U.S. for Use and Benefit of Aucoin Elec. Supply Co. v. Safeco Ins. Co. of America, 76-1115

• Decision Date: 11 July 1977
• Docket Number: No. 76-1115,76-1115
• Citation: 555 F.2d 535
• Parties: UNITED STATES for the Use and Benefit of AUCOIN ELECTRIC SUPPLY COMPANY, Plaintiff, v. SAFECO INSURANCE COMPANY OF AMERICA and Piedra Corporation, Defendants-Third-Party Plaintiffs, Appellants, v. SOUTH TEXAS ELECTRICAL CONTRACTORS, INC., et al., Third-Party Defendants, Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 535

555 F.2d 535

UNITED STATES for the Use and Benefit of AUCOIN ELECTRIC

SUPPLY COMPANY, Plaintiff, v. SAFECO INSURANCE COMPANY OF AMERICA and Piedra Corporation, Defendants-Third-Party Plaintiffs, Appellants, v. SOUTH TEXAS ELECTRICAL CONTRACTORS, INC., et al.,

Third-Party Defendants, Appellees.

No. 76-1115.

United States Court of Appeals Fifth Circuit.

July 11, 1977.

Robert K. Roach, Wichita Falls, Tex., for Safeco Ins. and Piedra Corp.

Dan H. Hennigan, Houston, Tex., for South Texas Elec.

Appeal from the United States District Court for the Southern District of Texas.

Before GOLDBERG and TJOFLAT, Circuit Judges, and WYATT ^*, District Judge.

WYATT, District Judge:

Safeco Insurance Company of America ("Safeco") and Piedra Corporation ("Piedra"), defendants and third party plaintiffs, appeal from a judgment in favor of South Texas Electrical Contractors, Inc. ("South Texas"), a third party defendant, entered on December 10, 1975, in the United States District Court for the Southern District of Texas.

The decision below should have turned on whether Piedra had on June 18, 1973, met its contract obligations in respect of progress payments to its subcontractor South Texas; whether, if not, its failure to pay was a material breach of the contract; whether South Texas was justified in abandoning the job and halting its services on June 18, 1973; and whether South Texas could properly recover on a quantum meruit basis for the labor and materials supplied to June 18, 1973.

The District Court did not make any finding as to the amount due under the contract from Piedra to South Texas on June 18, 1973. Nor did the District Court make any conclusion of law whether there had been a material breach of contract by Piedra on June 18, 1973. The District Court did, however, find an admission by Piedra that $75,219 was due to South Texas on that date, which amount had not been paid by Piedra. This finding of such an admission was clearly erroneous and the conclusions of the District Court based on such error cannot stand. In consequence, we are required to vacate the judgment below and remand for further findings of fact and conclusions of law consistent with this opinion. The District Court may in this respect be required to receive further evidence.

1.

The action arises under 40 U.S.C. §§ 270a and 270b, the principal parts of what is commonly known as the "Miller Act".

The Miller Act provides that 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 a "contractor", the contractor must furnish to the United States a performance bond for the protection of the United States and a payment bond for the protection of all persons supplying labor and material either directly to the contractor or to a subcontractor for the work provided in the contract. 40 U.S.C. § 270a(a). Any person who has furnished labor and material under such a contract and who has not been paid has the right to sue on the payment bond furnished by the contractor. 40 U.S.C. § 270b(a). Every such suit is to be "brought in the name of the United States for the use of the person suing, in the United States District Court for any district in which the contract was to be performed and executed, and not elsewhere, irrespective of the amount in controversy in such suit . . .". 40 U.S.C. § 270b(b).

2.

Piedra entered into three contracts with the United States for the construction of improvements in the officers quarters, dining hall, and airmen's dormitory at Ellington Air Force Base in Houston, Texas. Safeco acted as surety on the performance and payment bonds required by the Miller Act.

On April 13, 1972, Piedra entered into a contract with South Texas for material and labor as the electrical subcontractor on all three contracts awarded to Piedra. The contract price was $86,147 (later increased to $87,093). Article 3 of the contract between Piedra and South Texas provided that "the Contractor shall pay the Subcontractor 90% of all work completed every thirty (30) days on or before the 15th of month due. Final payment due to the Subcontractor shall be paid thirty (30) days after job completed." There were no other provisions in the contract dealing with progress payments. The contract also required that South Texas would furnish Piedra a performance and payment bond. American Indemnity Company ("American") was the surety on this bond.

