National Union Fire Ins. Co. of Pittsburgh v. United States

• Decision Date: 06 June 1962
• Docket Number: No. 110-58.,110-58.
• Citation: 304 F.2d 465,157 Ct. Cl. 696
• Parties: NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA. v. The UNITED STATES; TERRE HAUTE FIRST NATIONAL BANK, Third Party.
• Court: U.S. Claims Court

157 Ct. Cl. 696, 304 F.2d 465 (1962)

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA. v. The UNITED STATES; TERRE HAUTE FIRST NATIONAL BANK, Third Party.

No. 110-58.

United States Court of Claims.

June 6, 1962.

Robert Edward Losch, Washington, D. C., for plaintiff. O. P. Easterwood, Jr., and McNutt, Dudley & Easterwood, Washington, D. C., on the briefs.

Gerson B. Kramer, Silver Spring, Md., with whom was Asst. Atty. Gen. William H. Orrick, Jr., for defendant. Jay J. Levit, Richmond, Va., on the brief.

John G. Keller, Washington, D. C., for third party defendant, Terre Haute First National Bank. Fowler, Leva, Hawes & Symington, Washington, D. C., on the brief.

LARAMORE, Judge.

This case is in effect a contest between plaintiff surety company and the third party defendant, an assignee bank. Plaintiff is seeking judgment for the amount of a progress payment made under a Government contract plus the amount remaining due and payable from the United States on the contract in question. The Government's position herein is that of a stakeholder without monetary interest in the outcome of this case. However, since the Government is of the opinion that a decision of this case might substantially affect the Government's rights under all Government construction contracts, it has filed a brief and made an argument relative to its independent legal position in this case.

It is, of course, the position of the third party defendant, Terre Haute First National Bank, assignee of the contract in issue, that it is entitled to the money withheld by the Government to the extent of $36,388. The Government takes a similar position.

The facts briefly are as follows: J. E. Russell and Son Construction Company, the contractor, entered into a contract dated April 17, 1957, for construction of a service club building at Bunker Hill Air Base, Bunker Hill, Indiana. Plaintiff, National Union Fire Insurance Company of Pittsburgh, Pennsylvania, and the contractor executed two bonds securing performance of the contract and payment to persons supplying labor and materials, and furnished them to defendant. Both bonds were dated April 17, 1957, although actually executed after that date. On or about May 6, 1957, the contractor executed a valid and legal assignment to the third party defendant herein, the Terre Haute First National Bank. Due notice of this assignment, which was executed for the purpose of obtaining funds with which to defray construction, labor, and material costs, was given to the Government and the plaintiff surety. Thereafter, the contractor duly entered into performance of the contract work and the Bank received several progress payments from defendant during the course thereof.

On February 21, 1958, a representative of the plaintiff became aware that the contractor was in financial difficulty, and had a private conference with the contractor concerning such on February 28, 1958. At this time, the contract, although behind schedule, was still being performed, with approximately 60 percent of the work already completed. Neither the plaintiff surety nor the contractor furnished any information to the Government concerning this conference. Prior to the conference, on or about February 26, 1958, the contractor had submitted its partial payment estimate No. 9 to defendant. This estimate covered work performed by the contractor during the month ending February 24, 1958. On March 12 or early on March 13, 1958, the contractor requested defendant to expedite the issuance of a check on partial payment estimate No. 9. This request was granted, as a similar request had been granted to the contractor on at least one previous occasion, and check No. 133355 in the amount of $36,388, the disputed payment herein, was mailed to the Bank on March 13, 1958. Payments on partial payment estimates of a contractor were usually expedited upon request when the money was needed to meet a payroll.

On March 13, 1958, the plaintiff surety and the contractor had a second conference relative to the contractor's financial problems. On the same day, following the conference, plaintiff sent a letter to defendant requesting that progress payments be paid only to plaintiff, in view of the contractor's financial situation. This letter was received by defendant after it had mailed check No. 133355 to the Bank, and was the first notice received by defendant from plaintiff.

On March 14, 1958, plaintiff telephoned defendant and, upon being advised that check No. 133355 had been mailed to the Bank, requested that payment on the check be stopped. This request was denied for lack of an appropriate basis for such action. On the same day, plaintiff obtained a temporary order from an Indiana state court restraining the Bank from collecting the proceeds of check No. 133355, which order remained in effect until June 6, 1958. Also on the same day, plaintiff instituted the present action in the Court of Claims. As of March 14, 1958, the contract was still being performed with all subcontractors, save one, being on the job. On March 31, 1958, all work on the contract came to a stop and on April 8, 1958, the Government terminated the contract for default.

After the default, the plaintiff surety entered into a contract to complete the remaining work, and prosecuted the work to completion. The proceeds of check No. 133355 are the principal amount withheld by defendant pending the outcome of this litigation. At the time plaintiff obtained its restraining order it had not satisfied any obligations of the contractor. Also at that time the plaintiff had received only two demands totaling less than $13,000. Plaintiff made its initial payment on May 7, 1958.

Thus two questions are present in this controversy. First, is the plaintiff surety company entitled to the proceeds of the check issued in the amount of $36,388, representing a progress payment for work performed by the contractor during the month ending February 24, 1958. Second, is the plaintiff surety company entitled to the additional amount of $8,612, representing part of the retained percentages out of the contractor's earnings prior to time of default, less liquidated damages assessed against the contractor.

In respect to the latter issue, the contractor, although duly served with process under the rules of this court, has not appeared in the present case. In any event there appears to be no reason why the contractor has a legitimate claim to the amount in excess of the check issued. Furthermore, the third party defendant has made no claim for this amount. Consequently, we hold that plaintiff is entitled to recover, and judgment will be entered for plaintiff against defendant in the amount of $8,612.

The final issue, therefore, is whether the plaintiff surety or the...