United States v. Morley Const. Co.

• Decision Date: 29 July 1938
• Docket Number: No. 182.,182.
• Parties: UNITED STATES ex rel. JOHNSON v. MORLEY CONST. CO. et al. (HARRINGTON et al., Interveners).
• Court: U.S. Court of Appeals — Second Circuit

98 F.2d 781 (1938)

UNITED STATES ex rel. JOHNSON v. MORLEY CONST. CO. et al. (HARRINGTON et al., Interveners).

No. 182.

Circuit Court of Appeals, Second Circuit.

July 29, 1938.

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Gibbons, Pottle & Pottle, of Buffalo, N. Y. (Frank Gibbons, of Buffalo, N. Y., of counsel), for Maryland Casualty Co.

Martin J. O'Donnell, of Kansas City, Mo., for Morley Const. Co.

Lansdowne & Lansdowne, of Buffalo, N. Y. (Robert J. Lansdowne, of Buffalo, N. Y., of counsel), for Harrington, as administrator of Moody L. Rupp.

Kennedy, Holand & DeLacy, of Omaha, Neb., and Edwin J. Culligan, of Buffalo, N. Y. (Stanley Montfort, of Buffalo, N. Y., of counsel), for Concrete Engineering Co.

John Marshall Gorman, of Buffalo, N. Y., for J. S. Thorn Co.

McKay & Headley and Clarence McKay, all of Rochester, N. Y., for Marcus Bonsignore et al.

Before L. HAND, SWAN, and CHASE, Circuit Judges.

L. HAND, Circuit Judge.

The original defendants, the Maryland Casualty Company and the Morley Construction Company, appeal from a judgment against them, entered upon the verdict of a jury of one, in an action upon a construction contract between the Morley Company and the Veterans Administration of the United States, for the erection of a hospital at Batavia, N. Y. The Maryland Casualty Company was the surety upon this contract; the plaintiff, Johnson, was a sub-contractor of the Morley Company, doing the roofing and other parts of the building: Rupp, Harrington's testator, was the sub-contractor for the grading: the Concrete Engineering Company furnished temporary forms for setting the concrete: J. S. Thorn Company furnished the window frames for the buildings: and Marcus Bonsignore and twenty-seven others were laborers engaged upon the work. Johnson originally brought the action against the Morley Company and the surety, and the other parties mentioned intervened; still other parties also intervened, but the surety thereafter paid their claims, as well as the plaintiff's, and took an assignment of them: it now presses them against the Morley Company. These assigned claims are admittedly good in substance; but the Morley Company disputes their collection by the surety and in this action. The litigation divides itself into two parts: (1) The main action against the Morley Company upon the assigned claims; (2) the several claims of the four intervenors whom we have mentioned (counting Bonsignore and the other laborers as one).

(1) Liability of the Morley Company to the Surety, as Assignee of the Intervenors' Claims.

As we have said, the Morley Company does not dispute that the surety's assignors had sub-contracts with it which they performed in accordance with their terms: it does dispute its liability in this action and to the surety. It says that the action was premature, and that, if not, the surety has lost its rights, either as assignee, or in subrogation. The facts are as follows. The writ was served on Morley Company on May 28, 1934: it appeared on June 23d and filed an answer: on August 31, 1935, it attempted "to appear specially" in order to object to the jurisdiction of the court and to strike out the pleading of the surety. There can be no doubt as to the jurisdiction of the district court. The final settlement of the Veterans Administration with the Morley Company was on November 13, 1933, and § 270 of Title 40, U.S. Code, 40 U.S.C.A. § 270, allowed the action to be brought at any time between six months and a year "after performance and final settlement". But the Morley Company says that, regardless of this, the action was premature under the terms of Johnson's sub-contract. That provided that the Morley Company should pay Johnson monthly as it received its own payments from the Administration at the rate of 85% of the work completed each month, and that "the final payment shall be made upon completion and acceptance of the work * * * and upon receipt by the contractor of the final payment from the Veterans Administration". The Veterans Administration issued its final warrant to the Morley Company in November, upon which the United States Treasury issued its cheque thereafter. The surety brought a suit in equity against the Morley Company in the Western District of Missouri to enjoin the payment of this cheque and succeeded; and the Morley Company argues that for this reason there has never been "final payment" by the Veterans Administration; and that, if the action was premature as to Johnson, it was premature as to all the intervenors. United States v. McCord, 233 U.S. 157, 158, 34 S.Ct. 550, 58 L.Ed. 893. The question turns upon the meaning of the phrase, "final payment", in Johnson's contract. This could scarcely have referred to anything but the warrant, issued by the Administration, for that body could go no farther; could make no actual "payment". But the point is bad for another reason. The Treasury did deliver the cheque to the Morley Company and the stipulation was of course designed to protect the Morley Company until then — that is, until it had control of the money — but there was no reason to postpone the sub-contractors thereafter. The Missouri suit was in substance an attachment, and obviously sub-contractors were not to wait while the Morley Company arranged its affairs with its other creditors; if these tied up its funds, it was no affair of the sub-contractors. The argument takes another and obscurer form on the theory that the surety made payment impossible by attaching the cheque. This is spoken of as the prevention of a "condition precedent"; but that is meaningless. The doctrine invoked excuses performance of a condition precedent to an obligee's right of action: here the surety is the obligee and the Morley Company the obligor; it is the surety which must show performance of the condition precedent, and it did so when it proved that the intervenors had performed their sub-contracts. Moreover, the Missouri suit ended in the surety's favor (Morley Construction Co. v. Maryland Casualty Co., 8 Cir., 90 F.2d 976); and it is absurd to assert that the prosecution of a valid claim could affect the surety's power to prosecute the assigned claims. If the Morley Company had not enough money to meet all its debts, that was its misfortune.

