Illinois Surety Co. v. John Davis Co. - 244 U.S. 376 (1917)
U.S. Supreme Court
Illinois Surety Co. v. John Davis Co., 244 U.S. 376 (1917)
Illinois Surety Company v. John Davis Company
Argued April 27, 1917
Decided June 4, 1917
244 U.S. 376
The purpose of the Act of February 24, 1905, 33 Stat. 811, is to provide security for the claims of all persons who furnish labor or material on public works of the United States; the act, and bonds given under it, are to be construed liberally to effectuate this purpose, and the release of sureties through mere technicalities is not to be encouraged.
S, while conducting his business under supervision of a creditors' committee, entered into a contract with the United States for the doing of certain work, and gave bond with surety to secure claims for labor and materials under the Act of February 24, 1905, supra. After part performance of the contract, he and the creditors formed a corporation to take over his affairs, which, without the consent of the United States or the surety, received a transfer of all his business and assets, and thereafter, under the management of S, as president, and the control of the creditors through the board of directors, continued for a time to perform the contract.
(1) That, in view of § 3737, Rev.Stats., the transfer could not effect an assignment of the contract, but amounted, at most, to a subletting.
(2) That, as the responsibility of the contractor under the contract and the actual management of the business were not changed, nor
the surety prejudiced, the transfer did not operate to discharge the surety from past or future liability.
(3) That labor and materials furnished in the prosecution of the work under the contract, after the transfer of the contractor's business to the corporation, were to be regarded as furnished to him within the meaning of the Act of February 24, 1905, supra, as well as to the corporation, and that the latter, besides, might be deemed the successor of the contractor within the condition of the bond, binding him "his heirs, successors," etc.
Questions of liability to pay interest under a bond given to secure payment for labor and materials, furnished under a construction contract with the United States, are determinable by the law of the state in which the contract and bond were made and to be performed.
Under the law of Illinois, the liability of a surety on a bond is extended beyond the penalty by way of interest from the date when the liability on the bond accrued.
Where claims are all liquidated and amounts are not disputed, but only liability under the bond, the surety which has not elected to pay into court is properly chargeable with interest from commencement of suit upon the aggregate of the claims allowed as reduced to the penal amount of the bond.
Acts of creditors upon which the surety neither acted nor relied, which did not affect it, and which are not inconsistent with a resort to the security of the bond afford no basis for an equitable estoppel in favor of the surety.
The renting of a plant of cars, track, and equipment actually used in the construction of public work for the United States is a furnishing of "materials" within the meaning of the Act of February 24, 1905, and the rent reserved, together with the loading and freight expenses incident to bringing the plant to and from the place of use, are liabilities covered by the contractor's bond.
226 F. 653 affirmed.
The case is stated in the opinion.