Heine Safety Boiler Co. v. United States ex rel. American Enameled Brick & Tile Co.

Mr. Justice Van Orsdel

delivered the opinion of the Court:

The bond in question was given under the provisions of the act of Congress, 28 Stat. at L. 278, chap. 280, U. S. Comp. Stat. 1901, p. 2523, being an act' “for the protection of persons furnishing materials and labor for the construction of public works.” It requires, that persons contracting with the United States for the construction of any public works shall, before commencing work, execute the usual penal bond, “with the additional obligations that such contractor or contractors shall promptly make payments to all persons supplying him or them labor and materials in the prosecution of the work provided for in such contract.” The act also gives the materialman the right- to bring suit in the name of the United States, for his use and benefit, against the contractor and his sureties.

A single question is presented by this appeal. Did plaintiff lose its right of action against the defendant bonding company by reason of its failure to proceed against Dorsey when the respective amounts became due, or to promptly notify the boiler company of his default ? It is earnestly contended by counsel for defendants that the failure of plaintiff to notify the boiler company of Dorsey’s default, until it had settled with Dorsey, and he had been declared a bankrupt, relieved the bonding company of liability. It is insisted that plaintiff’s inaction was equivalent to an extension of credit to Dorsey, and relieved the bonding company of liability for the original indebtedness. We are not impressed with this contention. Unquestionably, under the law of suretyship, any change in the contract for the performance of which a surety is liable, when made without his consent, as, for example, an extension of the time of payment, if upon sufficient consideration, discharges the surety. But we are here dealing with a different sort of an obligation. The covenant is not confined to the performance of a contract by the principal, but the surety undertakes to protect all parties dealing with the principal under the contract. In fact, the covenant is made specially for the benefit of those subcontractors and materialmen, unknown to the guarantor, who may furnish material and labor for the principal.

It is clear from the record that the boiler company knew where Dorsey was getting the brick, and that he was not paying for it on delivery, since, in the final settlement, a sufficient amount was withheld by the boiler company to pay for the last instalment of the brick. The duty rested upon defendants to advise themselves of Dorsey’s transactions in connection with carrying out his contract with the boiler company before making final settlement with him. We think there was no such lack of diligence on the part of the plaintiff, if, indeed, it is at all material, as would estop it from asserting its claim against the bonding company. This case is fully disposed of by the case of United States Fidelity & G. Co. v. Golden Pressed & Fire Brick Co. (United States Fidelity & C. Co. v. United States) 191 U. S. 416, 48 L. ed. 242, 24 Sup. Ct. Rep. 142. In that case the bond sued upon was similar to the one in the present case. It contained the same condition that the principal on the bond should “promptly make payment to all persons supplying him labor or material in the prosecution of the work contemplated by [his] said contract.” There the bonding company denied liability on the ground that the plaintiff, who, as in this case, furnished brick, had, without the knowledge of the bonding company, extended the time of payment. It had accepted from the principal promissory notes running from thirty to sixty days. The bonding company attempted to invoke the rule that extensions made without the consent of the surety release it. from liability, but tbe court held that the rule did not apply in the case of bonds such as the one in question. On this point, Mr. Justice Brown, speaking for the court, said: “The question involved is whether the ordinary rule that exonerates the guarantor in case the time fixed for the performance of the contract by the principal be extended applies to a bond of this kind, executed by a guaranty company, not only for a faithful performance of the original contract, but for the payment of the debts of the principal obligor to third parties. It is' conceded that, by the general law of suretyship, any change whatever in the contract for the performance of which the guarantor is liable, made without his consent, such, for instance, as an extension of time for paymént, if made upon sufficient consideration, discharges the guarantor from liability.”

In the same opinion, the learned jurist, speaking of the broad scope of a covenant such as the one in the bond here in question, said: “In this covenant the surety guarantees nothing to the principal obligee, — the government, — though the latter permits an action upon the bond for the benefit of the subcontractors. The covenant is made solely for their benefit. The guarantor is ignorant of the parties with whom his principal may contract, the amount, the nature, and the value of the materials required, as well as the time when payment for them will become due. These particulars it would probably be impossible even for the principal to furnish, and it is to be assumed that the surety contracts with knowledge of this fact. Not knowing when or by whom these materials will be supplied, or when the bills foi’ them will mature, it can make no difference to him whether they were originally purchased on a credit of sixty days, or whether, after the materials are furnished, the time for payment is extended sixty days, and a note given for the amount maturing at that time. If a person deliberately contracts for an uncertain liability, he ought not to complain when that uncertainty becomes certain.”

True, the court in that case refused to express an opinion “as to whether, if an unusual credit were given, and, in the meantime, the principal obligor had become insolvent, or the surety were otherwise damnified by the delay, it might not be exonerated.” The credit of thirty days given by plaintiff was not an unusual one. Thirty days’ acceptance is usually regarded the same as cash in commercial transactions. As suggested, the defendant boiler company had full notice of the credit given Dorsey, and, unlike the case just cited, no express extensions were granted by plaintiff. Neither did plaintiff wait an unusual length of time before notifying defendants of its claim. We find no error in the record. The judgment is affirmed with costs, and it is so ordered. Affirmed.