United States v. United States Fid. & Guar. Co., 236 U.S. 512 (1915)

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United States v. United States

Fidelity & Guaranty Company
No. 125

Argued January 15, 1915
Decided February 23, 1915
236 U.S. 512

ERROR TO THE CIRCUIT COURT OF APPEALS

FOR THE NINTH CIRCUIT

Syllabus

Under the terms of the contract involved in this case for a completed building on which partial payments were to be made as work progressed, but which was destroyed by fire during construction and never rebuilt by the contractor, who had received several payments on account and who accepted notice of default and abandoned the contract, held that:

Where the government relets a contract with substantial differences, the liability of the surety is not released from all obligation, nor is his liability measured by the difference between the two contracts, but his liability is measured by the actual loss sustained by the government, in this case represented by the partial payments made as work progressed and for which it received nothing in return.

The liability of the surety became fixed on occurrence of default, and was not released by failure of the government to have the same kind of a building erected in place of the one not delivered by the contractor.

The contractor’s right under the contract to retain partial payments was conditioned on his subsequent fulfillment of the contract, and when he wholly defaulted and gave nothing in return, he was obligated to repay the amounts received.

Under the contract in this case, the government, while authorized to complete the work at the expense of the contractor, was not confined to that remedy, but could recover from the contractor or the surety the actual damages sustained.

The rule that a party suffering loss from breach of contract must do what a reasonable man would do to mitigate the loss does not apply where, as in this case, a fixed loss has been sustained that cannot be mitigated.

Under Rev.Stat., §§ 649, 700, and 1011, as amended by Act of February 18, 1875, findings of fact have the same effect as the verdict of a jury, and this Court does not revise them, but merely determines whether they support the judgment.

Delay on the part of the government in pressing its claim against a contractor who has accepted partial payments, knowing that he was not entitled thereto, does not amount to a waiver of interest.

An exception furnishes no basis for reversal upon any ground other than the one specifically called to the attention of the trial court.

The weight of authority in England is adverse to the recovery of interest from the surety in addition to the penalty of the bond, but that rule has not invariably been followed in this country.

A surety, if answerable at all for interest beyond the amount of the penalty of the bond, can only be held for such interest as accrues from unjustly withholding payment after notice of default of the principal. United States v. Hills, 4 Cliff. 618, approved.

194 F. 611 reversed.

This action was brought by the United States in the Circuit Court for the Southern District of California against Augustus W. Boggs and the United States Fidelity & Guaranty Company of Baltimore, Maryland (which may be called, for convenience, the "Guaranty Company"), to recover damages for the failure of Boggs to perform his contract to construct for plaintiff a stone mess hall and kitchen at the Rice Station Indian School in Arizona, for the performance of which the Guaranty Company was his surety upon a bond in the penal sum of $6,500. Upon plaintiff’s complaint and the answer of the Guaranty Company (Boggs having failed to appear, and his default having been entered), the case came on for trial before the circuit court, trial by jury being formally waived under Rev.Stat. § 649. Elaborate findings of fact were made, the substance of which is as follows: by the contract, which was in writing and dated February 23, 1905, Boggs agreed to furnish all materials and perform all work required for the construction and completion of the building in strict and full accordance with the requirements of the plans and specifications which were annexed; covenanting that the entire work should be completed and turned over to the United States on or before September 1, and that (Article 4) if he failed to complete the work in accordance with the agreement within that time,

the said party of the first part [the United States] may withhold all payments for work in place until final completion and acceptance of same, and is authorized and empowered, after eight days’ notice thereof, in writing, to the party of the second part, and the said party of the second part having failed to take such action within the said eight days as will, in the judgment of the party of the first part, remedy the default for which said notice was given, to take possession of the said work in whole or in part, and of all machinery and tools employed thereon, and all materials belonging to the said party of the second part, delivered on the site, and at the expense of said party of the second part, to complete or have completed the said work, and to supply or have supplied the labor, materials, and tools of whatever character necessary to be purchased or supplied by reason of the default of the said party of the second part; in which event the said party of the second part and his sureties of the bond to be given for the faithful performance of this agreement shall be further liable for any damages incurred through such default and any and all other breaches of this contract.

