American Bonding Co. of Baltimore v. United States

• Decision Date: 16 June 1916
• Docket Number: 2077.
• Parties: AMERICAN BONDING CO. OF BALTIMORE et al. v. UNITED STATES, to Use of FRANCINI et al.
• Court: U.S. Court of Appeals — Third Circuit

233 F. 364

AMERICAN BONDING CO. OF BALTIMORE et al. v. UNITED STATES, to Use of FRANCINI et al.

No. 2077.

United States Court of Appeals, Third Circuit.

June 16, 1916

F. B Bracken, of Philadelphia, Pa. (Welles & Torrey, of Scranton Pa., of counsel), for plaintiffs in error.

R Stuart Smith, of Philadelphia, Pa. (O'Brien & Kelly, of Scranton, Pa., and Morgan, Lewis & Bockius, of Philadelphia Pa., of counsel), for defendants in error.

Before BUFFINGTON, McPHERSON, and WOOLLEY, Circuit Judges.

McPHERSON Circuit Judge.

In October, 1910, Mark P. Wells contracted with the United States to build a post office at York, Pa., and gave the bond required by the act of 1905, conditioned, inter alia, to pay all persons supplying labor or material. The building was finished and accepted, a settlement was made with Wells, and the balance due him was paid over. But, as several subcontractors were still unpaid, one of them brought the present suit against Wells and his surety on February 4, 1914, and others intervened soon afterward. This writ is taken by the surety only.

The first question to be decided is whether the suit was premature; i.e., whether it was brought before the six months had expired within the United States alone has the right to sue. U.S. v. McCord, 233 U.S. 157, 34 Sup.Ct. 550, 58 L.Ed. 893; Stitzer v. U.S. (C.C.A. 3d) 182 F. 513, 105 C.C.A. 51. On this point, the facts are as follows:

On August 2, 1913, the Supervising Architect of the Treasury addressed a letter to the Secretary recommending a settlement with Wells upon certain terms, and this settlement, slightly changed, was approved by the Assistant Secretary, who appended the following memorandum without date:

'Approved and damages charged in part as recommended.

'By direction of the Secretary:

'Sherman Allen, Assistant Secretary.'

The undisputed evidence shows that this memorandum was not signed before August 9, and that the balance thus found due was not paid before August 16. Now, if this were all, it might be argued with some force that August 9 was the earliest date assignable for the 'settlement,' and therefore that the action was brought several days too soon.

But other evidence leads to the opposite conclusion. On the whole case it appears that (since September 12, 1912, at least) the Treasury 'treats as the date of final settlement mentioned in said acts' (of 1894 and 1905) 'the date on which the Department approves the basis of settlement under such contract recommended by the Supervising Architect, and orders payment accordingly. ' This language is contained in Department Circular No. 45, bearing the date just mentioned, and this circular was sent to some, perhaps to all, of the subcontractors. Moreover, it was proved that, when several of these contractors asked the Department when settlement had been made with Wells, the Treasury replied, in December, 1913, or January, 1914, that 'final settlement under the contract referred to above was authorized August 2, 1913. ' It was also shown that the following official indorsements appeared upon the contract: 'Final payment authorized Aug. 2/13,' and 'Guarantee expires 8/2/15.' The latter indorsement refers to a clause in the specifications guaranteeing certain work for a period of two years. No suit has been brought by the government. Clearly, therefore, the Department adopted August 2, 1913, as the date of final settlement, and so informed the subcontractors-- among them, the firm by whom the suit was begun on February 4.

At the time of the trial the courts were not in agreement in their answers to the question, What constitutes a 'settlement' between a contractor and the government? But since then the question has been answered definitely in Illinois Surety Company v. United States, for use of Peeler (decided Feb. 21, 1916) 240 U.S. 214, 36 Sup.Ct. 321, 60 L.Ed. 609. As that case has not yet been regularly reported, we quote from it freely. There the suit was brought on March 4, 1913. At the trial it appeared that on August 21, 1912, the Treasury Department had stated and determined what balance was due the contractor, although the money had not been paid until September 11. The surety contended that the suit was premature, because six months had not elapsed since the date of payment. But the Supreme Court held that August 21 was to be taken as the date of final settlement, and in the course of the discussion used the following language:

'It was evidently the purpose of the act of 1905 to remedy the defect in the act of 1894 by assuring to the United States adequate opportunity to enforce its demand against the contractor's surety, and priority with respect to such demand. * * * With this object in view-- to protect the priority of the United States, and at the same time to give a remedy to materialmen and laborers on the contractor's bond and a reasonable time to prosecute it (A. Bryant Co. v. N.Y. Steamfitting Co., 235 U.S. 327, 337 (35 Sup.Ct. 108, 59 L.Ed. 253))--it was natural that the time allowed exclusively for action by the government should begin to run when the contract had been completed, and the government, in its final adjustment and settlement according to established administrative methods, had determined what amount, if any, was due. Then the government would have ascertained the amount of its claim, if it had one, and could bring suit, if it desired. As such determinations are regularly made in the course of administration, nothing would seem to be gained by postponing the date, from which to reckon the six months, to the time of payment. Indeed, if an amount were found to be due from the contractor, and he was insolvent, there might be no payment; and, if payment were essential, there would be no date from which the time for the bringing of the creditors' action could be computed.

'The pivotal words are not 'final payment,' but 'final settlement,' and, in view of the significance of the latter term in administrative practice, it is hardly likely that it would have been used had it been intended to denote payment (citing cases). The word 'settlement,' in connection with public transactions and accounts, has been used from the beginning to describe administrative determination of the amount due (referring to numerous statutes upon this subject). * * *

'We should not say, of course, that instances may not be found in which the word 'settlement' has been used in acts of Congress in other senses, or in the sense of 'payment.' But it is apparent that the word 'settlement,' in connection with public contracts and accounts, which are the subject of prescribed scrutiny for the purpose of ascertaining the rights and obligations of the United States, has a well-defined meaning as denoting the appropriate administrative determination with respect to the amount due. We think that the words 'final settlement' in the act of 1905 had reference to the time of this determination, when, so far as the government was concerned, the amount which it was finally bound to pay or entitled to receive was fixed administratively by the proper authority. It is manifestly of the utmost importance that there should be no uncertainty in the time from which the six months period runs. The time of the final administrative determination of the amount due is a definite time, fixed by public record and readily ascertained. As an administrative matter, it does not depend upon the consent or agreement of the other party to the contract or account. The authority to make it may not be suspended, or held in abeyance, by refusal to agree. Whether the amount so fixed is due, in law and fact, undoubtedly remains a question to be adjudicated, if properly raised in judicial proceedings, but this does not affect the running of the time for bringing action under the statutory provision.

'In the present case, the construction of the building was in charge of the Secretary of the Treasury and under the general supervision of the Supervising Architect. The Secretary of the Treasury was authorized to remit the whole or any part of the stipulated liquidated damages as in his discretion might be just and equitable. 32 Stat. 326 (Comp. St. 1913, Sec. 6922). On August 21, 1912, the Supervising Architect, having received the certificate of the chief of the technical division of the office that all work embraced in the contract had been satisfactorily completed, made his statement of the amount finally due, recommending that only the actual damage (as stated) be charged against the contractor, and that the proper voucher should be issued in favor of the contractor for the balance, to wit, $3,999.01. And on the same date this recommendation was approved and actual damages charged accordingly by direction of the Secretary of the Treasury. This, in our judgment, was the 'final settlement' of the contract within the meaning of the act.

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