Sun Insurance Co. of New York v. Diversified Engineers, Inc.

• Citation: 240 F. Supp. 606
• Decision Date: 19 April 1965
• Docket Number: Civ. A. No. 500.
• Parties: SUN INSURANCE COMPANY OF NEW YORK, Plaintiff, v. DIVERSIFIED ENGINEERS, INC., Marlow Billingsly, d/b/a Billingsly Construction Company, et al., Defendants.
• Court: U.S. District Court — District of Montana

240 F. Supp. 606

SUN INSURANCE COMPANY OF NEW YORK, Plaintiff, v. DIVERSIFIED ENGINEERS, INC., Marlow Billingsly, d/b/a Billingsly Construction Company, et al., Defendants.

Civ. A. No. 500.

United States District Court D. Montana, Billings Division.

April 19, 1965.

Crowley, Kilbourne, Haughey, Hanson & Gallagher, Billings, Mont., for plaintiff.

Berger & Anderson, Billings, Mont., for defendant Diversified Engineers, Inc.

JAMESON, District Judge.

In this interpleader action, plaintiff seeks a judicial determination of the claims of various suppliers of labor and material under a payment bond furnished in connection with a contract awarded to the defendant Diversified Engineers, Inc. for furnishing and erecting a warehouse in Pinedale, Wyoming. Plaintiff, as surety, furnished a payment bond in the amount of $11,208.00 and a performance bond in like amount in favor of the United States, as required by Title 40 U.S.C.A. § 270a et seq.

In its answer and cross-complaint the defendant Diversified Engineers, Inc. alleges that plaintiff is liable to claimants for the amounts of both the performance bond and the payment bond in the sum of $11,208.00 each, or a total of $22,416.00, or so much as is necessary to discharge in full all legitimate claims. Plaintiff has filed a motion to dismiss the answer and cross-complaint or, in the alternative, to strike those portions relating to plaintiff's alleged liability under the performance bond.

The sole question presented is whether under the Miller Act, 40 U.S.C.A. § 270a et seq., the performance bond, as well as the payment bond, is obligated for payment of amounts due persons supplying labor and material. Briefs have been filed by the respective parties, and neither party has requested oral argument.

The Miller Act provides in pertinent part:

40 U.S.C.A. § 270a.

"(a) Before any contract, exceeding $2,000 in amount, for the construction, alteration, or repair of any public building or public work of the United States is awarded to any person, such person shall furnish to the United States the following bonds, which shall become binding upon the award of the contract to such person, who is hereinafter designated as `contractor':

"(1) A performance bond with a surety or sureties satisfactory to the officer awarding such contract, and in such amount as he shall deem adequate, for the protection of the United States.

"(2) A payment bond with a surety or sureties satisfactory to such officer for the protection of all persons supplying labor and material in the prosecution of the work provided for in said contract for the use of each such person. Whenever the total amount payable by the terms of the contract shall be not more than $1,000,000 the said payment bond shall be in a sum of one-half the total amount payable by the terms of the contract. * * *

"(b) * * *

"(c) Nothing in this section shall be construed to limit the authority of any contracting officer to require a performance bond or other security in addition to those, or in cases other than the cases specified in subsection (a) of this section. Aug. 24, 1935, c. 642, § 1, 49 Stat. 793."

40 U.S.C.A. § 270b.

"(a) Every person who has furnished labor or material in the prosecution of the work provided for in such contract, in respect of which a payment bond is furnished under section 270a of this title and who has not been paid in full therefor before the expiration of a period of ninety days after the day on which the last of the labor was done or performed by him or material was furnished or supplied by him for which such claim is made, shall have the right to sue on such payment bond for the amount, or the balance thereof, unpaid at the time of institution of such suit and to prosecute said action to final execution and judgment for the sum or sums justly due him: * * *." (Emphasis supplied).¹

It will be noted that section 270b relating to the "rights of persons furnishing labor or material" refers specifically to the payment bond. There is no reference in this section to the performance bond.

