1. Jurisdiction over an appeal from a state court may be
sustained with the aid of a continuance after the case has been
reached for argument, by obtaining from the state court, duly
certified, and adding to the record, a supplement to its opinion
showing that the federal question here relied on by the appellant
was raised in and decided by that court. P.
297 U. S.
662.
2. A state law relative to the settlement of public construction
contracts, which attempts retroactively to release the surety on a
bond given by the contractor for the security of the claims of
materialmen, and to substitute therefor, without their consent, the
obligation of another bond, not merely changes the remedy but
destroys substantive obligations in violation of the contract
clause of the Constitution. P.
297 U. S.
662.
3. A party whose rights under the Federal Constitution are
prejudiced by a decision of a state supreme court construing a
state statute for the first time is not estopped from attacking the
decision on appeal because he did not anticipate such construction
in the earlier stages of the case, but relied upon another, not
unreasonable, construction of the statute and invoked it in his own
behalf. P.
297 U. S.
665.
4. The rule that, when the decision of a state court may rest
upon a nonfederal ground adequate to support it, this Court will
not take jurisdiction to determine the federal question has no
application where, as here, the nonfederal ground might have been
considered by the state court, but was not. P.
297 U. S. 666.
Reversed.
Appeal from a judgment affirming a Judgment of the state court
of appeals, which reversed a decree of the chancellor, in a suit
involving the question of the liability of the surety company on a
contractor's bond as affected by a statute of the State.
Page 297 U. S. 658
MR. JUSTICE ROBERTS delivered the opinion of the Court.
The present appeal challenges a statute of Tennessee on the
ground that, as construed and applied, it impairs the obligation of
a contract in contravention of Art. I, § 10 of the Federal
Constitution.
March 12, 1928, National Construction Company made a contract
with the State, through its Department of Highways and Public
Works, for the construction of a bridge. An act of 1917 required
such a contractor to furnish a bond with surety to protect the
State and to secure payment to persons furnishing materials,
supplies, and labor for the project. [
Footnote 1] The company executed
Page 297 U. S. 659
such a bond with the appellee as surety. The appellant agreed
with the Construction Company to furnish certain labor and
materials for the erection of the bridge. Upon completion of the
structure, the appellant claimed a balance of about $59,000. There
remained in the possession of the Highway Department some $77,000
which had been retained out of the contract price as directed by
the Act of 1917. In the meantime, the Act had been amended on April
11, 1929, [
Footnote 2] to
provide that, instead of withholding the retained percentage
pending the presentation of claims by subcontractors and paying
into court so much as might be necessary to answer suits brought on
those claims, the Commissioner of Highways might, upon the date of
final settlement, release and pay to the principal contractor the
amount so retained, against a refunding bond with proper surety,
conditioned for the payment of valid claims of subcontractors.
[
Footnote 3] Pursuant to this
amendatory act, the Commissioner,
Page 297 U. S. 660
without notice to or consent of the appellant, made final
settlement with the Construction Company and paid it the retained
percentage, taking a refunding bond with the Equitable Casualty
& Surety Company as surety. Thereupon the appellant filed a
bill in the Chancery Court of Davidson County against the
Construction Company, the appellee as surety on the contractor's
bond, the Commissioner, and the Equitable Company as surety on the
refunding bond, reciting the facts and praying a decree for the
balance due under its contract. The Construction Company answered
and cross-claimed for alleged breach of contract, asserting that
there was no sum due the appellant. The appellee answered asserting
that the payment of the retained percentage and the acceptance of a
refunding bond released it as surety from liability to the
Department of Highways or to subcontractors. The Commissioner's
answer recited his acts in the premises. The appellant replied to
the cross-bill. A decree was entered in favor of the Commissioner
against the Construction Company and Equitable Company on the
refunding bond. Subsequently the Commissioner informed the court
that the Equitable Company had become insolvent, and it was
proposed to substitute a refunding bond of the Construction Company
as principal and Consolidated Indemnity & Insurance Company as
surety in the penal sum of $40,000, in place of the original
refunding bond, and lodge the new bond in court, such action not to
release the Construction Company under the original refunding bond,
but to operate as a release of the receiver and liquidating agent
of the Equitable Company. It was ordered that the bond be taken and
lodged in court to await the outcome of the litigation.
