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Minneapolis-Honeywell Regulator Co. v. Terminal Construction Corp.

Decided: February 17, 1964.

MINNEAPOLIS-HONEYWELL REGULATOR COMPANY, A CORPORATION AUTHORIZED TO DO BUSINESS IN NEW JERSEY, PLAINTIFF-APPELLANT,
v.
TERMINAL CONSTRUCTION CORPORATION, A CORPORATION, AND AMERICAN SURETY COMPANY OF NEW YORK, A CORPORATION, DEFENDANTS-RESPONDENTS



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

On August 6, 1959 defendant Terminal Construction Corporation as general contractor executed a contract with the United States, Department of the Navy, for the construction of an Armed Services Housing Project at the McGuire Air Force Base, Wrightstown, Burlington County, New Jersey. Defendant American Surety Company issued a payment bond covering the project, with Terminal as principal, to secure, among other things, the prompt payment of suppliers of labor and materials to subcontractors of Terminal. Plaintiff Minneapolis-Honeywell Regulator Company allegedly supplied labor and materials to a subcontractor and on July 28, 1961 brought this suit in the Superior Court, Law Division, Essex County against Terminal and American on the bond to recover the balance of $181,906.64 due from the subcontractor.

The surety bond extends its protection to a claimant who has "a direct contract with the principal or with a subcontractor of the principal who has furnished labor, material, or both in the prosecution of the work provided for in the contract and who has not been paid in full therefor." It provides also:

"No suit or action shall be commenced hereunder by any claimant.

(c) Other than in a state court of competent jurisdiction in and for the county or other political sub-division of the state in which the project, or any part thereof is situated, or in the United States District Court for the district in which the project, or any part thereof, is situated and not elsewhere."

At the pretrial conference defendants were given leave to move to amend their answer to include as a defense that the

New Jersey courts were without jurisdiction to entertain the suit because jurisdiction under the Miller Act, 40 U.S.C.A. §§ 270a, 270b, which defendants claimed controlled suits on such bonds, was limited to the United States District Court for the district where the construction work was performed. Subsequently defendants moved to dismiss the complaint because the Superior Court lacked jurisdiction over the subject matter under that act. The motion was granted on the basis of the decision of this Court in Gypsum Contractors, Inc. v. American Surety Co., 37 N.J. 315 (1962). Appeal was taken to the Appellate Division but we certified on our own motion before argument there.

On the appeal plaintiff challenged the applicability of Gypsum Contractors, Inc. v. American Surety Company and asks us, in any event, to review our holding in the light of two subsequent decisions in Federal Circuit Courts of Appeal, United States for Use and Benefit of Miles Lumber Co. v. Harrison & Grimshaw Construction Co., 305 F.2d 363 (10 Cir. 1962), cert. den. 371 U.S. 920, 83 S. Ct. 287, 9 L. Ed. 2 d 229 (1962); and Continental Casualty Co. v. United States, etc., 305 F.2d 794 (8 Cir. 1962), cert. den. 371 U.S. 922, 83 S. Ct. 290, 9 L. Ed. 2 d 231 (1962).

In order to bring the problem presented into focus it is necessary to retrace our steps through some of the material discussed in Gypsum.

The Miller Act. 40 U.S.C.A. § 270a, is a comprehensive statute imposing on contractors a requirement for surety bonds as a condition precedent to the award of construction contracts. It provides:

"(a) Before any contract, exceeding $2,000 in amount, for the construction, alteration, or repair of any public building or public work of the United States is awarded to any person, such person shall furnish to the United States the following bonds, * * * (1) A performance bond with a surety or sureties satisfactory to the officer awarding such contract, and in such amount as he shall deem adequate, for the protection of the United States.

(2) A payment bond with a surety or sureties satisfactory to such officer for the protection of all persons supplying labor and

material in the prosecution of the work provided for in said contract for the use of each such person. * * *"

Section 270b(a) gives a right of suit on the payment bond to every person who has furnished labor or material under the construction contract and who has not been paid within 90 days after the day on which the last of the labor was performed or material furnished by him. Persons having no direct contractual relationship, express or implied with the contractor, who supply subcontractors may sue on the bond upon giving written notice to the contractor by registered mail within 90 days from the date on which such person performed the last labor or supplied the last of the material, stating "with substantial accuracy the amount claimed and the name of the party to whom the material was furnished" or the labor performed.

Section 270b(b) specifies the forum for the bringing of the suit. It says:

"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, but no such suit shall be commenced after the expiration of one year after the date of final settlement of such contract. * * *" (Emphasis supplied)

Obviously the Miller Act as remedial legislation is entitled to liberal construction to these ends: first, protection of laborers and materialmen who aid in performance of construction contracts for public work; second, protection of the United States; and, third, provision for an orderly way of enforcing all claims in a federal district where the contract is to be performed. Under earlier legislation suits on such bonds could have been brought in any proper State court. United States to Use of Edward Hines Lumber Co. v. Henderlong, 102 F. 2 (C.C. Ind. 1900).

As we pointed out in Gypsum the weight of authority throughout the country indicates that the § 270b(b) requirement

for institution of suit on the bond in a district court where the construction contract was to be performed "and not elsewhere" represents positive Congressional policy and controls the selection of the forum where action may be brought. 37 N.J., at pp. 319, 320 and cases cited. See also Travis Equipment Co. v. D. & L. Construction Co., 224 F. Supp. 410 (W.D. Mo. Nov. 21, 1963); United States for Use and Benefit of Bryant Elec. Co. v. Aetna Casualty & Surety Co., 297 F.2d 665, 667, 669 (2 Cir. 1962); Pierce Contractors, Inc. v. Peerless Casualty Co., 81 So. 2 d 747 (Fla. Sup. Ct. 1955); People v. Metropolitan Surety Co., 211 N.Y. 107, 105 N.E. 99 (Ct. App. 1914).

In People v. Metropolitan Surety Co., supra, the New York Court of Appeals discussing the same jurisdictional limitation in the Heard Act which preceded the Miller Act said:

"The claimant could reach the surety company through the bond alone, which, with the statute as a part of it, defines and limits the rights of the claimant as against it, and the method and tribunals through which those rights might be enforced. His right of action against it through any form of legal proceeding was created by the bond and the statute, and must be ...


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