Ruckman and Hansen, Inc. v. Contracting & Material Co.

• Decision Date: 02 April 1964
• Docket Number: No. 14277.,14277.
• Citation: 328 F.2d 744
• Parties: RUCKMAN AND HANSEN, INC., Plaintiff, v. CONTRACTING & MATERIAL CO., Inc., et al., Defendants, CONTRACTING & MATERIAL CO., Inc., Defendant and Third-Party Plaintiff-Appellee, v. The HOME INDEMNITY COMPANY, Third-Party Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

328 F.2d 744 (1964)

RUCKMAN AND HANSEN, INC., Plaintiff, v. CONTRACTING & MATERIAL CO., Inc., et al., Defendants, CONTRACTING & MATERIAL CO., Inc., Defendant and Third-Party Plaintiff-Appellee, v. The HOME INDEMNITY COMPANY, Third-Party Defendant-Appellant.

No. 14277.

United States Court of Appeals Seventh Circuit.

February 26, 1964.

Rehearing Denied April 2, 1964.

William M. Evans, Indianapolis, Ind., for Contracting & Material Co., Bose, Buchanan, McKinney & Evans, Indianapolis, Ind., of counsel.

R. Stanley Lawton, F. Boyd Hovde, Indianapolis, Ind., for Home Indemnity Co., Ice, Miller, Donadio & Ryan, Indianapolis, Ind., of counsel.

Before DUFFY, CASTLE and KILEY, Circuit Judges.

CASTLE, Circuit Judge.

Contracting and Material Company, Inc., appellee, was awarded judgment in the amount of $31,678.43 on its third-party complaint against The Home Indemnity Company, appellant, in an action commenced in the District Court by Ruckman and Hansen, Inc., against C & M.¹ The liability of Home, asserted against it by C & M, is predicated upon Home's contract of suretyship covering performance of a contract by National Asphalt Paving Company. Home appealed.

The record discloses that R & H entered into a prime contract with the State of Indiana to construct two highway overpasses. R & H subcontracted the "common excavation" and "special borrow" items involved to C & M. The subcontract was assigned by C & M to NAPC. Home executed a surety bond with C & M as sole obligee conditioned upon performance of the subcontract by NAPC. NAPC failed to complete its contractual obligations and abandoned the project. J. Fox Construction Co. was employed by R & H to complete the work remaining to be done. R & H then brought suit against C & M alleging default in the performance of the subcontract. R & H's complaint set forth several specific items of damages totaling $19,670.92; alleged the existence of certain pending litigation, any recovery in which would be a further obligation of C & M, and alleged the existence of other unpaid bills and charges in connection with work under the subcontract. In turn, C & M filed its third-party complaint against NAPC, its assignee, for breach of the subcontract, and against Home on its performance bond. The amount of the judgment entered against Home ($31,678.43) includes the several items making up the $19,670.92 set forth in R & H's complaint against C & M (with minor adjustments not pertinent to the issues in this appeal) less a credit of $5,060.92 representing an overpayment in connection with progress payments made under the contract for work done by NAPC as reflected by progress estimates by engineers of the State Highway Department. In addition, the judgment includes amounts paid by C & M in settlement of pending litigation and payment of other outstanding claims and unpaid bills referred to in R & H's complaint, and $6,500.00 for attorney fees.

Prior to the disposition of the third-party action a judgment in the sum of $19,431.92 had been entered in favor of R & H against C & M by consent of these two parties. This consent judgment recited that it was not to be treated:

"* * * either as being conclusive of or evidentiary of either the amount or the existence of any liability of C & M so far as the third party Home is concerned, it being the intent of this proviso to avoid the rule that a third party defendant is bound by a judgment on the original complaint."

Subsequent to that judgment C & M amended its third-party complaint to set forth specifically the items included in such judgment, which it had paid, and the additional amounts, totaling $10,307.43, paid in connection with the discharge of other claims and unpaid bills. The amended third-party complaint also alleged the existence of certain pending litigation against R & H and C & M for damages and charges resulting from work done by NAPC under the subcontract (one of which suits was later settled by C & M for $500.00).

The cause proceeded to trial without a jury and the District Court, after making and entering findings of fact and conclusions of law, entered the judgment from which this appeal is prosecuted.

Home does not dispute that C & M paid each of the items comprising the judgment against it. Home does dispute the right of C & M to recover from Home all or any part of such items.

The main contested issues on appeal are (1) whether the progress payments made on the estimates of the State engineers constituted an overpayment or prepayment which completely released the surety; and if not (2) whether the consent judgment merged all claims and damages R & H had against C & M so as to preclude C & M from recovering from Home the $10,807.43 it expended on the additional claims and unpaid bills; (3) whether the limitation period fixed in the surety bond bars recovery of these additional amounts; and (4) whether C & M is entitled to recover for attorneys' fees. Subsidiary issues include whether the surety is liable for tort damages resulting from the negligence of its principal and for equipment rental not paid by the principal, and whether the District Court's findings that the payment to Fox and the other items comprising the judgment entered in favor of R & H against C & M were occasioned by the default of NAPC are clearly erroneous.

From our analysis of the findings of fact and conclusions of law of the District Court, which we find are supported by substantial evidence in the record and represent the application of correct legal criteria, we conclude that each of the issues precipitated by Home's appeal must be resolved against the appellant. We proceed to state the reasons for our conclusion.

The record establishes that in remitting progress payments to NAPC, which payments C & M had received through R & H as due under the prime contract with the State based on the State's periodic estimates of quantities of the excavation and borrow work completed, C & M passed on to NAPC sums in excess of the amounts determined later to have been actually due. Home urges that under Indiana law, either overpayment or prepayment of a surety's principal by the oblige completely discharges the surety. It contends that the excesses in the remittance of progress payments absolves it completely from liability to C & M. In this connection Home relies upon Board of Commissioners of Morgan County v. Branham, 7 Cir., 57 F. 179; National Surety Company of New York v. State, 93 Ind.App. 435, 153 N.E. 421 and Detroit Fidelity & Surety Company v. Bushong, 96 Ind.App. 352, 175 N.E. 683. But in our view those cases are not apposite. Under the provisions of the contract here involved the progress payments were not final or binding and were expressly subject to correction and adjustment. The fact that the progress estimates turned out to be too high does not in our opinion, on the facts and circumstances here involved, operate to release the surety. The estimates and payments were made in accordance with the express provisions of the contract documents — errors in the estimates were expressly subject to adjustment — and there was no departure from the terms of the contract, which by its bond the surety accepted. In the cases cited by Home payments were made in violation of contract provisions to the prejudice of the surety. Branham, where the principal falsely represented half the work was completed and the owner, relying on the false representation, neglected to make the estimate required and made the overpayment, involved "a gross departure from the terms of the contract" governing the making of the payment. In National Surety there was a prepayment of retainage contrary to the terms of the...