Ruberoid v. GLASSMAN CONSTRUCTION COMPANY, INC.

Barnes, J., delivered the opinion of the Court. This appeal involves questions of whether an unpaid supplier of materials to a public school construction project has ⁹⁹ the protection of the payment bond of the general contractor and its surety and if so, whether the entire amount of the materials, furnished are within such protection. The basic facts are not in dispute. On June 18, 1963, Glass-man Construction Co., Inc., (Glassman, general contractor or principal) contracted in writing with the Board of Education of Prince George’s County, Maryland (owner), for the construction of the William Wirt Junior High School.

In accordance with the provisions of Code, Article 90, section 11, Glass-man, as principal, and The Home Indemnity Company, as surety, executed and delivered to the owner a labor and material payment bond which contained the following relevant provisions : The condition was that: “if the Principal shall promptly make payment to all claimants as hereinafter defined, for all labor and material used or reasonably required for use in the performance of the Contract, then this obligation shall be void;* * *.” “A claimant is defined as one having a direct contract with the Principal or with a subcontractor of the Principal for labor, material, or both, used or reasonably required for use in the performance of the contract, * * *.” On July 24, 1963, Glassman entered into a written subcontract for the resilient floor tile work on the school with James R. Miller, a sole proprietorship doing business as Miller Floor Company in Arlington, Virginia (Miller). This subcontract contained the following relevant provisions: “4. * * * At the Contractor’s option payments may be made jointly to the Subcontractor and his suppliers. “13. In the event that the Contractor shall require a Performance and/or Payment Bond after this agreement has been executed, the Subcontractor shall furnish such bond in an amount, form, and with a company acceptable to the Contractor. Cost of the bond ¹⁰⁰ under these circumstances only, will be borne by the Contractor. “14.

The Subcontractor agrees to hold the Contractor harmless from any claims or disputes, and will defend any law suit or dispute brought against the Contractor for any reasons whatsoever, which may arise due to any act of the Subcontractor. “22. The Subcontractor shall not assign or transfer this contract or any part thereof or any interest therein, without the written consent of the Contractor. “24. The Contractor reserves the right to withhold all or any part of partial payments, in addition to retained percentage withheld, until final completion, due the Subcontractor, for non-compliance with any of the terms of this Agreement, and shall be withheld until such time as said non-compliance has been corrected to the satisfaction of the Contractor. “25. (a) If, at any time, there shall be asserted any lien or any other claim of any kind for which the Contractor or the said premises might become liable, and which is chargeable to the Subcontractor or his subcontractors, the Contractor shall have the right to retain out of any payment then due or thereafter to become due, an amount sufficient to completely discharge or pay any such lien or claim, including attorney’s fees claimed by the lienor or other claimant, and to apply the amount thus retained for such discharge •or payment.

Any such application of sums due or to become due hereunder shall be taken and deemed to have been made in satisfaction of the Contractor’s obligation for payment under this agreement. Should any such lien or claim be made or established after all payments are made, the Subcontractor shall refund and repay to the Contractor all monies that the latter may be compelled to pay in discharging or disposing thereof and of any other claim made in consequence of the Subcontractor’s default, and this agreement shall not be affected by the final certificates or the final payment. “27. The Subcontractor, at any time or times dur ¹⁰¹ ing the course of this Agreement, upon the request of the Contractor, shall furnish the said Contractor evidence, in whatever form the Contractor may require, that all obligations of persons or firms performing work and/or supplying materials, equipment or services, or Social Security and Withholding Taxes, incurred by the Subcontractor under this Agreement have been met, paid, satisfied or discharged. Before commencing work, Subcontractor will furnish a complete list of his subcontractors and suppliers to the Contractor.” On March 26, 1964, prior to having performed any work on the school construction, Miller incorporated his business under the laws of the Commonwealth of Virginia, as Miller Floor Company, Inc. (Miller, Inc.).

After this change in form, the business in all material respects continued as before, with Miller as manager and sole owner of Miller, Inc. Miller, however, after the incorporation of the business did no more work under the sole proprietorship form of doing business. In July, 1964, the construction work on the school having reached the stage for the installation of the resilient tile floors, Miller, Inc. ordered from The Ruberoid Co., a manufacturer of resilient floor materials at its plant in Newburgh, New York (Ruberoid) certain flooring materials in the amount of $16,-557.37. This order was placed by telephone and was later confirmed by a written purchase order which contained the heading “Miller Floor Company, Inc.” and designated the ordered materials to be for the William Wirt Junior High School project. Ruberoid had first sold materials to Miller in December, 1963, and at that time knew that Miller was an individual trading as Miller Floor Company.

In July, 1964, Ruberoid became aware that its customer was then Miller, Inc. since the letterheads and purchase order then received were so marked and Ruberoid received a report from Dun & Bradstreet that its customer had incorporated. Ruberoid shipped the ordered materials by common carrier to the job site where they were received and signed for by Miller, Inc. At no time were any of the materials in the possession of Glassman. Of the materials furnished by Ruberoid in the total ¹⁰² amount of $16,557.37, materials of the value of $8,009.25 were not used on the school construction, but without the knowledge of Ruberoid, Glassman or the surety, were diverted by Miller, Inc. to some other use unknown to them. It was stipulated that the diverted materials were either tiles of a color not specified on the job by the owner or, if of a specified color, exceeded the quantity of tiles required for the construction of the school.

Ruberoid, not having been paid for any of the flooring materials furnished by it, gave timely notice of non-payment in accordance with the statutory provision both to Glassman, as principal, and to the surety on the payment bond and, upon the refusal of payment, filed a timely action on the bond to recover from the principal and surety for the amount of the unpaid materials, plus interest from the due date of the bills for those materials. The case was heard by the Circuit Court for Prince George’s County (Bowie, J.) without a jury. After taking testimony and hearing arguments, the trial court entered judgment for the principal and surety, as defendants, for costs. A timely appeal was taken by Ruberoid to this Court.

The trial court was of the opinion that (1) since the principal Glassman had subcontracted the flooring work to Miller, a sole proprietorship, whereas Ruberoid furnished the materials to Miller, Inc., a corporation, the supplier did not supply the materials to a subcontractor as required by the applicable statute and was not a claimant as defined in the bond and hence, Ruberoid was not within the protection of the bond; and, (2) if Ruberoid was within the protection of the bond, the diversion of materials in the amount of $8,009.25 prevented that amount from being within the protection of the bond. We disagree with both conclusions and will reverse the judgment of the lower court. (1) The pertinent portion of Article 90, section 11 calls for a payment bond “for the protection of all persons supplying labor and materials to the contractor or his subcontractor * * The bond actually