South Texas began work in approximately June of 1972. Through February 13, 1973, South Texas submitted six statements of the amount due on the date of each statement (called an "invoice"). The invoices were dated July 14, 1972; October 15, 1972; November 15, 1972; December 15, 1972; January 15, 1973; and February 13, 1973. Presumably the invoices were submitted on or shortly after their dates. The invoices ranged from about $4,000 to about $7,500. Piedra paid these bills, usually shortly before the 15th of the month following the month in which the invoice was submitted.

According to the trial testimony of its president, South Texas made up each invoice by using its "gross labor" and its "gross material" and then added 22% of those costs. That amount, including the 22% mark up, was deemed by South Texas the "work completed", and 90% of that amount was billed. (SM 31). Piedra apparently paid the invoices without questioning the manner of computation.

The bill submitted by South Texas and dated March 13, 1973, had a significant increase in amount. Though earlier bills had not exceeded $7,500, the March bill was for $16,499.16. Piedra paid the bill, apparently without question, on April 24, 1973.

The bill submitted by South Texas and dated April 16, 1973 was for $16,895.50. This bill, too, was computed on the same basis as the earlier ones. The invoice was due May 15. Piedra did not pay the bill.

South Texas submitted another bill dated May 15, 1973. The amount of the bill, computed in the same manner, was $8,795.33. Piedra did not pay this bill, which was due June 15, 1973.

As of June 15, 1973, therefore, South Texas had submitted two invoices, totalling more than $25,600, for which it had not been paid. South Texas was apparently in financial difficulty at the time; it was having trouble in making payments to its own suppliers. Piedra had already, before June 15, 1973, paid over $7,000 directly to two of South Texas' suppliers Aucoin Electric Supply Company and Pepco.

Based on the failure of payment by Piedra, South Texas stopped work and left the job. This was on or shortly after June 15, 1973; according to some testimony, it was on June 16, a Saturday (SM 134); according to other testimony, it was on June 18, a Monday (SM 45). The District Court found as a fact that South Texas left the job on June 18, 1973, (Appendix p. 7) and this finding is not clearly erroneous.

The final invoice of South Texas is dated June 16, 1973 and is for a net amount of $19,314.81.

This action was commenced on October 12, 1973 by Aucoin Electric Company ("Aucoin"), one of South Texas' suppliers, against Piedra as principal and Safeco as surety on Piedra's payment bonds to recover the balance claimed by Aucoin to be due to it from South Texas for electrical materials furnished to South Texas and incorporated by South Texas into the work performed for Piedra. Piedra and Safeco then brought South Texas and its surety, American, into the action as third party defendants and sought recovery over against them for any amounts Aucoin might recover from Piedra and Safeco. The third party complaint also asserted a claim against South Texas for alleged breach of contract by South Texas in abandoning the job.

Responding to the third party complaint, South Texas asserted a counterclaim against Piedra and Safeco on Piedra's payment bonds. The counterclaim was for the alleged difference between the reasonable value of the labor and materials supplied by South Texas and the payments made by Piedra to South Texas.

Responding to the third party complaint, American asserted a cross claim against South Texas and also a claim against C. F. McDowell, the president of South Texas. This cross claim and claim was for indemnification and for counsel fees.

On June 18, 1975, the District Court granted a motion by Aucoin for judgment on the pleadings against Piedra and Safeco and entered judgment on the pleadings and stipulations in favor of Aucoin and against Piedra and Safeco for $16,337.36.

There was thereafter a trial on November 13, 1975, to the District Court, without a jury, of the claims of Piedra and Safeco against South Texas; of the counterclaim by South Texas against Piedra and Safeco; of the cross-claim of American against South Texas; and of the claim of American against C. F. McDowell.

During the trial and on November 13, 1975, the District Court delivered an interim opinion that there had not been substantial performance of the contract by South Texas in June 1973 when it walked off the job; that "by the admission of the Defendant, or Piedra" (SM 187; emphasis supplied; in context the reference is clearly to Piedra). South Texas was entitled to be paid $75,219 in June, 1973; that failure of Piedra to pay this amount in June 1973 justified South Texas in abandoning the job; and that having done so, South Texas could recover on a quantum meruit basis (as opposed to the contract basis) for the reasonable value of the labor and materials it supplied.

To our amazement, this interim opinion with its findings, crucial to the judgment below, is not included in the transcript of testimony printed in the Appendix. The omitted portion (SM 186-7) is as follows:

"THE COURT:

There are a lot of figures floating around in this matter. And, a lot of different interpretations I think you can place upon them. The Court is of the opinion that there has not been substantial performance of the contract and by the admission of the Defendant,...