The opinion of the court was delivered by: LANE
This action is brought in two counts against a prime contractor and its surety to recover on payment bonds for work and labor performed on a Capehart housing project.
On the 5th day of October 1959, defendant Terminal Construction Corporation (hereinafter referred to as 'Terminal'), contracted with the United States of America, acting through the Department of the Air Force, to construct certain Armed Services housing projects at McGuire Air Force Base, New Jersey. As required by the Capehart Act, 69 Stat. 651 (1955), as amended, 70 Stat. 1110 (1956), 42 U.S.C. § 1594(a)(1958), Terminal, as principal, and defendant American Surety Company of New York, as surety, executed a series of payment bonds
pursuant to the terms of which they agreed, jointly and severally, to make payments to all claimants as therein defined for labor and material furnished in the prosecution of the work.
Plaintiff, National State Bank of Newark, as assignee of claims of certain laborers on the project, seeks to recover from the prime contractor and surety, alleging that jurisdiction is based upon the Capehart Act and the Miller Act, 49 Stat. 793 (1935), as amended, 40 U.S.C. §§ 270a-270d, as amended, 40 U.S.C. §§ 270b-270c (Supp. III, 1962).
It appears that on September 14, 1959, Terminal, prime contractor, entered into two subcontracts with 'O. A. Tatro and E. J. Morin, individually, T & M Plumbing Co., Inc., * * * in a Joint Venture with Kantor Brothers, Inc., * * *.' One of said subcontracts (S-12) covered the items of work involving plumbing installations as set out in the prime contract and was in the sum of $ 1,288,500; the other (S-13) covered all items of water and heating system installations and was in the sum of $ 1,272,500. Each subcontract was signed by an officer of T & M Plumbing Co., Inc., and of Kantor Brothers, Inc., and by Oris A. Tatro, Ernest J. Morin and Irving Kantor, individually. In both instances Terminal waived the usual requirement that the subcontractor supply separate performance and payment bonds issued by a responsible surety acceptable to the contractor and approved by the contractor as to form and substance, accepting in lieu thereof the signature of all the parties to the contract and the guarantee of Irving Kantor.
On the 21st day of October 1959, T & M Plumbing Company, Inc., and Kantor Brothers, Inc., entered into an agreement providing for their participation in a joint venture as subcontractor to Terminal wherein they agreed upon a division of the responsibilities of performance of the subcontracts. This agreement was signed by Oris A. Tatro, as president of T & M Plumbing Company, and by Irving Kantor, as president of Kantor Brothers, Inc., and it contained the following provisions:
'A. The joint venture shall be called T & M-McGuire and is formed for the specific purpose of performing the contracts #S-12 and #S-13.
'B. This relationship will cease upon satisfactory completion of the contracts.
'C. T & M-McGuire is authorized to borrow from the National State Bank of Newark, N.J. to the extent necessary to complete the contracts.
'E. T & M Plumbing Company, Inc. shall indemnify and hold Kantor Brothers, Inc. harmless from any claims, disputes, or law suits brought against T & M-McGuire for any reason whatsoever.
'F. Kantor Brothers, Inc. shall indemnify and hold T & M Plumbing Company, Inc. harmless from any claims, disputes, or law suits brought against T & M-McGuire for any reason whatsoever.
'G. T & M Plumbing Company, Inc. shall perform the work in the name of T & M-McGuire and shall conform to all the provisions of the contracts.
'H. Kantor Brothers, Inc. shall supply T & M-McGuire with all the materials necessary to perform the contracts other than that already supplied by subcontractors.'
On October 30, 1959, Terminal, in a letter signed by its purchasing agent and written in reference to the Capehart housing project at McGuire Air Force Base (Contract #S-12 and Contract #S-13), informed T & M Plumbing Co., Inc. that the firm had been approved as a subcontractor for all items of work outlined in the referenced contracts, and directed T & M Plumbing Co., Inc. to proceed in accordance with the requirements of the project progress schedule.
