Court Opinion

ID: 6290474
Source: CourtListenerOpinion
Date Created: 2022-02-18 16:59:18.618805+00
Date Added: 2024-06-11T09:00:20.966149
License: Public Domain

Dissenting Opinion by
Packel, J.:
This appeal involves the liability of a surety on a payment bond for an obligation of the contractor to pay one of its employees one-half of its profits on a public housing project. The employee’s contract, providing for services to be performed on various jobs, called for a salary of $250 per week, which he was paid, and 50% of the profits of the employer on any job secured by the employee, which profits he was not paid. The record shows that the employee’s services in connection with the housing project amounted to some 17 weeks out of his 108 weeks of employment. The jury found that 50% of the profits of the employer on the housing project, which was the only job secured by the employee, was $19,956.20. Hence, judgment in that *224amount was entered for the employee and against the employer and the surety.
The surety seeks reversal on the grounds that: (1) the parol evidence rule barred oral testimony that profits were to be computed on each job secured by the employee; (2) the employee was a joint venturer and, therefore, not entitled to recover on the bond; (3) a share of profits of a contractor are not recoverable against a surety on a payment bond; and (4) payment for services performed prior to the prosecution of bonded work is not recoverable from the surety.
First, the writings between the employee and employer were ambiguous, so that the court below properly admitted oral evidence. Restatement of Contracts §§231, 238. Second, recovery against a surety on a payment bond will be denied to a joint venturer. United States v. Grubb, 358 F. 2d 508 (9th Cir. 1966). But see St. Paul-Mercury Indemnity Co. v. United States, 238 F. 2d 917 (10th Cir. 1956). In this case, however, the determination that the employee was not a joint venturer was correct because of the absence of joint control. McRoberts v. Phelps, 391 Pa. 591, 138 A. 2d 439 (1958). Third, although profits that might have accrued, but for a breach of contract, are unliquidated and not recoverable against a surety, the rule is otherwise as to the recovery of profits on a completed transaction.1
The fourth issue requires an analysis of underlying considerations with respect to payment bonds. Security for laborers and materialmen existed in the private *225sector by virtue of the right to obtain a lien. The unavailability of that remedy in the public sector led to statutes mandating that contracts for public projects must be accompanied by surety bonds for the protection of laborers and materialmen in carrying out the work.2 Recovery on such bonds by persons supplying services or materials is as a grantee of a statutory right or as a third party beneficiary under the law of contracts.3 The cases call for liberality of construction. United States v. Carter, 353 U.S. 210 (1957) (health and welfare fund obligations to trustees for employees are recoverable from surety). Nonetheless, the payment bond should not be construed to permit recovery beyond what was reasonably intended by the parties or mandated by the statute.4
Payment bonds are executed and delivered at or shortly after the execution of the principal contract for the construction work. Their purpose is to give protection to those who thereafter provide services or materials in connection with the prosecution of the work. The very words of the bond and the statute refer to “in connection with the prosecution of the work.” Thus, the Court in Commonwealth to use v. R. L. Bonham Co., 297 Pa. 514, 518, 147 A. 611, 612 (1929) pointed out: *226“A surety is not liable on the bond unless it appears the unpaid work was done pursuant to the contract the bond purports to coyer. Where suit is instituted on a bond in connection with public work, by a subcontractor or materialman, while the contract of the latter with the general contractor may be material as showing the relation of the subcontractor or materialman to the particular job, the principal contract between the obligors and the obligee named in the bond must be the instrument on which liability is predicated.” In Philadelphia to use v. Neill, 206 Pa. 333, 334, 55 A. 1032, 1033 (1903), the Court allowed recovery for bricks used for a paving contract, even though the arrangements for purchasing the brick had been made prior to the principal contract, because, as the Court pointed out: “Though the price was agreed upon in advance, the sale was not made until after the contract.”
The employee’s contract in the instant case called for services to be performed before and after the prosecution of the work on the housing project, and in addition, he was to work on other jobs of the employer. As already indicated his work on the housing project was for some 17 weeks out of a total of 108 weeks. It is interesting to note Tioga County Commissioners to use v. C. Davis, Inc., 439 Pa. 285, 266 A. 2d 749 (1970), where no recovery was permitted against the surety for repairs to equipment which was used for the bonded work only 18 days out of 76 days.
A significant fact here is the jury’s determination that the employee’s right to a share of the profits was because he secured the principal contract. His entitlement to the portion of profits was predicated upon him securing business. Yet, the securing of the business by the preparation of the bid and other preliminary work had to precede the actual execution and delivery of the principal contract and the payment bond. Mard*227festly, services performed in obtaining a building contract are not services performed in prosecuting the work to be done under that contract.
The court below took the view that some of the services of the employee were furnished in connection with the prosecution of the actual work on the housing project. That work was no different from his work performed on other projects for which he received the salary of $250 per week. His right to a share of the profits, however, was directly attributable to his services in securing the business.5 Such services added nothing that could reasonably said to be for the benefit of the public project and, hence, are not an obligation of the surety on the payment bond.
In situations not expressly covered by the statute or by the bond, notwithstanding the liberality of construction against a paid surety, it is nonetheless important to determine what the parties reasonably intended. Judge Waters pointed this out in an opinion denying recovery against a surety for damages due to a delay in construction, part of which opinion is quoted in Van Cor, Inc. v. American Casualty Co., 417 Pa. 408, 414, 208 A. 2d 267, 270 (1965) as follows: “ ‘Despite the apparently increasing liberal policy in this respect, and even though a corporate surety in business for profit is not a “favorite of the law,” Pennsylvania Supply Co. v. National Casualty Co., supra, I cannot bring myself to the conclusion that the parties to the contract and bond in suit intended to make [Yan Cor] a third-party beneficiary entitled to recover for delay damages *228such as here involved.’ ” Under the circumstances of this case, the parties could not have reasonably intended that the surety should be liable to the employee for 50% of the employer’s profits on the housing project.
The judgment against the appellant should be reversed.
Spaulding and Cercone, JJ., join in this dissenting opinion.

 For a clarification of the distinction see Price v. H. L. Coble Constr. Co., 317 F. 2d 312 (5th Cir. 1963). The cases allowing recovery of profits deal with profits of the supplier of services or of materials but no case has been found that deals with a claim against a surety for a substantial portion of the contractor’s profits.

 la this case the pertinent statute is the Housing Authorities Law, Act of May 28, 1937, P. L. 955, §11, as amended, 35 P.S. §1551. For statutory variations, see Note, 80 U. Pa. L. Rev. 572 (1932). Effective January 20, 1968, the pertinent statute is the Public Worts Contractors’ Bond Law of 1967, Act of December 20, 1967, P. L. 869, §1 et seq., 8 P.S. §191 et seq. For federal public worts, the pertinent statute is the Miller Act, 40 U.S.C.A. §270a, or for housing projects the National Housing Act, 42 U.S.C.A. §1594.

 Restatement, Security §165.

 The extent of the right of recovery is measured by the contract terms under which the services or materials were supplied, absent collusion. Philadelphia to use v. Pierson, 217 Pa. 193, 66 A. 321 (1907); United States v. Greene Elec. Serv. of Long Island, Inc., 379 F. 2d 207 (2d Cir. 1967).

 In this respect, the case differs from United Pacific Ins. Co. v. United States, 296 F. 2d 160 (8th Cir. 1961), where recovery was sought for payments, part of which was for rentals of equipment and part of which was for an option to buy the equipment. The court hold that only a proportionate part of the payment was recoverable from the surety.