Court Opinion

ID: 8782386
Source: CourtListenerOpinion
Date Created: 2022-11-26 13:23:21.053058+00
Date Added: 2024-06-11T17:02:54.009824
License: Public Domain

GILBERT, Circuit Judge
(dissenting). The case, as I view it, contains no question of a release of a surety resulting from a change in the contract with the assured, as in the cases of United States v. Freel, 186 U. S. 309, 22 Sup. Ct. 875, 46 L. Ed. 1177, and American Bonding Co. v. United States, 167 Fed. 910, 93 C. C. A. 310. No such issue is presented in the complaint, and no such defense is pleaded or even remotely suggested in the answer. It is a case of an action for damages for the total failure of a contractor to carry out his contract. The contract, the breach thereof, and the surety’s undertaking are established by the findings of the trial court. The only question in the case *618is as to the measure of the plaintiff’s damages. Is the government by the terms of its contract confined to proof of damages by showing the cost of constructing a building of the same kind under a new contract, or may it recover damages irrespective of the construction or cost of a new building? It is important to observe the language of the obligation which the plaintiff in error assumed. The contract provided that on default the United States was authorized and empowered to take possession and to complete the work or have it completed, “in which event the said party of the second part and his sureties on the bond to be given for the faithful performance of this agreement shall be further liable for any damages incurred through such default and any and all other breaches of this contract.” These provisions do not limit the government to merely completing the contract which was entered into with the contractor, and thereby establishing by the cost of such second contract the measure of damages for the breach of the first; but the contract authorized the government to complete the work, and the very wording of the contract is that, if the government should elect, to complete the work, the surety should be liable for any damages incurred through any breach whatever of the original contract. There is nothing in the contract that deprives the government of the right to recover damages generally for a total breach thereof. The trial court was of the opinion that the new contract differed so materially as to essential features that it afforded no safe measure of damages for a breach of the first contract, but allowed damages for the breach to the extent of the payments which the government had made on that contract. In United States v. Stone Sand & Gravel Co., 177 Fed. 321, 100 C. C. A. 651, the Circuit Court of Appeals for the Fifth Circuit had under consideration the right of the government to recover against a surety for the total breach of a contract, in a case where a second contract, which varied in some particulars from the first, had been let at an increased cost. The court said:
“With reference to the new contract, no recovery is Sought on it in this action. And it is not apparent to us how the so-called 'substitutions’ complained of can or could affect the rights of the defendants under the original contract.”
In the present case, although a building was constructed by the contractor, it was not constructed according to the contract, but was essentially different therefrom, and the work done constituted “a willful and substantial departure from said contract and said plans, drawings and specifications,” and the contractor “willfully, knowingly, purposely, fraudulently, and intentionally failed, neglected, and refused to erect the structure in accordance with the plans and specifications,” as found by the trial court. The government rejected the work done, the materials furnished, and the building thereby and thereof constructed, and gave the contractor formal notice to tear down the building and construct another in exact accordance with the specifications. The contractor insured his interest in the building against loss by fire, and while the building was still in his possession it was totally destroyed by fire. During the'progress of the work the contractor, in accoVdance with the terms of his contract, was paid on account thereof *619$7,895.40, which has not: been repaid to the government, but against which the trial court allowed a set-off for the value of materials belonging to the contractor which the government confiscated after the destruction of the building. In American Bonding Co. v. United States, supra, the contract differed substantially from that under consideration here. It provided that upon the default of the contractor the United States should have the right to recover from him whatever sums might be expended by it “in completing the said contract in excess of the price herein stipulated to be paid.” There was no other provision for the payment of damages. When the new contract was let, it so far departed from the first that it was obvious that the cost of its completion could furnish no criterion for determining what would have been the cost of “completing the said- contract” first made. In the opinion it was said:
‘•This is not a suit to recover generally whatever damages the United States would have sustained had Axman abandoned his contract, but a suit for damages under the express stipulations of the contract which are set. forth in the complaint and made the basis of the action.”
In brief the decision gave effect to the rule that, if there be in the contract a provision for ascertaining the damages incurred through a violation of any of its provisions, the surety has the right to insist on its observance before being held responsible.
In George A. Fuller Co. v. Doyle (C. C.) 87 Fed. 687, in a case similar to the case at bar, the court said:
“Before plaintiff undertook the work, the contract had been broken by Doyle, and plaintiff’s rights and Doyle’s obligations under it had become fixed. If plaintiff made any changes in the details of the work in the progress of completing it, they were not made as a result of any agreement between it and Doyle, such as usually operates to discharge a surety, and such changes imposed no new or modified obligation upon Doyle. He had already failed to perform his contract, and abandoned the work, and plaintiff’s cause of action had arisen thereupon, and, in my opinion, the surety’s liability is in no manner affected by the fact that, plaintiff, while it was doing the very work which Doyle had contracted to do, did, of its motion, some other things for the doing of which no claim is made against Doyle or his surety.”
The plaintiff in error contends that tile partial payments having been properly made during the progress of the work, the loss thereof constitutes no element of recoverable damages. The general rule is that, in an action against a builder for a breach of his contract, all damages are recoverable which are the proximate result of the breach. 6 Cyc. 113. The payments made by the government were totally lost through the default of the contractor. The action is not one to recover money negligently paid, but to recover damages for a breach of the contract. The government ought not to be and is not bound by payments made upon a fraudulent, negligent, or inefficient inspection of work during the progress therfcof, when in fact the work has been fraudulently done in willful disregard of the terms of the contract. Dox v. Postmaster-General, 1 Pet. 318, 7 L. Ed. 160; Kingston v. Harding (1892) 2 Q. B. Div. 494; Glacius v. Black, 50 N. Y. 145, 10 Am. Rep. 449: Barker v. Nichols, 3 Colo. App. 25, 31 Pac. 1024. It is only where the contract stipulates in express terms that *620a certificate of inspection shall be conclusive evidence of compliance with tlie contract that it is binding, and even in such a case it is held binding only in the absence of fraud or such gross mistake as would necessarily imply bad faith or a failure to exercise an honest judgment. Martinsburg & Potomac R. R. Co. v. March, 114 U. S. 549, 5 Sup. Ct. 1035, 29 L. Ed. 255. But in this case the contract contained the express provision that partial payments should in no way be considered as an acceptance of any work or material included in the contract.
But in any view of the defenses that may be urged against recovery of damages arising out of payments of installments of the agreed compensation, they are of no avail in a case like this, where before the completion of the building according to the plans and specifications, and before its acceptance by the government, the building was destroyed. In such a case the loss is that of the contractor, and he is not only denied a recovery of compensation for the work done, but the other party to the contract may recover from him his damages, including the partial payments made as the work progressed. Tompkins v. Dudley, 25 N. Y. 272, 82 Am. Dec. 349; School Trustees of Trenton v. Bennett, 27 N. J. Law, 513, 72 Am. Dec. 373; School District No. 1 v. Dauchy, 25 Conn. 530, 68 Am. Dec. 371; Adams v. Nichols, 19 Pick. (Mass.) 275, 31 Am. Dec. 137; Stees v. Leonard, 20 Minn. 494 (Gil. 448); 30 Am. & Eng. Encyc. of Law, 1249,