Under the terms of the contract involved in this case for a
completed building on which partial payments were to be made as
work progressed, but which was destroyed by fire during
construction and never rebuilt by the contractor, who had received
several payments on account and who accepted notice of default and
abandoned the contract,
held that:
Where the government relets a contract with substantial
differences, the liability of the surety is not released from all
obligation, nor is his liability measured by the difference between
the two contracts, but his liability is measured by the actual loss
sustained by the government, in this case represented by the
partial payments made as work progressed and for which it received
nothing in return.
Page 236 U. S. 513
The liability of the surety became fixed on occurrence of
default, and was not released by failure of the government to have
the same kind of a building erected in place of the one not
delivered by the contractor.
The contractor's right under the contract to retain partial
payments was conditioned on his subsequent fulfillment of the
contract, and when he wholly defaulted and gave nothing in return,
he was obligated to repay the amounts received.
Under the contract in this case, the government, while
authorized to complete the work at the expense of the contractor,
was not confined to that remedy, but could recover from the
contractor or the surety the actual damages sustained.
The rule that a party suffering loss from breach of contract
must do what a reasonable man would do to mitigate the loss does
not apply where, as in this case, a fixed loss has been sustained
that cannot be mitigated.
Under Rev.Stat., §§ 649, 700, and 1011, as amended by
Act of February 18, 1875, findings of fact have the same effect as
the verdict of a jury, and this Court does not revise them, but
merely determines whether they support the judgment.
Delay on the part of the government in pressing its claim
against a contractor who has accepted partial payments, knowing
that he was not entitled thereto, does not amount to a waiver of
interest.
An exception furnishes no basis for reversal upon any ground
other than the one specifically called to the attention of the
trial court.
The weight of authority in England is adverse to the recovery of
interest from the surety in addition to the penalty of the bond,
but that rule has not invariably been followed in this country.
A surety, if answerable at all for interest beyond the amount of
the penalty of the bond, can only be held for such interest as
accrues from unjustly withholding payment after notice of default
of the principal.
United States v. Hills, 4 Cliff. 618,
approved.
194 F. 611 reversed.
This action was brought by the United States in the Circuit
Court for the Southern District of California against Augustus W.
Boggs and the United States Fidelity & Guaranty Company of
Baltimore, Maryland (which may be called, for convenience, the
"Guaranty Company"), to recover damages for the failure of Boggs to
perform his contract to construct for plaintiff a stone
Page 236 U. S. 514
mess hall and kitchen at the Rice Station Indian School in
Arizona, for the performance of which the Guaranty Company was his
surety upon a bond in the penal sum of $6,500. Upon plaintiff's
complaint and the answer of the Guaranty Company (Boggs having
failed to appear, and his default having been entered), the case
came on for trial before the circuit court, trial by jury being
formally waived under Rev.Stat. § 649. Elaborate findings of
fact were made, the substance of which is as follows: by the
contract, which was in writing and dated February 23, 1905, Boggs
agreed to furnish all materials and perform all work required for
the construction and completion of the building in strict and full
accordance with the requirements of the plans and specifications
which were annexed; covenanting that the entire work should be
completed and turned over to the United States on or before
September 1, and that (Article 4) if he failed to complete the work
in accordance with the agreement within that time,
"the said party of the first part [the United States] may
withhold all payments for work in place until final completion and
acceptance of same, and is authorized and empowered, after eight
days' notice thereof, in writing, to the party of the second part,
and the said party of the second part having failed to take such
action within the said eight days as will, in the judgment of the
party of the first part, remedy the default for which said notice
was given, to take possession of the said work in whole or in part,
and of all machinery and tools employed thereon, and all materials
belonging to the said party of the second part, delivered on the
site, and at the expense of said party of the second part, to
complete or have completed the said work, and to supply or have
supplied the labor, materials, and tools of whatever character
necessary to be purchased or supplied by reason of the default of
the said party of the second part; in which event the said party of
the second part and
Page 236 U. S. 515
his sureties of the bond to be given for the faithful
performance of this agreement shall be further liable for any
damages incurred through such default and any and all other
breaches of this contract."
