Union Indemnity Co. v. Lang

• Decision Date: 15 June 1934
• Docket Number: No. 7150.,7150.
• Citation: 71 F.2d 901
• Parties: UNION INDEMNITY CO. v. LANG et al.
• Court: U.S. Court of Appeals — Ninth Circuit

71 F.2d 901 (1934)

UNION INDEMNITY CO. v. LANG et al.

No. 7150.

Circuit Court of Appeals, Ninth Circuit.

June 15, 1934.

Mathes & Sheppard and W. C. Mathes, all of Los Angeles, Cal. (J. Stanley Mullin, of Los Angeles, Cal., of counsel), for appellant.

Joe Crider, Jr., John M. Martin, Frank L. Martin, Jr., and James N. Farley, all of Los Angeles, Cal., for appellees.

Before WILBUR, SAWTELLE, and GARRECHT, Circuit Judge.

SAWTELLE, Circuit Judge.

The suit involved in the present appeal was brought by the appellees to recover from the appellant, as surety, damages sustained by the former as a result of the alleged breach of the obligations of a bond guaranteeing the faithful performance of a subcontract for the welding of a pipe line between Kettleman Hills and Panoche Hills, Cal.

On March 9, 1929, the Pacific Gas & Electric Company, as "owner," entered into a contract with the appellees, as "general contractor," for the construction of a high-pressure gas pipe line approximately 149 miles in length, from Buttonwillow, in Kern county, to Tres Pinos, in San Benito county.

The work was divided into three sections. Section 2, which alone is involved in the present action, was approximately 41 miles long, and extended from Kettleman Hills to Panoche Hills.

On April 11, 1929, the appellees, as general contractor, and Smith and McComber, as "subcontractor," entered into a subcontract whereby the latter firm agreed to do all the welding work on section 2 at the rate of 28 1/3 cents per linear foot.

By the terms of the latter contract the appellees were to dig the ditch and lay the pipe on skids, and the subcontractor was then to do everything necessary to the tacking, welding, angling, and the final welding of all pipe and fittings. Thereafter the general contractor was to lower the pipe into the ditch and cover it. The subcontractor agreed to furnish all labor necessary for the welding of the pipe line during the process of welding, tacking, and tying-in, together with all material required therefor, and was to complete the work in accordance with the specifications and conditions of the Pacific Gas & Electric Company.

The subcontract referred to the general contract, and by reference made the latter a part of the former. The subcontract required the subcontractor to furnish a faithful performance bond, and, accordingly, on April 11, 1929, the subcontractor, as principal, and the appellant, as surety, executed in favor of the appellees a bond in the penal sum of $61,300, guaranteeing the faithful performance of the work to be done under the subcontract.

The bond contained the following provisions pertinent to the present controversy:

"1. That, as a condition precedent to the right of recovery hereunder, the Owner shall do and perform each and every of the matters and things set forth and specified in said contract and in this bond, or in either of them, to be by the owner done or performed at the times and in the manner as in said contract and this bond specified. In case of any inconsistency, the provisions of this bond shall take precedence over the provisions of said contract.

"2. That, as a condition precedent to the right of recovery hereunder, the Owner shall notify the Surety, either at its principal office in New Orleans, Louisiana, or at its office in Los Angeles, California, of any breach by the Principal of said contract, and also of any act, or omission, on the part of the Principal, or any agent or employee of the Principal which may cause a loss for which the Surety may become liable hereunder immediately after such breach or act or omission shall have come to the knowledge of the Owner or to any representative of the Owner authorized to supervise the performance of said contract."

Both the general contract and the subcontract provided that the work should be done at an average rate of "not less than three quarters of a mile per working day." The general contract set forth that the contractor was to commence work "as soon as notified by the Company Pacific Gas & Electric so to do and shall prosecute said work simultaneously along the three sections." The subcontract required that the subcontractor should "actually start operations under this contract on or before the 29th day of April, 1929."

Both contracts set forth that "Time shall be the essence of this agreement." This does not only appear in the agreements as a mere pro forma expression, but it is iterated and paraphrased with such emphasis as to leave no doubt regarding the intention of the parties.

