United States Sherman v. Carter

• Citation: 1 L.Ed.2d 776,77 S.Ct. 793,353 U.S. 210
• Decision Date: 29 April 1957
• Docket Number: No. 48,48
• Parties: UNITED STATES of America for the Benefit and on Behalf of Harry SHERMAN, Chas. Robinson, Ronald D. Wright, et al., Petitioners, v. Donald G. CARTER, Individually; Donald G. Carter, Doing Business as CarterConstruction Company, et al
• Court: U.S. Supreme Court

353 U.S. 210

77 S.Ct. 793

1 L.Ed.2d 776

UNITED STATES of America for the Benefit and on Behalf of Harry SHERMAN, Chas. Robinson, Ronald D. Wright, et al., Petitioners,

v Donald G. CARTER, Individually; Donald G. Carter, Doing Business as CarterConstruction Company, et al.

No. 48.

Argued Dec. 5, 1956.

Decided April 29, 1957.

Mr Thomas E. Stanton, Jr., San Francisco, Cal., for petitioners.

Mr. Richard C. Dinkelspiel, San Francisco, Cal., for respondents.

Mr. Justice BURTON delivered the opinion of the Court.

This case concerns the extent of the liability of the surety on a payment bond furnished by a contractor, as required by the Miller Act, for the protection of persons supplying labor for the construction of federal public buildings.¹ The collective-bargaining contract under which the laborers were hired obligated the contractor to pay them wages at specified rates and, in addition, to pay 7 1/2 cents per hour of their labor to the trustees of a health and welfare fund established for their benefit and that of other construction workers. When the contractor failed to pay in full the required contributions to the health and welfare fund, the trustees of the fund sued the surety on the contractor's payment bond to recover the balance due the fund, plus liquidated damages, attorneys' fees, court costs and expenses. For the reasons hereafter stated, we hold that § 2(a) of the Miller Act imposes liability on the surety.

In November 1952, the respondent contractor, Donald G. Carter, contracted with the United States to construct certain public buildings at Air Force bases in California. As required by the Miller Act, he filed performance and payment bonds executed by the respondent, Hartford Accident and Indemnity Company, as surety. The payment bond was in the penal sum of $52,434.30, and provided that the obligation of the surety shall be void '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 * * * otherwise to remain in full force * * *.'

The terms under which Carter employed laborers for the prosecution of the work were prescribed in master labor agreements governing the conditions of employment in the construction industry in 46 counties of northern California. Those agreements had been negotiated in June 1952 through collective bargaining between the local council of a labor union representing construction workers and several associations of employers, one of which acted as an agent for Carter. The agreements obligated Carter to pay wages to his employees at specified rates which were to be not less than the prevailing rates determined by the Government. The agreements required also that, beginning February 1, 1953, Carter was to pay to the trustees of a health and welfare fund 7 1/2 cents for each hour worked by his construction employees.

The specified fund was established by a trust agreement dated March 4, 1953, and negotiated by the parties to the master labor agreements. Its pertinent provisions were as follows: The fund was to be administered by a board of trustees representing employers and employees. The trustees were authorized to use employer contributions to purchase various types of insurance, such as life, accidental death, hospitalization and surgical benefit policies, with eligible employees and their dependents as the beneficiaries.² The employees had no rights to the insurance benefits except as provided in the policies. Also, they had no right, title or interest in the contributions, and it was expressly stated that the contributions 'shall not constitute or be deemed to be wages' due the employees.

The trustees had the sole power to demand and enforce prompt payment of employer contributions. Those contributions were payable in monthly installments. Any installment not paid by the 25th of the month in which it came due was delinquent, and the sum of $20 per delinquency or 10% of the amount due, whichever was greater, was owed by the delinquent employer as liquidated damages and not as a penalty. If the trustees filed suit to secure payment of any installments, the defaulting employer was to pay the reasonable attorneys' fees, court costs and all other reasonable expenses of the trustees incurred in the litigation.

