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United States v. American Surety Co.

May 15, 1944


Appeal from the District Court of the United States for the Eastern District of New York.

Author: Chase

Before CHASE, CLARK, and FRANK Circuit Judges.

CHASE, Circuit Judge.

This appeal is by the use plaintiff, who will be called the plaintiff, from a judgment in a suit it brought under the provisions of the Miller Act, 40 U.S.C.A. ยง 270b, in the District Court for the Eastern District of New York against the American Surety Company of New York. That defendant is the surety on a performance bond given to the United States by the Atlantic Basin Iron Works, hereinafter to be called Atlantic, when the latter entered into a contract with the government on November 27, 1936, to make designated repairs on the army transport ship Republic. Those repairs consisted in part of the installation of four new boilers with their equipment, which were supplied for that purpose by the plaintiff under a subcontract with Atlantic, to be installed by the latter under the supervision of an engineer furnished by the plaintiff.

The boilers so supplied by the plaintiff and installed under the supervision of its engineer were tested and accepted by the government. All the purchase price due on the plaintiff's subcontract was paid to it except a claimed balance of $5,615.29 which this suit was brought to recover. The amount of this balance was stipulated at a slightly smaller amount and is not disputed. The controversy relates to the cause of, and responsibility for, the failure of the brick walls in the boiler fire boxes which occurred within a year after the acceptance of the material furnished by the plaintiff and installed under its supervision. After the plaintiff had been requested to repair the brick walls and had refused to do so, Atlantic repaired them and charged the cost to the plaintiff. The walls needed additional repairs within the year and the government made them itself upon the refusal of Atlantic and the plaintiff to do so, charging the cost to Atlantic which in turn charged it to the plaintiff.

This was the state of affairs when the plaintiff sued Atlantic's surety on the bond on April 27, 1938, to recover the balance it claimed due on the subcontract. The surety answered denying liability and duly notified Atlantic of the suit. The latter then moved to intervene as a party defendant. Its motion was granted on June 14, 1938, over the objection of the plaintiff, whose exception to that ruling raises one of the issues on this appeal. Atlantic also answered the complaint by denying liability and pleading a special defense which by amendment became a counterclaim for the cost of the repairs to the walls in the fire boxes made as above stated. The plaintiff denied all the material allegations of the counterclaim and interposed a special defense to it based on the ground that the court was without jurisdiction since there was no diversity of citizenship, as admittedly there was not. This special defense was overruled and the plaintiff duly excepted.

Thereafter Atlantic was allowed to cite in the United States as a third party defendant over the latter's objection and that of the plaintiff. A complaint was duly served by Atlantic upon the third party defendant, which answered and filed a counterclaim against Atlantic and the original defendant. The government subsequently waived its objection to being interpleaded and has taken no appeal from the final judgment.

After a hearing by the court and the filing of findings of fact and conclusions of law, a judgment was entered which (1) dismissed the complaint of Atlantic against the government on the merits, (2) allowed the government to recover $5,800.00 and its costs against the original defendant and Atlantic, (3) dismissed the plaintiff's complaint on the merits, with costs to the original defendant, and (4) allowed Atlantic to recover of the plaintiff, together with its costs, the total of its expenditures for repairs plus the amount of the judgment recovered by the government against it and the original plaintiff, less the agreed balance remaining unpaid to the plaintiff and due upon the performance of its subcontract to furnish and supervise the installation of the boilers.

Atlantic was properly allowed to intervene in the suit. It would have been bound by a judgment against its surety entered after it had received due notice of the suit, and it was entitled to an opportunity to defend that action. Washington Gaslight Co. v. District of Columbia, 161 U.S. 316, 329, 330, 16 S. Ct. 564, 40 L. Ed. 712; Kramer v. Morgan, 2 Cir., 85 F.2d 96. The counterclaim it filed against the plaintiff was likewise properly allowed although there was no diversity of citizenship to support jurisdiction. It was based on an alleged breach of the same contract on which the plaintiff sued. Although the intervenor could not have sued the plaintiff in the first instance on that contract in a federal court, yet when the plaintiff sued upon it under the Miller Act and the intervenor became a party to that suit no additional ground of jurisdiction was needed to support the counterclaim. Moore v. New York Cotton Exchange, 270 U.S. 593, 46 S. Ct. 367, 70 L. Ed. 750, 45 A.L.R. 1370. Of course the propriety of such orders as these would hardly have been questioned had they been made after the Federal Rules of Civil Procedure took effect. Rules 13(a) and 24(a), F.R.C.P., 28 U.S.C.A. following section 723c.

The judgment on the merits is supported by the findings, which in turn are supported by substantial, though in some respects contradicted, evidence. The failure of the brick walls in the fire boxes and the consequent need for the repairs that were made is clear enough, and so is the fair and reasonable cost of such repairs. Moreover, it was proved and found that the necessity of those repairs was due not to any incompetent operation of the crew of the Republic, as the plaintiff attempted to show, but "in part to defective brick and in part to the failure to supply a sufficient design and number of tie bolts * * * ."

The trial court also found on adequate evidence that some of the fire brick supplied by the plaintiff and used in the fire boxes did not comply with the specifications requiring that:

"All fire brick and fire title shall conform to class S.H. 75 of Federal Specification Board, specifications for fire clay brick No. HH-B-671 a, and in addition thereto shall pass the Navy simulated service test with a work factor rating of not less than 1.7." The plaintiff's breach of its contract in failing to supply materials as agreed and their installation under its supervision with tie bolts insufficient in design and number were therefore proved to be what made the repairs necessary.

The plaintiff makes over-much of the contention that these findings are erroneous because the judge was wrong, so it is said, in holding as he did that the burden of proof was on the plaintiff to show performance of the contract on its part in order to recover. It is said that a stipulation signed by all the parties fixed the amount of the balance due the plaintiff under the terms of the contract and relieved it of the burden of proof imposed by the judge. The plaintiff is but partly right. There was a stipulation in which all parties agreed upon "the amounts claimed by the respective parties in this action," and "in the event the Foster Wheeler Corporation is awarded judgment in this action against the Atlantic Basin Iron Works and American Surety Company of New York" the sum it was entitled to recover was stated and was the same amount for which it was given credit in computing the amount of the judgment entered against it. This stipulation did not, however, affect the burden of proof as to plaintiff's performance of its contract. It alleged due performance in its complaint, as it had to do in order to state a cause of action, and the pleadings put it to its proof in that regard. The stipulation in respect to the balance of the contract price and the cost of repairs merely facilitated the ...

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