By Article 9, the United States agreed to pay to the contractor,
on the presentation of proper receipts or vouchers, the sum of
$12,709,
"in consideration of the herein recited covenants and agreements
made by the party of the second part, as follows: Eighty (80)
percentum of the value of the work executed and actually in place
to the satisfaction of the party of the first part at the
expiration of each thirty (30) days during the progress of the
work, the amount of each payment to be computed upon the actual
amount of labor and materials expended during the said period of
thirty (30) days for which partial payment is to be made (the said
value to be ascertained by the party of the first part), and the
balance thereof will be retained until the completion of the entire
work, and the approval and acceptance of the same by the party of
the first part, which amount shall be forfeited by the said party
of the second part in the event of the nonfulfillment of this
contract, it being expressly covenanted and agreed that said
forfeiture shall not relieve the party of the second part from
liability to the party of the first part for any and all damages
sustained by reason of any breach of this contract."
Attached to the contract as a part of the specifications were
certain "general conditions" which (
inter alia) required
the contractor to be responsible for all damages to the building,
whether from fire or other causes, during the prosecution of the
work and until its acceptance, and declared that partial payments
were not to be considered as an acceptance of any work or material.
On or about April 12, Boggs commenced operations and furnished
certain materials and did certain work, but he did not at any time
complete the building in accordance with the contract, and, on the
contrary, willfully, intentionally, and
Page 236 U. S. 516
fraudulently disregarded the terms of the contract from the
beginning of his operations under it. On June 10, plaintiff paid
him $4,356.24 on account, and on July 21 the further sum of
$3,539.16, both payments being "pursuant to the terms of said
contract" and aggregating $7,895.40, no part of which has been
repaid to plaintiff. He not only failed to complete the work on or
before the 1st of September, but failed after that date to take
such action as would remedy his default. On or about October 27,
plaintiff rejected the work and materials and the building as
offered for acceptance by Boggs. On November 4, while the structure
was still in his possession, it was completely destroyed by fire.
Thereafter he did not, in accordance with the provisions of the
contract, commence the construction or reconstruction of the
building, and anything he did thereafter was outside of the
contract and without plaintiff's consent. On or about December 28,
by reason of his failure and refusal to perform the terms of the
contract, or to complete and turn over the building as therein
required, or to remedy his default, plaintiff took possession of
the site and notified Boggs and his representatives to vacate the
premises and leave the Indian Reservation, which they immediately
did. At the same time, plaintiff seized and confiscated certain
building materials, tools, and implements of the value of $2,418.58
then upon the premises and belonging to Boggs. It is further found
that Boggs willfully, intentionally, and fraudulently failed,
neglected, and refused to erect a structure in accordance with the
plans and specifications that were a part of his contract, although
plaintiff performed all conditions and obligations on its part, and
there are specific findings that plaintiff did not change or
abrogate the terms of the contract in any particular, nor extend
the time of performance, nor consent to the failure and delay on
the part of Boggs. In December, 1906, the United States advertised
for the construction
Page 236 U. S. 517
of a new mess hall and kitchen upon the same site, and in
January, 1907, entered into a written contract with one Owen for
the construction of such building for the sum of $16,600, in lieu
of the building that had been agreed to be built by Boggs; but the
contract with Owen was different in substantial respects from that
made between the plaintiff and Boggs, and the building actually
erected by Owen was likewise different; $1,200 of the contract
price agreed to be paid and actually paid to him had reference to
work wholly outside of the work provided for in the Boggs contract,
and $500 of the contract price agreed to be paid and actually paid
to Owen was for work and materials in excess of what was included
in the Boggs contract. Moreover, the cost of labor and building
supplies had materially increased between the time of Boggs'
default and the time of making the new agreement. Hence, the trial
court found that a comparison between the two contracts furnished
no basis for estimating plaintiff's damages.
