The obligation given by the surety under the District of
Columbia Materialmen's Act of 1899 which is modeled after the
General Materialmen's Act of 1894, has a dual aspect, being given
not only to secure the government the faithful performance of all
the obligations assumed towards it by the contractor, but also to
protect third persons from whom the contractor may obtain materials
and labor, these two agreements being as distinct as though
contained in separate instruments, the surety cannot claim
exemption from liability to persons supplying materials merely on
account of changes made by the government and the contractor
without its knowledge and which do not alter the general character
of the work.
United States v. National Surety Co., 92 F.
549, approved.
Under the rule of
strictissimi juris, the agreement
altering the contract must be participated in by the obligee or
creditor as well as the principal in order to discharge the surety;
in the case of a bond under the Materialmen's Acts of 1894 or 1899,
there is no single obligee or creditor to consent thereto, and the
rule of
strictissimi juris does not
Page 234 U. S. 449
apply where the alterations agreed upon do not change the
general nature of the work.
In this case, the alterations of the term of a contract for
building a school house in the District of Columbia altering its
location but without affecting its general character, without the
knowledge or consent of the surety, did not have the effect of
releasing the surety from the obligation of the bond given under
the District of Columbia Materialmen's Act of February 28,
1899.
Quaere, and not involved in this case, what would be
the result of a change not contemplated in the original contract as
between the District of Columbia and so great as to amount to
abandonment of the contract?
The Court of Appeals of the District of Columbia certifies that
the record in the above-entitled cause, now pending in said court
upon appeal from the Supreme Court of the District of Columbia,
discloses the following:
The declaration of the United States to the use of W. McMillan
& Son, filed February 11, 1913, against the Equitable Surety
Company, alleges:
That Allen T. Howison, as principal, and the Equitable Surety
Company, as surety, on July 24, 1911, executed a bond to the United
States in the penal sum of $110,350 conditioned for the faithful
performance by Howison of a certain contract made by him with the
Commissioners of the District of Columbia on that date. A copy of
the bond, made an exhibit, shows that the contract was for the
erection of a school building fronting on Eleventh Street, N.W.
between Harvard and Girard Streets, in the City of Washington. The
conditions of the bond are that if Howison shall perform to the
satisfaction of the Commissioners the work to be done by him in
accordance with the stipulations of the contract, and shall save
harmless and indemnify the District of Columbia from any and all
claims, delays, suits, charges, damages, judgments, etc., on
account of any accidents to persons or property after the
commencement of the work and prior to completion and acceptance,
and pay the same, and
"will promptly make payments to all persons supplying him
Page 234 U. S. 450
with labor and material in the prosecution of the work provided
for in said contract,"
etc., the obligation shall be void; otherwise to remain in
force.
That thereafter, W. McMillan & Son, at the request of the
Butt-Chapple Stone Company, agreed to furnish to said contractor
certain stone materials to be used in the prosecution of the work
provided for in the contract by the contractor, and did furnish to
said contractor materials of the kind and quality specified in his
contract to the value of $4,452.84, of which material the
contractor used on the building a quantity of the value of
$3,952.84, for which he has failed to make payment. And that
defendant, though requested so to do, has refused to pay the same.
The affidavit of the plaintiff in support of the declaration
follows the requirements of Rule 73.
After the general issue, defendant filed a special plea denying
liability on said bond because, after the execution and delivery of
the same, and without the knowledge or consent of defendant, the
Commissioners of the District of Columbia and the said Howison, its
principal, altered the contract the performance of which was
guaranteed by said bond. That said alteration consisted in the
entire changing of the building from one fronting on Eleventh
Street to one fronting on Harvard Street, which alteration involved
the contractor in considerable expense not contemplated in the
original contract, and prejudicial to defendant. That said
relocation of the building necessitated a material change in
grading the ground. That, prior to the change of location, the
contractor had graded the ground as required in the contract, and
expended therein the sum of $2,393.90. And that, by reason of the
change, said sum was a total loss to the contractor, and the
further excavation made necessary by the change of location was
done at a cost of $1,300.90.
The affidavit of defense alleged the said change in the contract
without its knowledge or consent, and that the
Page 234 U. S. 451
same necessitated a material change in the grading of the land,
which had been previously performed by the contractor at a
considerable expenditure not contemplated in the original contract,
and prejudicial to the defendant.
On motion under the 73d Rule of the Supreme Court of the
District of Columbia, the court entered judgment for the plaintiff
for the amount of the demand, and defendant has appealed
therefrom.
By stipulation, two other cases involving the same question here
presented are to abide the result of this case.
The act of Congress in compliance with the requirements of which
the aforesaid bond was executed (30 Stat. 906, c. 218), reads as
follows:
"An Act Relative to the Payment of Claims for Material and Labor
Furnished for District of Columbia Buildings."
"Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, That hereafter any
person or persons entering into a formal contract with the District
of Columbia for the construction of any public building, or the
prosecution and completion of any public work, or for repairs upon
any public building or public work, shall be required, before
commencing such work, to execute the usual penal bond, with good
and sufficient sureties, with the additional obligations that such
contractor or contractors shall promptly make payments to all
persons supplying him or them labor and materials in the
prosecution of the work provided for in such contract, and any
person or persons making application therefor and furnishing
affidavit to the department under the direction of which said work
is being or has been prosecuted that labor or materials for the
prosecution of such work has been supplied by him or them, and
payment for which has not been made, shall be furnished with a
certified copy of said contract and bond, upon which said person or
persons supplying such labor and materials shall have a right of
action, and shall be authorized to
Page 234 U. S. 452
bring suit in the name of the District of Columbia or the United
States, for his or their use and benefit, against said contractor
and sureties, and to prosecute the same to final judgment and
execution: Provided, That such action and its prosecution shall not
involve the District of Columbia or the United States in any
expense: Provided, That in such case the court in which such action
is brought is authorized to require proper security for costs in
case judgment is for the defendant."
"Approved, February 28, 1899."
The Court of Appeals further certifies that the following
question of law arises upon the record, that its decision is
necessary to the proper disposition of the cause, and, to the end
that a correct result may be reached, desires the instruction of
the Supreme Court of the United States upon that question,
to-wit:
Did the alteration of the terms of the contract by the District
of Columbia and the contractor, without the knowledge or consent of
the surety, have the effect to release the surety from the
obligation of the bond?
Page 234 U. S. 454
MR. JUSTICE PITNEY, after making the foregoing statement,
delivered the opinion of the Court.
The act of February 28, 1899 (30 Stat. 906, c. 218), under which
the bond in question was given, was modeled after an Act of August
13, 1894, entitled, "An Act for the Protection of Persons
Furnishing Materials and Labor for the Construction of Public
Works" (28 Stat. 278, c. 280). In an action founded upon a bond
given under the latter act, it was held by the Circuit Court of
Appeals for the Eighth Circuit, in
United States v. National
Surety Co., 92 F. 549, 551, that the obligation has a dual
aspect, it being given, in the first place, to secure to the
government the faithful performance of all obligations which a
contractor may assume towards it, and, in the second place, to
protect third persons from whom the contractor may obtain materials
or labor, and that these two agreements are as distinct as if
contained in separate instruments. It was consequently held that
the sureties in such a bond could not claim exemption from
liability to persons who had supplied labor or materials to their
principal, to enable him to execute his contract with the United
States, simply because the government and the
Page 234 U. S. 455
contractor, without the surety's knowledge, had made changes in
the contract subsequent to the execution of the bond, the changes
being such as did not alter the general character of the work
contemplated by the contract, or the general character of the
materials necessary for its execution.
In support of this decision, several cases from the state courts
were cited, among them
Dewey v. State, 91 Ind. 173, 185;
Conn. v. State, 125 Ind. 514, 518;
Steffes v.
Lemke, 40 Minn. 27, 29, and
Doll v. Crume, 41 Neb.
655, 660. They fairly sustain the conclusion reached. The cases
cited from the Indiana and Minnesota reports antedated the passage
of the Act of 1894, and may have furnished the suggestion for that
enactment.
The decision of the circuit Court of Appeals in
United
States v. National Surety Co. supra, although never until now
brought under the review of this Court, has been many times cited
and followed in the other federal courts.
Brown & Haywood
Co. v. Ligon, 92 F. 851, 857;
United States v.
Rundle, 100 F. 400, 402;
United States Fid. & Guar.
Co. v. Omaha Bldg. & Constr. Co., 116 F. 145, 147;
Chaffee v. United States Fid. & Guar. Co., 128 F. 918;
United States v. Barrett, 135 F. 189, 190;
Henningsen
v. United States Fid. & Guar. Co., 143 F. 810, 813;
City Trust &c. Co. v. United States, 147 F. 155, 156;
United States v. California Bridge & Constr. Co., 152
F. 559, 562;
Title G. & T. Co. v. Puget Sound Engine
Works, 163 F. 168, 174.
In
Guaranty Co. v. Pressed Brick Co., 191 U.
S. 416, and
Hill v. American Surety Co.,
200 U. S. 197,
200 U. S. 203,
this Court adopted a reasonably liberal construction of the Act of
1894 in view of the fact that it was evidently designed to furnish
the obligation of a bond as a substitute for the security which
might otherwise be obtained by attaching a lien to the property,
such lien not being permissible in the case of a government
work.
