building loan agreement while articles (9) and (18) are identical to clauses (10) and (14) of the agreement involved in Travelers. Moreover, articles (4)(b) and (4)(d) are similar to, but not the same as, the analogous provisions [clauses (4) and (5)] of the Travelers building loan agreement. Finally, there is no comparable provision in the instant agreement to that of clause (13) of Travelers. I find that article (9) provides the mortgagee with two alternative courses of action in the event of the mortgagor’s default. Option one is to let the building agreement continue to operate with the mortgagee entering into possession of the premises and itself completing any necessary work and improvements. If this alternative is selected, then the undisbursed mortgage proceeds and sums in the escrow account are automatically assigned to it. This assignment, however, becomes operative if and only if the funds are used to complete the project. If they are not so used, then the conditional assignment does not become effective. The second procedure which the mortgagee can pursue upon the mortgagor’s default is to terminate the mortgage agreement, file an insurance claim, and assign the building loan agreement, mortgage, note, and any funds remaining unadvanced under the mortgage to the Secretary of HUD. As to the escrow account funds, it may use and apply them in whatever manner and for whatever purpose the Federal Housing Commissioner prescribes. As the facts reveal, BERENS elected to pursue a modification of the second alternative — the modification being an assignment of the escrow account as well. Inasmuch as article (18) merely encompasses the Secretary of HUD within the definition of “lender” when there has been an assignment of the building loan agreement to him, and since this is in conformance with similar statutory and regulatory provisions, I find that nothing so far modifies or contravenes the basic regulatory obligation (24 C.F.R. § 236.1 and 24 C.F.R. § 221.512) of the mortgagee or its assigns to extend the full amount of credit under the building loan agreement when a decision has been made to allow the project to be completed despite the mortgagor’s default. Judge Wortendyke reached a similar conclusion in Travelers based upon these clauses as well as three others. Clause (13) therein, which provided for the payment of the “holdback” upon the completion of the entire project to the Commissioner’s satisfaction, complemented clause (4) which provided for the payment of the last earned progress installment to the Borrower upon the acceptance of the project by the mortgagee with the Commissioner’s approval. As previously stated, there is no comparable provision in the instant building loan agreement to said clause (13). However, article (4)(b) is sufficiently analogous for me to find that (4)(b)’s language evidences an intent to include both earned but unpaid progress installments as well as any “holdback” within its coverage. Moreover, I also find that the discretion granted to the Commissioner by these provisions (“as the commissioner authorizes” v. “with the approval of the commissioner”) is identical in intent if not in language. Accordingly, it is my determination that the addition of article (4)(b) does nothing to upset my basic finding that nothing in the building loan agreement changes the aforementioned regulatory obligation of the mortgagee or his assigns to disburse the full principal amount of the mortgage to the creditors of the mortgagor for his account. It is to be noted that article (4)(d) herein, which is similar to clause (5) of the Traveler’s building loan agreement, supports this regulatory obligation by requiring the mortgagor to hold the funds advanced in trust for the purpose for which they were so intended. Therefore, it is but a small step to further find, which I do, that the same trust fund applies to earmarked funds which have not been so advanced when construction itself is allowed to continue under either HUD’s explicit or open and tacit approval. The question then becomes whether either articles (4)(a) or (4)(e) requires a change in the findings. Clearly, article (4)(a) cannot do so for it merely shows how the “holdback” comes into existence. That leaves article (4)(e). This provision provides that the mortgagee is no longer required to advance funds out of the proceeds of the loan to the mortgagor if the loan becomes out of balance or if the mortgagor goes into default under the loan agreement, note or mortgage. Judge Smith, in Trans-Bay, effectively utilized this singular provision to prevent the plaintiff therein from recovering. As noted previously, he felt that the plaintiff, as a third-party beneficiary, assumed the legal rights and position of the mortgagor and therefore could not claim entitlement to the funds when the mortgagor could not due to the latter’s defáult. With all due respect to Judge Smith, I disagree with his characterization of the legal position of the creditor third-party