SAINT PAUL MERCURY IND. CO. v. Wright Contracting Co., 7515.

• Citation: 250 F.2d 758
• Decision Date: 06 January 1958
• Docket Number: No. 7515.,7515.
• Parties: SAINT PAUL MERCURY INDEMNITY COMPANY, Appellant, v. WRIGHT CONTRACTING COMPANY, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

250 F.2d 758 (1958)

SAINT PAUL MERCURY INDEMNITY COMPANY, Appellant, v. WRIGHT CONTRACTING COMPANY, Appellee.

No. 7515.

United States Court of Appeals Fourth Circuit.

Argued November 18, 1957.

Decided January 6, 1958.

William B. Webb, Charlotte, N. C. (Lewis B. Carpenter, Charlotte, N. C., on brief), for appellant.

William W. Sturges, Charlotte, N. C. (Lassiter, Moore & Van Allen, Charlotte, N. C., on brief), for appellee.

Before PARKER, Chief Judge, HAYNSWORTH, Circuit Judge, and R. DORSEY WATKINS, District Judge.

PARKER, Chief Judge.

This is an appeal from a judgment for plaintiff in an action by a prime contractor on a road construction contract to recover on the bond of a subcontractor for sums that the former was required to pay for supplies furnished the latter. Plaintiff, the prime contractor, was the Wright Contracting Company, which had entered into contract with the North Carolina State Highway and Public Works Commission to do certain road construction work and had given bond as required by North Carolina General Statutes, § 136-28 to pay for labor and materials furnished in connection therewith. Plaintiff had then entered into a contract with the subcontractor, Lincoln Contractors, Inc., under which the latter agreed to do certain hauling required in the performance of plaintiff's contract. Bond was duly executed by the subcontractor to guarantee its performance of the subcontract.

After entering upon the performance of the subcontract, the subcontractor became bankrupt and plaintiff was called upon to pay claims for materials furnished the subcontractor for which payment had not been made. The amount thus paid was $12,707.81, after application on the claims of the retained percentage provided for in the subcontract. Action was instituted by plaintiff to recover this sum of $12,707.81 under the bond of the subcontractor. Stockholders of the subcontractor who had executed an indemnifying bond to its bonding company were brought in as third parties defendant; and there was judgment for plaintiff against the bonding company on the bond with judgment over against them. Only the defendant bonding Company has appealed. Its contention is that the bond does not cover payment for supplies furnished the subcontractor or the loss sustained by plaintiff by reason of the failure of the subcontractor to pay for same.

The bond sued on contains the following provision:

"Whereas, the Principal and the Obligee have entered into a written contract, a copy of which is or may be attached hereto, dated the 10th day of February, 1954, for furnishing and supplying all labor, equipment, fuel, tools, supplies and any and all other facilities whatsoever necessary for doing certain hauling in connection with the construction of Project No. 4839 SF-548(8) and F-447(7), Durham and Wake Counties, North Carolina, the hauling specified in Contract Agreement letter, dated February 10, 1954.

"Now, therefore, the condition of the foregoing obligation is such that if the Principal shall indemnify the Obligee for all loss that the Obligee may sustain by reason of the Principal\'s failure to comply with any of the terms of said contract, then this obligation shall be void; otherwise it shall remain in force."

The contract, the performance of which was guaranteed by the bond, was embodied in a letter from the prime contractor to the subcontractor which contained the following pertinent provisions:

"You, as Hauling Sub-Contractor, agree to furnish and supply all labor, equipment, fuel, tools, supplies and any and all other facilities whatsoever necessary for doing the hauling hereinafter specified for the prices stipulated.

"Payments are to be made to Hauling Sub-Contractor by Contractor once each month, based on quantities to be determined as heretofore specified, except that 10% of the total will be retained until the completion of the work involved in this contract, at which time retainage withheld will be paid to Hauling Sub-Contractor upon presentation of proof that all bills for labor and materials in connection with the work have been paid in full.