The Miller Act, passed in 1935, superseded the Heard Act, Act of August 13, 1894, ch. 280, 28 Stat. 278. The Heard Act provided for one bond for the protection both of the United States and those furnishing labor and material for the prosecution of the work. The Miller Act provides for two bonds — a "performance bond" for the protection of the United States and a "payment bond" for the protection of the suppliers of labor and material. The distinction between the two acts and the history of section 2 of the Miller Act, 40 U.S.C.A. § 270b, were well summarized in United States for use and benefit of Bryant Electric Co. v. Aetna Casualty & Surety Company, 2 Cir. 1962, 297 F.2d 665, 668. The court said in part:

"The Miller Act worked two basic changes in this arrangement: the contractor was required to post two bonds, one protecting the government against failure to perform, the other protecting the subcontractor. The government, being safeguarded by the performance bond, had no direct interest on the payment bond. Each supplier of labor or material was permitted to institute a separate action to recover his claim; the prorata provisions were dropped, creating a race among subcontractors until the bond was exhausted."²

As required by the Miller Act, the two bonds issued by plaintiff as surety, with the defendant Diversified Engineers Inc. as principal, name the United States of America as obligee. One bond is designated "performance bond", and the condition of the obligation reads:

"NOW THEREFORE, if the principal shall well and truly perform and fulfill all the undertakings, covenants, terms, conditions, and agreements of said contract during the original term of said contract and any extensions thereof that may be granted by the Government, with or without notice to the surety, and during the life of any guaranty required under the contract, and shall also well and truly perform and fulfill all undertakings, covenants, terms, conditions, and agreements of any and all duly authorized modifications of said contract that may hereafter be made, notice of which modifications to the surety being hereby waived, then, this obligation to be void; otherwise to remain in full force and virtue."

The other bond is designated "payment bond", and the condition of the obligation reads:

"NOW THEREFORE if the principal shall promptly make payment to all persons supplying labor and material in the prosecution of the work provided for in said contract, and any and all duly authorized modifications of said contract that may hereafter be made, notice of which modifications to the surety being hereby waived, then this obligation to be void; otherwise to remain in full force and virtue."

The Miller Act "is entitled to a liberal construction and application in order properly to effectuate the Congressional intent to protect those whose labor and materials go into public projects. * * * But such a salutary policy does not justify ignoring plain words of limitation and imposing wholesale liability on payment bonds. * * * However inclusive may be the general language of a statute, it `will not be held to apply to a matter specifically dealt with in another part of the same enactment. * * * Specific terms prevail over the general in the same or another statute which otherwise might be controlling'. Ginsberg & Sons v. Popkin, 285 U.S. 204, 208 52 S.Ct. 322, 76 L.Ed. 704." Clifford F. MacEvoy Co. v. United States, for use and benefit of Calvin Tompkins Co., 1944, 322 U.S. 102, 107, 64 S.Ct. 890, 893, 88 L.Ed. 1163. See also United States, for Benefit and on Behalf of Sherman v. Carter, 1957, 353 U.S. 210, 216, 77 S.Ct. 793, 1 L.Ed.2d 776.

While both of these cases were concerned with limitations in the "payment bond", the same reasoning applies with equal force to the "performance bond", which makes no reference whatever to the payment of persons supplying labor and material, whereas the payment bond specifically provides for their protection.

It is well settled that suppliers of material and labor do not have a lien against property of the United States for the amounts due them under the contract. Their right of recovery is against the surety on the payment bond. The Court said in United States v. Munsey Trust Co., 1947, 332 U.S. 234, 241, 67 S.Ct. 1599, 1602, 91 L.Ed. 2022:

"* * * If the United States were obligated to pay laborers and materialmen unpaid by a contractor the surety who discharged that obligation could claim subrogation. But nothing is more clear than that laborers and materialmen do not have enforceable rights against the United States for their compensation. (citing cases). They cannot acquire a lien on public buildings (citing cases), and as a substitute for that more customary protection, the various statutes were passed which require that a surety guarantee their payment. Of these, the last and the one now in force is the Miller Act * * *.

* * * * * *

"On the contrary, the statutory provisions requiring a separate bond for payment of laborers and materialmen were enacted for their benefit, not to the detriment of the government. It is the surety who is required to take risk. We have no warrant to increase risks of the government." See also Phoenix Indemnity Co. v. Earle, 9 Cir. 1955, 218 F.2d 645.

There is little authority on the precise question here presented. In view of the myriad of Miller Act cases decided in recent years, there may be some significance in the fact that this precise question has not been raised in the reported cases.³ In an analogous case, however, United States for Use of Edward Hines Lumber Co. v. Kalady Construction Company, N.D.Ill.1964, 227 F. Supp. 1017, the court did permit recovery under the performance bond, and defendant relies primarily upon this case.

In the Kalady case, the court held that wage claims based on violations of the Fair Labor Standards Act would be covered by the...