Commonwealth v. Great American Indemnity Co.

• Decision Date: 30 June 1933
• Docket Number: 260 to 262
• Citation: 312 Pa. 183,167 A. 793
• Parties: Commonwealth v. Great American Indemnity Co., Appellant
• Court: Pennsylvania Supreme Court

167 A. 793

312 Pa. 183

Commonwealth v. Great American Indemnity Co., Appellant

Nos. 260 to 262

Supreme Court of Pennsylvania

June 30, 1933

Argued May 24, 1933

Appeals, Nos. 260 to 262, Jan. T., 1933, by defendant, from judgments of C.P. No. 2, Phila. Co., June T., 1932, No 10345, for plaintiffs, in cases of Commonwealth ex rel Schnader (Vincent Maragliotti, intervenor) v. Great American Indemnity Company, and Commonwealth ex rel. Schnader (Arthur Greenfield, Inc., intervenor) v. Same. Each judgment affirmed but assessment of damages in No. 261 reduced.

Assumpsit on construction bond. Before GORDON, J.

The opinion of the Supreme Court states the facts.

Judgments for plaintiffs for want of sufficient affidavits of defense. Defendant appealed.

Errors assigned, inter alia, were judgments, quoting record seriatim.

The judgments of the court below are each affirmed, but the assessment of damages in the case of Arthur Greenfield, Inc., No. 261, January Term, 1933, must be reduced by disallowing interest prior to October 1, 1930.

Frederic L. Ballard of Ballard, Spahr, Andrews & Ingersoll, with him Robert Brigham and Charles I. Thompson, for appellant.

Thomas Raeburn White, with him Charles A. Taussig, for appellee in No. 260.

Edward J. Mingey, for appellee in No. 261.

Edward H. Cushman, with him Louis Gorrin, for appellee in No. 262.

Before FRAZER, C.J., SIMPSON, KEPHART, SCHAFFER, MAXEY, DREW and LINN, JJ.

OPINION

MR. JUSTICE SIMPSON:

The Commonwealth brought suit against the Great American Indemnity Company, as surety for the Nelson-Pedley Construction Company to recover on a construction bond given by the two companies to her, for the loss which she sustained by reason of the latter's breach of contract in the matter of the construction for her of South Office Building No. 2, on the capitol grounds at Harrisburg. Subsequently, each of these two appellees filed in the same court, as of the same term and number, a petition for leave to intervene, which was duly granted, and then each of them filed a statement of claim, in the name of the Commonwealth to his or its use, seeking to recover, on the same construction bond, the balances alleged to be due to him or it by the construction company, for work done and materials furnished by each of them in the erection and construction of that building. The procedure adopted was that prescribed by the Act of June 23, 1931, P.L. 1181, the procedural methods of which were properly followed, though the statute was passed after the work was done: King v. Security Co. of Pottstown, 241 Pa. 547, 551-2; Dunn v. Milanovich, 305 Pa. 401. To their statements of claim, defendant filed affidavits of defense, which raised no objection to the caption of the cases, nor to the amounts claimed, if plaintiffs are entitled to recover at all, except in two respects hereinafter considered. The court below held the affidavits insufficient and entered judgment for each of use-plaintiffs. Therefrom the present appeals were taken.

