Standard Acc. Ins. Co. v. Simpson

• Decision Date: 04 April 1933
• Docket Number: No. 3396,3397.,3396
• Citation: 64 F.2d 583
• Parties: STANDARD ACC. INS. CO. v. SIMPSON et al. CONSOLIDATED INDEMNITY & INS. CO. et al. v. DEAL BROS. MILLING CO. Inc., et al.
• Court: U.S. Court of Appeals — Fourth Circuit

64 F.2d 583 (1933)

STANDARD ACC. INS. CO. v. SIMPSON et al.

CONSOLIDATED INDEMNITY & INS. CO. et al. v. DEAL BROS. MILLING CO. Inc., et al.

Nos. 3396, 3397.

Circuit Court of Appeals, Fourth Circuit.

April 4, 1933.

COPYRIGHT MATERIAL OMITTED

Douglas McKay, of Columbia, S. C. (McKay & Manning, of Columbia, S. C., on the brief), for Standard Acc. Ins. Co.

E. W. Mullins, of Columbia, S. C. (Nelson & Mullins, of Columbia, S. C., on the brief), for Carolina Contracting Co.

Irvine F. Belser and James B. Murphy, both of Columbia, S. C. (J. C. Oxner, R. Beverley Sloan, and Pickney L. Cain, all of Columbia, S. C., on the brief), for materialmen and laborers.

Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.

PARKER, Circuit Judge.

These are appeals from a decree in two cases which were consolidated and heard together below and which involve questions of liability under bonds of a road contractor and a subcontractor. The contractor was the Carolina Contracting Company, which had entered into a number of contracts covering the construction and paving of roads and streets for the county of Richland and the city of Columbia. The surety on its bonds covering the projects here involved was the Consolidated Indemnity & Insurance Company, hereafter referred to as the Consolidated. The subcontractor, who entered into contracts with the contractor for the grading and drainage work on the various projects, was one F. W. Simpson; and the surety on the bond which he executed to the contractor was the Standard Accident Insurance Company, hereafter referred to as the Standard. The controversy arises out of claims, aggregating $55,443.28, for materials furnished to the subcontractor, who is now insolvent, for use on the various projects.

The court below held that the bond of $25,000, originally executed by the Standard to guarantee the performance of the first contract awarded to the subcontractor, had been extended to cover subsequent contracts and that the total of its coverage after the extensions was $51,601.40, or 50 per cent. of the amount called for by the contracts. Decree was entered against the Standard for this amount, plus interest in the sum of $916.90 and attorneys' fees of $800 allowed counsel for the contractor. The court held, further, that the contractor and its bondsman, the Consolidated, were liable for the claims of the materialmen, since the materials in question were used on projects covered by its contracts and the bonds guaranteeing them. Fees of counsel for claimants to the amount of $1,000 were allowed out of a fund in the hands of the contractor representing retained percentage on contracts of the subcontractor. From this decree one appeal is prosecuted by the Standard and another by the contractor and its bondsmen, the Consolidated. On the appeal of the Standard, the question presented is the extent of its liability, as it admits liability for $25,000 and has paid this amount into court. On the appeal of the Consolidated and the contractor, the question is their liability for materials and supplies furnished the subcontractor and for the fees allowed attorneys of claimants.

The facts necessary to an understanding of the appeal of the Standard are as follows: About February 20, 1930, the county of Richland awarded to the contractor a contract for the construction of three sections of improved highway, embracing five miles on the Old Winnsboro Road, three miles on the Asylum Road, and two miles on the Leesburg Road. At the same time, the contractor entered into a contract with the subcontractor to do the grading and drainage work on these projects at certain unit prices, which it was estimated would amount to $48,855. The contract between the contractor and the subcontractor provided that the latter should give bond for the faithful performance of his contract in the sum of $25,000; and bond in this amount was duly executed with the Standard as surety. Premium on this bond was calculated at $15 per $1,000 of the contract price; and a premium of $732.80 was paid at the time of its execution. The application for this bond contained a provision that, upon the completion of the work under the contract, the premium would be adjusted in accordance with the certificate of the engineer in charge of the work. Although it is said that the contract between the contractor and the subcontractor contained a provision as to the extension of same, we find nothing of this sort in the contract, except a provision in the clause as to time, which provides that: "If the satisfactory execution in completion of the contract shall require work or material in greater or lesser amounts or quantities than those set forth in the contract, then the contract time shall be increased or decreased in the same proportion as the altered amount of work bears to the original work contracted for." There is nothing in either the contract or the bond to indicate that in executing the latter it was contemplated that any projects would be guaranteed by it other than those embraced in the contract. The bond is captioned as "Assuring execution of contract for construction of approximately five miles, old Winnsboro Road, three miles Asylum Road, and two miles Leesburg Road in Richland County."

