A-24850, FEBRUARY 12, 1929, 8 COMP. GEN. 435

A-24850: Feb 12, 1929

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CONTRACTS - DEFAULT - SUBROGATION OF SURETY - COMPLETION BY SURETY UNDER SEPARATE AGREEMENT WHERE A CONTRACTOR DEFAULTS IN THE PERFORMANCE OF A CONTRACT FOR GOVERNMENT WORK AND THE UNFINISHED WORK IS COMPLETELY AND SATISFACTORILY PERFORMED BY THE SURETY ON HIS PERFORMANCE BOND. SAID SURETY IS ENTITLED TO BE SUBROGATED. TO ALL THE RIGHTS WHICH THE GOVERNMENT MIGHT HAVE ENFORCED AGAINST THE CONTRACTOR IF IT HAD DECLARED THE CONTRACT FORFEITED AND COMPLETED THE WORK ITSELF. THE SURETY'S RIGHT OF SUBROGATION IS SUPERIOR TO THE CLAIMS OF THE CONTRACTOR. FOR ANY BALANCES DUE UNDER THE CONTRACT WHICH ARE NECESSARY TO PROTECT THE SURETY FROM LOSS IN COMPLETION OF THE WORK. WHERE THE SURETY ON A DEFAULTING CONTRACTOR'S PERFORMANCE BOND ENTERED INTO A SEPARATE AGREEMENT WITH THE GOVERNMENT FOR THE COMPLETION OF THE UNFINISHED WORK OF ITS PRINCIPAL AND UPON WHICH IT WAS OBLIGATED AS SURETY.

A-24850, FEBRUARY 12, 1929, 8 COMP. GEN. 435

CONTRACTS - DEFAULT - SUBROGATION OF SURETY - COMPLETION BY SURETY UNDER SEPARATE AGREEMENT WHERE A CONTRACTOR DEFAULTS IN THE PERFORMANCE OF A CONTRACT FOR GOVERNMENT WORK AND THE UNFINISHED WORK IS COMPLETELY AND SATISFACTORILY PERFORMED BY THE SURETY ON HIS PERFORMANCE BOND, SAID SURETY IS ENTITLED TO BE SUBROGATED, SO FAR AS NECESSARY TO PROTECT IT FROM LOSS, TO ALL THE RIGHTS WHICH THE GOVERNMENT MIGHT HAVE ENFORCED AGAINST THE CONTRACTOR IF IT HAD DECLARED THE CONTRACT FORFEITED AND COMPLETED THE WORK ITSELF. THE SURETY'S RIGHT OF SUBROGATION IS SUPERIOR TO THE CLAIMS OF THE CONTRACTOR, OR HIS ASSIGNS, FOR ANY BALANCES DUE UNDER THE CONTRACT WHICH ARE NECESSARY TO PROTECT THE SURETY FROM LOSS IN COMPLETION OF THE WORK. WHERE THE SURETY ON A DEFAULTING CONTRACTOR'S PERFORMANCE BOND ENTERED INTO A SEPARATE AGREEMENT WITH THE GOVERNMENT FOR THE COMPLETION OF THE UNFINISHED WORK OF ITS PRINCIPAL AND UPON WHICH IT WAS OBLIGATED AS SURETY, SAID SURETY IS NOT AFFECTED BY SUCH CONTRACT IN ITS RIGHT OF SUBROGATION TO ANY UNPAID BALANCE DUE THE CONTRACTOR IN ORDER TO COVER LOSSES SUSTAINED RESULTING FROM DEFAULT OF ITS PRINCIPAL.

