A-9255, DECEMBER 23, 1925, 5 COMP. GEN. 445

A-9255: Dec 23, 1925

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THE MATERIALS WERE DESTROYED BY FIRE WHILE IN HIS POSSESSION. A SUPPLEMENTAL CONTRACT WAS ENTERED INTO WHEREBY THE CONTRACTOR ACKNOWLEDGED HIS INDEBTEDNESS ON ACCOUNT OF SUCH DESTRUCTION. THE SURETY ON THE CONTRACTOR'S BOND IS ENTITLED TO CREDIT AGAINST ITS LIABILITY FOR AMOUNTS SO RECOVERED FROM THE CONTRACTOR. WHEREIN IT WAS FOUND THAT THE SAID VICTOR W. MORVAY IS INDEBTED TO THE UNITED STATES IN THE SUM OF $28. THE UNITED STATES WAS TO FURNISH THE NECESSARY DUCK AND THE CONTRACTOR WAS TO FURNISH ALL OTHER MATERIALS INCIDENT TO THE MANUFACTURE THEREOF. IT WAS ALSO PROVIDED THAT THE CONTRACTOR WOULD BE RESPONSIBLE FOR ANY LOSS OF OR DAMAGE TO ANY MATERIALS FURNISHED BY THE UNITED STATES FROM ANY CAUSE WHATSOEVER.

A-9255, DECEMBER 23, 1925, 5 COMP. GEN. 445

CONTRACTS - SURETY BONDS - LIABILITY OF SURETY FOR DESTROYED GOVERNMENT PROPERTY WHERE A CONTRACTOR AGREED TO MANUFACTURE TENTS FOR THE UNITED STATES OUT OF MATERIALS FURNISHED BY THE GOVERNMENT, ASSUMING LIABILITY FOR ANY LOSS OR DAMAGE TO SAID MATERIALS, AND THE MATERIALS WERE DESTROYED BY FIRE WHILE IN HIS POSSESSION, AND A SUPPLEMENTAL CONTRACT WAS ENTERED INTO WHEREBY THE CONTRACTOR ACKNOWLEDGED HIS INDEBTEDNESS ON ACCOUNT OF SUCH DESTRUCTION, AGREEING TO A DEDUCTION OF 10 PERCENT FROM PAYMENTS DUE OR TO BECOME DUE, TO BE APPLIED AS A CREDIT TO SUCH INDEBTEDNESS, THE SURETY ON THE CONTRACTOR'S BOND IS ENTITLED TO CREDIT AGAINST ITS LIABILITY FOR AMOUNTS SO RECOVERED FROM THE CONTRACTOR.

DECISION BY COMPTROLLER GENERAL MCCARL, DECEMBER 23, 1925:

THE NEW AMSTERDAM CASUALTY CO. (SURETY FOR VICTOR W. MORVAY) REQUESTED REVIEW OF SETTLEMENT NO. U.S. 829-W, DATED JANUARY 14, 1925, WHEREIN IT WAS FOUND THAT THE SAID VICTOR W. MORVAY IS INDEBTED TO THE UNITED STATES IN THE SUM OF $28,615.85 ON ACCOUNT OF MATERIALS UNACCOUNTED FOR UNDER CONTRACTS NOS. 774-P AND 1211-P, DATED JANUARY 29, 1918, AND MARCH 11, 1918, RESPECTIVELY, AND P. O. NO. 3776-2881, DATED NOVEMBER 11, 1918.

