National Surety Corporation v. Allen-Codell Co.

• Decision Date: 26 February 1947
• Docket Number: No. 307.,307.
• Citation: 70 F. Supp. 189
• Parties: NATIONAL SURETY CORPORATION v. ALLEN-CODELL CO. et al.
• Court: U.S. District Court — Eastern District of Kentucky

70 F. Supp. 189

NATIONAL SURETY CORPORATION v. ALLEN-CODELL CO. et al.

No. 307.

District Court, E. D. Kentucky.

February 26, 1947.

Leslie W. Morris and Marion Rider, both of Frankfort, Ky., and Booth and Booth and Percy N. Booth, all of Louisville, Ky., for plaintiff.

B. R. Jouett and D. L. Pendleton, both of Winchester, Ky., for defendants.

FORD, District Judge.

This case presents the question whether the surety upon bond of a contractor for public work, after completing the contract of the defaulting contractor, is entitled to recover from a subcontractor the cost of that part of the work covered by the sub-contract which the subcontractor failed to perform.

On April 23, 1941, Robert Gwinn entered into a contract with the Department of Highways of the State of Kentucky to furnish and deliver all material and to do and perform all work required in the improvement of the Russell Springs-Columbia Road beginning at the corporate limit of Columbia in Adair County and extending a distance of approximately 13 miles to a a junction with Kentucky Highway No. 35 at Russell Springs in Russell County, in accordance with plans and specifications prepared by the Department of Highways. The contract provided: "This improvement to be Waterbound, Macadam Base, Bituminous Surfacing, Class C 1 type of construction 20 feet wide."

The contract further provided that "The work herein contracted for shall, in good faith, be commenced within ten days of the date of this contract and be completed not later than December 20, 1941." It also contained a provision stipulating that "Time is of the essence of this contract" and "the sum of ($30.00) Thirty Dollars per day is hereby agreed upon by the parties hereto as the liquidated damages for each and every day after the fixed date of completion for which the work hereby contracted for remains wholly or partly incompleted."

On the same date the contractor Robert Gwinn, together with the plaintiff, National Surety Corporation, as his surety, executed and delivered to the Department of Highways a bond in the sum of $167,470.75 for the faithful performance of the contract.

The defendant, Allen-Codell Company, entered into a subcontract with Gwinn by which it agreed to furnish the labor, materials and equipment necessary to complete the bituminous surfacing of the road in accordance with the specifications of the Department, at a stipulated price per gallon of the bituminous materials required. It provided for payments to the subcontractor for quantities as allowed in monthly estimates by the Department of Highways at the stipulated unit prices. It contained no express provision as to when the work of applying the bituminous surface should be begun or be completed by the subcontractor, but it was understood, of course, that it was necessary for Gwinn to first complete the waterbound macadam base before the bituminous surface could be applied. Although time was not stipulated as of the essence of the subcontract, it is quite apparent from the testimony that the subcontract was made in full contemplation of the provisions of the contract between Gwinn and the Department in respect to the time for the completion and the consequence of delay. By implication of law, it was the duty of Gwinn to complete the waterbound macadam base for the application of the bituminous surface within a reasonable time after the work was commenced.

From the beginning Gwinn made little progress in constructing the base of the road. Prior to December 20, 1941, the stipulated date for completion, only a small portion of the base had been made ready for bituminous surfacing. The subcontractor promptly applied it according to agreement. Due to weather conditions, by authority of the Highway Department, operations on the project were suspended from December 1941 to April 20, 1942. Gwinn did not resume work on the project at the end of the suspension period but apparently abandoned it altogether. No further work was done toward the preparation of the base of the road for bituminous surfacing until late in the summer of 1942. On September 4, 1942, the defendant Allen-Codell Company received through the mail a letter purporting to be from Robert Gwinn advising that the road would be ready for application of a quantity of refined prime tar by approximately September 15, 1942.

Considering that it was no longer obligated upon its subcontract, the defendant declined to do anything more on the project. The work was finally completed in the summer of 1943 by another contractor employed by the plaintiff.

Relying upon its claimed rights under the doctrine of subrogation and also as assignee of Gwinn, the plaintiff seeks by this action to recover from the Allen-Codell Company, the subcontractor, the amount alleged to have been expended by plaintiff in completing the bituminous surfacing of the road in excess of what the cost would have been under the terms of the subcontract and also the amount of liquidated damages incurred to the state on account of delay.

Robert Gwinn was named as a party defendant but he was never brought before the court by summons or otherwise.

The fact that the plaintiff took from Robert Gwinn, the principal contractor, an assignment of his rights under his subcontract with the defendant seems to add nothing to the rights here asserted. Louisville Trust Co. v. Royal Indemnity Co., 230 Ky. 482, 20 S.W.2d 71.

Subrogation is a rule adopted by equity to compel the ultimate discharge of an obligation by a person who in equity and good conscience ought to pay it. As a general proposition, a surety who, under the requirement of his bond, completes the contract of a defaulting contractor may be...