Thereafter, T & M Plumbing Co., Inc., using personnel carried on its payroll, proceeded with construction at the work site, while Kantor Brothers, Inc. undertook to procure and supply the materials necessary for the performance of the subcontracts. Ernest J. Morin was included on the payroll as General Supervisor, and Edward Tatro, the son of Oris Tatro, president of T & M Plumbing Co., was employed for a time as a plumber's apprentice and later as an expeditor for the company. T & M Plumbing Co., throughout the period of performance, maintained its office in a trailer located at the McGuire Air Force Base a short distance from the situs of the offices Terminal maintained
On the 2d day of August 1960, an addendum to subcontracts #S-12 and #S-13 was agreed upon and signed by Oris A. Tatro, Ernest J. Morin, T & M Plumbing Co., Inc., by Oris A. Tatro, Kantor Brothers, Inc. by Irving Kantor, Irving Kantor, individually, and Terminal Construction Company by its president. The parties therein agreed, inter alia, that Oris Tatro would remove himself from the project for the duration thereof; that E. J. Morin would henceforth be in charge of the work to be performed by the subcontractor at the field level; that the subcontractor would unconditionally agree to exert every effort and energy for the maintenance of the contractor's progress schedule and in fulfillment thereof engage the services of such number of employees as may be necessary from time to time in the opinion of the contractor to maintain satisfactorily such schedule and supply the necessary equipment, supplies, and materials required; that the contractor was granted the right and privilege of engaging the services of such persons as it should like to serve as an expediter and coordinator; that such expediter or coordinator should be permitted to operate and function out of the subcontractor's field office and have access to all its books, records and documents pertaining to its performance; that the contractor should have the same right and privilege to engage the services of an expediter and coordinator for the flow of equipment, supplies, and materials to the job site, with such person being permitted to operate and function at the office of Kantor Brothers at Newark, with access to Kantor Brothers' books, records and documents; and that the execution of the addendum should in no way effect the unconditional guarantee that Kantor gave as to the full and faithful performance of the subcontracts executed on September 14, 1959.
Late in 1959 plaintiff, the National State Bank of Newark, had commenced lending money to the joint venture known as T & M-McGuire; plaintiff advanced moneys on the basis of figures which the joint venture represented to involve the cost of materials, labor and general overhead expense for the work being done; as of September 1960 there was due to plaintiff bank from the joint venture as the result of these revolving loans approximately $ 334,000; early in September plaintiff bank became concerned with the extent of the loans and with the prospects of repayment, and on September 7th representatives of plaintiff bank met with representatives of the defendant Terminal in the latter's offices; the former were told by defendant Terminal's officers that they had no intention of meeting the joint venture's payroll due two days later on September 9th and it was incumbent upon plaintiff bank to find a way to meet this payroll or else defendant Terminal would default the contract and take over the performance of the work.
On September 9, 1960, after numerous conferences with attorneys, the officers of plaintiff bank addressed a letter to defendant Terminal, advising defendant that the 'subcontractor' had assigned to plaintiff any and all sums of money which were to become payable by Terminal to 'subcontractor' and that defendant was required to pay to plaintiff all such sums. Enclosed with this communication was a copy of the assignment to plaintiff bank dated 4th day of November 1959 and signed by Irving Kantor for T & M-McGuire Joint Venture, Oris A. Tatro for T & M Plumbing Co., Inc. and Irving Kantor for Kantor Brothers, Inc. In its reply, dated September 12, 1960, defendant Terminal stated that the provisions of the subcontracts prohibited any assignment thereof without written consent of the contractor and that defendant Terminal did not consent to the assignment nor did it recognize the same to any extent whatsoever.
On September 9, 1960, plaintiff bank entered into a new method of satisfying the payroll requirements at the site, whereby plaintiff, after receiving from the T & M Plumbing office a worksheet indicating how much was due each worker, prepared payroll envelopes which were taken from bank headquarters at Newark to the work site by one of its assistant vice presidents, accompanied by Mr. Kantor. Representatives of the bank, using the office of T & M Plumbing Co. at the site at McGuire, and assisted by the field office employees of T & M Plumbing Co., arranged to have each and every person on the payroll execute an assignment to the bank of the wages due him. The pay envelopes were released to the individuals as they deposited such executed assignments. In case a worker was not present on payday, it was arranged that he could go to plaintiff bank in Newark to execute the assignment and receive an envelope.
On September 9, 1960, and each week thereafter, plaintiff National State Bank received a certification to the effect that the payroll schedules presented represented bona fide debt of T & M-McGuire, a joint venture, for work performed by each person listed therein, and the letter of certification, signed by the presidents of Kantor Brothers, Inc. and T & M Plumbing Co., Inc. and Oris A. Tatro, Ernest J. Morin and Irving Kantor, individually, under the designation T & M-McGuire, a joint venture, contained a statement that the representations therein contained were made with the knowledge that the plaintiff bank would rely on the truthfulness of said statements and would, for valuable consideration to be paid to the listed employees, acquire an assignment of the claims of such employees.