beneficiary in situations such as the one involved in the matter sub judice. I concur with his assertions that the beneficiary cannot accept the benefits and avoid the burdens or limitations of a contract, that the third-party beneficiary assumes the legal obligations as well as the rights of its promisee and, that if the promisee fails to satisfy one of the conditions which it promised in consideration for the promisor’s conditional promise, then the promisor is relieved of its duty to perform. In short, under such circumstances, the creditor third-party beneficiary can no more seek to enforce the promisor’s obligation than its promisee could. (See, Restatement of Contracts § 140.) The point is, however, that these are not the circumstances of this case. True, the promisee has not fulfilled one of its promises — i. e., not to go into default. However, the surety, who has succeeded to the legal position of its promisee, has completed performance of the housing project. And while said performance may be “defective” in the sense that it was preceded by a default, nevertheless the law is clear that the “promisor’s duty is not discharged by the defective performance of a condition or of a return promise if he accepts the performance with knowledge of or reason to know of the defects . . . .” [Restatement of Contracts § 298(1)] Accordingly, since both BERENS and its assignee, HUD, accepted the performance of the surety in completing the project subsequent to the mortgagor’s default, they cannot claim that FOUNDATION’S default relieves them of their obligation to advance the remainder of the funds due under the building loan agreement. I therefore hold that AFF-IC is entitled to have these funds paid into the Court’s registry under its creditor third-party beneficiary theory. AFFIC’s next argument is that it is entitled to recover the funds under traditional equitable lien and unjust enrichment theories. An equitable lien is, as the name implies, a creature of equity. It is a right, not recognized by law, to have a fund or specific property applied to the payment of a particular debt and is based upon the older equitable doctrine of unjust enrichment. [See, in this regard, United States v. Adamant Co., 197 F.2d 1, 10 (9th Cir. 1952), cert. den., sub nom., Bullen v. Scoville, 344 U.S. 903, 73 S.Ct. 283, 97 L.Ed. 698 (1952), citing 53 C.J.S. Liens § 4 and 33 Am.Jur., Liens § 18.] Before a court will impress an equitable lien upon the identifiable fund or property, it must be clear that the parties intended that the particular piece of property or fund be so charged. [Jamison Coal & Coke Co. v. Goltra, 143 F.2d 889, 893-4 (8th Cir. 1944), cert. den., 323 U.S. 679, 65 S.Ct. 122, 89 L.Ed. 615 (1944).] But once it is established that the res is security for the discharge of an obligation, then anyone discharging that obligation, if not a volunteer, can look to the fund for repayment. [Cleveland Clinic Foundation v. Humphrys, 97 F.2d 849, 856 (6th Cir. 1938), cert. den., 305 U.S. 628, 59 S.Ct. 93, 83 L.Ed. 403 (1938).] There is no question that there is an identifiable res upon which an equitable lien could be placed in the instant litigation. But so was there one in Trans-Bay. The court therein, however, refused to invoke the equitable lien doctrine because to do so would have nullified express terms of the building loan agreement. And, according to Judge Smith, “equity will not set aside legal obligations in order to provide relief for parties later disadvantaged . . . .” (396 F.Supp. at p. 272, citing 5A Corbin on Contracts § 1125.) Unlike whatever may have been the case in Trans-Bay, plaintiff herein has more than met its burden of demonstrating that HUD would be unjustly enriched should it be allowed to retain the funds which it is presently holding. Regardless of how we have chosen to label the funds in the hands of different parties, the fact remains that the mortgagor borrows money from the mortgagee in order to pay the general contractor for his work. The funds may be called undisbursed mortgage proceeds in the hands of the lender, contractual retain-ages in the possession of the borrower, and earnings when received by the contractor. Nevertheless, they are ultimately designed to be paid to the general contractor in return for his successful performance under the construction contract. Of course, the contractor has no absolute right to payment. He must fulfill his side of the bargain before he can demand that the owner-mortgagor live up to its promise of payment. But if he defaults and the surety takes over and ultimately fully performs, then the surety stands in the shoes of a general contractor who has fully performed. In such a situation, it would be close to unconscionable for the lender to argue that merely because the middleman in the flow-schematics of the funds (the borrower) has defaulted, it has a higher claim to the funds than the ultimate performer — the completing surety. And when the lender’s assignee presses