Upon these findings, judgment was rendered in favor of the
United States for the amount of the two sums advanced to Boggs
during the progress of the work ($7,895.40), from which, however,
$2,418.58 was deducted as a set-off and counterclaim in favor of
defendants for the value of the materials confiscated. Interest was
allowed to plaintiff at 7% upon the amount of the "progress
payments" from September 1, 1905, until the date of judgment, and
interest at the same rate was allowed to defendants upon the amount
of the offset from December 28, 1905, the difference, which
plaintiff was held entitled to recover, being $7,403.09; but the
recovery against the Guaranty Company was limited to $6,500,
besides costs.
Upon cross-writs of error, this judgment was reviewed by the
circuit court of appeals, with the result that it was reversed for
error assigned by the Guaranty Company, and the cause remanded,
with directions to enter
Page 236 U. S. 518
judgment in its favor on the findings. 194 F. 611. The present
writ of error was then sued out.
Page 236 U. S. 522
MR. JUSTICE Pitney, after making the foregoing statement,
delivered the opinion of the Court.
The circuit court of appeals held in substance that, because,
after the default of Boggs in the performance of his contract, the
government waited more than a year before entering into a new
contract, during which time there was a material change in the cost
of labor and building supplies, and because the new contract then
made between the government and Owen was different in substantial
particulars from that upon which the Guaranty Company became
surety, the second contract furnished no proper basis for
estimating the damages sustained by plaintiff by reason of the
breach of the first, and therefore the Guaranty Company was wholly
released from liability.
For present purposes, we assume the entire correctness of the
court's view that, because of the substantial differences between
the work that was the subject of the Boggs contract and the work
that was afterwards let to Owen, the latter contract furnished no
proper basis for ascertaining the damages accruing to the
government by reason of the default of Boggs. The court rested its
decision
Page 236 U. S. 523
to this effect upon the language of Article 4 of the Boggs
agreement and its own previous decision in
American Bonding Co.
v. United States, 167 F. 910, since affirmed by this Court in
United States v. Axman, 234 U. S. 36.
But the question whether, by the letting of the Owen contract or
by whatever else was done or omitted by the government about
rebuilding after the default of Boggs, the responsibility of his
surety was wholly discharged is a very different question, not
concluded by the decision in the case cited. There, the government,
upon Axman's default, "annulled" his contract pursuant to its
fourth paragraph -- that is, undertook to complete it in his stead
and charge him with the excess cost. As appears from the reports of
the case (167 F. 915,
234 U. S. 234
U.S. 42,
234 U. S. 43),
it was
"not a suit to recover generally whatever damages the United
States would have sustained had Axman abandoned his contract, but a
suit for damages under the express stipulations of the contract
--"
that is to say, under its fourth paragraph. No other question
was considered or decided.
In the present case, Boggs wholly failed to construct the
building called for by his contract, either within the time
prescribed or at any time. His work and materials, and the building
as he offered it for acceptance, were rejected by the government,
and thereafter, while remaining in his possession, the structure
was completely destroyed by fire. He then took no steps to
construct or reconstruct the building in accordance with the
contract, but continued to willfully disregard its obligations, so
that, after waiting for an additional month and more, the
government took possession of the site and required him and his
representatives to vacate the premises, which they immediately did.
His default was complete, and upon the findings it cannot be deemed
to have resulted from anything done or omitted by the government.
Nor did the government receive
Page 236 U. S. 524
anything of value from him or as a result of his work except the
building materials, tools, and implements that were confiscated,
and for which allowance was made in the judgment. Upon this state
of facts, the Guaranty Company's liability clearly became fixed
upon the occurrence of the default, and it was not released by the
failure of the government to have the same work completed in
accordance with Article 4 unless, by the fair meaning of the
agreement, the government was obliged to rebuild, or at least was
excluded from recovering damages upon any other basis than a
completion of the building, as permitted by that article. For it is
plain, we think, that the making of the new contract cannot be
regarded as an alteration of the Boggs contract to the exoneration
of his surety. The very fact that the differences were so material
as to exclude the Owen contract from consideration as a thing done
by the government under the Boggs contract leaves it without any
relation to the rights of the present parties. Their rights and
liabilities between themselves, being already fixed by the complete
breach of the Boggs agreement, were not to be affected by any
subsequent and independent transaction between the government and
third parties.