Commencing with the payroll met on September 9, 1960, plaintiff bank, in return for the execution of assignments by the individual workers, handed over to each employee the sum of money that T & M Plumbing Co. represented he had earned, and this system was followed for a period of 31 weeks. As of the payroll week ending November 22, 1960, plaintiff bank had paid over to the individual workers a total aggregate sum of $ 145,186.26. On November 29, 1960, the bank addressed a letter to defendant Terminal in which it advised that it was the holder and owner of individual assignments from each worker, and stated:
'Notice is hereby given pursuant to the provisions of Title 40 United States Code Annotated, Sections 270(a) and 270(b) et seq., for and on behalf of each of the persons named in the attached weekly payroll records of the aforementioned Subcontractor, and for and on behalf of the National State Bank of Newark, assignee of said persons, of the unpaid claims of each of said persons for labor done and performed for said Subcontractor pursuant to direct contractual relationships with said Subcontractor. The claims of each of said persons are for labor furnished in the prosecution of the work provided for in the prime contract between Terminal Construction Corporation and the United States of America, and provided for in the aforementioned sub-contracts between Terminal Construction Corporation and the Subcontractor.'
On December 2, 1960, Terminal replied to plaintiff's notice of November 29th, stating that before proceeding to evaluate the alleged claim, in fact or in law, that they would like to have furnished whatever additional proofs plaintiff might have, and that defendant would again communicate with plaintiff. Thereafter, plaintiff sent on photostats of three sample assignments taken at random from its files.
Again, on February 14, 1961, plaintiff addressed a letter to defendant Terminal, giving a notice in the same form as that given by letter dated November 29th, and made demand for the payment of individual assignments plaintiff had acquired during the payroll period commencing November 29, 1960, and ending January 24, 1961, in the total sum of $ 35,514.96. On February 15, 1961, defendant Terminal acknowledged receipt of this notice and stated:
'We are informed by general counsel that this claim is not entitled to preferential status under the applicable statutes as well as our contract documents. Under these circumstances we do not recognize the assignment and shall govern ourselves in accordance with the advices of our counsel.'
Again, on April 19, 1961, plaintiff bank addressed Terminal, and also defendant American Surety Company of New York, giving a third notice and demanding the payment of $ 8,219.23, representing total amount of the value of assignments plaintiff had acquired during the period commencing with the payroll week January 31, 1961 and ending March 24 1961, and referring to its previous notices and its total demand in the sum of.$ 188,920.05.
Plaintiff herein seeks recovery in the sum of.$ 188,920.05, together with interest and costs of suit, alleging that it gave due notice to the defendants of unpaid labor claims in compliance with all applicable statutes and the terms of the bonds filed in this matter, and by a second count seeks to recover the sum of $ 7,242.20, together with interest and costs of suit, alleging that it is owner of assignments in that aggregate sum made by the trustees of union pension and welfare funds in return for plaintiff's meeting Terminal's obligations arising from collective bargaining agreements.
Defendants deny liability and rely upon the following defenses:
II. The assignors of the plaintiff are not proper claimants under the bond because they were employees of a sub-subcontractor and thus not within the scope of those protected under the bond.
III. Claims under the bond are not assignable, and even if they were, subject assignments are not valid as the signators intended only to sign receipts for their wages.
IV. The required notice was not given to defendants.
V. The plaintiff is estopped from claiming for the wages as the defendants had received weekly certifications that the wages under dispute had been paid as due.
VI. Certain employees of T & M Plumbing Co., including one of the joint venturers and several office employees, do not come within the scope of those protected under the bonds.
VII. Assignees of the claims of trustees of union pension and welfare funds are not proper claimants under the bonds.
Although subject bonds were not furnished in compliance with the terms of the Miller Act, United States to Use of Acme Furnace Fitting Co. v. Ft. George G. Meade Defense Housing Corp. No. 1, 186 F.Supp. 639 (D.Md.1960), several courts have held that a suit on a Capehart bond must be brought under the Miller Act, and that the latter Act grants the court jurisdiction to hear the case. Lasley v. United States for Use of Westerman, 285 F.2d 98 (5th Cir., 1960) (alternate holding); United States to Use of Acme Furnace Fitting Co. v. Ft. George G. Meade Defense Housing Corp. No. 1, supra; (alternate holding); Autrey v. Williams & Dunlap, 185 F.Supp. 802 (W.D.La.1960); Gypsum Contractors, Inc. v. American Surety Co., 37 N.J. 315, 181 A.2d 174 (1962) (holding that state courts have no jurisdiction over Capehart Act bonds);
see Autrey v. Williams & Dunlap, 210 F.Supp. 491 (W.D.La.1962) (alternate holding). The rationale of these cases is that the Capehart Act
incorporates the Miller Act by reference.
'While we think that Congress intended that Capehart suppliers should have substantive bond protection essentially similar to that afforded Miller Act suppliers, we think also that Congress intended that the procedural provisions of Capehart bonds should be worked out and prescribed by the two agencies involved in the light of the unique nature of Capehart construction and of the peculiar problems which might be encountered in connection with such construction. In our estimation had Congress intended for the ...