"In support of this agreement Sub-Contractor is to furnish to Contractor a performance and payment bond in the sum of $50,000.00." (Italics supplied.)

We think that the court below was correct in holding that plaintiff's loss was covered by the bond. Even if it be construed as guaranteeing nothing more than the performance of the subcontract, it is perfectly clear that the subcontract has been breached and that plaintiff's loss has resulted from the breach. The subcontractor agreed "to furnish and supply all labor, equipment, fuel, tools, supplies and any and all other facilities whatsoever necessary for doing the hauling" covered by the subcontract. This unquestionably meant to furnish and supply them without liability on the part of the prime contractor to pay for them; and there was a breach of the agreement when there was failure to furnish them in such a way as to protect the prime contractor from such liability. Under the North Carolina statute¹ and the bond given by the prime contractor pursuant thereto, the prime contractor was bound to pay for supplies used on the project including those furnished to and used by the subcontractor if the latter failed to pay for them; and the subcontractor did not furnish the supplies within the meaning of the subcontract when it merely bought and used them, leaving them to be paid for by the prime contractor. Seaboard Surety Co. v. Standard Accident Ins. Co., 277 N.Y. 429, 14 N.E.2d 778, 117 A.L.R. 658 and note. As pointed out in the case cited, a different situation would, of course, exist where the person in whose favor the bond runs is under no obligation to pay for supplies furnished and lien therefor cannot be obtained on the property to his detriment, as in Morganton Mfg. & Trading Co. v. Anderson, 165 N.C. 285, 81 S.E. 418; Warner v. Hallyburton, 187 N.C. 414, 121 S.E. 756; Page Trust Co. v. Carolina Construction Co., 191 N.C. 664, 132 S.E. 804; and United States to Use of Stallings v. Starr, 4 Cir., 20 F.2d 803. The general rule is thus stated in 43 Am.Jur. p. 896:

"As a general rule it may be stated that if the subcontractor\'s bond is conditioned for the indemnification of the contractor for any claim or damage for which the principal contractor may be held liable and for the payment of which the subcontractor is primarily liable, liability exists on the part of the surety on the bond of the subcontractor to indemnify the principal contractor against any liability which may be imposed upon him, or to reimburse him for any payment he may be required to make, in respect of labor and materials furnished to the subcontractor."

Where, as here, the prime contractor is bound to pay for materials used on the project, whether furnished by himself or a subcontractor, failure of a subcontractor to pay for materials furnished him is in precisely the same category as failure of a contractor to pay for labor or materials giving rise to a laborers' or materialmen's lien; and it is generally held that loss resulting from such failure and the assertion of such a lien is covered by a performance bond, whether or not payment for labor or materials is expressly required by the bond or contract. 9 Am.Jur. p. 57; Stoddard v. Hibbler, 156 Mich. 335, 120 N.W. 787, 24 L.R.A.,N.S., 1075 and note; Mayes v. Lane, 116 Ky. 566, 76 S.W. 399; Closson v. Billman, 161 Ind. 610, 69 N.E. 449, 451. In the case of Closson v. Billman, supra, the Indiana Court used language singularly appropriate here, saying:

"The bond provides that Worley is to build, construct, and complete the residence `according to his contract,\' and it was as much his duty to deliver the house free of liens on account of materials as it was to use materials which belonged to him. To hold, in the face of the bond and contract, that the construction and completion of the building in accordance with the plans and specifications was a compliance with the bond, although the owner would be compelled to pay out large sums in excess of the amount stipulated in the contract, to discharge liens for the purchase price of materials, would be to keep the word of promise to the ear but break it to the hope."

In Empire State Surety Co. v. Lindenmeier, 54 Colo. 497, 131 P. 437, 442, Ann. Cas.1914C, 1189, it was held that a building contractor's bond protected against mechanics' liens arising from the failure of a...