Case Name: Maryland Casualty Company v. Davenport
Court: Arkansas Supreme Court
Jurisdiction: Arkansas
Decision Date: 1933-06-19
Citations: 187 Ark. 663
Docket Number: 4-3110-11-12-13
Parties: Maryland Casualty Company v. Davenport.
Judges: 
Reporter: Arkansas Reports
Volume: 187
Pages: 663–673

Head Matter:
Maryland Casualty Company v. Davenport.
4-3110-11-12-13
Opinion delivered June 19, 1933
Brewer & Cracraft, for petitioner.
A. M. Coates, for respondent.

Opinion:
Butler, J.
Pour suits were instituted in the Phillips Circuit Court against the Maryland Casualty Company to recover the value of work done and material furnished by the plaintiffs to Lynch Bros., while they were engaged in the construction of a portion of the levee system along the right bank of the Mississippi River near Helena. The Casualty Company demurred to the jurisdiction of the court, and, the demurrer being overruled, filed its application for a writ of prohibition in each case, alleging the sole and exclusive jurisdiction of the United States District Court over the subject-matter, and making as a part of its several petitions a copy of the complaints filed in the cases, the original contract entered into between Lynch Bros, and the United States Government, the bond executed by the Casualty Company, and a supplemental agreement later entered into between the Government, Lynch Bros, and the Casualty Company.
It is the contention of the petitioner that the liability of the Casualty Company is predicated upon the bond first executed to guarantee the performance by Lynch Bros, under their contract to build the levees and to pay the laborers and materialmen. The respondent contends that the several causes of action are grounded on the supplemental agreement by the terms of which, it is insisted, the Casualty Company became primarily liable for all of the debts incurred by Lynch Bros, without regard to the terms of the bond executed by it.
It appears from the petition and the exhibits that Lynch Bros, entered into a contract with the United States Government on October 31, 1931, to build a cer tain portion of the levee system along the Mississippi River in Phillips County, Arkansas. At that time the Casualty Company executed a bond as provided by the Federal statute, now § 270, title 40, of the United States Code Annotated, generally designated as the "Hurd Act." This bond was executed in the penal sum of $15,000, conditioned that the contractors should perform the work as specified, and that they should promptly pay all persons supplying labor and material in the prosecution of the work provided for in the contract. The contractors began the performance of the contract and continued until July, 1932, when the Government, becoming dissatisfied with the manner in which the contractors were performing the work, exercised the right given it in the contract and notified the contractors that they had failed to exercise proper diligence, and that it would take over the contract, finish the work, charging to the contractors and the surety any excess costs that might be occasioned. The surety thereupon expressed the desire to take over the contract and complete the work. This was acceded to, and a writing was executed designated as a "supplemental agreement."
The petitioner insists that the obligation of the casualty company to pay the debts incurred by Lynch Bros, during the time they were engaged in the performance of the work and before the Casualty Company took it over arises out of the bond which it executed to the United States Government, and that, because of this, the jurisdiction to hear and determine the controversy is in the United States District Court under the terms of the Hurd Act, supra. This act provides that, if the general government does not bring suit within six months from the completion of the work, those supplying labor and material will be furnished a certified copy of the contract and bond by the department of the Government under whose direction the work is done, and "he or they shall have a right of action and shall be and are hereby authorized to bring suit in the name of the United States, in the district court of the United States in the district in which said contract was to be performed and executed, irrespective of the amount in controversy in said suit and not elsewhere, for his or their use and benefit against said contractor and his sureties." The act further provides that there shall be only one suit in which all creditors must intervene and have their rights adjudicated upon proper notice.
The- respondent does not question the propriety of the remedy invoked, and concedes that, under the provisions of the statute referred to, supra, as construed by the Supreme Court of the United States in Texas, etc., Co. v. McCord, 223 U. S. 157, 34 S. Ct. 550; Miller v. American Bonding Co., 257 U. S. 247, 42 S. Ct. 98, and United States v. Congress Construction Co., 222 U. S. 199, 32 S. Ct. 44, in suits to enforce liability arising out of the obligations of a bond given under the provisions of that act, jurisdiction is lodged in the United States District Courts and not elsewhere. Respondent contends, however, as previously noted, that the suits filed in the Phillips County Circuit Court are not based upon the bond executed by the casualty company, but upon the contract of July 23,1932, in which it is claimed the Casualty Company agreed with Lynch Bros, to assume their place in the original contract and to complete the same, paying the debts incurred by them while they were engaged in constructing the levee; that this had the effect of substituting the Casualty Company as the principal contractor and subjected it to suits in any courts of superior general jurisdiction.
