Ireland's Lumber Yard v. Progressive Contractors, Inc.

• Decision Date: 14 June 1963
• Docket Number: No. 8048,8048
• Citation: 122 N.W.2d 554
• Parties: IRELAND'S LUMBER YARD, a foreign corporation, Plaintiff and Respondent, v. PROGRESSIVE CONTRACTORS, INC., a foreign corporation, Defendant, and Continental Casualty Company, a foreign corporation, Fidelity and Casualty Company of New York, a foreign corporation, Defendants and Appellants.
• Court: North Dakota Supreme Court

Page 554

122 N.W.2d 554

IRELAND'S LUMBER YARD, a foreign corporation, Plaintiff and Respondent, v. PROGRESSIVE CONTRACTORS, INC., a foreign corporation Defendant, and Continental Casualty Company, a foreign corporation Fidelity and Casualty Company of New York, a foreign corporation, Defendants and Appellants.

No. 8048.

Supreme Court of North Dakota.

June 14, 1963.

Rehearing Denied July 26, 1963.

Syllabus by the Court

1. North Dakota district court has jurisdiction in suit by claimant against sureties on payment bond issued by sureties on a Capehart housing project (42 U.S.C.A. Sec. 1594 et seq.) located in county in which the said court has jurisdiction as provided by bond terms.

2. Trial judge, in case tried without a jury, is not disqualified because he has an opinion as to the merits of the case.

3. District judge, in trying case without a jury, properly refused to disqualify himself or to declare a mistrial on ground of prejudice or bias where, during recess of trial, trial judge issued a judicial opinion deciding the case on the mistaken belief that the parties had rested and where, upon discovery of mistake, he withdrew the opinion and proceeded with the trial.

4. Where a payment bond provides for notice of claim to be sent within 90 days or 'before the expiration of the period provided by the law of the place where the project is located for the giving of first notice of a lien of the category claimed by claimant, whichever period be longer,' as a condition precedent to suit on the bond, the alternate clause provides a formula to be applied on the basis of the relationship of the parties as described in the bond applying the law of the forum under which it is to be enforced.

5. Where payment bond prescribes notice of claim shall be given within specified period to any two of the following: 'The Principal, any one of the Obligees, or the sureties' as a condition precedent to suit on the bond by a claimant against the sureties, it does not require any notice be given to the sureties, and where claimant fails to give timely notice to any of the persons named in the bond and brings suit on the bond against the sureties, the sureties are exonerated only to the extent to which they are prejudiced by the omission. Section 22-03-06, N.D.C.C.

Degnan, Hager, McElroy & Lamb, Grand Forks, for defendants and appellants.

Letnes & Hansen, Grand Forks, for plaintiff and respondent.

TEIGEN, Judge.

Plaintiff, Ireland's Lumber Yard, Inc., a materialman, instituted this suit against the prime contractor, Progressive Contractors, Inc., and its two payment and performance bond sureties for materials furnished. The bonds were executed to secure payment for all labor and materials furnished in the prosecution of the work covered by the principal contract calling for the construction of 744 housing units for military personnel at the United States Air Force Base at Grand Forks, North Dakota.

The complaint alleges the supplying of material to the prime contractor and some of its subcontractors and their failure to pay for them. The prime contractor, Progressive Contractors, failed to answer and judgment was entered against it by default. The sureties, Continental Casualty Company and Fidelity and Casualty Company of New York, answered. In their answer they admit construction contracts were entered into for the construction of the housing units, the execution of the payment and performance bonds and that the plaintiff gave the notices of claims. However, they placed the plaintiff on its proof as to the material supplied, the value thereof, the claim of nonpayment, and denied the other averments of the complaint.

Further answering the sureties allege that complaint does not state a cause of action. The defendant sureties also moved the court to dismiss the action for lack of jurisdiction.

It is undisputed that on or about August 1, 1958, Progressive Contractors, as prime contractor, entered into contracts with the Department of the Air Force and seven housing corporations for the construction of 744 housing units at the Grand Forks Air Base; that to secure the faithful performance of these contracts the prime contractor, as principal, and the defendant sureties executed 100% payment and performance bonds and delivered them to the seven housing corporations. These bonds were in the aggregate amount of over twelve million dollars.

