Court Opinion

ID: 3270026
Source: CourtListenerOpinion
Date Created: 2016-07-05 16:38:26.54341+00
Date Added: 2024-06-11T15:13:00.661580
License: Public Domain

I cannot agree with the majority in granting a writ of prohibition against the judge, thereby preventing him from trying the case brought by the plaintiffs against the Maryland Casualty Company.
Section 270 of title 40, U.S. Code, Annotated, provides for persons who enter into contracts with the United States for certain purposes, giving a bond with good and sufficient securities. The section also provides that persons furnishing labor or materials shall have a right to intervene and be made parties to any action instituted by the United States on the bond of the contractor. The section also provides that, if suit is not brought by the United States within six months, persons supplying the contractor with labor or materials shall have a right of action and are authorized to bring suit in the district court of the United States, and not elsewhere.
It will be observed that this provides for a suit on the bond of the contract. The suits in this case were not on the bond. The facts are stated in the majority opinion, and will not be restated here.
One of the sections of the supplemental contract is as follows: "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."
In section 4 the surety company agrees to pay or cause to be paid any balance due the original contractors after payment of costs of completion and all outstanding bills for labor or materials. It is therefore expressly agreed that it will take the place of the contractor, and *Page 671 
not only complete the work, but pay all outstanding bills, bills that were outstanding at the time it took over the contract. It was upon this agreement, and upon the taking over the contract by the surety company, that these suits were based. They were not based on the bond, and the Federal Court would have no jurisdiction, and there is no authority under the Hurd Act for bringing a suit of this kind in the Federal Court. The Hurd Act authorizes suits brought in the Federal Court where the suit is on the bond.
A suit was brought in the State court in New York on an agreement of the contractor to give bond. He had entered into the contract and promised to give the bond required by the Hurd Act, but had failed to do so. The city court held that there was no remedy whatever. The case was then appealed, and the appellate term took the view that the contractors' obligation was independent of the bond, which was important only as fixing the obligation and defining the procedure in an action against the surety. The judgment of the city court was reversed, and the cause was then tried in the appellate division, which reversed the judgment of the appellate term holding that the proper remedy was an action in the Federal Courts, the procedure to be the same as if the bond were in existence.
The court of Appeals in New York held that the judgment of the appellate term must be affirmed, that is, that the contractors' obligation was independent of the bond, and that the suit was properly brought in the State court.
As I have already said, this suit was not brought on the bond, but was brought on the supplemental contract. Whether the plaintiffs were entitled to recover on that contract is not involved. Certainly the bond was not in any way involved, and, that being true, the circuit court had jurisdiction. It is wholly immaterial whether the plaintiffs could have recovered, but, under the pleadings, the suit, I think, was unquestionably within the jurisdiction of the circuit court. *Page 672 
When the contractor failed and the surety took the place of the contractor, it became liable as a contractor, without any regard to whether it had signed a bond or not. Besides that, it expressly agreed to pay all claims. It was not liable for all claims under bond, but was only liable for $15,000. The surety took over the contract for its protection. It received a considerable sum of money that was due the contractors, and received the retained percentages, and whatever profit it made by completing the work.
I think the effect of the majority opinion is practically the same as the holding of the city court in New York in the case above cited. This is, that the material furnishers and laborers were without remedy.
A contract was made for the construction of a courthouse in Lenawee County, Michigan, and bond was given with sureties for the due performance of the contract. The contractors proceeded, for a time, just as Lynch Bros. did in this case, and then failed, and the sureties for their own protection took an assignment of the contract and went on with the work. The claims sought to be collected were claims against the original contractors, and not contracted after the sureties took charge. The court said:
"In our opinion that is an immaterial fact. The relators step into the shoes of the contractors." Knapp v. Swaney, 23 N.W. 162; United States to use of Zambetti v. American Fence Const. Co., 15 F.2d 419.
"The claims and demands of the casualty company, the plaintiff in this action, are based in large part upon the provisions of the contracts made by the Board of Water Commissioners with the Loyd Company, for which the bonding company was surety. All the facts lead to the conclusion that what happened in this case was that the surety company elected to complete the contracts of its principal. When it did so, it took the place of the contractor." Maryland Cas. Co. v. Bd. of Water Com'rs,43 F.2d 418.
"The surety was already engaged in carrying out the original contract, and it continued therein to the end. *Page 673 
* * * When the surety elected to complete the contract, it took the place of the contractor. The law is not that it thereby only took the possible benefits of that position. Its position was no different, to that of an assignee of the contract. Such assignee would take subject to all prior mechanics' liens; and so did the surety." Harley v. Mapes-Reeve Const. Co., 68 N.Y.S. 191.
"When contractor stopped, surety simply took its place and went on to finish the work. What its rights may have been if it too had declined to finish, and commissioners had completed, are matters and questions not before us. What did happen was that the surety stepped into the contractor's shoes and finished the work, and neither surety nor commissioners were in any different position than if contractor had itself finished the work and called on the commissioners to settle." Fidelity 
Deposit Co. of Md. v. Hay, 9 F.2d 749.
I think it would be unjust and unreasonable to hold that the surety company could take over the work when the contractors failed, in the manner that the surety company did in this case, and then be relieved from liability or require the parties to go into Federal court, where they would only get their proportionate share of the $15,000, if they could, in fact, recover anything.
I think the writ should have been denied.