United States v. Maryland Casualty Co.

Decision Date25 April 1941
Docket NumberCivil Action No. 902.
Citation38 F. Supp. 479
CourtU.S. District Court — District of Maryland

O. Bowie Duckett, Jr. (of Hargest, LeViness, Duckett & McGlannan), of Baltimore, Md., and Alexander M. Heron, of Washington, D. C., for plaintiff.

Benj. H. McKindless and W. Hamilton Whiteford, both of Baltimore, Md., and Edward Gallagher, of Washington, D. C., for defendants.

CHESNUT, District Judge.

This is a suit under the so-called Miller Act which, by the Act of Congress of August 24, 1935, c. 642, §§ 1 and 2, 40 U.S.C. A. §§ 270a and 270b, superseded the Heard Act, 40 U.S.C.A. § 270. The suit is brought for the use of the Noland Company, Inc., a Virginia corporation, which furnished materials to a sub-contractor, the Irving J. Gluck Co. The principal contractor was the Consolidated Engineering Company, Inc., of Baltimore City, a Maryland corporation, which gave a "payment bond" as required by the Miller Act, with the Maryland Casualty Company as surety. The principal contractor and surety are defendants in this case. The amount claimed by the Noland Co., in the suit was $35,216.59. There are no procedural questions in the case, due notice having been given by the Noland Company to the principal contractor, and the suit having been brought in due time under the statute. Fleisher Engineering & Const. Co. v. United States, 311 U.S. 15, 61 S.Ct. 81, 85 L.Ed. ___.

From the evidence in the case I find the following facts:

Findings of Fact

1. On August 13, 1938 the Government entered into a contract with the Consolidated Engineering Company for the construction of fourteen (14) apartment houses at the Naval Academy, Annapolis, Maryland, for a total payment of $1,100,825, to be made to the contractor. The work was wholly completed and final settlement with the Government was made on November 10, 1939.

2. On September 9, 1938 the principal contractor (hereinafter called the "Consolidated") made a sub-contract with the Irving J. Gluck Company, for plumbing and heating work for $125,840. The Gluck Company was a large contractor or sub-contractor for work and materials for plumbing and heating, and during the performance of the work for the Naval Academy in Annapolis, was also doing plumbing and heating work for about 12 other substantial jobs. It obtained the material for these jobs from the Noland Company with which it had been dealing for some time past. As of August 24, 1939, it owed the Noland Company for materials purchased for many of these jobs, $84,526.94; and by a statement of that date showed an alleged balance due the Gluck Company from the general contractors, $331,935.42. The Gluck Company was apparently too greatly extended in its operations for its working capital. In October 1940 it went into bankruptcy in the northern district of Illinois.

3. A few days before the Gluck Company made its sub-contract with the Consolidated for the plumbing and heating work, it obtained a short term loan of $15,000 from the Noland Company; and again in December 1938 and January 1939, obtained further temporary loans from the Noland Company in the amounts of $10,000 and $8,400. The evidence does not show that these loans were made with any particular relation to the sub-contract between the Gluck Company and the Consolidated.

4. The sub-contract between Gluck and the Consolidated was on a standard printed form of building contract, Article 14, paragraph 1 of which, provided that Gluck, as sub-contractor, should waive and release all liens arising from the work; and should also furnish waivers of liens from others supplying labor and materials for the premises. The second paragraph provided as follows:

"At the request of the Contractor, the Sub-contractor must produce receipted bill covering materials furnished during the preceding month, for which allowance in payment has been made on the monthly requisition by the Contractor to the Sub-contractor. If there is any evidence that the Sub-contractor is not paying his obligations in accordance with monthly payments made to him by the Contractor, then the Contractor reserves the right to withhold further payments until such time as the Sub-contractor furnishes proper receipted bills indicating that he is making payments for labor and material in accordance with the payments which he has received from the Contractor."

