Opinion ID: 269770
Heading Depth: 1
Heading Rank: 5

Heading: national's appeal.

Text: 31 National upon its appeal raises the following issues: 32 A. The court erred in failing to discharge National from all liability under its bonds. 33 B. The court erred in the assessment of damages against National in various respects. 34 Such issues will be considered in the order stated. A. 35 National urges that D & L made payments on the Mojave subcontract which materially varied from the payment provisions of the subcontract. This issue is discussed in detail by the trial court at pp. 310 to 315 of 234 F. Supp. The court makes findings of fact which we find to be supported by substantial evidence, and upon the basis thereof determines that the provisions of the Miller and Capehart Acts should be read into the performance and payment bonds and that the prime contract is a part of the subcontract, and that when the subcontracts are so construed, the challenged payments made for materials inventoried but not actually incorporated in the work on the construction site were not in violation of the subcontract provisions and that D & L had no duty to the surety to insist upon receipts showing payment for the inventoried materials. Additionally, the court made a finding on conflicting evidence that National before executing the bonds had knowledge that such payments on inventory were customarily made on such projects and were in fact being made on this particular project, and that National had consented to such payments. We are in full agreement with the trial court's treatment on this issue in its well-considered opinion and affirm its determination that National has not established that it is entitled to a discharge from its bond obligations in whole or in part on the ground of material departure upon the basis of the trial court's opinion. B. 36 National raises a number of troublesome problems under its assertion that the court erred in the assessment of damages. The trial court's treatment of the damage issues is covered by pp. 315-317 of 234 F.Supp. and by 238 F.Supp. 815. The principal errors urged will now be considered. 37 1. National asserts that portion of the original subcontract price which was not paid by D & L to Mojave should have been credited against the completion costs claimed by D & L. The total agreed amount to be paid Mojave for the performance of its two subcontracts is $530,000. $143,621 of this amount has been paid Mojave, leaving a balance due on the subcontract of $386,379. 38 We agree with the trial court's view, supported by the authorities it cites, that the bonds here are not penal. They are designed to indemnify the prime contractor for any loss occasioned by failure of the subcontractor to fulfill his contractual obligation. The bonds contain no provision for the payment of a penalty or liquidated damage. 39 It is undisputed that Mojave defaulted on its subcontract and that timely notice of such default was given the surety, whereupon the surety refused to exercise its right to step in and complete the work. We do not in any way question D & L's right to complete the work and charge the cost thereof to Mojave and its surety. Much of the evidence with respect to completion costs is stipulated and there is no apparent basis for finding that the costs incurred in completing the work were not reasonable and necessary. 40 There is language in the subcontract which standing in isolation tends to support D & L's view that it can recover all costs incurred in completing the work. However, when the pertinent documents establishing the rights and liabilities of the parties are considered as a whole, it seems clear that the contract limits damage for nonperformance to the loss actually sustained by the default. Paragraph 16 of the subcontract dealing with the consequences of the subcontractor's defaults provides in part: 41 If the unpaid balance of the contract price shall exceed the expense of finishing the work including but not limited to expense for additional managerial and administrative services Contractor shall pay to Subcontractor the amount by which said unpaid balance exceeds such expense; if, however, such expense exceeds said unpaid balance, Subcontractor shall promptly pay to Contractor the amount by which such expense exceeds unpaid balance. 42 Neither D & L nor the trial court has cited any authority supporting the view that the unpaid balance due on the subcontract should not be credited against the cost of completion. In a similar situation, the computation of damages approved by the Ninth Circuit in Dale Benz, Inc., Contractors v. American Cas. Co., 9 Cir., 303 F.2d 80, 86, clearly shows the unpaid portion of the subcontract price was deducted from completion costs. 43 72 C.J.S. Principal and Surety § 112 reads, Where the obligee completes the work himself or has it completed by another, he may recover the amount actually and reasonably expended in completing the contract, in excess of the original contract price. To like effect, see 13 Am.Jur.2d, Building, etc. Contracts § 78 and cases cited in footnote 17 thereto. 44 The surety's rights and liabilities, absent a specific contrary agreement, are measured by those of its principal. D & L Constr. Co. v. Triangle Elec. Supply Co., 8 Cir., 332 F.2d 1009, 1013; 72 C.J.S. Principal and Surety § 92. 45 D & L was entitled to have the work subcontracted properly completed for $530,000. Here $386,379 of the agreed compensation for the work Mojave had agreed to do was never paid by reason of Mojave's default. If D & L recovers the full amount of its cost of completion of the subcontracted work, it would realize a windfall profit of $386,379. This is because it would get the $530,000 of subcontracted work completed at a net cost of the $143,621 which it had paid to Mojave. We find no basis in the bond or the contract documents allowing such a windfall. D & L is entitled to compensation by way of damages to put it in the position it would have occupied if the subcontractor had faithfully fulfilled its contract but such is the limit of its rights. 46 The parties apparently agreed that the completion costs exceeded the $530,000 bond coverage awarded by the court. Such coverage was limited by the court's determination which we have rejected in Division II hereof. Upon remand, the court shall determine the full amount of allowable completion costs and deduct therefrom the unpaid amount of the subcontract price and allow the difference to the extent that such net figure falls within the bond coverage provided. 