The chancellor thereafter heard the cause on the merits, found
in favor of the appellant for a balance of
Page 297 U. S. 661
approximately $58,000, held that the amendatory act of 1929 did
not affect the appellee's liability under the bond, but substituted
a refunding bond in lieu of the moneys retained by the
Commissioner, that the appellant should look first to the refunding
bond and, after its exhaustion, recover from the appellee any
amount remaining unpaid. The appellee took the case to the Court of
Appeals of the State, where it insisted upon its position that the
acceptance of a refunding bond and the release of the retained
percentage operated to discharge its bond. That court reversed the
chancellor's decision, holding that the Act of 1929 was prospective
in operation, and did not apply to the State's contract with the
Construction Company; that the action of the Commissioner in taking
a refunding bond and releasing the retained percentage was
unlawful, operated to the prejudice of the appellee as surety on
the contract bond, and released it from liability. Both appellant
and appellee were granted writs of certiorari by the Supreme Court
of Tennessee. The former assigned error to the holding that the
action of the Commissioner in paying over the retained funds and
taking a refunding bond released the appellee as surety. The latter
assigned error to the holding that the amendatory act of 1929 was
inapplicable to the contract in question and that the Commissioner
was not authorized thereby to proceed as he did, and thus satisfy
and discharge the obligation of appellee's bond.
Upon grounds differing from those stated by the Court of
Appeals, the Supreme Court affirmed the decree. It held the
amendatory act retroactive and applicable to the contract of the
Construction Company, and the Commissioner's action lawful and
effective to supersede and annul the contract bond.
In the course of the opinion, the court said: " . . . our
construction of chapter 80 of the Acts of 1929 does
Page 297 U. S. 662
not bring that statute into any constitutional difficulty."
Except for this statement, the record failed to disclose that a
question under the Federal Constitution had been presented or
decided. In the circumstances, this Court had no jurisdiction upon
appeal. Counsel for the appellant requested at the bar a
continuance of the cause to afford opportunity for amplification of
the record disclosing the basis of decision. [
Footnote 4] The application was granted, a
petition was filed in the court below, and, in response thereto,
the court added to its opinion a recital that a reargument had been
ordered upon "the constitutionality, construction, and
applicability" of Chapter 80 of the Acts of 1929, and, prior to
reargument, counsel for the appellant had filed a brief raising the
federal constitutional question under Article I, § 10, and the
Court intended to express the opinion that the act, as construed by
it, "did not impair the obligation of contracts in violation of . .
. the contract clause of . . . the Constitution of the United
States." These additional proceedings have been certified and added
to the record. Upon the record as thus supplemented, we have
jurisdiction.
