Continental Casualty Co. v. North American Cement Corp., 6843.

• Citation: 67 App. DC 234,91 F.2d 307
• Decision Date: 10 May 1937
• Docket Number: No. 6843.,6843.
• Parties: CONTINENTAL CASUALTY CO. v. NORTH AMERICAN CEMENT CORPORATION.
• Court: U.S. Court of Appeals — District of Columbia Circuit

67 App. DC 234, 91 F.2d 307 (1937)

CONTINENTAL CASUALTY CO. v. NORTH AMERICAN CEMENT CORPORATION.

No. 6843.

United States Court of Appeals for the District of Columbia.

Argued April 9, 1937.

Decided May 10, 1937.

Rehearing Denied June 25, 1937.

Woodson P. Houghton and Kahl K. Spriggs, both of Washington, D. C., for appellant.

Dean Hill Stanley, of Washington, D. C., for appellee.

Before MARTIN, Chief Justice, and ROBB, GRONER, and STEPHENS, Associate Justices.

GRONER, J.

There is in effect in the District of Columbia an Act¹ in all respects (involved here) identical with the Heard Act.² The former relates to construction contracts with the District; the latter to construction contracts with the federal government. Appellant is the surety on a bond executed under the provisions of the District Act. The action was brought by Massaponax Sand & Gravel Corporation³ against Roy D. Schlegel and his surety (appellant) to recover for materials furnished in the prosecution of work under a contract between the District of Columbia and Schlegel. Appellee intervened. Its petition alleged that on or about July 8, 1933, Schlegel entered into a contract with the District of Columbia to construct concrete sidewalks for the District and that appellant as surety executed and delivered a bond conditioned upon the faithful performance by Schlegel of the provisions of the contract and the payment of all persons supplying him labor and material in the prosecution of the work.

A brief summary of the facts shows that the District entered into two contracts, one with Schlegel for the construction of sidewalks and one with Lake Stone Company for the repair of certain other sidewalks. Schlegel and Lake Stone entered into a working agreement pooling their resources in the execution of the two contracts; Schlegel superintended the outside work, and Lake Stone managed the bookkeeping and financial matters. Schlegel turned over his payments from the District to Lake Stone, and it made out the pay rolls and supplied the money for their payment and the payment of materials. After the contracts had been awarded but before work had commenced appellee, whose business is the manufacture of cement, requested Schlegel to use its brand of cement in the work; but informed Schlegel that in case he did he would have to purchase the cement through a dealer — in this instance Potomac Builders Supply Company — because under its business policy it could sell to contractors only through a dealer. Schlegel contracted with Potomac Company for the cement he was to use, and subsequently appellee made a contract with Potomac Company for the sale of the cement necessary in the work, in which it was stipulated that the cement purchased was "for resale to R. D. Schlegel * * * contractor, for the construction of concrete sidewalks in Washington, 22,000 sq. yds." Lake Stone also contracted with Potomac Company for the cement it was to need, and appellee made a similar contract to sell to Potomac Company the amount of cement required on account of Lake Stone work. Shipments under both contracts began in July, 1933, and continued until March, 1934. All the cement under both contracts was consigned to Lake Stone, and the latter under its working agreement with Schlegel receipted for the cement, paid the freight bills, and attended to the delivery at the job. The invoices for cement were at first issued to Potomac Company, but after fifteen shipments out of eighty-four, Potomac Company got into financial difficulties, and the remaining sixty-nine invoices were sent direct to Lake Stone. That company paid for the cement received and used for joint account out of the fund made up of payments under both Schlegel and Lake Stone contracts with the District. Appellee claimed a balance due of $3,935.77 on account of cement received and used by Schlegel, and the court below awarded judgment in this amount with interest from November 25, 1933, which was the date Schlegel completed his work for the District.

The point principally stressed by appellant (surety company) on this appeal is that appellee (cement company) has no right to bring the suit under the provisions of the District of Columbia Act because, having contracted with Potomac Supply Company to sell cement to it and not having contracted directly with Schlegel, it is not a subcontractor or a person supplying the contractor with labor and materials in the prosecution of the work. In short, that under the plain language of the act recovery on the bond is expressly limited to those persons who furnish labor or material upon the contractor's or subcontractor's (where there is one) own order.

Here, it is insisted by appellant that the cement company's contract was with the Potomac Company and the cement in question was furnished by Potomac Company and that it alone, if unpaid, is protected under the bond. Appellant, therefore, insists the judgment below is wrong because while the statute and bond protect the materialman who supplies the contractor — or subcontractor — they do not extend to a person who supplies the materialman — a remote person unknown to the contractor and wholly unrelated to him by contract.

Appellee replies to this that the statute looks to the protection of those who supply the labor and materials provided for in the contract, and not to the particular contract or engagement under which the labor or materials are supplied, and relies in support of its position upon U. S. use of Hill v. American Surety Co., 200 U. S. 197, 26 S. Ct. 168, 170, 50 L.Ed. 437. In that case the Supreme Court, speaking of the Heard Act — which, as we have seen, is identical with the District Act — said: "Language could hardly be plainer to evidence the intention of Congress to protect those whose labor or material has contributed to the prosecution of the work. There is no language in the statute nor in the bond which is therein authorized limiting the right of recovery to those who furnish material or labor directly to the contractor, but all persons supplying the contractor with labor or materials in the prosecution of the work provided for in the contract are to be protected. The source of the labor or material is not indicated or circumscribed. It is only required to be `supplied' to the contractor in the prosecution of the work provided for."

This construction of the statute is about as broad as words can make it. Accepted at face, it implies a right of protection to any person doing work or furnishing material in the carrying out of the contract, however remote the relationship to the contractor. It would permit intervention by the manufacturer of materials furnished to the vendor of a subcontractor even though the subcontractor had paid the vendor in full. It would permit one...