DECISION BY COMPTROLLER GENERAL MCCARL, FEBRUARY 12, 1929:

THERE HAS BEEN PRESENTED TO THIS OFFICE FOR CONSIDERATION AND SETTLEMENT, THE CLAIM OF THE CONTINENTAL CASUALTY CO. FOR THE SUM OF $62,421.56 ALLEGED TO BE DUE FOR SERVICES PERFORMED AND EXPENDITURES MADE AS SURETY UPON THE PERFORMANCE BOND OF A. CLEMENT TOBIN, TRADING AS THE TOBIN CONSTRUCTION CO. OF ST. LOUIS, MO., IN COMPLETION OF CERTAIN GOVERNMENT WORK, AFTER THE CONTRACTOR HAD DEFAULTED THEREON FOR THE UNITED STATES VETERANS' BUREAU, UNDER CONTRACT VBC-112, DATED MAY 16, 1927, FOR THE CONSTRUCTION OF RECEIVING BUILDING NO. 1 AND CONNECTING CORRIDORS AT THE VETERANS' HOSPITAL NO. 60, LOCATED AT OTEEN, N.C.

THE CLAIM OF SAID SURETY CONSISTS OF THE FOLLOWING ITEMS:

TABLE AMOUNT EXPENDED BY SURETY IN COMPLETING CONTRACT NO. VBC-205,

DATED OCTOBER 13, 1927 ------------------------------------- $234,541.25 CLAIMS OF MATERIAL MEN AND LABORERS PAID BY SURETY ON

CONTRACT NO. VBC-112, DATED MAY 16, 1927 ------------------- 26,874.00

TOTAL EXPENDITURES BY THE SURETY ------------------------- 261,415.85 CREDITS:

BY FUNDS FROM SURPLUS MATERIAL SALES --------- $2,877.21

BY PAYMENTS FROM UNITED STATES --------------- 213,448.48

------------ 216,325.69

TOTAL NET EXPENDITURES BY SURETY ------------------------- 45,090.16 OUTSTANDING UNPAID CLAIMS:

ON CONTRACT NO. VBC-112 ---------------------- 13,513.42

ON CONTRACT NO. VBC-205 ---------------------- 3,817.98

------------ 17,331.40

TOTAL AMOUNT OF THE SURETY'S CLAIM ----------------------- 62,421.56

UNDER THE TERMS AND CONDITIONS OF THE SAID CONTRACT NO. VBC-112, DATED MAY 16, 1927, THE CONTRACTOR AGREED, FOR AND IN CONSIDERATION OF THE PAYMENT OF $266,499, TO FURNISH ALL LABOR AND MATERIALS AND TO PERFORM ALL THE WORK REQUIRED FOR CONSTRUCTING AND FINISHING COMPLETE THE RECEIVING BUILDING NO. 1 AND CONNECTING CORRIDORS, ETC., AT THE SAID VETERANS' HOSPITAL, IN ACCORDANCE WITH THE SPECIFICATIONS, SCHEDULES, AND DRAWINGS ATTACHED TO AND MADE A PART OF THE CONTRACT, AND TO COMMENCE THE WORK WITHIN 15 CALENDAR DAYS AND TO COMPLETE SAME WITHIN 300 CALENDAR DAYS AFTER THE CONTRACTOR RECEIVED NOTICE FROM THE GOVERNMENT TO PROCEED WITH THE WORK. IN THE EVENT OF DELAY IN COMPLETION OF THE WORK, THE CONTRACT PROVIDED FOR DEDUCTION OF LIQUIDATED DAMAGES AS STIPULATED IN THE SPECIFICATIONS, TO WIT, AT THE RATE OF $100 PER CALENDAR DAY FOR EACH DAY COMPLETION THEREOF WAS DELAYED.

TO GUARANTEE THE PERFORMANCE OF SAID CONTRACT IN ACCORDANCE WITH THE CONDITIONS THEREOF, THE CONTRACTOR, AS PRINCIPAL, AND THE CONTINENTAL CASUALTY CO. OF CHICAGO, ILL., AS SURETY, EXECUTED A PERFORMANCE BOND IN THE SUM OF $134,000, DATED MAY 16, 1927, PAYABLE TO THE UNITED STATES OF AMERICA.