By Article 9, the United States agreed to pay to the contractor, on the presentation of proper receipts or vouchers, the sum of $12,709,

in consideration of the herein recited covenants and agreements made by the party of the second part, as follows: Eighty (80) percentum of the value of the work executed and actually in place to the satisfaction of the party of the first part at the expiration of each thirty (30) days during the progress of the work, the amount of each payment to be computed upon the actual amount of labor and materials expended during the said period of thirty (30) days for which partial payment is to be made (the said value to be ascertained by the party of the first part), and the balance thereof will be retained until the completion of the entire work, and the approval and acceptance of the same by the party of the first part, which amount shall be forfeited by the said party of the second part in the event of the nonfulfillment of this contract, it being expressly covenanted and agreed that said forfeiture shall not relieve the party of the second part from liability to the party of the first part for any and all damages sustained by reason of any breach of this contract.

Attached to the contract as a part of the specifications were certain "general conditions" which (inter alia) required the contractor to be responsible for all damages to the building, whether from fire or other causes, during the prosecution of the work and until its acceptance, and declared that partial payments were not to be considered as an acceptance of any work or material. On or about April 12, Boggs commenced operations and furnished certain materials and did certain work, but he did not at any time complete the building in accordance with the contract, and, on the contrary, willfully, intentionally, and fraudulently disregarded the terms of the contract from the beginning of his operations under it. On June 10, plaintiff paid him $4,356.24 on account, and on July 21 the further sum of $3,539.16, both payments being "pursuant to the terms of said contract" and aggregating $7,895.40, no part of which has been repaid to plaintiff. He not only failed to complete the work on or before the 1st of September, but failed after that date to take such action as would remedy his default. On or about October 27, plaintiff rejected the work and materials and the building as offered for acceptance by Boggs. On November 4, while the structure was still in his possession, it was completely destroyed by fire. Thereafter he did not, in accordance with the provisions of the contract, commence the construction or reconstruction of the building, and anything he did thereafter was outside of the contract and without plaintiff’s consent. On or about December 28, by reason of his failure and refusal to perform the terms of the contract, or to complete and turn over the building as therein required, or to remedy his default, plaintiff took possession of the site and notified Boggs and his representatives to vacate the premises and leave the Indian Reservation, which they immediately did. At the same time, plaintiff seized and confiscated certain building materials, tools, and implements of the value of $2,418.58 then upon the premises and belonging to Boggs. It is further found that Boggs willfully, intentionally, and fraudulently failed, neglected, and refused to erect a structure in accordance with the plans and specifications that were a part of his contract, although plaintiff performed all conditions and obligations on its part, and there are specific findings that plaintiff did not change or abrogate the terms of the contract in any particular, nor extend the time of performance, nor consent to the failure and delay on the part of Boggs. In December, 1906, the United States advertised for the construction of a new mess hall and kitchen upon the same site, and in January, 1907, entered into a written contract with one Owen for the construction of such building for the sum of $16,600, in lieu of the building that had been agreed to be built by Boggs; but the contract with Owen was different in substantial respects from that made between the plaintiff and Boggs, and the building actually erected by Owen was likewise different; $1,200 of the contract price agreed to be paid and actually paid to him had reference to work wholly outside of the work provided for in the Boggs contract, and $500 of the contract price agreed to be paid and actually paid to Owen was for work and materials in excess of what was included in the Boggs contract. Moreover, the cost of labor and building supplies had materially increased between the time of Boggs’ default and the time of making the new agreement. Hence, the trial court found that a comparison between the two contracts furnished no basis for estimating plaintiff’s damages.

Upon these findings, judgment was rendered in favor of the United States for the amount of the two sums advanced to Boggs during the progress of the work ($7,895.40), from which, however, $2,418.58 was deducted as a set-off and counterclaim in favor of defendants for the value of the materials confiscated. Interest was allowed to plaintiff at 7% upon the amount of the "progress payments" from September 1, 1905, until the date of judgment, and interest at the same rate was allowed to defendants upon the amount of the offset from December 28, 1905, the difference, which plaintiff was held entitled to recover, being $7,403.09; but the recovery against the Guaranty Company was limited to $6,500, besides costs.

Upon cross-writs of error, this judgment was reviewed by the circuit court of appeals, with the result that it was reversed for error assigned by the Guaranty Company, and the cause remanded, with directions to enter judgment in its favor on the findings. 194 F. 611. The present writ of error was then sued out.