PURSUANT TO THE TERMS OF CONTRACTS NOS. 774-P AND 1211-P, VICTOR W. MORVAY, HEREINAFTER DESIGNATED AS THE CONTRACTOR, AGREED TO MAKE UP AND DELIVER A NUMBER OF SHELTER-TENT HALVES IN ACCORDANCE WITH CERTAIN SPECIFICATIONS FURNISHED. THE UNITED STATES WAS TO FURNISH THE NECESSARY DUCK AND THE CONTRACTOR WAS TO FURNISH ALL OTHER MATERIALS INCIDENT TO THE MANUFACTURE THEREOF. IT WAS ALSO PROVIDED THAT THE CONTRACTOR WOULD BE RESPONSIBLE FOR ANY LOSS OF OR DAMAGE TO ANY MATERIALS FURNISHED BY THE UNITED STATES FROM ANY CAUSE WHATSOEVER. A SURETY BOND WAS FURNISHED IN THE SUM OF $5,000 FOR THE FAITHFUL PERFORMANCE OF CONTRACT NO. 774-P WITH THE AETNA CASUALTY AND SURETY CO. AS SURETY THEREON. A SIMILAR BOND WAS FURNISHED UNDER DATE OF JULY 5, 1918, IN THE SUM OF $8,000 FOR THE FAITHFUL PERFORMANCE OF CONTRACT NO. 1211-P, WITH THE NEW AMSTERDAM CASUALTY CO. AS SURETY.

ON APRIL 16, 1918, BEFORE COMPLETION OF THE CONTRACTS THERE WAS A FIRE IN THE CONTRACTOR'S PLANT AT TUCKERTON, N.J., WHICH DESTROYED A QUANTITY OF DUCK MATERIAL FURNISHED BY THE UNITED STATES. AN INVESTIGATION WAS MADE SUBSEQUENT TO THE FIRE TO DETERMINE THE LOSS, AND AS A RESULT THEREOF A SUPPLEMENTAL CONTRACT WAS ENTERED INTO UNDER DATE OF AUGUST 9, 1918, WHICH ACKNOWLEDGED THE CONTRACTOR'S INDEBTEDNESS TO THE UNITED STATES IN THE SUM OF $35,552.61 ON ACCOUNT OF THE DESTROYED MATERIALS AND PROVIDED FOR DEDUCTION OF 10 PERCENT FROM ALL FUTURE PAYMENTS DUE OR TO BECOME DUE UNDER CONTRACTS NOS. 774 P AND 1211-P, OR ANY OTHER CONTRACTS OR ORDERS NOW OR HEREAFTER EXISTING BETWEEN THE GOVERNMENT AND THE CONTRACTOR, TO APPLY ON THE SAID INDEBTEDNESS. THE AGREEMENT WAS INDORSED BY BOTH BONDING COMPANIES (THE AETNA CASUALTY AND SURETY CO. AND THE NEW AMSTERDAM CASUALTY CO.). IT APPEARS THAT THE CONTRACTOR CONTINUED PERFORMANCE OF HIS CONTRACT AFTER THE FIRE UNTIL THE ARMISTICE, NOVEMBER 11, 1918, AT WHICH TIME THE WORK WAS SUSPENDED.

THE ADMINISTRATIVE AUDIT REPORT FURNISHED BY THE CHIEF OF FINANCE SHOWS THAT THE CONTRACTOR IS ENTITLED TO THE FOLLOWING CREDITS REPRESENTING DEDUCTIONS MADE IN ACCORDANCE WITH THE SUPPLEMENTAL AGREEMENT AND THE AMOUNT RECOVERED FROM THE AETNA CASUALTY AND SURETY CO., SURETY ON CONTRACT NO. 774-P:

TABLE 10 PERCENT DEDUCTED ON CONTRACT NO. 774-P ------------------- -- $982.97 10 PERCENT DEDUCTED ON CONTRACT NO. 1211-P ---------------- -- 2,017.16 10 PERCENT DEDUCTED ON CONTRACT NO. 3776-2881 ----------- ---- 9.40 AMOUNT DUE CONTRACTOR ON VOU. 1475, MAR. 1921, ACCTS.