THE FACTS RELATIVE TO THE INVOLVED WORK, THE CONTRACTOR'S DEFAULT THEREON, AND THE SUBSEQUENT SEPARATE CONTRACT WITH THE SURETY FOR ITS COMPLETION, ARE STATED BY THE CHIEF OF THE CONSTRUCTION DIVISION IN A COMMUNICATION TO THE DIRECTOR OF THE UNITED STATES VETERANS' BUREAU, UNDER DATE OF OCTOBER 22, 1927, TO BE AS FOLLOWS:

CONTRACT VBC-112 DATED MAY 16, 1927, TO BE AS FOLLOWS:

CONTRACT VBC-112 DATED MAY 16, 1927, IN AMOUNT $266,499.00, WITH TOBIN CONSTRUCTION COMPANY PROVIDED FOR THE PERFORMANCE OF GENERAL CONSTRUCTION WORK CONNECTED WITH RECEIVING BUILDING NO. 1 AT U.S. VETERANS' HOSPITAL, OTEEN. N.C. THE WORK INCLUDED CONNECTING CORRIDORS, ROADS, WALKS, GRADING, AND WRECKING CERTAIN FRAME BUILDINGS BUT DID NOT INCLUDE PLUMBING, HEATING, ELECTRICAL WORK AND ELEVATORS. THE TOBIN CONSTRUCTION COMPANY HAVING FAILED TO SO PROSECUTE THE WORK AS TO INSURE ITS COMPLETION AT THE TIME SPECIFIED ITS RIGHT TO PROCEED WAS TERMINATED BY BUREAU TELEGRAM DATED OCTOBER 7, 1927, TO TAKE EFFECT OCTOBER 12, 1927. THIS DATE OF TERMINATION WAS MODIFIED BY BUREAU TELEGRAM OCTOBER 12, 1927, LEAVING THE DATE OF TERMINATION OPEN PENDING ARRANGEMENTS WITH THE SURETY FOR THE COMPLETION OF THE WORK.

BY LETTER OCTOBER 11, 1927, THE SURETY EXPRESSED ITS DESIRE "TO COMPLY WITH THE TERMS OF THE CONTRACT AND BOND BY PROCEEDING WITH THE COMPLETION OF THE CONTRACT IN ITS OWN NAME.' THIS ARRANGEMENT WAS APPROVED BY BUREAU TELEGRAM OCTOBER 13, 1927. BY THE ADVICE OF THE GENERAL COUNSEL A CONTRACT WITH THE CONTINENTAL CASUALTY COMPANY, SURETY FOR THE TOBIN CONSTRUCTION COMPANY, HAS BEEN PREPARED AND SIGNED BY THE SURETY. UPON RECEIPT OF TELEGRAM OCTOBER 20, 1927, FROM THE CONTINENTAL CASUALTY COMPANY STATING THAT THE CONTRACT HAD BEEN SIGNED THE TOBIN CONSTRUCTION COMPANY WAS NOTIFIED THAT ITS RIGHT TO PROCEED WAS TERMINATED EFFECTIVE OCTOBER 13, 1927, WHICH IS THE DATE OF THE CONTRACT WITH THE SURETY FOR THE COMPLETION OF THE WORK. THE TOBIN CONSTRUCTION COMPANY HAD ALREADY STOPPED WORK AT NOON OCTOBER 11, 1927.

