Johnson Services Co. v. Transamerica Insurance Co.

• Decision Date: 03 August 1972
• Docket Number: Civ. A. No. 70-C-113.
• Citation: 349 F. Supp. 1220
• Parties: JOHNSON SERVICES COMPANY v. TRANSAMERICA INSURANCE COMPANY and Penner-Ring Co., a partnership, et al.
• Court: U.S. District Court — Southern District of Texas

349 F. Supp. 1220

JOHNSON SERVICES COMPANY v. TRANSAMERICA INSURANCE COMPANY and Penner-Ring Co., a partnership, et al.

Civ. A. No. 70-C-113.

United States District Court, S. D. Texas, Corpus Christi Division.

August 3, 1972.

COPYRIGHT MATERIAL OMITTED

Walter Dunham, Jr., Corpus Christi, Tex., for plaintiff.

James R. Harris, Corpus Christi, Tex., for defendants.

MEMORANDUM AND ORDER

OWEN D. COX, District Judge.

This is a diversity case. Plaintiff brought this suit to recover $26,650.00, being the balance due it for the installation of a temperature control system in the new Post Office facility in Corpus Christi, Texas. The Defendants are Penner-Ring Co., a partnership, as principal, and Transamerica Insurance Company, as surety, on a labor-and-material payment bond furnished to the United States.

The method used for providing such facility was a lease-back arrangement, pursuant to certain provisions of 39 U. S.C., § 2103 et seq., by which the government invited bids on the construction of such Post Office facility, and agreed to lease said facility from the successful bidder upon satisfactory completion of the project. The Post Office Department published its advertisement for bids on March 29, 1968. The Defendant Penner-Ring Co., a partnership composed of Joseph Penner, Seldon Ring and Ellis Ring, who are also sued individually, submitted a bid in the form of an agreement to lease, which was accepted by the Post Office Department on June 24, 1968. Shortly after the acceptance of its bid by the government, in compliance with the requirements of the advertisement for bids, and of the agreement to lease, Penner-Ring Co. executed and submitted to the government a performance bond in the penal sum of $1,556,800.00, and a labor-and-material payment bond in the penal sum of $622,720.00. The Defendant Penner-Ring Co. was named as principal, and the Defendant Transamerica Insurance Company was named as the surety on each bond.

Following the acceptance of its bid and the execution of the agreement to lease, Penner-Ring Co. acquired the government's interest in and to the land on which the facility was to be constructed, and, on or about July 22, 1968, executed a contract with Braselton Construction Company of Corpus Christi, Texas, for the construction of such facility. The facility was to be constructed on land which was not owned at the time by the government, and government funds, as such, were not used to finance its construction; so, Penner-Ring Co. made its own financing arrangements. Subsequently, Braselton Construction Company, as principal, and Insurance Company of North America, as surety, executed and furnished to Penner-Ring Co., as owner, an Hardeman Act statutory payment bond in the penal sum of $2,135,000.00, which bond was approved by Penner-Ring Co. on or about October 10, 1968.

Thereafter, Braselton Construction Company, the general contractor, executed a sub-contract with James R. Godbe, individually and d/b/a Godbe Mechanical Contractors, to act as the mechanical contractor for the job. Godbe subsequently executed a contract with the Plaintiff, Johnson Services Company, under the terms of which Plaintiff was to furnish the labor and material required to install a complete workable temperature control system for use in the Post Office building. The total amount of Plaintiff's contract with Godbe was $43,900.00. Godbe later defaulted in the payment for the labor done and materials furnished by a number of contractors under him. Among those who were not paid in full was Plaintiff Johnson Services Company.

The building was accepted by the United States Post Office Department on or about November 21, 1969, and the City of Corpus Christi issued a certificate of occupancy on November 26, 1969. The Post Office facility was not actually put into use until late December, sometime after Christmas, 1969. At this point, Penner-Ring Co. had already conveyed the land to Richard "Red" Skelton and wife, Georgia Davis Skelton, and they executed a lease of the premises dated December 1, 1969, to the United States government. Formal dedication of the facility was not held until March 14, 1970.