Page 234 U. S. 456
It seems to us that the construction given to that act in the
case in 92 F. is correct, and that it applies equally to the Act of
1899, now under consideration, and that this act, like the other,
should receive a reasonably liberal interpretation in aid of the
public object whose accomplishment is so evidently intended. Its
title is, "An Act Relative to the Payment of Claims for Material
and Labor Furnished for District of Columbia Buildings." The
enacting clause, as well as the title, shows that Congress
recognized that no legislation was necessary in order to enable the
Commissioners of the District to require "the usual penal bond,
with good and sufficient sureties," from a contractor engaged for
the construction of a public building. The object of the
legislation was to give legal sanction to the
"additional obligation that such contractor or contractors shall
promptly make payments to all persons supplying him or them labor
and materials in the prosecution of the work provided for in such
contract,"
and to give to such a laborer or materialman the right to bring
an action, if necessary, upon the bond, either in the name of the
District of Columbia or of the United States, for his own benefit,
against the contractor and sureties. The nominal obligee is, with
respect to these third parties, a mere trustee, and the obligors,
including the surety as well as the principal contractor, enter
into the obligation in full view of this. The public is concerned
not merely because laborers and materialmen (being without the
benefit of a mechanics' lien in the case of public buildings) would
otherwise be subject to great losses at the hands of insolvent or
dishonest contractors, but also because the security afforded by
the bond has a substantial tendency to lower the prices at which
labor and material will be furnished, because of the assurance that
the claims will be paid.
Stress is placed by counsel for the surety company upon the fact
that the building was materially altered, and in a
Page 234 U. S. 457
manner that involved the contractor in considerable expense not
contemplated in the original contract. If these alterations were
made pursuant to a stipulation for that purpose contained in the
contract, they were binding upon the surety unless they were so
extensive and material as to amount to a departure from the
original contract, rather than a permissible modification of its
details.
United States v. Freel, 92 F. 299, 99 F. 237,
186 U. S. 186 U.S.
309.
So far as the certificate shows, however, the contract here in
question contained no clause permitting changes. In such case, it
is beside the question to inquire whether the changes were
important, or indeed whether they prejudiced or benefited the
contractor. The rule that obtains in ordinary cases is that any
change in the contract made between the principals without the
consent of the surety discharges the obligation of the latter even
though the change be beneficial to the principal obligor.
But it lies at the foundation of this rule of
strictissimi
juris that the agreement altering the undertaking of the
principal must be participated in by the obligee or creditor in
order that it may have the effect of discharging the surety. This
is expressed or implied in all the cases.
Miller v.
Stewart, 9 Wheat, 680,
22 U. S. 703,
22 U. S.
708-709;
Sprigg v. Bank of Mt.
Pleasant, 14 Pet. 201,
39 U. S. 208;
Magee v. Manhattan Life Ins. Co., 92 U. S.
93,
92 U. S. 98;
Union Mut. Life Ins. Co. v. Hanford, 143 U.
S. 187,
143 U. S. 191;
Prairie State Bank v. United States, 164 U.
S. 227,
164 U. S. 233;
United States v. Freel, 186 U. S. 309,
186 U. S. 310,
186 U. S.
371.
In the case of a bond given under a statute such as the Act of
February 28, 1899, there is no single obligee or creditor. The
surety is charged with notice that he is entering into what is, in
a very proper sense, a public obligation, and one that will be
relied upon by persons who can in no manner control the conduct of
the nominal obligee, and with respect to whom the latter is a
mere
Page 234 U. S. 458
trustee, and therefore incapable, upon general principles of
equity, of bartering away, for its own benefit or convenience, the
rights of the beneficiaries. In the light of the statute, the
surety becomes bound for the performance of the work by the
principal in accordance with the stipulations of the contract, and
for the prompt payment of the sums due to all persons supplying
labor and material in the prosecution of the work provided for in
the contract.
What would be the result of a change not contemplated in the
original contract, as between the District of Columbia, consenting
to the change, and the surety company, not consenting thereto, is a
question not now before us, and respecting which we express no
opinion. But, with respect to obligations incurred by the
contractor to laborers and materialmen at least, so far as their
labor and materials are supplied in accordance with the original
contract, it is obvious, we think, that a construction which would
discharge the surety because of any change to which the laborers
and materialmen were not parties would defeat the principal object
that Congress had in view in enacting the statute. If the change
were so great as to amount to an abandonment of the contract and
the substitution of a substantially different one, so that persons
supplying labor and materials would necessarily be charged with
notice of such abandonment, a different question would be
presented. But in the case of such a change as was here made -- a
mere change of position and location of the building, without
affecting its general character, involving changes in grading, but
having nothing to do with the furnishing of the materials upon
which the action is based -- it seems to us that the responsibility
of the surety to the materialman remains unaffected.
The question certified will be answered in the
negative.