THE CONTRACT OF THE TOBIN CONSTRUCTION COMPANY PROVIDED FOR THE COMPLETION OF THE WORK WITHIN 300 CALENDAR DAYS AFTER MAY 20, 1927, THE DATE WHEN THE CONTRACTOR RECEIVED NOTICE TO PROCEED WITH THE WORK. THE CONTRACT DATE FOR COMPLETION WAS, THEREFORE, MARCH 15, 1928. THE PROGRESS OF THE WORK WAS UNSATISFACTORY FROM THE START. A SPECIAL INSPECTION WAS MADE JULY 30, 1927, BY A REPRESENTATIVE FROM CENTRAL OFFICE WHO FOUND THAT THE WORK WAS VERY MUCH BEHIND THE NORMAL PROGRESS SCHEDULE AND WAS, AT THAT TIME, NOT MAKING SATISFACTORY PROGRESS. THE CONTRACTOR'S REPRESENTATIVE, AT THE SITE, MADE EXPLANATIONS AND EXPRESSED THE EXPECTATION THAT HE WOULD MAKE BETTER PROGRESS AND COMPLETE ON TIME. ACCOUNT OF THESE CONDITIONS BUREAU LETTER AUGUST 17, 1927, WAS WRITTEN TO THE CONTRACTOR CALLING HIS ATTENTION TO CONTRACT REQUIREMENTS AND TO THE FACT THAT LIQUIDATED DAMAGES FOR FAILURE TO COMPLETE ON TIME MUST BE DEDUCTED AT THE RATE OF $100.00 PER CALENDAR DAY. AT A CONFERENCE IN CENTRAL OFFICE WITH THE CONTRACTOR'S REPRESENTATIVE THE WHOLE MATTER WAS FURTHER DISCUSSED. THE PROGRESS OF THE WORK WAS SLIGHTLY IMPROVED DURING THE LAST HALF OF AUGUST. ANOTHER SPECIAL INSPECTION WAS MADE SEPTEMBER 11 AND 12 AT WHICH TIME THE WORK WAS FOUND FAR BEHIND THE NORMAL SCHEDULE BUT PROGRESSING AT A BETTER RATE THAN AT THE TIME OF PREVIOUS INSPECTION. THE CONTRACTOR'S EQUIPMENT, HOWEVER, WAS INSUFFICIENT AND DELIVERIES OF MATERIAL WERE FOUND UNSATISFACTORY. DURING THE MONTH OF SEPTEMBER THE PROGRESS OF THE WORK WAS AGAIN UNSATISFACTORY AND THE CONTRACTOR FAILED TO PROVIDE MATERIALS IN QUANTITIES WHICH WOULD INDICATE THE POSSIBILITY THAT THE WORK COULD BE COMPLETED ON TIME. ON SEPTEMBER 30, 1927, 44 PERCENT OF THE CONTRACT TIME HAD ELAPSED AND THE WORK SHOULD HAVE BEEN ABOUT 55 PERCENT COMPLETE. THE SUPERINTENDENT'S ESTIMATE, HOWEVER, INDICATES THAT LESS THAN 25 PERCENT OF THE WORK HAD BEEN COMPLETED.

EARLY IN OCTOBER IT WAS DEEMED NECESSARY TO PROTECT THE INTERESTS OF THE GOVERNMENT BY TERMINATING THE CONTRACTOR'S RIGHT TO PROCEED. AT NOON OCTOBER 11, 1927, HE CEASED OPERATIONS. THE VALUE OF THE WORK PERFORMED BY HIM AMOUNTED TO $64,845.50. THE AMOUNT OF THE CONTRACT AT THAT TIME INCLUDED THE ORIGINAL CONTRACT PRICE $266,499.00 AND CHANGE ORDER "A" WHICH ADDED $350.00. THE WORK STILL TO BE PERFORMED, THEREFORE, AMOUNTED TO $202,003.50, WHICH IS THE CONSIDERATION NAMED IN THE CONTRACT WITH THE SURETY FOR THE COMPLETION OF THE WORK. PAYMENTS MADE TO TOBIN CONSTRUCTION COMPANY AMOUNT TO $39,713.85. THE AMOUNT OF WORK PERFORMED BY TOBIN CONSTRUCTION COMPANY, THEREFORE, EXCEEDS THE AMOUNT OF MONEY PAID UNDER THE CONTRACT BY $25,131.65.

IT APPEARS THAT A FORMAL CONTRACT WAS ENTERED INTO WITH SAID SURETY, NO. VBC-205, DATED OCTOBER 13, 1927, UNDER THE TERMS AND CONDITIONS OF WHICH IT WAS TO RECEIVE $202,003.50 FOR COMPLETING THE UNFINISHED WORK OF THE DEFAULTING CONTRACTOR, THAT BEING THE ORIGINAL CONTRACT VALUE OF SUCH UNFINISHED WORK.