The contention is that Chapter 80 of the Acts of 1929, as
construed, releases and discharges the obligation of the appellee's
bond to pay the balance due the appellant, and that such
destruction of the obligation cannot be justified by substituting a
right of action on another bond without appellant's consent. The
appellant says that, under the local law, the bond given by the
appellee is of a dual nature, running both to the State and to
subcontractors, and its execution created a direct contractual
relation between the surety and those who furnished material and
labor for the erection of the bridge, the obligation of appellee to
appellant coming into existence at the moment the latter made its
contract with the Construction
Page 297 U. S. 663
Company. [
Footnote 5] The
Supreme Court of Tennessee, though so holding, thought the Act of
1929 merely affected the appellant's remedy, without impairing its
substantive rights. It treated the Act of 1917, pursuant to which
appellee gave its bond, as having "the same general purpose as the
mechanic's lien statutes." It said: "The beneficiaries of the
legislation are given a lien under private contracts, recourse on
the bond under public contracts." After stating that it was
unnecessary to decide whether a mechanic's lien -- a remedy created
by statute and not by the contract of the parties -- may be
abolished or modified by statute without impairing the obligation
of the contract, or, on the contrary, the lienor has a vested
interest in the remedy, upon accrual of his lien, of which the
cannot be deprived without such impairment, the court disposed of
the appellant's contention thus:
"If we concede that the materialman's lien in the one instance,
or his recourse on the bond in the other instance, enters into his
contract and is a part thereof, and that a remedy so embraced
cannot be impaired without impairing the obligation of the
contract, still our construction of Chapter 80 of the Acts of 1929
does not bring that statute into any constitutional difficulty. We
construe the statute as regulating, after its passage, the
procedure to be followed by all parties in respect to the final
settlement of every highway contract, whether the contract itself
was made before or after the enactment of Chapter 80 of the Acts of
1929."
This view seems to us to confuse the remedies for the
enforcement of two distinct contracts involved in every similar
situation. The subcontractor has a contract with
Page 297 U. S. 664
the principal contractor, but none with the owner. The
mechanics' lien law gives the subcontractor no additional redress
against the principal contractor for breach by the latter of his
subcontract. Because the subcontractor's labor and material go to
enhance the value of the owner's property, the law places that
property in peril of a lien for payment of the subcontractor unless
the owner sees that he is paid. Abolition of the lien destroys no
remedy which the subcontractor could have invoked as against his
employer, with whom alone he has a contract. The Act of 1917, on
the other hand, instead of creating a right of lien against the
owner, who is a stranger to the subcontract, requires that, if a
bidder for public works is to become the contractor therefor, he
must procure a bondsman for the payment of his subcontractors. The
statute itself confers no contractual right on any subcontractor,
nor does it, by its own force, confer upon him any new remedy for
the enforcement as against the principal contractor of the
obligation of any contract the two may make. A bondsman is invited
to come forward and agree to indemnify the subcontractor. If he
does so, he acts voluntarily. For a consideration sufficient to
move him, he contracts directly with the subcontractor to assure
the satisfaction of his just claims against the principal
contractor. The remedy for a breach of this undertaking is an
action at law.
The appellee voluntarily gave its bond. How does Chapter 80 of
the Acts of 1929 affect the obligation of that contract? As
construed by the supreme court of the state, it releases and
discharges the obligation of the bond, and substitutes therefor the
obligation of another bond without the acquiescence of the obligee.
This is not to substitute a new for the old remedy against the
surety. It is to declare the surety's obligation unenforceable --
in short, no longer a subsisting obligation.
Page 297 U. S. 665
Beyond doubt, the statute thus violates the contract clause of
the Constitution.
The respondent insists that, as the appellant joined the
Equitable Company, surety on the refunding bond, as a defendant, it
sought to take advantage of the amendatory act of 1929, and is now
estopped to question the constitutional validity of the statute.
Appellant replies that the suit went upon the theory adopted by the
chancellor that the amendatory act was not retroactive, so as to
release the earlier bond, but intended merely to substitute a
refunding bond in the place of the funds retained by the Highway
Commissioner which, under the original act, were also held for
satisfaction of the appellant's claim. Such a construction of an
act which had not been passed upon by any court was permissible,
and if, as now appears, the appellant was in error in so construing
the act, the mistake cannot be made the basis of an estoppel. In
both appellate courts, the appellant insisted on its original view
that the Act of 1929 did not operate to discharge the obligation of
the appellee's bond. The appellee asserted no estoppel in either of
those tribunals. Not until the decision of the supreme court was
there a holding that the act retroactively affected the
enforceability of the bond. Not until then was there occasion for
appellant to urge that, if so construed, the act would impair the
obligation of the bond. As we have indicated, the record discloses
that, when this construction of the act appeared probable, the
appellant promptly raised the constitutional question. It cannot be
estopped so to do by its previous insistence upon a construction
which would render the statute consistent with the Act of 1917 and
present no constitutional difficulty. [
Footnote 6] The appellee says that estoppel, a nonfederal
ground, adequate to
Page 297 U. S. 666
support the judgment, was in the case from its inception. The
point was not made or considered in the state courts. The validity
of the act was adjudged on the issue of impairment of the
obligation of the appellee's bond. We do not therefore consider the
defense of estoppel.