5. In accordance with this provision the customary business routine between Gluck and the Consolidated was that about the first of each month Gluck furnished a certificate of the total amount of work and materials which had been finished on the job up to the end of the preceding month, as approved by the architect or engineer. From this amount the Consolidated deducted 10% to be retained, and also deducted all previous payments and credits, and then paid the balance. The Consolidated, however, contemporaneously required Gluck to furnish an affidavit that it had paid for all labor and materials furnished or performed on the job up to the first day of the preceding month; and also required certificates from various persons furnishing materials to Gluck that they had been fully paid for materials supplied by them to Gluck for the job up to the first of the month preceding the particular requisition then made by Gluck on the Consolidated. The Noland Company furnished such certificates monthly up to and including May 31, 1939.

6. Particular importance is attached to the certificate furnished by Noland, dated July 5, 1939, (Defendants' Exhibit No. 3). This recited as follows:

"We hereby certify that we have been paid in full for labor and/or materials furnished and delivered to Irving J. Gluck, Inc., from the beginning of the job up to and including May 31, 1939, in the performance of their sub-contract in the erection of 14 apartment building, Annapolis, Maryland. We further certify that we have paid in full for all materials purchased by us and that the cost, freight charges incurred in the transportation and delivery of such materials to Annapolis, Maryland, and/or to the site of the said operation have been fully paid.

"(Signed) Noland Co., Inc "By ______ Allen, Asst. Sec'y."

This certificate was delivered to Gluck by Noland and attached to the requisition made by Gluck on Consolidated dated July 3, 1939. The related voucher showed:

                "Total requisition as approved by architect
                  or engineer to June 30, 1939 ............    $110,353
                  10% retained ............... $11,035.30
                  Previous payments and bills
                  rendered ...................  80,091.00        91,126.30
                                               __________       __________

Gluck also submitted to Consolidated the customary affidavit that it had paid for all labor and materials up to May 31, 1939. On the faith of these papers, including particularly the Noland certificate, the Consolidated on July 15, 1939 paid the sum of $19,226.70 to Gluck. The Consolidated would not have made this payment if it had not been furnished the certificate from Noland reciting full payment to the latter up to May 31, 1939.

7. The certificate was not true in that when it was given, Noland had not been paid by Gluck for any material furnished during May 1939, although Gluck had paid Noland for material furnished up to May 1, 1939. Allen, acting for Noland, knew that payment had not been made for the May materials supplied, and gave the certificate as an accommodation to Gluck who promised promptly to give Noland a short term twenty-day note for all materials furnished by Noland to Gluck during May 1939, including materials for various jobs in addition to the work for the Naval Academy. The note for $35,000 was not finally actually delivered until about August 5, 1939, and was renewed on August 25, 1939 for thirty days, and has not been paid. The value of the materials furnished by Noland during May 1939 for the Naval Academy work was $5829.82.

8. On several monthly occasions prior to July 1939, Gluck had requested Allen, acting for Noland, for similar certificates reciting full payment for materials for the Naval Academy and some other jobs up to the first of the preceding month, although payment in cash had not been made, and Allen had given the certificates, taking contemporaneously short term notes from Gluck which, it appeared, had all been paid on or before July 5, 1939. Allen knew the purpose for which the certificates were being requested by Gluck, that is, to obtain payments of monthly requisitions from Consolidated. The amount of $19,226.70 paid by Consolidated to Gluck on July 15, 1939, was for labor and materials furnished on the work by Gluck during June 1929, Gluck having been previously paid by Consolidated for the May 1939 work and materials.

9. With a minor exception ($203.19 for insurance premium) Consolidated made no further payments to Gluck after July 15, 1939. Nevertheless Gluck finished the whole of his sub-contract and the work was accepted by the Consolidated and by the Government. The balance due from Consolidated to Gluck on account of the whole sub-contract still retained by Consolidated is $26,309.21. And the amount due from Gluck to Noland for the Naval Academy job is the sum claimed in the complaint, $35,216.59.

10. No other claims against the payment bond have been filed in this case and the time for filing same has now expired. There is no evidence in the case legally sufficient to show any indebtedness, actual or prospective, of the Consolidated to any persons other than Noland Company on account of the sub-contract with Gluck.

11. There was an open account kept by Noland on its books with Gluck which did not segregate charges and credits in the account between them with respect to the several particular jobs for which Noland was furnishing material to Gluck, until after May 1939. There were no specific written contracts between Noland and Gluck; but...

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