Gypsum Contractors, Inc. v. American Sur. Co. of New York

• Decision Date: 07 May 1962
• Docket Number: No. A--86,A--86
• Citation: 181 A.2d 174,37 N.J. 315
• Parties: GYPSUM CONTRACTORS, INC., Plaintiff-Respondent, v. AMERICAN SURETY COMPANY OF NEW YORK, Defendant-Appellant.
• Court: New Jersey Supreme Court

Page 315

37 N.J. 315

181 A.2d 174

GYPSUM CONTRACTORS, INC., Plaintiff-Respondent, v. AMERICAN SURETY COMPANY OF NEW YORK, Defendant-Appellant.

No. A--86.

Supreme Court of New Jersey.

Argued Feb. 6, 1962.

Decided May 7, 1962.

J. Norman Brierley, Camden, for plaintiff-respondent (Joseph Pierce Lodge, Haddon Heights, attorney).

Edwin T. Ferren, III, Camden, for defendant-appellant (Richman & Berry, Camden, attorneys, by Edward I. Berry, Jr., Camden, a member of the firm).

The opinion of the court was delivered by

FRANCIS, J.

Plaintiff, Gypsum Contractors, Inc., a subcontractor, instituted this suit in the Superior Court, Law Division, on two bonds furnished by defendant, American Surety Company of New York, on behalf of the general contractor, F. D. Rich Construction Co., Inc. The bonds were to secure payment for all labor and materials furnished in the prosecution of the work covered by the principal contracts calling for the construction of homes for military personnel at the United States Air Force Base in Syracuse, New York. The complaint alleges the supplying of labor and materials to Rich Construction Co. in connection with the project and its failure to pay plaintiff for them. American Surety Company, a New York corporation licensed to do business in New Jersey, in accordance with N.J.S.A. 17:32--2, had appointed the Commissioner of Banking & Insurance of this State as its agent for the acceptance of service of process in actions properly brought against it here. In this case the summons was served in that fashion. Following service, defendant obtained a stipulation from plaintiff extending the time for answer or to make a motion directed to the complaint. A motion was then made to dismiss the action for lack of jurisdiction of the New Jersey courts. After argument the trial court declined to dismiss, whereupon the Appellate Division granted leave to appeal. We certified the matter on our own motion.

It is undisputed that Rich Construction Co., as general contractor, entered into two contracts with the Department of the Air Force for the construction of Armed Services Housing Projects (housing for military personnel) at the United States Air Force Base at Syracuse, New York. Plaintiff's allegation in the complaint of the furnishing of labor and materials therefor under a written agreement with Rich Construction Co. is likewise undenied on the record before us.

As a condition precedent to the award of a contract for the construction 'of any public building or public work of the United States,' the Miller Act, 40 U.S.C.A. § 270a requires the contractor to furnish two surety bonds satisfactory to the officer awarding the contract. One must be a performance bond 'for the protection of the United States;' the other must be a payment bond for the protection of all persons supplying labor and material in the prosecution of the work and 'for the use of each such person.' The standard forms of such bonds prescribed by the Code of Federal Regulations in 1935 appear in the Appendix of Title 41, Public Contracts, §§ 54.15, 16, 41 U.S.C.A.Appendix. We are concerned in the present case only with a payment bond, the conditions of which substantially match that form, as well as the form prescribed in 1956 by the Federal Housing Commission in connection with the Capehart Act, to be discussed hereafter.

Section 270b of Title 40 confers on every person who has furnished labor or material in the doing of the work covered by the construction contract for which a payment bond has been provided, and who has not been paid in full therefor within a fixed time limit, a right to sue on the bond. It also gives a right of action thereon to a person having direct contractual relationship with a subcontractor but having no contractual relationship with the contractor, who supplies labor or material, providing he gives written notice, in the manner prescribed, to the contractor within ninety days from the date of the last labor performed or materials furnished. The provisions of 270b are not specifically included in the Miller Act standard form referred to above. Obviously, that is unnecessary as they would be read into the bond in any event. Mention is made of the fact only to note that they are written into the payment bond now before us in accordance with the 1956 Housing Commissioner's prescribed form

Subsection (b) of 270b ordains:

'Every suit instituted under this section Shall be brought in the name of the United States for the use of the person suing, In the United States District Court for any district in which the contract was to be performed and executed And not elsewhere, irrespective of the amount in controversy in such suit, * * *.' (Emphasis ours)

