Bill Curphy Co. v. Elliott

• Decision Date: 09 September 1953
• Docket Number: No. 14259.,14259.
• Citation: 207 F.2d 103
• Parties: BILL CURPHY CO. v. ELLIOTT et al.
• Court: U.S. Court of Appeals — Fifth Circuit

207 F.2d 103 (1953)

BILL CURPHY CO. v. ELLIOTT et al.

No. 14259.

United States Court of Appeals Fifth Circuit.

September 9, 1953.

Curtis White, Dallas, Tex., and William R. Sarsgard, Fort Worth, Tex., for appellant.

Charles Stephens, J. A. Gooch, E. G. Aycock, Fort Worth, Tex., Walter A. Cober, Grand Prairie, Tex. (Cantey, Hanger, Johnson, Scarborough & Gooch, Fort Worth, Tex., of counsel), for appellees.

Before HOLMES, BORAH, and RIVES, Circuit Judges.

BORAH, Circuit Judge.

This case presents two questions: (1) whether a surety on a performance bond, which guaranteed the completion of a subcontractor's share of a public works contract can be held liable upon default of the obligee of the bond in excess of the face amount of the bond and, (2) whether a claim for money loaned a subcontractor for payment of labor and materials is within the coverage of a contractor's bond conditioned upon payment to all persons supplying labor and material in the prosecution of the work. For the reasons hereinafter stated our answer to both questions is no. After stating the case, we shall discuss these questions seriatim.

On or about February 8, 1951, appellant, Bill Curphy Company, entered into a construction contract with the United States of America under the terms of which it agreed to perform the work of clearing land for the Benbrook Dam and Reservoir in Tarrant County, Texas. In connection with this contract appellant executed as principal with Aetna Casualty and Surety Company as its surety the required payment and performance bonds as required by 40 U.S.C.A. § 270a guaranteeing that it would complete the work according to the contract and specifications and that it would pay labor bills incurred by it and its subcontractors in the completion of the work.

On March 23, 1951, appellant sublet the decking, burning and final cleanup work under its contract with the Government to J. S. Elliott and J. S. Elliott, as principal, and Houston Fire and Casualty Insurance Company, as surety, executed a performance bond in the amount of $4,950 binding themselves unto appellant that J. S. Elliott would promptly and faithfully perform his contract with appellant.

Elliott began work under his subcontract and at first progressed satisfactorily. Later on he began to fall behind in his work. This delay was attributable in part to the fact that Vickers, the other subcontractor on the job, did not in many instances cut the trees close to the ground in accordance with contract specifications, in consequence of which Elliott's tractors and equipment frequently sustained damage in passing over the high stumps and had to be laid up for repairs. On July 2, 1951, appellant advised Elliott by letter that his work and operations were not meeting the requirements of the subcontract and that unless the situation was corrected within the next few days appellant would take whatever action it deemed necessary to correct his failure to prosecute the work in the prompt and diligent manner required by his subcontract. On July 3, 1951, appellant formally advised Houston Fire and Casualty Insurance Co. by letter of its written notice to Elliott and said, "The five days notice is in accordance with our contract with Mr. Elliott, and will expire Friday, July 8, 1951. If improvement is not shown in the progress and character of his work by that date, we must formally notify you that J. S. Elliott is in default of his contract with our company." On the night of July 6, 1951, appellant wrote a letter to Elliott formally declaring the subcontract to be in default. This letter reads in part as follows: "The five days notice given by our company July 2, 1951, expires today * * * We therefore must notify your bonding company that your subcontract is declared in default, and ask them to take appropriate action in accordance with their obligations under the surety bond furnished our company. * * *" A copy of this letter to Elliott was sent to Houston Fire and Casualty Insurance Co. in a cover letter of even date. In this cover letter the surety was personally notified of its principal's default and was asked "to take immediate steps to perform his subcontract * * * as you are required to do under the surety bond you furnished our company". However, on the following morning and before the surety had received this letter and before the expiration of its five-days written notice appellant for reasons self sufficient decided to speed up matters and stepped in and took over the job. Appellant did not ask the surety to take bids or submit bids to it, but prematurely exercised the right it had under its contract with Elliott to take over and complete the performance of his contract. The job was completed on July 13, 1951, and thereafter accepted by the Government.