47 2. National urges attorneys' fees should not be allowed to the extent that they are beyond the bond limits. The trial court awarded D & L $25,000 attorneys' fees. The court determined that the subcontract expressly provided for the allowance of attorneys' fees in the present situation and that hence attorneys' fees are recoverable on the bond under our holding in Triangle, supra. We agree. National does not dispute the foregoing nor does it attack the amount of fees allowed. National does urge that such fees are subject to bond limits and cannot be allowed here as other damages awarded exceed bond limits. Hartford Fire Ins. Co. v. Casey, 196 Mo.App. 291, 191 S.W. 1072, 1076, and other cases cited so hold. D & L concedes such is the law but urges that if coverage within bond limits is available, such fees should be allowed. By reason of other determinations made in this opinion, it appears likely that the attorneys' fees will fall within the limits of the bonds. The judgment entered allowing attorneys' fees is affirmed to the extent that the amount allowed does not exceed the bond coverage. 48 3. National raises the issue that pre-judgment interest is not allowable and further urges that in any event such interest has been erroneously computed. The trial court discusses the pre-judgment interest issue at pp. 817-820 of 238 F.Supp. We agree with the trial court's view that the relevant documents contain no express provision for payment of interest and that hence it is necessary to look to state law to measure the subcontractor's obligation to pay such interest. We so held in Triangle. We also are in accord with the trial court's holding supported by the cases it cites that recovery for damages for breach of contract may include damage for delay in payment and that pre-judgment interest may be allowed beyond the bond coverage limits. 49 National's contention that pre-judgment interest was improperly computed must be upheld. Finding 14 indicates that the court computed interest on $530,000 at the rate of 6% per annum from April 4, 1960. Such was the date of D & L's letter to the bonding company notifying it of Mojave's default and demanding performance. We agree with National that this was a demand for performance, not a demand for money. No specific amount was demanded and no basis for computing damages existed on April 4, 1960. We are aware that the trial court makes a finding that the parties on April 4, 1960, could have reasonably determined the completion cost would exceed the bond coverage. We find no substantial evidence to support such a finding. The letter was written before the attempted subcontracts calling for some $20,000 in excess of Mojave's subcontracts. Apparently no consideration is given to the credit required for the unexpended portion of the subcontract price. Moreover, neither the brief nor the record before us satisfactorily shows when in fact D & L paid the various items of completion cost but obviously most of these payments could not have been made until considerably after the April 1960 default by Mojave. 50 The pretrial order shows that D & L claims 6% interest on all allowable items of damage under the subcontracts, said interest to accrue on each such item of damages from date of payment or from the date completion costs [exterior and interior] subcontract first exceeded the contract price — whichever is later. At the trial, the parties stipulated: 51 Let the record show that counsel for D & L & Associates and counsel for National Union Fire Insurance stipulate and agree that interest calculated at the rate of six percent per annum, on the sum shown in the pre-trial order as the completion costs, would accrue from the date upon which the completion costs exceeded the contract amount until April 15, 1964;    52 The stipulation then goes on to set out agreed computations made on the foregoing basis. The amount allowed as interest exceeds the stipulated amounts. National in argument cites the stipulation. No explanation appears in D & L's brief on the court's opinion as to why the stipulation should not be adhered to. Parties are bound by stipulation of facts made unless such stipulations are properly withdrawn or set aside. 53 No contract provision for payment of interest has been called to our attention. Consequently, to the extent that the stipulation made is not binding, interest should be determined upon the basis of Missouri law. D & L Constr. Co. v. Triangle, supra; L & E Co. v. United States, 9 Cir., (Oct. 8, 1965) 351 F.2d 880. 54 The judgment entered for interest is set aside. Upon remand, interest shall be computed in a manner consistent with the views here expressed. 55 4. National contends that the court erred in not subtracting from the final judgment $43,359.10 which National paid toward the settlement of a General Electric claim for materials furnished under a stipulation that the rights of the parties hereto would remain the same as if the G.E. claim remained pending. D & L has not responded to this point. We are unable to ascertain from the record the precise items that are included in the judgment. If National was in fact charged in the judgment computation with the full amount of the G.E. claim, to the settlement of which it contributed, it would of course be entitled to credit for the amount it had previously paid upon such claim. If on the other hand National was not charged with the portion of the G.E. claim which it had previously paid, then the only relief National would be entitled to would be a reduction of its bond coverage to the extent of the payment previously made. Upon this issue, the case is remanded for further consideration and more specific finding. 56 5. Finally National urges that completion costs recoverable should be limited to the amounts by which the subcontracted work was relet to Carter and Modern exceeded the $530,000 called for by Mojave's subcontract. Such difference was slightly over $20,000. We agree with the trial court's rejection of such contention. While D & L did obtain new subcontracts, it was unable in the emergency to find responsible subcontractors who could give performance and payment bonds. The new subcontractors in turn defaulted. As pointed out by the trial court, all this difficulty arose out of Mojave's default and National's refusal to take over. We affirm the trial court's holding on this point.