Some time after this, the contractor was awarded three separate contracts covering road projects by the county of Richland and two covering street work by the city of Columbia. For each of these contracts a separate bond was executed by the contractor just as in the case of the first contract. The contractor sublet to the subcontractor the grading and drainage work under all of these contracts, but no additional written contracts were signed between them; it being understood in each case that the subcontractor should take the work under the terms set forth in the original contract. No additional bonds were executed by the subcontractor covering the additional work awarded him; but it appears that the local agent of the Standard, one T. P. McCrae, told him and one of the officers of the contractor that the original bond would be extended to cover the liability of the subcontractor on these additional contracts to an amount equal to 50 per cent. of the amount to be paid under the contracts. No written application for bond was made as the basis of any extension of liability, no premium was paid therefor, and no assumption of liability or change in the coverage of the original bond was reported to the Standard by McCrae. No writing was signed by McCrae evidencing any change in liability except with respect to the second extension of the work on the Old Winnsboro Road, as to which there was a change in the unit prices allowed for the work. To cover this, a "rider" was executed by McCrae in the form of a letter addressed to the contractor under date of August 20, 1930, as follows:

"Aug. 20th, 1930. "Carolina Contracting Company "Columbia, South Carolina. "Gentlemen: Re: SA-50751-420 — Frank W. Simpson.

"The Standard Accident Insurance Company as surety on the above captioned bond hereby consents to the extension of the contract covered by this bond to cover the structures and grading on the Winnsboro road from survey station 284 towards the Fairfield county line as described in letter of award from the Carolina Contracting Company to Frank W. Simpson under date of July 3rd., a copy of which is attached to this letter.

"In consenting to this extension, it is mutually agreed and understood that this in no way changes the company's liability under the bond as originally written, but extends the liability of this bond to an amount equal to 50% of the amount the contract is extended.

"Standard Accident Insurance Company "By T. P. McCrae, Attorney-in-fact. "TPM/R encl. Seal."

With respect to the authority of McCrae to bind the Standard by the verbal extensions of liability and the provisions of this rider or letter, it appears that he held merely an ordinary power of attorney from the Standard authorizing him to execute bonds in an amount not exceeding $100,000, when attested and the seal of the company attached thereto by either Douglas McKay or J. A. Manning. His letter of instructions contained the following provision: "Do not consent to any alterations or extensions as to any previously executed obligation nor give any assent to any extension of time nor any alteration of any contract for which this company is surety. You have no authority to make any kind of verbal or written agreement after a bond has been executed. This authority rests only with the home office. By disregarding these instructions you may release our reinsurers, our indemnitors, or the bond itself may be void and your action may revive liability causing loss to the company."

There was evidence that the Standard had permitted McCrae to execute bonds for it without requiring the countersignature of McKay or Manning, although the evidence on the part of the company was that this was allowed only where the execution of the bond was authorized directly by the home office. McCrae testified that he had extended other bonds in substantially the same manner as the bond involved in this case and that no objection was made by the Standard. The assistant secretary of the Standard and its division manager denied, however, that any such extensions were authorized or approved by the company. McCrae admitted that no notice of such extensions was furnished to the home office and no information given it as to extensions until the contracts were completed, when the information was given in the "Termination Evidence Report," which is presumably the report made when the premium was adjusted at the completion of the contract. There was no evidence of any specific instance where the company had ever approved an extension of liability on a bond by McCrae, and no evidence that the contractor ever had knowledge of any such extension or any other fact which would justify a belief that McCrae possessed...