This limitation represents positive Congressional policy and controls the selection of the forum where action may be brought on the bond. United States v. Congress Construction Co., 222 U.S. 199, 32 S.Ct. 44, 56 L.Ed. 163 (1911); United States for Use and Benefit of Bryant Electric Co. v. Aetna Casualty & Surety Company, 297 F.2d 665 (2 Cir.1962); Lasley v. United States, 285 F.2d 98 (5 Cir.1960); United States for Use and Benefit of Fairbanks Morse & Co. v. Bero Construction Corporation 148 F.Supp. 295 (D.C.N.Y.1957); United States v. Zschach Const. Co., 110 F.Supp. 551 (D.C.Okla.1953); United States, to Use of New York Plumbers' Specialties Co. v. Silverburgh Const. Co., 10 F.Supp. 121 (D.C.N.Y.1935); Pierce Contractors v. Peerless Casualty Company, 81 So.2d 747 (Fla.Sup.Ct.1955); Alleva v. Maryland Casualty Co., 248 App.Div. 599, 287 N.Y.S. 583 (App.Div.1936); Gardner v. Roberts-Nash Const. Corp., 104 N.Y.S.2d 657 (Sup.Ct.1951). In Congress Construction Co., supra, the United States Supreme Court, in dealing with the forerunner of the Miller Act, recognized essentially the same provision as a regulation of jurisdiction in the sense of power to entertain the suit. In effect, the court considered the provision as a withdrawal of suits on such bonds from the general jurisdiction of the federal trial courts, in cases where that jurisdiction would normally apply. Subsection (b) of 270b does not specify that its provisions shall be incorporated in the bond. That, however, is not necessary; the statute would be the measure of the nature and extent of the surety's liability. Cf. United States for Benefit and on Behalf of Sherman v. Carter, 353 U.S. 210, 77 S.Ct. 793, 1 L.Ed.2d 776 (1957).

If the Miller Act were the only Congressional enactment imposing surety obligations on contractors granted contracts for construction of 'public buildings or public works,' we have no doubt, in view of its highly remedial purposes, that it would be applicable to contracts like the one involved here for housing projects for military personnel at army bases. See United States to Use of Noland Co. v. Irwin, 316 U.S. 23, 62 S.Ct. 899, 86 L.Ed. 1241 (1942); Peterson v. United States, 119 F.2d 145 (6 Cir.1941); United States ex rel. and for Use of Westinghouse Elec. Supply Co. v. National Surety Corporation, 179 F.Supp. 598 (D.C.Pa.1959). The fact that the formal agreement was between the Department of the Air Force and the contractor, rather than in the name of the United States and the contractor, should be considered a difference in form rather than substance. United States for Use of Gamerston & Green Lumber Co. v. Phoenix Assurance Co. of New York, 163 F.Supp. 713 (D.C.Cal.1958). In 1955, however, the Capehart Act, 42 U.S.C.A. § 1594, was enacted relating to contracts for construction of military personnel housing. It authorized the Secretary of Defense or his designee to enter into such contracts for construction of urgently needed housing on lands owned or leased by the United States, and situated on or near a military reservation or installation, for the purpose of providing suitable living accommodations for military personnel. The contract is required to stipulate that each unit in the project shall be placed under the control of the Secretary of Defense or his designee as soon as it is ready for occupancy. The act further says:

'Any such contract shall provide for the furnishing by the contractor of a performance bond and a payment bond with a surety or sureties satisfactory to the Secretary of Defense, or his designee, and the furnishing of such bonds shall be deemed a sufficient compliance with the provisions of Section 270a of Title 40, and no additional bonds shall be required under such section.'

Study of the Capehart Act against a background of the Miller Act furnishes ample evidence of the intention of Congress to recognize contracts made by the Secretary of Defense for the construction of housing for military personnel as public projects within the remedial language of the Miller Act. It reveals also an awareness by that body that the requirement of the Miller Act for submission of performance and payment bonds by the contractor was and ought to be applicable to Capehart projects. But to remove any doubt on the subject, provision was made for the furnishing of such bonds 'with a surety or sureties satisfactory to the Secretary of Defense, or his designee.' (The Miller Act says that the bonds shall be satisfactory to the officer awarding the contract, § 270a(a)(1), (2).) This was followed by the declaration that such bonds, when approved, would constitute a sufficient compliance with Section 270a of Title 40, and eliminate the need for additional bonds under that section. Note that the reference is to Section 270a which outlines in general language the mandate for performance and payment security, as distinguished from Section 270b which specifies the character and limitations of the rights conferred by the bonds as well as the limitation (under 270b(b)) on the right to sue thereon in the Federal district court for the district 'in which the contract was to be performed and executed And not elsewhere.' (Emphasis added) We perceive no intent by Congress to...