National State Bank of Newark v. Terminal Const. Corp.

Decision Date09 May 1963
Docket NumberCiv. No. 755-61.
Citation217 F. Supp. 341
PartiesThe NATIONAL STATE BANK OF NEWARK, a National Banking Association, Plaintiff, v. TERMINAL CONSTRUCTION CORPORATION, a New Jersey corporation, and American Surety Company of New York, a New York corporation, Defendants.
CourtU.S. District Court — District of New Jersey



Toner, Crowley, Woelper & Vanderbilt, John A. Ackerman, Newark, N. J., and Budd, Larner & Kent, Samuel A. Larner, Newark, N. J., for plaintiff.

Heller & Laiks, Aaron Heller, Passaic, N. J., for defendants.

LANE, District Judge.

This action is brought in two counts against a prime contractor and its surety to recover on payment bonds for work and labor performed on a Capehart housing project.

On the 5th day of October 1959, defendant Terminal Construction Corporation (hereinafter referred to as "Terminal"), contracted with the United States of America, acting through the Department of the Air Force, to construct certain Armed Services housing projects at McGuire Air Force Base, New Jersey. As required by the Capehart Act, 69 Stat. 651 (1955), as amended, 70 Stat. 1110 (1956), 42 U.S.C. § 1594(a) (1958), Terminal, as principal, and defendant American Surety Company of New York, as surety, executed a series of payment bonds1 pursuant to the terms of which they agreed, jointly and severally, to make payments to all claimants as therein defined for labor and material furnished in the prosecution of the work.

Plaintiff, National State Bank of Newark, as assignee of claims of certain laborers on the project, seeks to recover from the prime contractor and surety, alleging that jurisdiction is based upon the Capehart Act and the Miller Act, 49 Stat. 793 (1935), as amended, 40 U.S.C. §§ 270a-270d, as amended, 40 U.S.C. §§ 270b-270c (Supp. III, 1962).

It appears that on September 14, 1959, Terminal, prime contractor, entered into two subcontracts with "O. A. Tatro and E. J. Morin, individually, T & M Plumbing Co., Inc., * * * in a Joint Venture with Kantor Brothers, Inc., * * *." One of said subcontracts (S-12) covered the items of work involving plumbing installations as set out in the prime contract and was in the sum of $1,288,500; the other (S-13) covered all items of water and heating system installations and was in the sum of $1,272,500. Each subcontract was signed by an officer of T & M Plumbing Co., Inc., and of Kantor Brothers, Inc., and by Oris A. Tatro, Ernest J. Morin and Irving Kantor, individually. In both instances Terminal waived the usual requirement that the subcontractor supply separate performance and payment bonds issued by a responsible surety acceptable to the contractor and approved by the contractor as to form and substance, accepting in lieu thereof the signature of all the parties to the contract and the guarantee of Irving Kantor.

On the 21st day of October 1959, T & M Plumbing Company, Inc., and Kantor Brothers, Inc., entered into an agreement providing for their participation in a joint venture as subcontractor to Terminal wherein they agreed upon a division of the responsibilities of performance of the subcontracts. This agreement was signed by Oris A. Tatro, as president of T & M Plumbing Company, and by Irving Kantor, as president of Kantor Brothers, Inc., and it contained the following provisions:

"A. The joint venture shall be called T & M-McGuire and is formed for the specific purpose of performing the contracts #S-12 and #S-13.
"B. This relationship will cease upon satisfactory completion of the contracts.
"C. T & M-McGuire is authorized to borrow from the National State Bank of Newark, N. J. to the extent necessary to complete the contracts.
"D. T & M-McGuire is authorized to assign the proceeds to the National State Bank of Newark, N. J. as collateral for its borrowing, if the National State Bank so requests.
"E. T & M Plumbing Company, Inc. shall indemnify and hold Kantor Brothers, Inc. harmless from any claims, disputes, or law suits brought against T & M-McGuire for any reason whatsoever.
"F. Kantor Brothers, Inc. shall indemnify and hold T & M Plumbing Company, Inc. harmless from any claims, disputes, or law suits brought against T & M-McGuire for any reason whatsoever.
"G. T & M Plumbing Company, Inc. shall perform the work in the name of T & M-McGuire and shall conform to all the provisions of the contracts.
"H. Kantor Brothers, Inc. shall supply T & M-McGuire with all the materials necessary to perform the contracts other than that already supplied by subcontractors."

