Rocky Mountain Tool & Machine Co. v. Tecon Corp., 8178-8180.

• Decision Date: 30 January 1967
• Docket Number: No. 8178-8180.,8178-8180.
• Citation: 371 F.2d 589
• Parties: ROCKY MOUNTAIN TOOL & MACHINE CO., Inc., Appellant, v. TECON CORPORATION, United States Fidelity & Guaranty Company, and Hartford Accident & Indemnity Company, Appellees. HARTFORD ACCIDENT & INDEMNITY COMPANY, Appellant, v. TECON CORPORATION, United States Fidelity & Guaranty Company, and Rocky Mountain Tool & Machine Co., Inc., Appellees. TECON CORPORATION, Cross-Appellant, v. ROCKY MOUNTAIN TOOL & MACHINE CO., Inc., Hartford Accident & Indemnity Company, and United States Fidelity & Guaranty Company, Cross-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

371 F.2d 589 (1966)

ROCKY MOUNTAIN TOOL & MACHINE CO., Inc., Appellant, v. TECON CORPORATION, United States Fidelity & Guaranty Company, and Hartford Accident & Indemnity Company, Appellees.

HARTFORD ACCIDENT & INDEMNITY COMPANY, Appellant, v. TECON CORPORATION, United States Fidelity & Guaranty Company, and Rocky Mountain Tool & Machine Co., Inc., Appellees.

TECON CORPORATION, Cross-Appellant, v. ROCKY MOUNTAIN TOOL & MACHINE CO., Inc., Hartford Accident & Indemnity Company, and United States Fidelity & Guaranty Company, Cross-Appellees.

Nos. 8178-8180.

United States Court of Appeals Tenth Circuit.

December 28, 1966.

Rehearing Denied January 30, 1967.

COPYRIGHT MATERIAL OMITTED

Richard L. Banta, Jr., Englewood, Colo. (Shivers, Banta & McMartin, Englewood, Colo., and Emory L. O'Connell, Denver, Colo., on the brief), for Rocky Mountain Tool & Machine Co., Inc.

W. Robert Ward, Denver, Colo. (H. Gayle Weller, Denver, Colo., on the brief), for Hartford Accident & Indemnity Co.

Charles H. Haines, Jr., Denver, Colo. (Grant, Shafroth, Toll & McHendrie and Peter J. Crouse, Denver, Colo., on the brief), for Tecon Corporation and United States Fidelity & Guaranty Co.

Before LEWIS, BREITENSTEIN and HILL, Circuit Judges.

Rehearing Denied in Nos. 8179 and 8180 January 30, 1967.

DAVID T. LEWIS, Circuit Judge.

This action was brought under the Miller Act, 40 U.S.C. §§ 270a, 270b, by the United States for the use and benefit of Rocky Mountain Tool & Machine Co., Inc. (Rocky Mountain) against Tecon Corporation (Tecon) and involves a complex of claims resulting from the construction of a Bureau of Reclamation project designated as the "Blue Mesa Dam and Power Plant" and located near Gunnison, Colorado. Rocky Mountain's first claim asserts a sum in excess of $346,000 to be recoverable from Tecon as the prime contractor on the project through Rocky Mountain's second tier sub-contract with Dearborn Machinery Movers Company, Inc. (Dearborn), a first tier subcontractor of Tecon's. Rocky Mountain also sought damages for materials furnished and labor performed under a second contract made directly with Tecon and further damages for the wrongful termination of that contract. Rocky Mountain's total claims approximate $2,000,000. Tecon counterclaimed against Rocky Mountain and its surety, Hartford Accident & Indemnity Co. (Hartford), for breach of contract, claiming damages of $500,000. Hartford asserted an independent defense on its bond. Jurisdiction of the expanded claims, where the Miller Act is not applicable, is based upon diversity of citizenship, 28 U.S.C. § 1332.¹

The case was tried to a jury and resulted in verdicts denying recovery to Rocky Mountain on the Miller Act claim and also on the claim for wrongful termination of Rocky Mountain's direct contract with Tecon but awarding to Rocky Mountain damages in the sum of $47,884 for labor and materials furnished to Tecon between December 1, 1962 and January 10, 1963. The jury also returned verdicts granting Tecon damages of $225,000 against Rocky Mountain for breach of contract and against Hartford in the sum of $150,000. The trial court directed the entry of judgment on the verdicts including interest on the monetary award from the date of the filing of the claim by the party obtaining a verdict. After consideration of various post-trial motions, final amended judgment was entered which raised the judgment against Hartford from $150,000 to $177,116, the latter sum being equal to the net recovery found against Rocky Mountain, Hartford's principal. Interest on the monetary awards was allowed only from and after the date of the verdicts. By way of appeal and cross appeal, the parties now assert error in every portion of the judgment that is adverse to their respective interests.