Although, as we have seen, the subcontract provided that the subcontractor should actually start operations on or before April 29, Smith and McComber commenced work the early part of May, and were "slow in getting started." Howard Lang, one of the appellees, testified that his firm "kept after" the subcontractor to "speed it up."

On June 7, 1929, Lang had a telephone conversation with R. S. Fuller, engineer of distribution of the Pacific Gas & Electric Company, in which Fuller expressed himself as "very much disgusted" with the lack of progress being shown in connection with the welding. Fuller confirmed the conversation in a letter dated June 8, 1929, in which were contained the following statements:

"The latest reports from the line and my own observations from a visit this past week, convince me that it is going to be extremely difficult to complete the 22" line into the Compressor Station at Kettleman Hills, under the present rate of progress. I therefore urge you with all possible strength to proceed to speed up the work on this line to the utmost.

"I understand that you will have some oxy-acetylene welding crews free to move from the 20" line and I believe they should be moved to the Kettleman Hills Compressor Station end of the 22" to proceed north and complete this work just as soon as possible. I believe you should put on all available welders, of which whom you tell me you have several, in order to expedite this work.

"We are all going to be subjected to a very severe criticism if this line is not completed by July first."

As a result of the telephone conversation with Fuller, the appellees, on June 7, wrote to Smith and McComber in part as follows:

"You are advised that you have failed to abide by the terms and specifications of said agreement the subcontract, in that you have utterly failed to complete three quarters of a mile of welding per day as you have contracted to do; that instead of completing said three quarters of a mile per day you have only averaged approximately two tenths of a mile per day.

"You and each of you will therefore take notice that * * * the Lang Transportation Company, in view of the demand of the Pacific Gas & Electric Company, * * * and your failure to complete said work in the manner provided in the contract hereinbefore referred to, has elected to comply strictly to the terms thereof and hereby notifies you that * * * Lang Transportation Company have elected to immediately exercise that privilege as provided in Paragraph 11, page 5 of said contract and furnish its own crew of men and equipment necessary to complete said pipe line in a workmanlike manner from a point located at Kettleman Hills, * * * to a point north where said workers of the Lang Transportation Company connects sic with the pipe line so completed by yourselves; that you shall continue with the welding of said pipe line from a point located at Panoche Hills, * * * south to a point where your workers and pipe line connects sic with those workers of the Lang Transportation Company, working north."

The appellees sent a copy of the above letter to the appellant, together with a letter of transmittal dated the same day. This was the first notice received by the appellant from the appellees of any failure on the part of the subcontractor to prosecute the work as required by the terms of the subcontract.

Thereafter the appellees placed their crew on the southern end of section 2 of the pipe line and commenced work. Until about July 20, 1929, both the appellees' crews and the subcontractor's crews were engaged in the performance of the welding work on that section.

On July 13, 1929, Joe Crider, Jr., attorney for the appellees, sent to the appellant a telegram notifying the surety company that the subcontractor was in default, and demanding that the appellant meet Smith and McComber's pay roll.

On July 15, 1929, the appellees received a telegram from the subcontractor containing the information that the latter was unable to meet labor claims, had turned over its pay roll to the Labor Commission, and was unable to complete the contract. This telegram was confirmed by letter the following day, and still later orally by a member of the subcontractor firm.

The subcontractor finally abandoned the work on or about July 20, 1929, and the appellees completed the welding work on section 2 on or about August 20, 1929.

The present action was commenced by the appellees to recover the cost of completing the work covered by the subcontract, and the amounts paid out for labor and materials for the account of the subcontractor. Judgment was rendered in favor of the appellees for $40,358.99, with interest and costs.

From that judgment the present appeal was taken.

The appellant asserts that the appellees were "far in default in the time for performance of the welding work on Section 2 of the pipe line at the time the subcontract was made on April 11, 1929." In our view of the case, however, it is unnecessary to consider this phase of the case.

We will therefore confine our inquiry to the question of whether or not the appellees failed to notify the surety company of any breach by the subcontractor, "and also of any act, or omission" which might have caused "a loss for which the surety might become liable hereunder."

From the appellees' own testimony, it is evident that, almost from the very beginning of their dealings with the...