Is the government, then, remediless against the Guaranty Company
for the default of its principal? The contract was entire and
indivisible; a completed building was the thing bargained for; the
partial payments were not to be considered as an acceptance of any
work or material; they were to be
"80 percentum of the value of the work executed, . . . the
amount of each payment to be computed upon the actual amount of
labor and materials expended;"
the balance was to be "retained until the completion of the
entire work," and forfeited in the event of nonfulfillment of the
contract, but such forfeiture was not to relieve the contractor
from liability for any and all damages by reason of any breach of
the contract. Aside
Page 236 U. S. 525
from the particular effect of Article 4, which will be
considered presently, the true intent and meaning are plain: the
"progress payments" were not to be treated as payments for parts of
a building, but as partial payments advanced on account of a
building to be completed thereafter as agreed. The contractor's
right to retain them was conditioned upon his subsequent
fulfillment of the contract. And when he wholly defaulted, and in
effect abandoned the contract, the most direct and immediate loss
sustained by the government was the moneys it had paid him on
account, and for which he had given nothing in return. Conceding
that there was not, technically, a failure of consideration,
because his promise, and not its performance, was in strictness the
consideration (
United & Globe Rubber Mfg. Co. v.
Conard, 80 N.J.L. 286, 293), still the substance of the matter
is the same, so far as concerns the measure of the detriment to the
promisee.
The general rule, that a contract for the complete construction
of a building for an entire price, payable in installments as the
work progresses, is an entire contract, and that a willful refusal
by the contractor to complete the building entitles the owner to a
return of the installments paid, has been declared by the state
courts in a number of cases.
School Trustees v. Bennett,
27 N.J.L. 513, 517;
Tompkins v. Dudley, 25 N.Y. 272;
Bartlett v. Bisbey, 27 Tex.Civ.App. 405, 408, and cases
cited. This Court, in a case that has been often cited and
followed, where a government contractor, without fault of his own,
was prevented from performing his contract owing to the abandonment
of the project, held that he was entitled to recover from the
United States what he had expended towards performance (less the
value of his materials on hand), although he failed to establish
that there would have been any profits.
United
States v. Behan, 110 U.S.
Page 236 U. S. 526
338,
110 U. S. 344.
And see Holt v. United Security Life Ins. Co., 76 N.J.L.
585, 597.
We do not think Article 4 can properly be so construed as to
restrict the government to the remedy there indicated in the event
of default by the contractor, or to exclude recovery of the actual
damages directly attributable to such default if, in the reasonable
exercise of its rights, the government determines not to complete
the building. In the language of the article, the government is
"authorized and empowered" -- not "obliged" -- to complete the work
at the expense of the contractor, "
in which event" the
contractor and his sureties shall be "
further liable for
any damages incurred through such default and
any and
all other breaches of this contract." The phraseology
indicates a purpose to give to the government a right additional to
those it would otherwise have; the stipulation is made for its
benefit, and, being optional in form, cannot be construed into a
covenant in favor of the defaulting contractor or his surety. Even
in case the option is exercised, the language quoted leaves
contractor and surety liable for other damages;
a
fortiori, the intent is to preserve their liability in case
the option is not exercised.
We have not overlooked the familiar rule that a party suffering
loss from breach of contract ought to do what a reasonable man
would to mitigate his loss.
Wicker v.
Hoppock, 6 Wall. 94,
73 U. S. 99;
Warren v. Stoddart, 105 U. S. 224,
105 U. S. 229.
But there is nothing in the facts as found to call for the
application of this rule, for there is nothing to show that the
government acted unreasonably in not exercising its option to
rebuild under Article 4. Nor does it appear that the loss would
probably have been lessened by rebuilding; that "progress payments"
would, of course, have remained as a part of the loss, in addition
to the cost of new construction.
In our opinion, therefore. the court of appeals erred
Page 236 U. S. 527
in holding that, because of the failure of the government to
complete Boggs' agreement in accordance with Article 4, the surety
was released.