The construction contract provides that "The . . . General Conditions and Specifications hereto attached . . . are hereby incorporated into and made parts of this contract to the same extent as if they were herein fully set forth." The general conditions provide that "At the time of signing the contract and before it becomes effective, the contractor and his surety . . . shall execute an indemnity bond on the form annexed hereto marked 'Construction Bond' [being in the form of the one now in suit] . . . as security for the faithful performance by the contractor of all covenants and agreements on the part of the contractor contained in this contract. . . . The provisions of the contract as to performance by the contractor shall apply to any subcontractor, and to the officers, agents or employees of any subcontractor, in all respects as if he and they were employees of the contractor, and they shall be subject to the same provisions thereof as employees of the contractor, and the work and materials furnished by any subcontractor shall be subject to the provisions thereof as if furnished by the contractor. . . . The final payments [of the contract price] shall not become due and payable until the contractor shall have furnished . . . a written statement under seal from the surety company that payment to the contractor of the final payment shall not relieve the surety company of any of its obligations to the Commonwealth as set forth in the surety company's bond and until the contractor, if required by the Auditor General, shall have furnished satisfactory evidence that all labor, material, outstanding claims and indebtedness of whatsoever nature arising out of the performance of the contract have been paid." The construction bond declares that the contractor and the surety "are held and firmly bound unto the Commonwealth of Pennsylvania in the full and just sum of $3,430,000," but does not, in the declaratory clause, refer to the subcontractors, materialmen and laborers, who are to supply material and labor in the construction of the building. It provides, however, in the condition of the bond, which is the natural place to look for the nature and extent of the liability assumed by the obligor, that "the contractor shall well and faithfully do and perform the things agreed by him to be done and performed according to the terms of said contract, which is hereby made a part of this bond, the same as though it were set forth herein, and shall pay all lawful claims of subcontractors, materialmen and laborers for labor performed and materials furnished in the carrying forward, performing or completing of said contract." Shortly before the work of construction was completed, the Secretary of the Department of Property and Supplies of the Commonwealth wrote to defendant as follows: "That as of the present date Nelson-Pedley Construction Company, Incorporated, owes to subcontractors, laborers and materialmen approximately $770,000 and I call your attention to the provisions of the contract and contract bond under which the contractor agreed to pay all claims of subcontractors, materialmen and laborers under the contract . . . for the construction of the South Office Building No. 2. Your Company obligated itself as surety to see that this commitment would be fulfilled." So far as this record discloses, no answer was made to that notice.

There is no dispute touching the facts above set forth, nor are there any countervailing proofs affecting the main question we are required to decide, viz.: Under the circumstances stated, is the surety liable to the subcontractors, materialmen and laborers, in an action by the Commonwealth to their use, for any unpaid balance due to them for work done and materials furnished in the construction of the building? It must be conceded that all the applicable authorities in this State cannot be reconciled, though it is everywhere admitted that, if an authorizing statute exists, such a recovery may be had. One line of cases holds, following the older authorities, that no one can sue on a bond unless he is a party to it; the other decides that where it is clear the bond was given in part for the personal benefit of the mechanics and materialmen, suit can be brought upon it by them. The former seems to be based on the ancient thought, now happily almost entirely done away with, that pleading is the most important thing in litigation (Brill v. Brill, 282 Pa. 276, 282-3); the latter upon the belief that courts are organized to do justice, in so far as this can be done, and that pleadings are not instruments to enable them to defeat it. In the instant cases, the suits are brought by the obligee, -- the Commonwealth of Pennsylvania -- to the use of the subcontractors and materialmen. Defendant did not challenge this method of suit; hence it must be conclusively presumed that they were properly thus brought. If defendant doubted the right to use the Commonwealth's name, it should have required the filing of a warrant of attorney, but this it did not do. It follows -- entirely aside from the question of the individual rights of the materialmen and subcontractors, hereinafter to be considered, -- that if the Commonwealth had any interest in the recovery of these sums, suit therefor can be maintained in her name; only her right need be alleged in the pleadings (Montgomery v. Cook, 6 Watts 238; M'Kinney v. Mehaffey, 7 W. & S. 276), and upon her right, without more, recovery may be had: Guaranty Trust & S. Dep. Co. v. Powell, 150 Pa. 16.

We have always held that she has such an interest. In Phila. v Stewart, 195 Pa. 309, under the direction of an ordinance of the city, which had no statute for its support, the city required a contractor, in addition to the bond for performance of the contract, to give a bond to secure the payment of all subcontractors and materialmen. Suit was brought in the name of the city to the use of an unpaid materialman, and the action was sustained, though nothing was actually due to the city. The prior cases wherein recovery was refused because the third party was not an obligee in the bond, were all brought to the attention of this court at that time, but were brushed aside as wholly unimportant, the court saying (page 313): "There is nothing ultra vires or contrary to public policy in this condition. It is the right as well as the interest of the city to secure good work upon its contracts for public improvements, and there is no better policy towards that end than to satisfy honest and competent workmen that they can rely on being paid. There being no right of mechanic's lien against public works, the work and materialmen are to that extent in the contractor's power as to pay, and that fact has a natural tendency to produce...