A consideration of the precise appellate issues seems to dictate a somewhat detailed narrative of the factual development of the parties' controversy. In April 1962, the Bureau of Reclamation awarded to Tecon the prime contract for the construction of the Blue Mesa Dam. Tecon awarded a sub-contract to Dearborn covering the portion of the project that included construction and installation of a steel overflow pipe and penstock manifold which would carry water from the reservoir to the power plant at the base of the dam. Dearborn in turn, with Tecon's approval, awarded a second tier sub-contract to Rocky Mountain for the fabrication and partial installation of the structures contemplated by the first tier sub-contract between Tecon and Dearborn. Rocky Mountain provided Dearborn a performance bond in the amount of $825,000, issued by Hartford as surety on the work to be performed under the Dearborn-Rocky Mountain sub-contract.

In June 1962, Rocky Mountain submitted to Dearborn a schedule of pay estimates which was accepted by Dearborn and was satisfactory to Tecon as a contractually binding payment and progress schedule. Rocky Mountain later disputed the binding nature of the schedule, but there is evidence in the record to support the conclusion that Rocky Mountain did in fact consider itself so bound for at least the period in which the second tier sub-contract with Dearborn was in effect.

In August 1962, after Rocky Mountain had expended considerable sums of money in preparation of a fabrication site, Dearborn became involved in bankruptcy proceedings in Detroit, Michigan. Being apprehensive of the effect that these proceedings might have upon Dearborn's respective contractual obligations, Tecon and Rocky Mountain entered into an agreement whereby Rocky Mountain or its assignee would receive payments directly from Tecon for work performed under the Dearborn-Rocky Mountain sub-contract. It was also agreed that in the event the trustee in bankruptcy should terminate the Tecon-Dearborn sub-contract Rocky Mountain would complete its work on the project under a direct sub-contract with Tecon. The prospective Tecon-Rocky Mountain sub-contract provided:

"Sub-contractor Rocky Mountain shall perform its work in such manner as to meet the applicable portions of the attached payment and progress schedule."

Attached was the Tecon-Dearborn payment and progress schedule that had been based partially upon the schedule of pay estimates submitted by Rocky Mountain to Dearborn. Also in the prospective sub-contract was a paragraph which provided:

"In the event the Sub-Contractor fails, neglects, or refuses to prosecute the work or any separable part thereof in accordance with the requirements, specifications and regulations provided under the said Prime Contract, or in the event the Sub-Contractor fails to maintain a progress schedule, which, in the opinion of the Contractor will assure completion of Sub-Contractor\'s work, or any part thereof at its option, within the time required by said Contractor, then the Contractor may, by written notice to the Sub-Contractor, terminate his right to proceed with the work, or such part thereof as is not being performed as required. In such event, the Contractor shall have full power and authority, without process of law and without violating this agreement, to take the prosecution of work out of the hands of the Sub-Contractor and complete it with its own forces, or contract with other parties for its completion, or use other measures as in the Contractor\'s opinion are necessary for its completion, including the use of equipment, plant and other property of the Sub-Contractor on the work, as hereinafter provided. Should the expense incurred by the Contractor in taking over and completing the work be less than the sum that would have become payable under this agreement if said work had been completed by the Sub-Contractor, then the Sub-Contractor shall be entitled to the difference, and should such expense exceed the said sum, then the Sub-Contractor and Sub-Contractor\'s surety shall be liable to the Contractor for the amount of such excess."

Rocky Mountain continued its operations under the second tier sub-contract with Dearborn until the end of November 1962 when the trustee in bankruptcy terminated the first tier sub-contract between Dearborn and Tecon. During that period there were numerous communications between the parties concerning the quality and quantity of Rocky Mountain's work. Rocky Mountain expressly recognized that its work was behind schedule but promised to use the winter months when no work was planned as a time for catching up.

On December 3, 1962, Tecon advised Rocky Mountain that by virtue of the trustee's action the Tecon-Rocky Mountain sub-contract of August 1962 had come into effect subject to the condition that Rocky Mountain furnish a performance bond in the amount of $500,000. At the same time, Tecon advised Rocky Mountain that the rate of progress of its work was "grossly inadequate" and that unless there was substantial improvement demonstrated within twenty days, the direct sub-contract would be terminated pursuant to the applicable contract provision. Two weeks later, Rocky Mountain replied that it had never committed itself to a performance progress schedule and suggested that the parties get together to straighten out their differences. The twenty-day period expired with neither party taking any action to terminate or re-affirm the new sub-contract. At the end of December 1962, Hartford executed a new bond in the sum of $500,000 covering the work to be performed under the Tecon-Rocky Mountain sub-contract.

On January 3, 1963, Tecon sent Rocky Mountain a telegram calling the latter's attention to its failure to bring the work up to an acceptable progress schedule. The telegram requested as a condition to the continuing effect of their sub-contract that Rocky Mountain furnish by January 15, 1963 a bar graph of the weekly progress that could be assured until completion of its work. On January 9 and 10, 1963, representatives of Tecon and Rocky Mountain met for the purpose of working out a progress schedule that would be acceptable to...