"The rule that, when the decision of a state court may rest upon
a nonfederal ground adequate to support it, this Court will not
take jurisdiction to determine the federal question has no
application where, as here, the nonfederal ground might have been
considered by the state court, but was not. [
Footnote 7]"
The judgment is reversed, and the cause remanded for further
proceedings not inconsistent with this opinion.
So ordered.
[
Footnote 1]
Chapter 74, Public Acts of Tennessee 1917 (p. 217). By § 6 (p.
223) it is provided:
"All contractors with whom contracts are made by the Department
shall enter into good and solvent surety bond in an amount fixed by
the Department, conditioned upon the full and faithful performance
of every part and stipulation of the contract, especially the
payment for all materials purchased and for all labor employed in
the contemplated work. . . . Not more than ninety percent of the
contract price shall be paid on any contract until it is completed
and the work is accepted. Before final acceptance, the contractor
must furnish evidence to satisfy the Department that all the
material used by him, his subcontractors, or his agents, has been
fully paid for and all laborers and other employees working for
him, his subcontractors, or his agents, have been fully paid. When
this is done, full settlement may be made with the contractor, but
not until thirty days' notice in some newspaper . . . that
settlement is about to be made and notify [
sic] all
claimants to file notice of their claim with the Secretary of the
Department. The Secretary of the Department shall withhold a
sufficient sum from the contract price due to pay all claims . . .
of which notice is filed with him, for a reasonable time to allow
claimants to sue for and prove their claims against the contractor
or his agent, in some court of competent jurisdiction."
[
Footnote 2]
Public Acts of Tennessee 1929, c. 80, pp. 173-175.
[
Footnote 3]
"SECTION 1. . . ."
"(a) The Secretary of the Department [now the Commissioner of
Highways and Public Works] shall withhold a sufficient sum from the
contract price due to pay all claims, of which notice is filed with
him, for a period of sixty days from the date of the last
advertising, to allow claimants to sue and prove their claims
against the contractor of his agent, in some court of competent
jurisdiction. In the event suit is brought against the contractor
within the said sixty days from the date of the last advertising,
by any claimant, the Department or its officers shall pay the
amount of said claim into court. But, in all cases where suits are
not brought within the said period of sixty days, the Secretary
shall pay said sum or sums so withheld to the contractor."
"(b) On the date set for full and final settlement with the
contractor, the contractor may make proper refunding bond to the
State of Tennessee for the amount of any sum or sums so held for
the said period of sixty days, such bond to be approved by the
Commission, whereupon the Commissioner or the Department of
Highways and Public Works shall pay such contractor in full."
[
Footnote 4]
Compare Lynch v. New York, 293 U. S.
52.
[
Footnote 5]
City of Bristol v. Bostwick, 139 Tenn. 304, 310, 317,
202 S.W. 61;
Cass v. Smith, 146 Tenn. 218, 227, 240 S.W.
778, citing and quoting
Equitable Surety Co. v. United
States, 234 U. S. 448;
Standard Oil Co. v. Jamison Bros., 166 Tenn. 53, 55, 59
S.W.2d 522.
[
Footnote 6]
Compare Saunders v. Shaw, 244 U.
S. 317;
Great Northern Railway Co. v. Sunburst Oil
& Refining Co., 287 U. S. 358,
287 U. S. 367.
[
Footnote 7]
Grayson v. Harris, 267 U. S. 352,
267 U. S.
358.