TO GUARANTEE THE PERFORMANCE OF THIS SECOND CONTRACT, THE CONTINENTAL CASUALTY CO., AS PRINCIPAL, AND THE AETNA CASUALTY AND SURETY CO. OF HARTFORD, CONN., AS SURETY, EXECUTED A PERFORMANCE BOND IN THE SUM OF $102,000, DATED OCTOBER 13, 1927, PAYABLE TO THE UNITED STATES OF AMERICA.

THE SAID CONTRACT, NO. VBC-205 PROVIDED:

IT IS UNDERSTOOD AND AGREED THAT THIS AGREEMENT IS ENTERED INTO BY THE CONTINENTAL CASUALTY COMPANY WITHOUT PREJUDICE TO ANY RIGHTS SAID COMPANY MAY HAVE TO SUBROGATE AS SURETY UNDER THE CONTRACT WITH THE TOBIN CONSTRUCTION COMPANY.

THERE WERE SOME CHANGES IN THE WORK, AS IT PROGRESSED, NOT CONTEMPLATED IN THE CONTRACT WITH SAID SURETY, BY WHICH THE COMPENSATION WAS INCREASED $11,504.98 BY 13 CHANGE ORDERS "A," "B," "C," "D," "E," "F," "H," "I," "J," "K," "L," "N," AND "O," AND DECREASED $60 BY CHANGE ORDER "M," THUS INCREASING THE SURETY CONTRACTOR'S COMPENSATION UNDER THE CONTRACT TO $213,448.48, FROM $202,003.50 AS FIXED BY THE CONTRACT.

UNDER THE TERMS OF THE ORIGINAL CONTRACT, THE WORK CONTRACTED FOR WAS TO HAVE BEEN COMPLETED WITHIN 300 CALENDAR DAYS AFTER THE CONTRACTOR RECEIVED NOTICE FROM THE GOVERNMENT TO PROCEED WITH THE WORK. SUCH NOTICE APPEARING TO HAVE BEEN RECEIVED BY THE CONTRACTOR ON MAY 20, 1927, THE CONTRACT DATE FOR COMPLETION WAS MARCH 15, 1928. ON ACCOUNT OF ADDITIONAL WORK IN ACCORDANCE WITH CHANGE ORDER "K," DATED FEBRUARY 18, 1928, THE CONTRACT PRICE OF WHICH WAS $5,730, THE SURETY CONTRACTOR WAS ENTITLED TO 15 DAYS' EXTENSION OF THE TIME FOR COMPLETION OF THE CONTRACT, OR UNTIL MARCH 30, 1928.

THE SURETY CONTRACTOR APPEARS TO HAVE COMPLETED THE WORK PRIOR TO MARCH 30, 1928, AND, THEREFORE, NO LIQUIDATED DAMAGES ACCRUED TO THE UNITED STATES UNDER THE INVOLVED CONTRACTS.

THE CONTRACT PRICE FOR THE WORK UNDER SAID CONTRACT NO. VBC-112, WITH THE TOBIN CONSTRUCTION ., INCLUDING ADDITIONAL WORK UNDER CHANGE ORDER "A" VALUED AT $350, AMOUNTED TO $266,849. WHEN SAID CONTRACT WAS TERMINATED BY THE GOVERNMENT, ON ACCOUNT OF DEFAULT OF THE CONTRACTOR THEREUNDER, THE CONTRACT VALUE OF THE COMPLETED WORK AMOUNTED TO $64,845.50 AND THE CONTRACTOR HAD BEEN PAID ONLY $39,713.85, LEAVING AN UNPAID BALANCE OF $25,131.65.

THE RECORD DISCLOSES THAT THE SURETY CONTRACTOR HAS BEEN PAID THE SUM OF $213,448.48 FOR SERVICES PERFORMED AND MATERIALS FURNISHED IN CONNECTION WITH THE COMPLETION OF SAID GOVERNMENT WORK UNDER ITS SAID CONTRACT NO. VBC-205. THE SURETY CONTRACTOR CONTENDS, HOWEVER, THAT IT IS ENTITLED TO RECEIVE THE $25,131.65 BALANCE EARNED BY THE ORIGINAL CONTRACTOR UNDER SAID CONTRACT NO. VBC-112, INASMUCH AS THE DEFAULT OF SAID ORIGINAL CONTRACTOR NECESSITATED COMPLETION OF THE WORK BY IT AS SURETY ON THE PERFORMANCE BOND WITH RESULTANT LOSSES IN EXCESS OF SAID BALANCE DUE TO THE CONTRACTOR.