The Guaranty Company insists, however, that there are other
grounds upon which the decision in its favor may be sustained: that
the representatives of the government were grossly negligent in
making advance payments to Boggs, in view of the supposed fact that
the building contract was then being openly and flagrantly
violated, and the defects in the work were conspicuously evident;
that the government is concluded by the fact of making these
payments, or, if not, then by its alleged disregard of the
provisions of the contract relating to the time of making them, and
that, in these and other respects, the government departed from the
contract, waived breaches by the contractor, extended his time for
performance, surrendered valuable security, and enlarged the
surety's risk, thereby releasing it from liability. Assuming these
defenses were properly pleaded, we still need spend no time upon
them, since the argument made here to support them is based not
upon the findings, but upon a general review of the evidence and a
series of inferences drawn from it that are inconsistent with the
facts as found by the trial court. The findings have the same
effect as the verdict of a jury, and this Court does not revise
them, but merely determines whether they support the judgment.
Rev.Stat. §§ 649, 700, 1011 (amended by Act of February
18, 1875, c. 80, § 1, 18 Stat. 318);
Norris v.
Jackson, 9 Wall. 125,
76 U. S. 128;
St. Louis v. Wiggins Ferry
Co., 11 Wall. 423,
78 U. S. 428;
Dickinson v. Planters'
Bank, 16 Wall. 250,
83 U. S. 257;
Insurance Co. v.
Folsom, 18 Wall. 237,
85 U. S. 248;
British Queen Mining Co. v. Baker Silver Mining Co.,
139 U. S. 222.
It results from what has been said that the judgment of the
circuit court of appeals discharging the Guaranty Company from
liability must be reversed. And we next consider what judgment
ought to have been rendered by
Page 236 U. S. 528
that court upon the record and bill of exceptions brought up
from the trial court, in view of the assignments and cross
assignments of error.
Baker v. Warner, 231 U.
S. 588,
231 U. S. 593;
Baer Bros. v. Denver & R.G. R. Co., 233 U.
S. 479,
233 U. S. 490;
Fort Scott v. Hickman, 112 U. S. 150,
112 U. S.
164-165;
Allen v. St. Louis Bank, 120 U. S.
20,
120 U. S. 30,
120 U. S. 40;
Cleveland Rolling Mill v. Rhodes, 121 U.
S. 255,
121 U. S. 264.
In addition to the questions already disposed of, it is
contended in behalf of the Guaranty Company that the government's
claim for interest is without merit, and ought to have been
overruled. Interest was allowed upon the advance payments not from
the respective dates upon which they were made, but from the date
when, by the terms of the contract, the building ought to have been
completely finished. In view of the facts, we think there was here
no error. The findings make it clear that Boggs not only willfully
and persistently but fraudulently departed from the requirements of
his contract and refused to perform its obligations. He therefore
accepted the money well knowing that he had no just right to it,
and certainly when the time fixed for complete performance expired,
without any attempt on his part to perform it, then, if not sooner,
his obligation to return the money to the government was clear, and
he was not, under the circumstances, entitled to await a demand
from the government before repaying it. The suggestion that the
government has waived interest by delay in pressing its claim is
untenable. The cases cited under this head (
Redfield v.
Ystalyfera Iron Co., 110 U. S. 174;
United States v. Sanborn, 135 U.
S. 271,
135 U. S. 281;
Redfield v. Bartels, 139 U. S. 694,
139 U. S. 702)
are plainly distinguishable.
On the other hand, the government insists that it is entitled to
recover as against the Guaranty Company, in addition to the penal
sum named in the bond, interest thereon from September 1, 1905, the
date of Boggs' default, or at least from January 16, 1906, when it
is said
Page 236 U. S. 529
the surety was notified of the default. We are referred to
nothing, and have observed nothing, in the findings to the effect
that such notice was given to the surety at or about the date
mentioned. The action was commenced more than two years thereafter.
But, aside from this, the only exception taken in the trial court
to furnish support for the present contention was:
"To the failure of said court to . . . decide that plaintiff is
entitled to interest on the sum of $6,500 from the 1st day of
September, 1905, and to the failure of the court to enter judgment
against defendant for such interest."