By letter dated April 2, 1970, Johnson Services Company notified Penner-Ring Co., as principal, and Transamerica Insurance Company, as surety, that there was still owing to it the sum of $26,650.00 for material and labor furnished under Godbe's sub-contract for use in the Post Office facility. In the letter, Plaintiff told the Defendants that the notice was given, pursuant to the provisions of the $622,720.00 labor-and-material payment bond upon which this suit is based, within ninety (90) days after Plaintiff did or performed the last of the work or labor or furnished the last of the materials for which the claim was made.

The Defendants contended on their motion to dismiss, and advocated on the trial of this case, that they should prevail because (1) the purpose of the bond sued upon was to protect the United States' interest as obligee and it was not for the benefit of mechanics and materialmen unless the government took over the United States Post Office project; (2) Texas provides one method, i. e., an Hardeman Act bond, which Defendants Penner-Ring required of the contractor Braselton, to protect Defendants from suit and judgment; (3) Plaintiff's pursuit of its Hardeman Act remedies in state court resulted in an election of remedies and Plaintiff is thus barred from recovery herein; (4) Plaintiff has failed to show it served the required notices on the principal and surety within the ninety (90) day period required by the bond; and (5) Plaintiff is judicially estopped by alleged judicial admissions to claim the work was not completed more than ninety (90) days prior to the date of such notice.

The Plaintiff has countered that (1) the bond of Defendant Transamerica was on Post Office Department Form 1414-E, which was required by the Post Office Department for the use and benefit of claimants who furnished labor and materials in the construction of this project, and it is a beneficiary under said bond; (2) Texas law concerning election of remedies is not applicable, but Plaintiff is entitled to pursue either remedy, so long as it does not result in double recovery; and (3) there has been no judicial estoppel.

After hearing arguments on the motion to dismiss, it seems plausible to say that the controversy involves a conflict between policies of the State of Texas and of the Federal government, and that there are few precedents to assist the Court, one way or the other. The state policy, whose theory is espoused by Defendants, calls for surcease of this suit, either via an Hardeman Act bond or at least by an election. On the other hand, a Federal mandate, calling for a bond which is to protect the same claimants as are protected under the state law, should not be ignored or even necessarily limited.

The bond upon which the Plaintiff sues in this case was dated July 10, 1968, and the principal on it, as we have already pointed out, was Penner-Ring Co., and the surety was Transamerica. The bond was given to the government "for the use and benefit of claimants as hereinbelow defined, in the amount of the above penal sum ($622,720.00) for the payment whereof principal and surety bind themselves"; and it further provided "the condition of this obligation is such that if the principal shall promptly make payment to all claimants as hereinafter defined, for all labor and material which prior to occupancy by the government was used or reasonably required for use in the performance of this agreement * * *." This bond also defines a claimant "as one having a direct contract with the principal or with a general contractor of the principal, or with a sub-contractor in privity with either of them, for labor, materials, or both * * *," (emphasis added).

In this sort of bond, the principal and surety jointly and severally agree with the government "that every claimant, as herein defined, who has not been paid in full before the expiration of a period of ninety (90) days after the date on which the last of such claimants' work or labor was done, performed, or materials were furnished * * * may sue on this bond." No suit or action shall be commenced under such a bond by any claimant unless the claimant "shall have given written notice to the principal and to the surety above named, within ninety (90) days after such claimant did or performed the last of the work or labor, or furnished the last materials, for which such claim is made * * *."

The fact that Plaintiff would not be able to fix any lien against property owned by the United States of America nor recover anything from the government because of the default of Godbe Mechanical Contractors, does not eliminate Plaintiff's right to proceed against the principal, Penner-Ring Co., and the surety, Transamerica. There is nothing in the bond which even implies that it is not to become effective unless the government actually takes over the completion of the project, or that the benefits provided for any claimants shall become effective only in the event any sub-contractor in privity with the principal or the general contractor, who has been injured financially through...