Carter became insolvent after completing the construction work and paying his employees the wages payable directly to them. However, he failed to make his required contributions to the fund for February, March and April 1953. Pursuant to § 2(b) of the Miller Act, the trustees of the fund, in the name of the United States, instituted this action on the payment bond against Carter and his surety in the United States District Court for the Northern District of California. The complaint sought recovery of the unpaid contributions and the prescribed liquidated damages, attorneys' fees, court costs and expenses, in the total amount of about $500. The facts were stipulated and the court, after hearing, granted the surety's motion for summary judgment. The Court of Appeals affirmed, holding that the trustees had no right to sue on the bond under § 2(a) of the Act, since they were neither persons who had furnished labor or material, nor were they seeking sums 'justly due' such persons. 9 Cir., 229 F.2d 645. We granted certiorari to resolve the questions of statutory construction which are at issue. 351 U.S. 917, 76 S.Ct. 710, 100 L.Ed. 1450.

Section 1(a)(2) of the Miller Act provides that before any contract exceeding $2,000 for the construction of any public work of the United States is awarded to any person, such person shall furnish to the United States a payment bond with a satisfactory surety 'for the protection of all persons supplying labor and material in the prosecution of the work provided for in said contract * * *.' 49 Stat. 793, 40 U.S.C. § 270a(a)(2), 40 U.S.C.A. § 270a(a)(2). Section 2(a), which is at issue here, provides that 'Every person who has furnished labor or material in the prosecution of the work provided for in such contract * * * and who has not been paid in full therefor * * * shall have the right to sue on such payment bond * * * for the sum or sums justly due him * * *.' (Emphasis supplied.) 49 Stat. 794, 40 U.S.C. § 270b(a), 40 U.S.C.A. § 270b(a).

The surety's liability on a Miller Act bond must be at least coextensive with the obligations imposed by the Act if the bond is to have its intended effect. The bond involved here was furnished to meet the statutory requirements of the Act and appears, on its face, to comply with these requirements. There is no indication that the coverage of the bond was intended to exceed them. The bond insures prompt payment 'to all persons supplying labor and material in the prosecution of the work provided for in said contract * * *.' The trustees' rights against the surety depend upon, and are to be measured by, the applicable provisions of § 2(a) of the Act.

While the precise questions of statutory construction now presented are ones of first impression, prior decisions of this Court construing the Miller Act of 1935 and its predecessor, the Heard Act of 1894,³ indicate that the Miller Act should receive a liberal construction to effectuate its protective purposes.

'The Miller Act, like the Heard Act, is highly remedial in nature. It 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. Fleisher Engineering Co. v. United States, for Use and Benefit of Hollenbeck, 311 U.S. 15, 17, 18, 61 S.Ct. 81, 82, 83, 85 L.Ed. 12; cf. United States, to Use of Noland Co. v. Irwin, 316 U.S. 23, 29, 30, 62 S.Ct. 899. 902, 86 L.Ed. 1241. But such a salutary policy does not justify ignoring plain words of limitation and imposing wholesale liability on payment bonds.' Clifford F. MacEvoy Co. v. United States, 322 U.S. 102, 107, 64 S.Ct. 890, 893, 88 L.Ed. 1163.

The Miller Act represents a congressional effort to protect persons supplying labor and material for the construction of federal public buildings in lieu of the protection they might receive under state statutes with respect to the construction of nonfederal buildings. The essence of its policy is to provide a surety who, by force of the Act, must make good the obligations of a defaulting contractor to his suppliers of labor and material. Thus the Act provides a broad but not unlimited protection.⁴

It is undisputed that if the collective-bargaining agreement had required the contractor to pay each employee 7 1/2 cents per hour above the prevailing wage rate, and the employee had, by contract with his bargaining representative, agreed to contribute that sum to the fund, the surety would have been obligated to make good any default in the contractor's payment of that extra 7 1/2 cents per hour. The surety argues that employer contributions made directly to a health and welfare fund should be theated differently. It contends that, under the provisions of the trust agreement, the unpaid contributions are not 'wages' due to Carter's employees, and that the employees, having received all the 'wages' owed to them, have been 'paid in full' as that term is used in § 2(a) of the Act. The Act, however, does not limit recovery on the statutory bond to 'wages.' The parties have stipulated that contributions to the fund were part of the consideration Carter agreed to pay for the services of laborers on his construction jobs. The unpaid contributions were a part of the compensation for the work to be done by Carter's employees. The relation of the contributions to the work done is emphasized by the fact that their amount was measured by the exact number of hours each employee performed services for Carter. Not until the required contributions have been made will Carter's employees have been 'paid in full' for their labor in accordance with the...