that very same contention, it becomes chutzpah. Not only does the performing surety have a higher equitable claim to the fund than does HUD (denial of which would clearly confer an unjust enrichment upon the federal agency), but also it has been denied the possibility of earning substantial interest income on this not inconsiderable sum of money. When a project has been completed, when all that remains is to close and correct the ravages of vandalism caused by the delay in closing, and when HUD is at least partially responsible for the delay in closing while the surety has relatively “clean hands”, it would be inequitable to allow HUD to retain the funds. And I shall not countenance such an unjust enrichment. Having established an equitable foundation for the surety’s claim to the proceeds, we run squarely into Judge Smith’s remark that equity will not set aside legal obligations. With all due respect to the learned Judge, I feel that he has misconstrued what Professor Corbin was saying. Sections 1122 and 1125 therein clearly demonstrate that the defaulting contractor can always bring a quantum meruit action. Whether he is successful, of course, depends upon the relationship between the injury caused by the breach and the benefit conferred upon the defendant. As Corbin himself states: “. . . The question whether a plaintiff who is himself in substantial default should be given any restitutionary remedy must be considered in connection with the equitable rules against the enforcement of penalties and forfeitures. If a contractor has committed a total breach of his contract, having rendered no performance whatever thereunder,, no penalty or forfeiture will be enforced against him; he will be required to do no more than to make the injured party whole by paying full compensatory damages. In like manner, a contractor who commits a breach after he has rendered part performance must also make the injured party whole by payment of full compensatory damages. The part performance rendered, however, may be much more valuable to the defendant then the amount of the injury caused by the breach; and in such case, to allow the injured party to retain the benefit of the part performance so rendered, without making any return performance and without making restitution of any part of such value, is the enforcement of a penalty or forfeiture against the contract breaker.” (5A Corbin on Contracts, § 1122 at p. 3.- Footnotes omitted.) In short, since the basis of recovery under quantum meruit is the principle that it would be inequitable and unjust for the defendant to retain the benefit conferred upon him by the plaintiff’s performance without paying therefor, Judge Smith erred in declaring that equity cannot set aside legal obligations. The legal obligations are not set aside; they are surmounted and transcended by equitable considerations. Finally, we must confront HUD’s argument that it is a third-party beneficiary of the construction contract and, as such, entitled to pursue its rights thereunder. Specifically, it contends that since the project was not completed on time, it ought to be allowed a set-off for liquidated damages. Plaintiff does not dispute that article 2(C) of the construction contract provides that $670.32 shall be the measure of liquidated damages for each day of delay until the date of substantial completion. However, it argues that HUD is neither a party to nor a beneficiary of the construction contract and accordingly cannot seek to enforce one of the provisions contained therein. Alternatively, even if HUD is deemed to be a third-party beneficiary, plaintiff asserts that the release which it obtained from FOUNDATION estops HUD from pressing that point. In reply HUD argues that the release in question did not have HUD’s approval as required by article 9(A) of the construction contract and by article 17 of the building and loan agreement. Moreover, its execution (by Darwin D. Creque, President of FOUNDATION), it is further alleged, was done without authorization from the FOUNDATION’S Board of Directors and, as such constituted an “ultra vires” act. It is clear that HUD was not a party to the construction contract. Nor do I feel that the various requirements in the construction contract calling for HUD’s approval of certain procedures lift HUD into party status. Hence, HUD must buttress its contentions upon the assertion that it is a third-party beneficiary to the construction contract. There is no question that given the national goal set out in 12 U.S.C. § 1701t, HUD would be indirectly benefited by the completion of yet another low-income housing development. Moreover, if a project falls through, then HUD loses the monthly interest reduction payments which it has made as well as being called upon to pay the sums provided for by its insurance commitment. But such benefits are merely incidental and secondary. At most, HUD could be considered an incidental beneficiary. In no event can it be deemed to be a creditor or