THE ORIGINAL CONTRACTOR, A. CLEMENT TOBIN, TRADING AS THE TOBIN CONSTRUCTION CO., QUESTIONS THE RIGHT OF SAID SURETY TO THE BALANCE DUE UNDER SAID CONTRACT VBC-112 AND INSISTS THAT HE IS ENTITLED TO RECEIVE SUCH BALANCE UNDER THE PROVISIONS OF THE CONTRACT.

THE PERFORMANCE BOND OF MAY 16, 1927, PROVIDED:

NOW THEREFORE, IF THE PRINCIPAL SHALL WELL AND TRULY PERFORM AND FULFILL ALL THE UNDERTAKINGS, COVENANTS, TERMS, CONDITIONS, AND AGREEMENTS OF SAID CONTRACT DURING THE ORIGINAL TERM OF SAID CONTRACT AND ANY EXTENSIONS THEREOF THAT MAY BE GRANTED BY THE GOVERNMENT, WITH OR WITHOUT NOTICE TO THE SURETY, AND DURING THE LIFE OF ANY GUARANTY REQUIRED UNDER THE CONTRACT, AND SHALL ALSO WELL AND TRULY PERFORM AND FULFILL ALL THE UNDERTAKINGS, COVENANTS, TERMS, CONDITIONS, AND AGREEMENTS OF ANY AND ALL DULY AUTHORIZED MODIFICATIONS OF SAID CONTRACT THAT MAY HEREAFTER BE MADE, NOTICE OF WHICH MODIFICATIONS TO THE SURETY BEING HEREBY WAIVED, AND IF SAID CONTRACT IS FOR THE CONSTRUCTION OR REPAIR OF A PUBLIC BUILDING OR A PUBLIC WORK WITHIN THE MEANING OF THE ACT OF AUGUST 13, 1894, AS AMENDED BY ACT OF FEBRUARY 25, 1905, SHALL PROMPTLY MAKE PAYMENT TO ALL PERSONS SUPPLYING THE PRINCIPAL WITH LABOR AND MATERIALS IN THE PROSECUTION OF THE WORK PROVIDED FOR IN SAID CONTRACT, AND ANY SUCH AUTHORIZED EXTENSION OR MODIFICATION THEREOF, THEN, THIS OBLIGATION TO BE VOID; OTHERWISE TO REMAIN IN FULL FORCE AND VIRTUE.

THE SAID GOVERNMENT CONTRACT FOR THE CONSTRUCTION OF A RECEIVING BUILDING AND CONNECTING CORRIDORS AT THE VETERANS' HOSPITAL NO. 60, OTEEN, N.C., IS A CONTRACT FOR A PUBLIC WORK WITHIN THE MEANING OF SAID ACT OF AUGUST 13, 1894, 28 STAT. 278, AS AMENDED BY THE ACT OF FEBRUARY 24, 1905, 33 STAT. 811, WHICH PROVIDES FOR THE PROTECTION OF PERSONS FURNISHING MATERIALS FOR THE CONSTRUCTION OF PUBLIC BUILDINGS AND WORKS. THE COURTS HAVE HELD THAT UNDER A PERFORMANCE BOND FOR PUBLIC BUILDINGS AND WORK UNDER SAID STATUTE, THE OBLIGATION HAS A DUAL ASPECT, TO WIT: FIRST, TO SECURE TO THE GOVERNMENT THE FAITHFUL PERFORMANCE OF THE CONTRACT, AND, SECOND, TO PROTECT THIRD PERSONS FROM WHOM THE CONTRACTOR MAY OBTAIN MATERIALS OR LABOR; AND THAT THE ACT WAS INTENDED TO PROVIDE A SECURITY FOR LABORERS AND MATERIAL MEN ON WHICH THEY COULD RELY CONFIDENTLY FOR PROTECTION, UNLESS THEY RELINQUISHED THE BENEFIT OF SUCH SECURITY BY THEIR OWN DEALINGS WITH THE CONTRACTOR. UNITED STATES V. NATIONAL SURETY COMPANY, 92 FED.REP. 549; EQUITABLE SURETY COMPANY V. UNITED STATES, 234 U.S. 448. UNDER THE CONDITIONS OF THE BOND, AND IN VIEW OF SAID STATUTE, THE SURETY BECOMES BOUND FOR PERFORMANCE OF THE WORK BY THE CONTRACTOR IN ACCORDANCE WITH THE STIPULATIONS OF THE CONTRACT AND FOR THE PROMPT PAYMENT OF MONEYS DUE TO ALL PERSONS SUPPLYING LABOR AND MATERIALS TO THE CONTRACTOR FOR THE WORK UNDER THE CONTRACT.