The district court tried the case without a jury. It found in favor of the plaintiff and awarded judgment against the prime contractor and the defendant sureties in the amount of $9,723.03, plus interest at 4% per annum from May 21, 1960. The sureties have appealed and demand trial de novo.

The defendant sureties specify it was error for the court to hold it had jurisdiction as the project was a 'public works' and jurisdiction was limited to the federal court pursuant to 40 U.S.C.A. Secs. 270a and 270b (Miller Act); that the trial judge erred in failing to disqualify himself for having prematurely ruled in the case and, lastly, if the court had jurisdiction that it erred in holding the plaintiff was entitled to recover the additional sum of $8,045.69 as it had failed to comply with the terms of the bond with respect to timeliness in giving notice of claim.

The situation presented arises as a result of the construction of housing for military personnel stationed at the Grand Forks Air Force Base at Grand Forks, North Dakota, under the housing program authorized by what is commonly known as the Capehart Housing Act, as amended, 42 U.S.C.A. Sec. 1594. Its purposes and objects are succinctly stated in Continental Casualty Company v. United States, 8 Cir., 305 F.2d 794, as follows:

'The purpose of the Capehart Act was to provide urgently needed housing for military personnel on Government property, and while Capehart housing is undoubtedly 'Government housing,' Capehart construction differs from conventional Government construction in certain significant respects.

'Ordinarily, federal public works are paid for both initially and finally with federal funds. Capehart housing, on the other hand, initially is built and financed by private capital, although loans made by financial institutions to finance the construction are fully insured by the Federal Housing Administration. Both the Department of Defense and the Federal Housing Administration are concerned with the administration of the Capehart program, and the Federal Housing Commissioner has been authorized to promulgate regulations concerning the program, 12 U.S.C.A. Sec. 1748f, which authority has been exercised, see 24 C.F.R. Part 292a.

'The Capehart Act now requires both payment and performance bonds, and standard forms of those bonds have been worked out by the Department of Defense and the Federal Housing Administration, and all Capehart housing contracts call for the giving of those particular bonds, as was done in this case.

'With some allowance for possible oversimplification, a typical Capehart project may be described substantially as follows:

'A building contractor desiring to build Capehart housing and who has been the successful bidder for such housing, and who has made satisfactory arrangements to secure private financing, forms a corporation to take a long term lease on the Government property on which the housing is to be constructed and to execute a mortgage on the leasehold estate to the financial institution which is to lend the money required for construction purposes. This corporation, which is at all times under complete Government control, does not do the actual building of the housing units. That is done by the contractor under contract with the Government and with the corporation. The functions of the corporation are limited and to some extent nominal. It takes the lease and executes the mortgage and is a party to the construction contract. Further, it is one of the obligees named in the contractor's performance and payment bonds. In the statute, regulations, and contract documents are contractor is called the 'eligible bidder,' the corporation is called the 'mortgagor-builder,' and the lending agency is called the 'mortgagee.'

'As the project is completed, the housing units are turned over to and operated by the Government and are occupied by military personnel. Quarters allowances previously paid to such personnel are retained by the Government and used to pay off the mortgage. When the mortgage is finally retired, the lease to the 'mortgagor-builder' is terminated, and that corporation is dissolved, leaving title to the housing in the Government.

'The contractor derives his profit from doing the actual building of the housing. From the Government's standpoint, advantages are seen in that federal funds are not expended for initial construction and, while the housing will be paid for eventually with federal money, that money would have been expended in any event as quarters allowances for the affected service personnel. In addition, the program may be supposed to provide a stimulus for private industry and capital.'

The bond in this suit was executed on a form specifically described by the contract for the construction of the housing, which form had been adopted by the Department of Defense and by the Federal Housing Commissioner. The bonds contained certain provisions for notice to be given by laborers or materialmen as a condition precedent to commencing action on the bond. It defines a claimant as 'one having a direct contract with the Principal or with a subcontractor of the Principal who has furnished labor, material, or both, in the prosecution of the work provided for in the Contract and who has not been paid in full therefor.' It is not disputed that Ireland's Lumber Yard is a claimant within the definition.

Paragraph 4(c) of the bond provides that no suit or action shall be commenced under the bond by any claimant 'Other than in a State court of competent jurisdiction in and for the county or...