Freeman Contractors v. Central Surety & Ins. Corp.

• Decision Date: 02 July 1953
• Docket Number: No. 14398.,14398.
• Citation: 205 F.2d 607
• Parties: FREEMAN CONTRACTORS, Inc. v. CENTRAL SURETY & INSURANCE CORP. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

205 F.2d 607 (1953)

FREEMAN CONTRACTORS, Inc. v. CENTRAL SURETY & INSURANCE CORP. et al.

No. 14398.

United States Court of Appeals Eighth Circuit.

July 2, 1953.

J. Rudolph Hansen, Des Moines, Iowa (Hansen & Wheatcraft, Des Moines, Iowa, on the brief), for appellant.

Herschel G. Langdon, Des Moines, Iowa (Ross H. Sidney and Herrick & Langdon Des Moines, Iowa, on the brief), for appellee, Central Surety & Insurance Corp.

Maxwell A. O'Brien, Des Moines, Iowa (Parrish, Guthrie, Colflesh & O'Brien, Des Moines, Iowa, W. C. Fraser, Hird Stryker, Jr. and Fraser, Connolly, Crofoot & Wenstrand, Omaha, Neb., on the brief), for appellees, Peter Kiewit Sons' Co. and Morrison-Knudsen, Inc.

Before SANBORN, JOHNSEN and RIDDICK, Circuit Judges.

RIDDICK, Circuit Judge.

Peter Kiewit Sons' Co. and Morrison-Knudsen Company, Inc., hereinafter referred to collectively as Kiewit, entered into a contract with the United States on October 15, 1947, for construction known as Riverdale Townsite Stage II, at Riverdale near Garrison, North Dakota. The contract involved construction at a cost of approximately $7,000,000, including the erection of permanent and temporary housing, and other accommodations to be used by workers engaged in the construction of a dam on the Missouri River. Much of the work, such as painting, plastering, plumbing, and electrical wiring, was sublet to other contractors.

Freeman Contractors, Inc., was employed by Kiewit as sub-contractor for the painting under a written contract dated October 30, 1947. In this contract Freeman Contractors agreed to furnish all materials, labor, and supplies necessary to complete all painting in accordance with the terms and provisions of the contract between the United States and Kiewit, which by reference was made a part of the subcontract, for the total amount "of approximately $120,402." The subcontract contained the following provisions:

"Section 4. The Contractor reserves the right to make changes in materials to be furnished or work to be performed under this Subcontract, or additions thereto or omissions therefrom, upon written order to the Subcontractor.

"Any additions or reductions to be made to or from the amount of the contract price resulting from changes in work or materials furnished shall be agreed upon in writing by the parties hereto, such agreement not being valid unless signed by an officer of the Contractor. In case of disagreement between the parties hereto as to additions or reductions the same shall be determined by the Architect or Engineer by certificate in writing. No addition or reduction in contract price shall be binding upon the Contractor unless agreed upon in writing or determined by the Architect or Engineer as hereinbefore provided for.

"Section 5. The Subcontractor agrees to furnish the materials and/or perform and complete the work called for under the Subcontract within the following time or times, to-wit: As and when required and directed to * * *.

"No allowance of an extension of time, for any cause whatever, shall be claimed by the Subcontractor or be made to him, unless the Subcontractor shall have made written request upon the Contractor for such extension, within forty-eight hours after the cause for such extension occurred, and unless the Contractor and Subcontractor have agreed in writing upon the allowance of additional time to be made. If such extension of time is requested as aforesaid and the Contractor and Subcontractor cannot agree thereupon, the Architect or Engineer shall determine by certificate in writing what, if any, extension of time shall be allowed.

* * * * * *

"Section 6. The Subcontractor shall furnish all materials, labor, tools, equipment and supplies necessary for the performance of this contract as specifically herein provided, and in a proper, efficient and workmanlike manner. The Subcontractor shall furnish materials and prosecute the work undertaken at the times herein provided for and otherwise in a prompt and diligent manner and so as to promote the general progress of the entire construction, and shall not, by delay or otherwise interfere with or hinder the work of the Contractor, or any other Subcontractor."

The subcontractor was required to furnish at his own expense a satisfactory performance and payment bond executed by a surety acceptable to the contractor.

