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Leo Spear Construction Co. v. Fidelity and Casualty Co.

decided: July 1, 1971.


Moore and Smith, Circuit Judges, and Timbers,*fn* District Judge. Timbers, District Judge (concurring in part and dissenting in part.)

Author: Moore

MOORE, Circuit Judge:

This is an appeal from a judgment awarding plaintiff damages under a quantum meruit theory of recovery in the amount of $90,845 plus interest of $5,910.99 and in addition $50,000 damages under a theory involving tortious interference with business relations.

On June 20, 1967, Leo Spear Construction Company (Spear), plaintiff herein, entered into a contract with F. H. McGraw and Company, Inc. (McGraw), the prime contractor in the construction of new student housing at the University of Vermont at Montpelier (the University), wherein Spear as a subcontractor agreed to perform certain work in connection with that construction job for a contract price of $618,000.

In December, 1968, McGraw defaulted in the performance of the prime contract and on December 19, the University chose to terminate McGraw's contract effective December 29, 1968. The defendant Fidelity and Casualty Company (F & C) was McGraw's surety and had issued both payment and performance bonds to the University which bonds were drawn on a form of the Department of Housing and Urban Development. Under the terms of this bond, it was to be void if the contractor, McGraw, made prompt payment to the subcontractors and materialmen.

At the time of McGraw's default, Spear was faithfully performing its obligations under its subcontract. However, its activities had been thwarted in a number of ways by McGraw. These included McGraw's failure to provide sufficient winter heat, delays from changes in the pier footing, compaction problems and, as a result of dynamiting operations by McGraw, the cracking of various walls and other concrete structures installed by Spear. Besides necessary corrective work, however, Spear had placed 152,000 out of 164,000 bricks which had to be placed in the project or 92.1%, and he had placed 161,000 out of 163,000 cement blocks or 98.77%.

On December 9, 1968, Spear and one of its suppliers notified the defendant F & C that they were filing a mechanic's and materialman's lien respectively. Two days later, Spear again wrote F & C, indicating that it stood ready to cooperate with F & C in completing the project, and asking F & C to outline its position regarding the entire situation.

On January 2, 1969, the University notified F & C to complete the project pursuant to its performance bond. Thereafter, F & C contracted with Brookfield-Baylor (Brookfield) which was to accomplish this completion. Brookfield was, of course, under no duty to contract with Spear to complete the work covered by Spear's subcontract, and both defendants seem to have been having doubts about allowing Spear to finish the job because of its questionable financial status. F & C had become aware of Spear's financial problems as early as December 12, 1968 when it had learned of an all-monies assignment of funds due Spear under the McGraw contract to the Chittenden Trust Company of Burlington, Vermont. Thus on February 5, Phil Scaglione of F & C informed plaintiff that the contract would not be renewed. However, on February 13, Spear's president, Leo Spear, was told at a conference in New York City that Spear would be allowed to finish the contract and receive its unpaid balance if it could furnish an acceptable bond.

A letter of February 28 confirmed the February 13 arrangement but demanded action within ten days. Difficulties then arose over the terms of the bond. The Aetna Insurance Company agreed to write a bond for Spear on condition that F & C rather than Brookfield-Baylor be the only obligee, a condition which F & C stated "may be acceptable" in the February 28 letter, and also on condition that F & C rather than Brookfield be the contractor. F & C insisted that while the bond could be written to it, the contract must be with Brookfield. F & C points to various legal problems it might have faced had it assumed the role of contractor. Several days later plaintiff was informed that it would not be hired to complete the work it had started.

On April 2, 1969, after being informed that the subcontract would not be maintained in effect by F & C and Brookfield, Spear's men came onto the site and drove off with a truckload of structural tile. Then they returned and started to load a second truck. However, Brookfield obtained a writ of attachment from the Chittenden District Court in Burlington, Vermont and caused the sheriff to seize and chain the truck. Before this action by the sheriff, Brookfield detained Spear's truck by parking another vehicle in front of the truck and dumping a load of sand in front of it. However, the defendants at no time caused the writ to be entered since the Chittenden District Court found the injunctive remedy to be inappropriate and defendants decided to assert their claim for conversion as a counter-claim in this action. After the determination by the Chittenden Court that no injunction should issue, Spear's representatives went onto the job site only to find that much of the material which had been in the truck had been removed, notwithstanding that the truck and its contents were still under the control of the sheriff pursuant to the writ. Spear also complains that Brookfield used various equipment belonging to Spear in the course of its work, and that in addition to Spear's rights were violated when F & C took these actions since such actions violated an agreement of April 2 to preserve the status quo between Spear and Brookfield-Baylor. Brookfield suggests that this agreement, stated to terminate when the controversy was settled, in fact terminated when the Chittenden suit was terminated.

Spear had seven unpaid suppliers on this job, their total claims amounting to $52,173. After commencement of this suit in April, 1969, payment was made by F & C to these suppliers on July 2, 1969. Plaintiff suggests that this payment was unreasonably delayed in that F & C at no time disputed its liability to these materialmen and paid them as per their bills. However, there was some dispute over whether these payments would be made to the materialmen directly or through Spear, since Spear apparently was seeking leverage in an attempt to obtain credit from its materialmen. After these payments were made to the materialmen by joint checks written to the materialmen and Spear, some of the suppliers agreed to loan a percentage of these payments to Spear.


Quantum Meruit Recovery

Plaintiff, by an amended complaint, claimed damages under the payment bond on a quantum meruit basis, rather than on the contract. The plaintiff was entitled under Vermont law*fn1 to make this election under the facts and circumstances of this case. Peist v. Richmond, 97 Vt. 97, 122 A. 420 (1923).

Thus, plaintiff was entitled to recover in this suit the fair and reasonable value to the defendant F & C of the work performed and the materials furnished. Gilman v. Hall, 11 Vt. 510 (1839); Silos v. Prindle and Prindle, 127 Vt. 91, 237 A.2d 694 (1968). The District Court carefully examined the various items of damage and proof thereof, viewed the construction site in order to make a more accurate judgment as to the proper amount of damages, and concluded that the fair and reasonable value of the work and material supplied by plaintiff was $674,866.92.

This figure was arrived at as follows:

direct labor charges incurred

by plaintiff $377,393.49

less amount estimated

by district court

attributable ...

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