IN THE INSTANT CASE, THE EVIDENCE SHOWS THAT THE SURETY COMPLETED THE UNFINISHED WORK OF ITS PRINCIPAL AT THE VETERANS' HOSPITAL AT OTEEN, N.C., TO THE SATISFACTION OF THE GOVERNMENT OFFICERS IN CHARGE THEREOF, WITH AN EXPENDITURE OF $21,092.77 IN EXCESS OF THE CONTRACT PRICE; THAT SAID SURETY HAS PAID $26,874.60 FOR LABOR AND MATERIALS FURNISHED THE CONTRACTOR FOR USE ON SAID WORK PRIOR TO THE TERMINATION OF THE CONTRACT ON OCTOBER 13, 1927; THAT THE OUTSTANDING UNPAID CLAIMS OF MATERIAL MEN AGAINST THE CONTRACTOR FOR WHICH SAID SURETY IS LIABLE AMOUNT TO APPROXIMATELY $17,331.40; AND THAT THE SURETY HAS RECEIVED FUNDS FROM THE SALE OF SURPLUS MATERIALS AMOUNTING TO $2,877.21. THUS, THE SURETY'S EXPENDITURES AND LIABILITIES IN EXCESS OF PAYMENTS RECEIVED IN CONNECTION WITH ITS COMPLETION OF THE GOVERNMENT WORK INVOLVED AMOUNT TO APPROXIMATELY $62,421.56.

THE RULE IS WELL ESTABLISHED THAT A SURETY ON THE BOND OF A CONTRACTOR FOR PUBLIC WORK, WHO ASSUMED TO COMPLETE THE WORK AFTER DEFAULT OF THE CONTRACTOR, IS ENTITLED TO BE SUBROGATED, SO FAR AS NECESSARY TO PROTECT IT FROM LOSS, TO ALL THE RIGHTS WHICH THE GOVERNMENT MIGHT HAVE ENFORCED AGAINST THE CONTRACTOR IF IT HAD DECLARED THE CONTRACT FORFEITED AND COMPLETED THE WORK ITSELF. THE SURETY'S RIGHT OF SUBROGATION HAS BEEN HELD TO BE SUPERIOR TO THE CLAIMS OF THE CONTRACTOR, OR HIS ASSIGNEES, FOR ANY BALANCES DUE UNDER THE CONTRACT WHICH ARE NECESSARY TO PROTECT THE SURETY FROM LOSS IN THE COMPLETION OF THE WORK. IN THIS CONNECTION, SEE FIRST NATIONAL BANK, SEATTLE V. CITY TRUST, SAFE DEPOSIT AND SURETY CO., PHILADELPHIA, ET AL., 114 FED.REP. 529; HENNINGSEN ET AL. V. UNITED STATES FIDELITY AND GUARANTY CO., ETC., ET AL., 143 FED.REP. 810, AFFIRMED BY UNITED STATES SUPREME COURT, 208 U.S. 404; PRAIRIE STATE BANK V. UNITED STATES, 164 U.S. 227; HARDAWAY AND PROWELL V. NATIONAL SURETY COMPANY, 150 FED.REP. 465, 473, AFFIRMED BY THE UNITED STATES SUPREME COURT, 211 U.S. 552; TITLE GUARANTY AND SURETY COMPANY V. DUTCHER ET AL., 203 FED.REP. 67; FIDELITY AND DEPOSIT COMPANY OF MARYLAND V. CLAIBORNE PARISH SCHOOL BOARD ET AL., 11 FED.REP. (2ND SERIES) 404; AND FIDELITY AND DEPOSIT COMPANY OF MARYLAND V. UNION STATE BANK OF MINNEAPOLIS ET AL., 21 FED.REP. (2ND SERIES) 102.