donee beneficiary. (See Restatement of Contracts, § 133.) Accordingly, I must hold that HUD cannot seek to enforce the provisions of the construction contract. (Restatement of Contracts, §§ 133, 134, 139, and 147.) As to the possibility that President Creque acted “ultra vires” in executing the release, HUD has prof-erred no affidavit from the FOUNDATIONS^ Board of Directors to that effect nor has it submitted any By-laws or Certificate of Incorporation of the FOUNDATION setting out the powers and functions granted to the presidential office. Certainly, HUD was content to have Creque execute all other documents involved in this matter. Therefore, if it first now seeks to raise the “ultra vires” issue, it runs into a potential problem of estoppel. More importantly, however, without affidavits or instruments to the contrary, I find that one ought to expect that the president of a corporation has authority to execute an instrument of release, especially if he has executed all other documents without being required to prove his authority with directors’ or shareholders’ resolutions. This brings us to HUD’s assertion that the release violated article 17 of the building and loan agreement. That article reads: The Borrower shall not transfer, assign or pledge any right or interest in, or title to, any funds deposited by the Borrower with the Lender, or reserved by the Lender for the Borrowers, without the prior written approval of the Lender and the Commissioner. Certainly, HUD cannot be relying upon the first part of that sentence for liquidated damages are not funds deposited with the Lender. Similarly, it cannot fall back upon the second half of the quoted provision. Liquidated damages are not a fund in the sense that “hold-backs” or escrow deposits are. They merely represent a contractual stipulation as to the amount of damages to be recovered by the owner should the contractor be in breach of the construction contract and, accordingly, only fix the amount to be paid in lieu of performance. Therefore, the aforementioned article 17 is inapplicable here. No liquidated damages “fund” or “sum” was ever reserved or established and hence the borrower could never transfer, assign, or pledge any interest in or title thereto. Having said all this, however, it remains a fact that the project was not completed on time and therefore the liquidated damages provision was automatically triggered. FOUNDATION should it have so elected, would have been entitled to the appropriate amount of damages. Moreover, its assignee would be so entitled. Accordingly, once the funds in question have been deposited in Court, FOUNDATION may then argue that Creque acted without authority in granting AFFIC its release and, if successful upon that point, go on to present evidence as to what is. the appropriate quantum of liquidated damages. In summary, AFFIC is entitled to have HUD pay the $220,268.00 into this Court’s registry under both its creditor third-party beneficiary (of the building loan agreement) and equitable lien and unjust enrichment theories. IV DEFENDANT HUD’S MOTION TO DISMISS Finally, I reach the third of the motions presented to the Court for disposition. Defendant HUD has moved this Court to dismiss the surety’s amended complaint on the grounds that: (i) this Court lacks both jurisdiction over the subject matter of this action as well as personal jurisdiction over the defendant; (ii) plaintiff does not have standing to bring this suit; and (iii) this is an improper interpleader action. HUD initially argues that 28 U.S.C. § 1346(a)(2) requires this action to be brought in the Court of Claims since it is a contract action exceeding $10,000.00. Moreover, HUD contends, since jurisdiction does not exist either by 12 U.S.C. § 1702 or by 28 U.S.C. § 2410(e), it asserts that plaintiff has failed to allege any proper jurisdictional basis. HUD is quite correct in its contention that neither 12 U.S.C. § 1702 nor 28 U.S.C. § 2410(e) are jurisdiction-conferring statutes but are merely legislative acts waiving sovereign immunity. Hence, if jurisdiction is to exist, some other statutory basis must provide it. Quite clearly, there is no federal question jurisdiction under 28 U.S.C. § 1331. The fact that sections of the National Housing Act or its implementary regulations are invoked by the parties does not magically transform this action into one arising under the laws of the United States. [See Lindy v. Lynn, 501 F.2d 1367, 1369 (3d Cir. 1974).] Neither, quite clearly, is 28 U.S.C. § 1337, providing for jurisdiction over proceedings arising under acts regulating commerce, applicable. Further, the requisite diversity for 28 U.S.C. § 1332 jurisdiction is not satisfied. The foregoing, however, does not mean that this Court has no jurisdiction. Unlike most other federal district courts, this is an Article I and not an Article III court. This means that we do not need diversity as a predicate for entertaining litigation. Under 4 V.I.C. § 32(a), which tracks secti