Article 9 of the original contract between Lynch Bros, and the United States Government provides: "If the contractor refuses or fails to prosecute the work, or any separable part thereof, with such diligence as will insure its completion within the time specified in article I, or any extension thereof, or fails to complete said work within such time, the Government may, by written notice to the contractor, terminate his right to proceed with the work or such part of the work as to which there has been delay. In such event the Government may take over the work and prosecute the same to completion by contract or otherwise, and the contractor and his sureties shall he liable to the Government for any excess cost occasioned the Government thereby. If the contractor's right to proceed is so terminated, the Government may take possession of and utilize in completing the work such materials, appliances and plant as may be on the site of the work and necessary therefor. If the Government does not terminate the right of the contractor to proceed, the contractor shall continue work, in which event the actual damages for the delay will be impossible to determine, and in lieu thereof the contractor shall pay to the Government as fixed, agreed and liquidated damages for each calendar day of delay until the work is completed or accepted the amount as set forth in the specifications or accompanying papers and the contractor and his sureties shall be liable for the amount thereof. ' '
By the terms of the bond, the Casualty Company undertook to guarantee that the contractors would perform and fulfill all of the undertakings, covenants, etc., of the contract, and that they should promptly make payment to -all persons furnishing labor and material in the prosecution of the work. The supplemental agreement refers to the contract first entered into between the Government and Lynch Bros., reciting the execution of the bond with the Casualty Company as surety, and makes said contract and said bond a part of the agreement as "if. physically attached and copied herein." It further recites the inability of Lynch Bros, to complete the work within the time limited in the contract, and that "it is to the manifest interest of the United States of America, to the contractor and to the surety on the contractor's bond, that arrangements be made immediately to put on sufficient forces to complete the work called for by said contract within the time therein limited." It further recites the willingness of the contractor and the United States Government to permit the surety to take over and complete the said contract, and, continuing, provides:
"Now therefore it is mutually understood and agreed by and between James and Leo Lynch, partners doing business as Lynch Brothers, hereinafter designated 'Con tractor,' and the United States of America, hereinafter designated 'Government,' and Maryland Casualty Company of Baltimore, Maryland, hereinafter designated 'Surety' as supplemental to said original contract between said government and contractor as follows, to-wit:
' ' 1. That effective at six o 'clock p. m., July 23, 3932, by and with the consent of the Government, said aforesaid contract for construction of earthwork in the White River Levee District is turned over by said contractor to the said Maryland Casualty Company, its surety, and by these presents the said surety company hereby agrees to perform all the work called for by said contract according to the terms thereof and the plans and specifications made a part thereof.
"2. It is further agreed that the surety shall receive payment for all work performed and materials furnished pursuant to the terms of said original contract of October 31, 1931, between the contractor and Government, and that the surety shall be paid all retained percentages of labor and/or materials thereto before furnished by and due to said contractor under the terms of said original contract, and all sums due said contractor, payment of which is withheld by the Government pursuant to the terms of said original contract, it always being understood and agreed that the government shall have, the right to retain any payments due to it as deductions under the original contract in accordance with the terms and provisions thereof until due thereunder.
"3. The surety agrees and undertakes that it will take over said original contract as of six o 'clock p. m. Saturday, July 23, 1932, and to perform and fulfill all the undertakings, covenants, terms, conditions and agreements of said contract during the original term of said contract as therein stipulated.
"4. The surety further agrees, on final approval of the work by the contracting officer designated in said original contract and receipt by it of final payment of sums due thereunder, to pay or cause to be paid, under direction of said contracting officer, any balance due said original contractor, after payment of costs of completion and all outstanding bills for labor and/or materials, and/or services performed or rendered and/or amounts chargeable against the carrying Out of the contract of the original contractor and the performance of the work undertaken by it under said original contract."
When, the original contract, the bond and the supplemental agreement are considered together, as they must be, it is clear that the contention that the casualty company took the place of the original contractors can be sustained only as to its operation after the execution of the supplemental agreement, and its liability extended only as to such indebtedness as might be incurred in the prosecution of the work after that date, its relation to the principals in the original contract remaining unaltered as the liability under the first contract and bond to secure its performance is expressly recognized and incorporated in the agreement. Its liability for the payment of all material which had been furnished or work done in the prosecution of the construction before the date of the supplemental agreement was already fixed and the payment guaranteed up to an amount specified in the bond. The argument advanced as a reason for the extension of the liability of the casualty company to the effect that it received a valuable consideration for entering into the supplemental agreement in that it received some six or eight thousand dollars already earned by Lynch Bros, is without merit, as it is apparent under the terms of the agreement that - whatever sums it received, earned by the original contractor, were paid to it only for the purpose of being disbursed in payment for material or labor, and any sums earned above the actual cost of the construction were, by the express terms of the agreement, to be paid to the original contractor.
We are of the opinion therefore that the claims sued on are liabilities of the casualty company only because of its undertaking in the bond, for it is stated and not denied that they are for material and labor furnished to Lynch Bros, before the' Casualty 'Company took over the contract under the supplemental agreement. The pro visions of the Hurd Act are therefore applicable, and the claimants must have their rights adjudicated in the United States District Court, the Phillips Circuit Court is without jurisdiction over the subject-matter, and the petitioner is entitled to the relief prayed. Let the writ be granted.