American Surety Co. v. Wheeling Structural Steel Co., 4645.

• Decision Date: 06 September 1940
• Docket Number: No. 4645.,4645.
• Citation: 114 F.2d 237
• Parties: AMERICAN SURETY CO. v. WHEELING STRUCTURAL STEEL CO.
• Court: U.S. Court of Appeals — Fourth Circuit

114 F.2d 237 (1940)

AMERICAN SURETY CO. v. WHEELING STRUCTURAL STEEL CO.

No. 4645.

Circuit Court of Appeals, Fourth Circuit.

September 6, 1940.

Joseph R. Curl, of Wheeling, W. Va. (John C. Palmer, Jr., and Erskine, Palmer & Curl, all of Wheeling, W. Va., on the brief), for appellant and cross-appellee.

Albert W. Laas, of Wheeling, W. Va. (Wright Hugus and Schmidt, Hugus & Laas, all of Wheeling, W. Va., on the brief), for appellee and cross-appellant.

Before PARKER, SOPER, and DOBIE, Circuit Judges.

PARKER, Circuit Judge.

This is an appeal in a suit instituted by the American Surety Company, hereafter referred to as the surety company, surety on a bond executed by the Detroit Steel Erection Company, hereafter referred to as the construction company, to the Wheeling Structural Steel Company, hereafter referred to as the steel company. The two companies last named, with Pike & Cook, Inc. and certain creditors of the construction company were made defendants in the suit, the purpose of which was to determine the liability of the surety company under the bond and, by way of subrogation, to recover of the steel company the balance due by that company under its contract with the construction company, together with damages claimed for breach of contract. The court below found that the surety company was liable to the steel company under the bond in suit in the sum of $10,527.47; that to this should be added the sum of $198.68, being the amount of premium on bond paid by the steel company for the construction company; and that the steel company was indebted to the surety company, as assignee of the construction company, in the sum of $2,451.97 for moneys retained under contract, plus the sum of $3,585.87 as damages for breach of or deviation from contract. Decree was accordingly entered that the steel company recover of the surety the sum of $4,690.31 with interest.

The surety company has appealed from this decree, contending that it is erroneous in so far as it adjudges that the steel company is entitled to recover anything under the bond. The steel company has appealed, contending that the decree is erroneous in so far as it allows recovery by the surety company of the $3,585.87 as damages for breach of or deviation from contract. It is conceded that the surety company is liable for and has paid under its bond claims of creditors of the construction company in the total sum of $4,239.81, and that by reason of such payment it is subrogated to the claim of the construction company for the balance of $2,451.97 retained under the contract by the steel company. No contention is made as to the right of the steel company to offset against this the sum of $198.68 paid by the steel company as premium on bond for the construction company. The case on appeal, therefore, is narrowed to the liability of the surety company for the $10,527.47 awarded the steel company and the liability of the steel company for the $3,585.47 awarded the surety company. We shall consider these separately.

The Appeal of the Surety Company.

In 1931 Pike & Cook, Inc., whom we shall refer to hereafter as the contractor, entered into a contract with the United States Government for the construction of a post office building in Louisville, Ky. and entered into bond in the usual form for proper performance of the contract and for payment of claims of laborers and materialmen. The contractor thereupon entered into a contract with the Wheeling Structural Steel Company, heretofore and hereafter referred to as the steel company, to furnish and erect the steel framework of the building. The steel company then entered into a contract with the Detroit Steel Erection Company, heretofore and hereafter referred to as the construction company, to erect the steel framework. The contract provided that the construction company should give bond "guaranteeing the faithful performance of this contract and the completion of said erection work and the payment of all bills for water, power, light and tools, and for the payment of wages of workmen to the general satisfaction of the United States Treasury Department, the General Contractor (Pike & Cook Company), as well as the Fabricator (the Wheeling Company), and indemnifying Fabricator against any loss it may suffer by reason of being required to pay a penalty or otherwise for delay in erection caused by Erector." The construction company, pursuant to this provision of the contract, on September 30, 1931, gave bond to the steel company in the penal sum of $30,000 for the faithful performance of its contract, the condition thereof being in the following language: "The condition of this obligation is such, that if the principal shall faithfully perform the contract on his part, free and clear of all liens arising out of claims for labor and materials entering into the construction, and indemnify and save harmless the owner from all loss, cost or damage which he may suffer by reason of the failure so to do, then this obligation shall be void; otherwise to remain in full force and effect."

The bond contained the provision that no suit should be brought on it after the 2nd day of March 1932; but this limitation was later extended by agreement of the parties to May 2, 1932.

The steel work of the building was approved and accepted by the government on August 15, 1932. The steel company had retained under its contract with the construction company only the $2,451.97 above referred to. In the meantime claims against the construction company had been filed with the steel company and with the contractor in the sum of $10,527.47, although it appears that of this amount only $4,239.81 represented claims which were properly allowable as liens on funds under the contractor's bond. Nevertheless, the contractor, because of the filing of these claims, withheld the full sum of $10,527.47 in making settlement with the steel company. This suit was filed September 30, 1932, to determine the liability of the surety company with respect to these claims, the steel company, the construction company and the contractor being made parties to the suit, as well as the creditors of the construction company who had asserted claims. The contractor, who was represented by the same counsel as the steel company, filed answer admitting that it was retaining from the moneys due the steel company funds in the amount of the claims filed with it, and prayed the direction of the court as to the application of these funds. In 1933 the contractor became insolvent and in 1935 a receiver was appointed for it. In an amended answer filed November 6, 1935, the steel company alleged the insolvency of the contractor and its consequent loss of the funds withheld under its contract. It was this loss for which the court below allowed recovery on the bond of the construction company signed by the surety company, the recovery being allowed on the theory that the steel company had lost the amount of the funds withheld by the contractor as a result of the failure of the construction company to pay claims against it, the withholding of funds by the contractor on this account and the subsequent failure of the contractor so that the funds withheld...