S. B. MCINTYRE -------------------------------------------- 8.77 AMOUNT RECEIVED FROM AETNA CASUALTY AND SURETY CO ------------ 5,000.00

8,018.30

UNDER DATE OF FEBRUARY 21, 1925, DEMAND WAS MADE UPON THE NEW AMSTERDAM CASUALTY CO., SURETY UNDER CONTRACT NO. 1211-P, FOR THE FULL AMOUNT OF THE SURETY BOND ($8,000). THE SURETY REFUSED PAYMENT THEREOF AND CONTENDS THAT THERE IS NO LIABILITY UNDER THE BOND, FOR THE REASON THAT AT THE TIME OF THE EXECUTION THEREOF THE PROPERTY HAD BEEN ACTUALLY DESTROYED BY FIRE; THAT IF IT HAD KNOWN OF THE DESTRUCTION THEREOF IT WOULD NOT HAVE EXECUTED THE BOND; THAT IF THE GOVERNMENT SHOULD INSIST UPON ENFORCEMENT OF THE BOND, ONLY $2,788.04 OF THE FULL AMOUNT DUE UNDER THE CONTRACTS IN QUESTION IS CHARGEABLE TO CONTRACT NO. 1211-P; THAT THE CREDIT OF 10 PERCENT ON THE SAID CONTRACT AMOUNTS TO $2,017.16; AND THAT THE POSSIBLE MAXIMUM RECOVERY WOULD NOT EXCEED THE SUM OF $770.88, BEING THE DIFFERENCE BETWEEN THE VALUE OF THE GOODS DESTROYED AND THE 10 PERCENT DEDUCTED ON CONTRACT NO. 1211-P.

THERE HAVE BEEN NUMEROUS DECISIONS WITH REFERENCE TO LIABILITY OF A SURETY AND IT HAS BEEN UNIFORMLY HELD THAT AS A GENERAL PRINCIPLE AND IN THE ABSENCE OF EXPRESS TERMS STIPULATING OTHERWISE, THE MEASURE OF LIABILITY IS STRICTLY LIMITED TO THAT OF THE PRINCIPAL, THE SURETY BEING ANSWERABLE FOR THE DEFAULT OF THE PRINCIPAL. THE SURETY IS ENTITLED AGAINST ITS LIABILITY TO CREDIT FOR ANY PAYMENTS MADE BY THE PRINCIPAL OR ARISING FROM ANY PROCEEDS FROM SECURITY RECEIVED BY THE CREDITOR. ARRANGEMENT IN GOOD FAITH WHEREBY THE OBLIGATION IS TO BE PAID BY THE DEDUCTION OF A STIPULATED PERCENTAGE FROM PAYMENTS DUE OR TO BECOME DUE,AS IN THE INSTANT MATTER, IS SUFFICIENT. 32 CYC. 116; IN RE PULSIFER AND OTHERS, 14 FED.REP. 247; UNITED STATES FIDELITY AND GUARANTY COMPANY V. BOARD OF COMMISSIONERS, WOODSON COUNTY, 145 FED.REP. 144-148; AMERICAN BONDING COMPANY OF BALTIMORE V. PUEBLO INV. COMPANY, 150 FED.REP. 17-24; UNITED STATES FIDELITY AND GUARANTY COMPANY V. EICHEL, 219 FED.REP. 203.

THE FACTS OF RECORDS SHOW (SEE AUDIT REPORT FURNISHED BY CHIEF OF FINANCE) THAT 6,949 1/4 YARDS OF DUCK WERE DESTROYED, WHICH IS CHARGEABLE TO CONTRACT NO. 1211-P, AT 40 CENTS PER YARD AMOUNTS TO A TOTAL OF $2,779.70, TO WHICH SHOULD BE APPLIED A CREDIT OF $2,017.16, THE AMOUNT DEDUCTED FROM PAYMENTS DUE THE CONTRACTOR IN ACCORDANCE WITH THE TERMS OF SUPPLEMENTAL CONTRACT OF AUGUST 8, 1918, LEAVING A BALANCE DUE THE UNITED STATES FOR WHICH THE SURETY IS LIABLE UNDER ITS BOND, OF $762.54, WHICH AMOUNT SHOULD BE REMITTED TO THIS OFFICE AT ONCE.