United States of America, for the Use of Llewellyn MacHinery Corporation v. National Surety Corporation

268 F.2d 610

• Court: Court of Appeals for the Fifth Circuit
• Decided: July 29, 1959
• Docket: 17645_1
• Status: Published

Opinions

TUTTLE, Circuit Judge.

The appellant here sued the defendant Surety Corporation under the Miller Act, 40 U.S.C.A. §§ 270a-270d. The Surety Corporation was surety of a prime contractor, Thomson Contracting Company which had contracted to build certain works in the Bahama Islands for the United States Government. The claim here in issue represented the value of certain construction equipment furnished by appellant under a rental agreement whereby the general contractor agreed to pay approximately $1200 per month for the use of the equipment and further agreed to “assume all responsibility for damages or loss to [the said] eqpt.”

Appellant duly furnished the equipment to Thomson and the latter shipped it by water to the vicinity of the Bahamas where, shortly thereafter, it was lost at sea without salvage. As is provided under the applicable statute, Thomson provided a payment bond which was furnished by National Surety Corporation, the appellee here.

The trial court, on motion for judgment on the pleadings, it being plain that there was no issue of fact involved, dismissed the complaint, holding “that the loss complained of does not come within the purview of the Miller Act and the defendant’s bond filed in conformity therewith.” This appeal followed.

It is not disputed by the surety that rental payments contracted for by a general contractor are recoverable under the terms of the Miller Act. See Illinois Surety Co. v. John Davis Co., 244 U.S. 376, 37 S.Ct. 614, 61 L.Ed. 1206. Appellant’s claim that the obligation undertaken by the prime contractor to make good for any loss of the equipment was an obligation of the same nature as the agreed monthly rental is supported in principle by United States to Use of Norfolk Southern R. Co. v. D. L. Taylor Co., D.C., 268 F. 635, 644, affirmed 4 Cir., 277 F. 945. In that case the subcontractor rented certain barges. In consideration for the use of the barges the subcontractor agreed to pay a daily rental and also agreed to return them in the same condition as they were when he took possession of them. He agreed to make all repairs for which he was liable. Upon the barges being damaged during the course of the work, the lessor of the equipment brought an action for rent and cost of repairs against the surety. In allowing recovery, the Court said: “Assuming that the bond is liable for the contract price of the rental of the scows, it would seem that these items (the repairs) come within the terms of the bond.”

Although neither party has been able to cite any case expressly holding that a rental agreement embodying an obligation to make good a loss of rented equipment comes within the terms “labor and material in the prosecution of the work,” we bear in mind the language of this Court in Glassell-Taylor Company v. Magnolia Petroleum Co., 5 Cir., 153 F.2d 527, 529:

“The Miller Act * * * is highly remedial in nature. It is entitled to a liberal construction and application in order properly to effectuate the Congressional intent to protect those who furnish labor or material to public works.”

This language is fully justified by that of the Supreme Court in Illinois Surety Co. v. John Davis Co., supra [244 U.S. 376, 37 S.Ct. 616], where it is said:

“ * * * Decisions of this court have made it clear that the statute and bonds given under it must be construed liberally, in order to effectuate the purpose of Congress declared in the act. In every case which has come before this court, where labor and material were actually furnished for and used in part performance of the work contemplated in the bond, recovery was allowed, if the suit was brought within the period prescribed by the act. Technical rules otherwise protecting sureties from liability have never been applied in proceedings under this statute.”

We find nothing to the contrary held or suggested in Massachusetts Bonding & Insurance Co. v. United States for Use of Clarksdale Mach. Co., 5 Cir., 88 F.2d 388.

We cannot see why an obligation of payment made by the general contractor to the appellant here, which obligation included an undertaking to pay for the loss of the equipment, should not come within the full protection of the bond just the same as would an obligation to make the monthly rental payment standing alone. To the complaint of the appellee that this would place a burden on it not contemplated upon the writing of the bond, it need only be said that in the customary dealings between parties at arm’s length it is self evident that the monthly rental payments which were admittedly secured by the bond would have been greater if the risk of loss had remained on appellant. Thus the surety company obtained the benefit of having its undertaking based on a monthly rental of a lesser amount if the contract had been completed without the loss of the equipment. In return for having the benefit of the lower rental payment subject to its guarantee, it, through the terms of the Thomson contract, assumed the risk of loss. It, of course, was within the power of the bonding company when entering its contract of surety to restrict the nature of the obligations which were undertaken by its principal to out and out payments for purchases and/or out and out rental payments had it seen fit to do so. Having failed to restrict the contractor’s method of payment so as to exclude an agreement to stand liable for a loss of equipment, appellee cannot complain if it must respond to the extent that Thomson failed to make payments strictly under the terms of the rental agreement it actually made. This agreement included an obligation to reimburse appellant for the value of any equipment damaged or lost in the operation.

The judgment is Reversed and the case Remanded for further proceedings not inconsistent with this opinion.