On September 29, 1951, appellant brought this suit in the District Court against J. S. Elliott, Houston Fire and Casualty Insurance Co., H. W. Dennis and others. In the complaint it was alleged that Elliott defaulted on his contract and that although Houston Fire and Casualty Insurance Co. had been called upon to complete the contract, it failed and refused to do so and appellant had to complete it at a cost of $6,227.82 and that there was in addition to that some $11,000 in unpaid bills incurred by Elliott for which claims under the Miller Act¹ were being asserted against the appellant. It was also alleged that appellant had been compelled to pay $1,750 to the Government as liquidated damages for failure to complete the subcontract on time, and that this expense was rightfully chargeable to Elliott and his surety. Appellant asked the court to determine what it owed, if anything to those named in the suit, including H. W. Dennis, who were asserting claims under the Miller Act, to add these sums to the cost of completion of the subcontract with Elliott, and give it judgment against Elliott and his surety for such amount.

The case was tried to the court without a jury, appropriate findings of fact and conclusions of law were made and based thereon judgment was rendered against Elliott for $13,908.84; against Houston Fire and Casualty Insurance Co. for $4,950, the face amount of its bond; and judgment was rendered in favor of H. W. Dennis for $700 against appellant and its surety, Aetna Casualty & Surety Co.

The first question to determine on this appeal is whether the court below correctly held that the liability of the surety was limited to the amount stated on the face of the bond. In the resolution of this question, we must of necessity examine the terms of the performance bond as the obligation of the surety can only be measured and determined thereby. The first paragraph of the bond recites that we J. S. Elliott as principal, called "contractor" and Houston Fire and Casualty Insurance Co. as surety are bound unto Bill Curphy Company as obligee, called "owner" in the amount of $4,950. Paragraph two recognizes the existence of the outstanding written agreement between the contractor and the owner; and then follows this language:

"Now, Therefore The Condition Of This Obligation is such that, if Contractor shall promptly and faithfully perform said Contract, then this obligation shall be null and void; otherwise it shall remain in full force and effect.

"Whenever Contractor shall be, and declared by Owner to be in default under the Contract, the Owner having performed Owner\'s obligations thereunder, the Surety may promptly remedy the default, or shall promptly

"(1) Complete the Contract in accordance with its terms and conditions, or

"(2) Obtain a bid or bids for submission to Owner for completing the Contract in accordance with its terms and conditions, and upon determination by Owner and Surety of the lowest responsible bidder, arrange for a contract between such bidder and Owner and make available as work progresses * * * sufficient funds to pay the cost of completion less the balance of the Contract price; but not exceeding, including other costs and damages for which the Surety may be liable thereunder, the amount set forth in the first paragraph hereof. * * *"

Appellant contends that since the undisputed evidence showed that the surety had violated the condition of its performance bond which guaranteed completion of the contract of Elliott, it was entitled to recover a judgment against surety in an amount equal to the total cost of completion incurred by appellant, to wit: $16,785.14. As grounds for its contention appellant argues that the bond places no limitation whatever as to amount upon the absolute duty to complete the contract, unless the surety shall elect to submit bids, which it did not do. And in an effort to justify this dogmatic statement it is asserted that the very fact that there is a limitation of amount in connection with the submitting of bids clause, would justify, if not compel, the interpretation that it was intended that the surety should complete the contract regardless of cost.

We cannot agree with this contention for several reasons. In the first place appellant's construction of the completion clause is not only illogical but it does violence to grammatical rules of construction as should be apparent to one who reads the bond contract with a...