Strong v. American Fence Const. Co.

• Decision Date: 29 March 1927
• Citation: 156 N.E. 92,245 N.Y. 48
• Parties: STRONG v. AMERICAN FENCE CONST. CO.
• Court: New York Court of Appeals Court of Appeals

245 N.Y. 48

156 N.E. 92

STRONG

v.AMERICAN FENCE CONST. CO.

Court of Appeals of New York.

March 29, 1927.

Action by Henry G. Strong against the American Fence Construction Company. The determination of the Appellate Term (126 Misc. Rep. 690, 214 N. Y. S. 433), which reversed a judgment of the City Court for defendant on the pleadings, was reversed by the Appellate Division, First Department (218 App. Div. 163, 218 N. Y. S. 51), and leave granted plaintiff to appeal (218 App. Div. 770, 218 N. Y. S. 913).

Judgment of the Appellate Division reversed, and the determination of the Appellate Term affirmed.

1. United States 67(2)

United States contractor's bond inures, at law, to benefit of subcontractors' laborers and materialmen, notwithstanding subcontractors may have been paid (U. S. Comp. St. § 6923). Bond given pursuant to Act Cong. Aug. 13, 1894, as amended by Act Cong. Feb. 24, 1905 (U. S. Comp. St. § 6923), requiring persons contracting with the United States to furnish penal bond to pay for labor and material inures, in a remedy at law, to protection of laborers and materialmen employed by subcontractor, and the contractor remains liable to the extent of the penalty, though the subcontractors have been paid before notice of the claim.

2. United States 67(2)

Liability of contractor with United States to pay subcontractors' laborers and materialmen is in amount of required penal bond (U. S. Comp. St. § 6923). Liability of contractor with United States to materialmen and laborers employed by subcontractors is in amount made determinate by penal bond required by Act Cong. Aug. 13, 1894, as amended by Act Cong. Feb. 24, 1905 (U. S. Comp. St. § 6923).

3. United States 74 1/2

Contractor with United States has no statutory liability to pay subcontractors' laborers and materialmen, where he fails to furnish bond (U. S. Comp. St. § 6923). Statutory liability of contractor with United States to pay for materials and labor to extent of penal bond required by Act Cong. Aug. 13, 1894, as amended by Act Cong. Feb. 24, 1905 (U. S. Comp. St. § 6923), is inseparably linked to the remedy provided by said act, and there can be no right of action under the statute unless the bond is furnished.

4. United States 74 1/2

Subcontractors' laborers or materialmen, damaged by failure of contractor with United States to furnish bond, have right of action against contractor (U. S. Comp. St. § 6923). Laborers or materialmen to whose protection the bond of contractor with United States required by Act Cong. Aug. 13, 1894, as amended by Act Cong. Feb. 24, 1905 (U. S. Comp. St. § 6923), would inure, have a right of action for the damages resulting from the contractor's failure to furnish the bond, notwithstanding a provision in the contractor's agreement with the United States that rights of action for any breach are reserved to United States if contract is annulled for an unauthorized assignment.

5. United States 74 1/2

Subcontractors's laborers or materialmen suing contractor with United States for failure to give bond cannot recover more than if bond had been given (U. S. Comp. St. § 6923). Subcontractors' laborers or materialmen, suing contractor with United States for damages for failure to give penal bond to pay for labor and material as required by Act Cong. Aug. 13, 1894, as amended by Act Cong. Feb. 24, 1905 (U. S. Comp. St. § 6923), cannot recover more than pro rata share would be if bond had been given.

6. United States 74 1/2

Burden is on contractor with United States in suit by subcontractor's laborer and materialmen for failure to furnish bond, to prove reduction of damages by others' claims (U. S. Comp. St. § 6923). Upon subcontractor's laborer or materialman proving his claim, in suit against contractor with United States for damages resulting from failure to give bond to pay for labor and material as required by Act Cong. Aug. 13, 1894, as amended by Act Cong. Feb. 24, 1905 (U. S. Comp. St. § 6923), the burden is upon contractor to show in reduction of damages that other claimants may share in the security of the contractor's aggregate liability equal to amount of the bond.

Appeal from Supreme Court, Appellate Division, First department.

Frederick W. Newton and John Co. Wait, both of New York City, for appellant.

Samuel J. Rawak and Cornelius Co. Beekman, both of New York City, for respondent.

CARDOZO, C. J.

A contract was made between the United States government and the defendant whereby the defendant was to construct a hospital for United States veterans in the city of New York. The contractor undertook to furnish a surety company bond in the amount of $5,500, ‘insuring the fulfillment of all conditions and stipulations of this contract and covering all guaranties herein provided, and for the prompt payment to all persons or parties furnishing labor or materials required or used in the prosecution of the work.’ The bond was exacted in accordance with an act of Congress (Act of August 13, 1894, c. 280, 28 Stat. 278, as amended by the Act of February 24, 1905, c. 778, 33 Stat. 811 [U. S. Comp. St. § 6923]). The plaintiff supplied labor and material to one of the defendant's subcontractors, and would have had the benefit of the bond if one had been given. United States, to Use of Hill, v. Am. Surety Co., 200 U. S. 197, 26 S. Ct. 168, 50 L. Ed. 437. The bond, however, was not given, and the plaintiff is still unpaid, the subcontractor having made default. The question is as to the remedy, if any, available against the contractor, who promised to supply the bond and failed to keep the promise.

The City Court held that there was no remedy whatever, and ordered judgment on the pleadings in favor of the defendant. The Appellate Term took the view that the contractor's obligation was independent of the bond, which was important only as fixing the obligation and defining the procedure in an action against the surety. This led to a reversal of the judgment and a denial of the motion. The Appellate Division reversed the Appellate Term, holding that the proper remedy was an action in the federal courts, the procedure to be the same as if the bond were in existence. About he same time a ruling was made by the United States Circuit Court of Appeals that in an action in the federal courts the existence of the bond was the basis of jurisdiction, and that a claimant resting his case upon an executory contract must be remitted for relief to the courts of the state. United States, to Use of Zambetti, v. Am. Fence Const. Co., October 18, 1926 (C. C. A.) 15 F.(2d) 450, affirming (D. C.) 15 F.(2d) 449. The suitor, wherever he went, had the assurance held out to him that a remedy existed, but that he must seek it somewhere else. The tangle of remedies and jurisdictions is now to be unraveled here.

[1] The act of Congress provides (28 Stat. 278, as amended by 33 Stat. 811), that persons contracting with the United States for the construction of public buildings or other public work shall be required before commencing such work to execute ‘the usual penal bond’ with sureties, the bond to contain ‘the additional obligation that such contractor or contractors shall promptly make payments to all persons supplying him or them with labor and materials in the prosecution of the work provided for in such contract.’ Under a ruling of the Supreme Court, a bond so given inures to the protection of laborers and materialmen employed by subcontractors, and the contractor remains liable to the extent of the penalty though the subcontractors have been paid before notice of the claim. Mankin v. United States, to Use of Ludowici-Celadan Co., 215 U. S. 533, 30 S. Ct. 174, 54 L. Ed. 315. The statute goes on to prescribe the form of remedy. If an action on the bond is begun by the United States, the laborers and materialmen are to have the right to intervene. Whatever is due to the United States is to have priority of payment. The remainder, if any, recovered under the bond, is to be distributed pro rata among the interveners. If no suit is brought by the United States within six months from the completion and final settlement of the contract, laborers or materialmen are authorized to bring suit themselves. The suit is prosecuted in the name of the United States in the federal court of the district in which the contract is performed. ‘Where suit is so instituted by a creditor or by creditors, only one action...