The only other point which needs discussion is that the surety filed no supplemental pleadings after taking the assignments. At common law the transfer of a cause of action, pendente lite, was cause for abatement, if the defendant raised it by the plea, puis darrein continuance, but the action could be revived by the transferee by scire facias. Nome & Sinook Co. v. Ames Mercantile Co., 9 Cir., 187 F. 928. This action is at common law (Illinois Surety Co. v. United States, to Use of Peeler, 240 U.S. 214, 223-225, 36 S.Ct. 321, 60 L.Ed. 609), and under the Conformity Act, 28 U.S.C.A. § 724, it is governed by the New York practice. In New York in case of a transfer of interest, pendente lite, the action is to be continued unless the court directs the transferee to be substituted. § 83 of the New York Civil Practice Act. Therefore no supplemental pleading was necessary.

(2) Rupp's Claim.

Rupp's administrator presses this claim against the surety under Rupp's sub-contract. (It will be more convenient to disregard the administrator and speak as though Rupp were the claimant.) He had a sub-contract to do all the grading and excavating, and substantially all of the concrete work on the job: his claim is in three parts. First, he claims the balance of the contract price which he had never received. Against this the surety asserts set-offs and that Rupp wrongfully abandoned the job and disqualified himself from recovery. Second, he claims for extra work in regrading a part of the surface, made necessary, as he says, by a mistake in the plans. Third, he claims as extra work certain rock excavation for which the Morley Company had been paid, although he did the work. We shall begin with the two claims for extra work.

(2a) Cost of Regrading.

The contract required Rupp to grade an oval in front of the main hospital building. In doing this he used a map prepared by the Administration and given him by Morley; and took as his base a monument, already in place before he began and shown on the map, together with a legend, "Grade El. 910.0". Rupp assumed that the figure "910.0" indicated the true level at the top of this monument, and graded accordingly. In fact, the mark was true only for the foot of the monument and his grading was fourteen inches too high; for this reason he was compelled to regrade much of the area, for he failed to discover the mistake until nearly the whole job was done. The appeal is from a judgment entered on the verdict of a jury, and all disputed issues must be taken in favor of Rupp if there is any evidence to support them. There was ample testimony that a contractor, furnished by an owner with plans and specifications, would be justified in accepting as authoritative a monument and the grade shown thereon without seeking other bench marks. The surety then argues that, even so, a careful contractor would have discovered the mistake before the work had been as far done as it was. The evidence upon this is conflicting and obscure, but we should clearly not be justified in upsetting the verdict. Rupp began by stripping off the top surface, and there was testimony, coming in part from the defendant's own witness, that thereafter it would have been extremely hard to ascertain that he was working on wrong levels without "cross-sectioning" the whole area. Next, the surety argues that Rupp was concluded by a ruling against him of the superintendent of the Administration. The main contract provided that "all disputes concerning questions of fact arising under this contract shall be decided by the contracting officer, or his duly authorized representative * * * whose decision shall be final and conclusive". The specifications...