Central Surety and Insurance Corporation became the surety for Freeman Contractors upon the required performance and payment bond, which was executed on the 12th day of November, 1947, at Des Moines, Iowa, and conditioned upon the faithful performance by Freeman Contractors of all its obligations under the subcontract. This bond was executed by the surety pursuant to a written application signed by Freeman Contractors in which Freeman Contractors agreed in consideration of the execution of the bond to indemnify the surety "against all liability, loss, costs, damage, expenses and attorneys' fees whatever and any and all liability therefor or payments made on account thereof, sustained, incurred or paid by the Corporation by reason or in consequence of the execution of the bond * * *. Liability hereunder shall extend to any and all disbursements made by the Corporation the surety in good faith under the belief that it was liable for the amount so disbursed, or that it was necessary or expedient to make such disbursements whether such liability, necessity or expediency existed or not. * * *"

By other provisions of the application Freeman Contractors assigned to the surety all payments due or coming due to it under its subcontract and all its tools, equipment, and material purchased for or used in performance of its contract. On February 7, 1949, Freeman Contractors abandoned work under its subcontract, and on February 23, 1949, Kiewit demanded that the surety complete the work required under the subcontract in accordance with the provisions of the performance and payment bond. At the time of this demand Freeman Contractors had completed about 76 per cent of the work called for by its subcontract.

When the surety advised Freeman Contractors of the demands of Kiewit that the surety complete the work to be done under the subcontract, Freeman Contractors denied that it was in any way liable to Kiewit for further performance under the contract, asserted that Kiewit had breached the contract with Freeman Contractors, and as the result of this breach Kiewit was indebted to Freeman Contractors for damages, and Freeman Contractors was entitled to rescind and had rescinded the contract on which the payment and performance bond was executed. Freeman Contractors demanded that the surety recognize no liability under the payment and performance bond, make no payments to Kiewit, and insisted that any payments so made were voluntary payments for which Freeman Contractors was not liable to the surety.

Following negotiations between all parties in interest, the surety and Kiewit settled Kiewit's claim against the surety on the bond over the protest of Freeman Contractors. At the time of this settlement between Kiewit and the surety the unpaid balance for the completion of the work under Freeman Contractors' subcontract was $32,094.47. Kiewit was of the opinion that the contract would probably be completed for $50,000. The surety paid Kiewit in cash the sum of $17,905.53, the difference between the sum remaining unpaid under the contract and the estimated cost of completion. Kiewit agreed that if the contract was completed for not more than $50,000 it would pay to the surety the sum of $10,000 in settlement of the subcontractor's claim against Kiewit for breach of contract; that if the cost of completion exceeded $50,000 it would deduct from the $10,000 all cost over $50,000, withholding for such excess cost all of the $10,000 if necessary. Kiewit expended approximately $66,000 in completing the contract.

In addition to the cash payment of $17,905.53, the surety agreed to indemnify Kiewit against any loss or expense by reason of any unpaid accounts incurred by the subcontractor in performance of the contract, and to turn over to Kiewit for use in the completion of the contract all the materials, supplies, and equipment belonging to the subcontractor ordered or on hand for use in completion of the contract. The agreement was signed by Kiewit and by the Central Surety and approved and accepted on behalf of Freeman Contractors by a vice-president of the surety acting as attorney in fact for Freeman Contractors.

Following the settlement with Kiewit, Central Surety sued Freeman Contractors on the performance bond. It asked for judgment against Freeman Contractors for its expenditures under its settlement agreement with Kiewit, and for an order of the court confirming Freeman Contractors assignment to Central Surety of all materials, tools, and equipment had or used by Freeman Contractors in the performance of its subcontract, and also confirming the assignment to Central Surety of all claims of Freeman Contractors against Kiewit for payments due or to become due under its subcontract or for damages for the alleged breach of the subcontract.

To this complaint Freeman Contractors filed an answer and counterclaim against Central Surety. It also filed a third party complaint against Kiewit. In its answer Freeman Contractors denied that it had breached its contract with Kiewit; alleged that Kiewit caused Freeman Contractors to suffer great loss in the performance of the subcontract by delaying and interfering with the work under it so as to subject Freeman Contractors to great and unusual expense; that Freeman Contractors nevertheless continued in the performance of the work under the subcontract on the express promise of Kiewit to reimburse it for the damages caused by Kiewit; that after Freeman Contractors had exhausted its credit in the performance of the subcontract Kiewit repudiated its promise which had induced Freeman Contractors to continue performance...