We do not think this is sufficient to attribute error to the
trial court as for overruling a claim for interest on the penalty
of the bond from the time of demand made upon the surety, or notice
to it of the principal's default. No such point was raised. The
claim that was made and overruled was for interest from the time of
the default, irrespective of notice to the surety, and that
presents a very different question of law.
The primary and essential function of an exception is to direct
the mind of the trial judge to a single and precise point in which
it is supposed that he has erred in law, so that he may reconsider
it and change his ruling if convinced of error, and that injustice
and mistrials due to inadvertent errors may thus be obviated. An
exception therefore furnishes no basis for reversal upon any ground
other than the one specifically called to the attention of the
trial court.
Beaver v. Taylor, 93 U. S.
46,
93 U. S. 55;
Robinson v. Belt, 187 U. S. 41,
187 U. S. 50;
Addis v. Rushmore, 74 N.J.L. 649, 651;
Holt v. United
Security Life Ins. Co., 76 N.J.L. 585, 593. And the practice
respecting exceptions in the federal courts is unaffected by the
Conformity Act, § 914, Rev.Stat..
Chateaugay Iron Co.,
Petitioner, 128 U. S. 544,
128 U. S. 553;
St. Clair v. United States, 154 U.
S. 134,
154 U. S.
153.
We merely consider therefore whether (where the actual damages
exceed the amount of the penalty) the
Page 236 U. S. 530
United States is entitled, as against the surety, to interest
upon the penal sum from the time of the principal's default, in the
absence of notice of the default given to the surety, or any demand
made upon it. There has been much contrariety of opinion upon the
question whether, in any case, the obligee in a penal bond can
recover interest in addition to the penalty. The weight of
authority in England is adverse to the recovery. 1 Wms. Saund. 58,
note;
White v. Sealy, 1 Dougl. K.B. 49;
Wilde v.
Clarkson, 6 T. R. 303 (disapproving
Lonsdale v.
Church, 2 T. R. 388);
Tew v. Winterton, 3 Bro.C.C.
489, 29 Eng. Reprint, 660, 663, note. In this country, the tendency
of the decisions in the state courts seems to be in favor of the
allowance of such interest.
Perit v. Wallis
(Pa.Sup.Ct.), 2 Dall. 252,
2 U.S.
255;
Williams v. Willson, 1 Vt. 266, 273;
Judge
of Probate v. Heydock, 8 N.H. 491, 494;
Wyman v.
Robinson, 73 Me. 384, 387;
Carter v. Thorn, 18 B.
Mon. 613, 619. The bond in suit appears to have been made in
California, but the contract was to be performed upon a government
reservation within what was then the Territory of Arizona.
See
Scotland County v. Hill, 132 U. S. 107,
132 U. S. 117.
We are referred to nothing in the law of that state or territory
indicating a local rule. In this Court, although the question seems
not to have frequently arisen, the English rule has usually, but
not invariably, been followed.
M'Gill v. Bank of United
States, 12 Wheat. 511,
25 U. S. 515;
Farrar v. United
States, 5 Pet. 373,
30 U. S. 385;
Ives v. Merchants'
Bank, 12 How. 159,
53 U. S.
164-165;
United States v. Broadhead,
127 U. S. 212.
In the state of the decisions, we may safely apply the rule
followed by Mr. Justice Clifford in a case at the circuit, and we
need go no further in order to overrule the contention raised by
the government at the trial of the present case:
"Sureties, if answerable at all for interest beyond the amount
of the penalty of the bond given by their principal, can only be
held for such an amount as
Page 236 U. S. 531
accrued from their own default in unjustly withholding payment
after being notified of the default of the principal."
United States v. Hills, 4 Cliff. 618, Fed.Cas. No.
15,369. This is, in effect, the same rule followed by this Court in
Ives v. Merchants
Bank, 12 How. 159,
53 U. S.
164-165.
See also United States v. Quinn, 122
F. 65.
We find nothing else in the record requiring discussion. The
result is that the judgment of the circuit court of appeals should
be reversed, and that of the circuit court affirmed.
Judgment reversed.
MR. JUSTICE McREYNOLDS took no part in the consideration or
decision of this case.