IN THIS CASE, HAD THE GOVERNMENT COMPLETED THE WORK UNDERTAKEN BY THE CONTRACTOR AT A COST EXCEEDING THE ORIGINAL CONTRACT PRICE, IT WOULD HAVE HAD THE RIGHT TO APPLY THE BALANCE DUE SAID CONTRACTOR AT THE TIME OF ITS DEFAULT THEREUNDER IN REDUCTION OF SUCH COST. LIKEWISE, SINCE THE SURETY COMPLETED THE WORK IN THE PLACE OF THE CONTRACTOR, IT MAY BE SUBROGATED TO THE RIGHTS OF THE GOVERNMENT TO MAKE SUCH APPLICATION. THE RIGHT OF THE SURETY TO RECEIVE PAYMENT IN SUCH CASE, UNDER THE DOCTRINE OF SUBROGATION, DATES FROM THE DATE OF THE PERFORMANCE BOND AND IS PARAMOUNT TO THE RIGHT OF THE CONTRACTOR OR ANYONE CLAIMING AS HIS ASSIGNEE, OR AS TRUSTEE, RECEIVER, OR ADMINISTRATOR OF HIS EFFECTS OR ESTATE. THE FACT THAT THE GOVERNMENT ENTERED INTO A SEPARATE AGREEMENT WITH SAID SURETY FOR THE COMPLETION OF THE UNFINISHED WORK OF ITS PRINCIPAL, AS IN THIS CASE, WOULD NOT AFFECT SAID SURETY'S RIGHT OF SUBROGATION TO COVER ITS LOSSES. THIS CONNECTION, SEE 26 COMP. DEC. 467; 8 COMP. GEN. 36; AND ID. 58.

IN VIEW OF THE FACTS AND CIRCUMSTANCES DISCLOSED, AS HEREINABOVE SET FORTH, PAYMENT OF THE SAID $25,131.65 FOUND TO BE DUE UNDER THE ORIGINAL CONTRACT FOR WORK PERFORMED PRIOR TO DEFAULT ON SAID CONTRACT, SHOULD BE MADE TO THE SURETY, THE CONTINENTAL CASUALTY CO. OF CHICAGO, ILL., IN PARTIAL REIMBURSEMENT FOR EXPENDITURES MADE ON CLAIMS FOR LABOR AND MATERIALS USED BY THE CONTRACTOR IN SAID CONSTRUCTION WORK AT THE UNITED STATES VETERANS' HOSPITAL AT OTEEN, N.C., AND FOR WHICH IT WAS LIABLE AS SURETY ON THE PERFORMANCE BOND.

ACCORDINGLY, THERE IS CERTIFIED AS DUE THE CONTINENTAL CASUALTY CO. OF CHICAGO, ILL., SURETY ON THE PERFORMANCE BOND OF THE DEFAULTING CONTRACTOR, A. CLEMENT TOBIN, TRADING AS THE TOBIN CONSTRUCTION CO., THE SUM OF $25,131.65, AND A CHECK THEREFOR WILL ISSUE IN DUE COURSE.

THE STOP ORDER ON THE CHECK FOR $25,131.65 ISSUED OCTOBER 2, 1928, TO THE TOBIN CONSTRUCTION ., WILL BE MADE PERMANENT AS NO AMOUNT IS DUE OR PAYABLE TO SAID COMPANY UNDER ITS CONTRACT.