On October 30, 1959, Terminal, in a letter signed by its purchasing agent and written in reference to the Capehart housing project at McGuire Air Force Base (Contract #S-12 and Contract #S-13), informed T & M Plumbing Co., Inc. that the firm had been approved as a subcontractor for all items of work outlined in the referenced contracts, and directed T & M Plumbing Co., Inc. to proceed in accordance with the requirements of the project progress schedule.

Thereafter, T & M Plumbing Co., Inc., using personnel carried on its payroll, proceeded with construction at the work site, while Kantor Brothers, Inc. undertook to procure and supply the materials necessary for the performance of the subcontracts. Ernest J. Morin was included on the payroll as General Supervisor, and Edward Tatro, the son of Oris Tatro, president of T & M Plumbing Co., was employed for a time as a plumber's apprentice and later as an expeditor for the company. T & M Plumbing Co., throughout the period of performance, maintained its office in a trailer located at the McGuire Air Force Base a short distance from the situs of the offices Terminal maintained

On the 2d day of August 1960, an addendum to subcontracts #S-12 and #S-13 was agreed upon and signed by Oris A. Tatro, Ernest J. Morin, T & M Plumbing Co., Inc., by Oris A. Tatro, Kantor Brothers, Inc. by Irving Kantor, Irving Kantor, individually, and Terminal Construction Company by its president. The parties therein agreed, inter alia, that Oris Tatro would remove himself from the project for the duration thereof; that E. J. Morin would henceforth be in charge of the work to be performed by the subcontractor at the field level; that the subcontractor would unconditionally agree to exert every effort and energy for the maintenance of the contractor's progress schedule and in fulfillment thereof engage the services of such number of employees as may be necessary from time to time in the opinion of the contractor to maintain satisfactorily such schedule and supply the necessary equipment, supplies, and materials required; that the contractor was granted the right and privilege of engaging the services of such persons as it should like to serve as an expediter and coordinator; that such expediter or coordinator should be permitted to operate and function out of the subcontractor's field office and have access to all its books, records and documents pertaining to its performance; that the contractor should have the same right and privilege to engage the services of an expediter and coordinator for the flow of equipment, supplies, and materials to the job site, with such person being permitted to operate and function at the office of Kantor Brothers at Newark, with access to Kantor Brothers' books, records and documents; and that the execution of the addendum should in no way effect the unconditional guarantee that Kantor gave as to the full and faithful performance of the subcontracts executed on September 14, 1959.

Late in 1959 plaintiff, the National State Bank of Newark, had commenced lending money to the joint venture known as T & M-McGuire; plaintiff advanced moneys on the basis of figures which the joint venture represented to involve the cost of materials, labor and general overhead expense for the work being done; as of September 1960 there was due to plaintiff bank from the joint venture as the result of these revolving loans approximately $334,000; early in September plaintiff bank became concerned with the extent of the loans and with the prospects of repayment, and on September 7th representatives of plaintiff bank met with representatives of the defendant Terminal in the latter's offices; the former were told by defendant Terminal's officers that they had no intention of meeting the joint venture's payroll due two days later on September 9th and it was incumbent upon plaintiff bank to find a way to meet this payroll or else defendant Terminal would default the contract and take over the performance of the work.

On September 9, 1960, after numerous conferences with attorneys, the officers of plaintiff bank addressed a letter to defendant Terminal, advising defendant that the "subcontractor" had assigned to plaintiff any and all sums of money which were to become payable by Terminal to "subcontractor" and that defendant was required to pay to plaintiff all such sums. Enclosed with this communication was a copy of the assignment to plaintiff bank dated 4th day of November 1959 and signed by Irving Kantor for T & M-McGuire Joint Venture, Oris A. Tatro for T & M Plumbing Co., Inc. and Irving Kantor for Kantor Brothers, Inc. In its reply, dated September 12, 1960, defendant Terminal stated that the provisions of the subcontracts prohibited any assignment thereof without written consent of the contractor and that defendant Terminal did not consent to the assignment nor did it recognize the same to any extent whatsoever.

On September 9, 1960, plaintiff bank entered into a new method of satisfying the payroll requirements at the site, whereby plaintiff, after receiving from the T & M Plumbing office a worksheet indicating how much was due each worker, prepared payroll envelopes which were taken from bank headquarters at Newark to the work site by one of its assistant vice presidents, accompanied by Mr. Kantor. Representatives of the bank, using the office of T & M Plumbing Co. at the site at McGuire, and assisted...

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