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Gypsum Contractors Inc. v. American Surety Co.

Decided: May 7, 1962.

GYPSUM CONTRACTORS, INC., PLAINTIFF-RESPONDENT,
v.
AMERICAN SURETY COMPANY OF NEW YORK, DEFENDANT-APPELLANT



For reversal -- Chief Justice Weintraub, and Justices Jacobs, Francis, Proctor, Hall, Schettino and Haneman. For affirmance -- None. The opinion of the court was delivered by Francis, J.

Francis

[37 NJ Page 317] Plaintiff, Gypsum Contractors, Inc., a subcontractor, instituted this suit in the Superior Court, Law Division, on two bonds furnished by defendant, American Surety Company of New York, on behalf of the general contractor, F.D. Rich Construction Co., Inc. The bonds were to secure payment for all labor and materials furnished in the prosecution of the work covered by the principal contracts calling for the construction of homes for military personnel at the United States Air Force Base in Syracuse, New York. The complaint alleges the supplying of labor and materials to Rich Construction Co. in connection with the project and its failure to pay plaintiff for them. American

Surety Company, a New York corporation licensed to do business in New Jersey, in accordance with N.J.S.A. 17:32-2, had appointed the Commissioner of Banking & Insurance of this State as its agent for the acceptance of service of process in actions properly brought against it here. In this case the summons was served in that fashion. Following service, defendant obtained a stipulation from plaintiff extending the time for answer or to make a motion directed to the complaint. A motion was then made to dismiss the action for lack of jurisdiction of the New Jersey courts. After argument the trial court declined to dismiss, whereupon the Appellate Division granted leave to appeal. We certified the matter on our own motion.

It is undisputed that Rich Construction Co., as general contractor, entered into two contracts with the Department of the Air Force for the construction of Armed Services Housing Projects (housing for military personnel) at the United States Air Force Base at Syracuse, New York. Plaintiff's allegation in the complaint of the furnishing of labor and materials therefor under a written agreement with Rich Construction Co. is likewise undenied on the record before us.

As a condition precedent to the award of a contract for the construction "of any public building or public work of the United States," the Miller Act, 40 U.S.C.A. § 270a, requires the contractor to furnish two surety bonds satisfactory to the officer awarding the contract. One must be a performance bond "for the protection of the United States"; the other must be a payment bond for the protection of all persons supplying labor and material in the prosecution of the work and "for the use of each such person." The standard forms of such bonds prescribed by the Code of Federal Regulations in 1935 appear in the Appendix of Title 41, Public Contracts, §§ 54.15, 16, 41 U.S.C.A. Appendix. We are concerned in the present case only with a payment bond, the conditions of which substantially match that form, as well as

the form prescribed in 1956 by the Federal Housing Commission in connection with the Capehart Act, to be discussed hereafter.

Section 270b of Title 40 confers on every person who has furnished labor or material in the doing of the work covered by the construction contract for which a payment bond has been provided, and who has not been paid in full therefor within a fixed time limit, a right to sue on the bond. It also gives a right of action thereon to a person having direct contractual relationship with a subcontractor but having no contractual relationship with the contractor, who supplies labor or material, providing he gives written notice, in the manner prescribed, to the contractor within ninety days from the date of the last labor performed or materials furnished. The provisions of 270b are not specifically included in the Miller Act standard form referred to above. Obviously, that is unnecessary as they would be read into the bond in any event. Mention is made of the fact only to note that they are written into the payment bond now before us in accordance with the 1956 Housing Commissioner's prescribed form.

Subsection (b) of 270b ordains:

"Every suit instituted under this section shall be brought in the name of the United States for the use of the person suing, in the United States District Court for any district in which the contract was to be performed and executed and not elsewhere, irrespective of the amount in controversy in such suit, * * *." (Emphasis ours)

This limitation represents positive Congressional policy and controls the selection of the forum where action may be brought on the bond. United States v. Congress Construction Co., 222 U.S. 199, 32 S. Ct. 44, 56 L. Ed. 163 (1911); United States for Use and Benefit of Bryant Electric Co. v. Aetna Casualty & Surety Company, 297 F.2d 665 (2 Cir. 1962); Lasley v. United States, 285 F.2d 98 (5 Cir. 1960); United States for Use and Benefit of Fairbanks Morse & Co. v. Bero Construction Corporation,

148 F. Supp. 295 (D.C.N.Y. 1957); United States v. Zschach Const. Co., 110 F. Supp. 551 (D.C. Okla. 1953); United States to Use of New York Plumbers' Specialties Co. v. Silverburgh Const. Co., 10 F. Supp. 121 (D.C.N.Y. 1935); Pierce Contractors v. Peerless Casualty Company, 81 So. 2 d 747 (Fla. Sup. Ct. 1955); Alleva v. Maryland Casualty Co., 248 App. Div. 599, 287 N.Y.S. 583 (App. Div. 1936); Gardner v. Roberts-Nash Const. Corp., 104 N.Y.S. 2 d 657 (Sup. Ct. 1951). In Congress Construction Co., supra, the United States Supreme Court, in dealing with the forerunner of the Miller Act, recognized essentially the same provision as a regulation of jurisdiction in the sense of power to entertain the suit. In effect, the court considered the provision as a withdrawal of suits on such bonds from the general jurisdiction of the federal trial courts, in cases where that jurisdiction would normally apply. Subsection (b) of 270b does not specify that its provisions shall be incorporated ...


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