U.S. Supreme Court INTERNATIONAL STEEL & IRON CO. v. NATIONAL SUR. CO., 297 U.S. 657 (1936)

[Page 297 U.S. 657, 658]

Mr. Charles C. Trabue, of Nashville, Tenn., for appellee.

Mr. Justice ROBERTS delivered the opinion of the Court.

The present appeal challenges a statute of Tennessee on the ground that, as construed and applied, it impairs the obligation of a contract in contravention of article 1, 10 of the Federal Constitution.

March 12, 1928, National Construction Company made a contract with the state, through its Department of Highways and Public Works, for the construction of a bridge. An act of 1917 required such a contractor to furnish a bond with surety to protect the state and to secure payment to persons furnishing materials, supplies, and labor for the project. [Footnote 1] The company executed

[Page 297 U.S. 657, 662]

not bring that statute into any constitutional difficulty.' Except for thi statement, the record failed to disclose that a question under the Federal Constitution had been presented or decided. In the circumstances, this court had no jurisdiction upon appeal. Counsel for the appellant requested at the bar a continuance of the cause to afford opportunity for amplification of the record disclosing the basis of decision. [Footnote 4] The application was granted, a petition was filed in the court below, and, in response thereto, the court added to its opinion a recital that a reargument had been ordered upon 'the constitutionality, construction, and applicability' of chapter 80 of the Acts of 1929, and, prior to reargument, counsel for the appellant had filed a brief raising the federal constitutional question under Article I, section 10, and the Court intended to express the opinion that the act, as construed by it, 'did not impair the obligation of contracts in violation of ... the contract clause of ... the Constitution of the United States.' These additional proceedings have been certified and added to the record. Upon the record as thus supplemented, we have jurisdiction.

[Page 297 U.S. 657, 663]

struction Company. [Footnote 5] The Supreme Court of Tennessee, though so holding, thought the act of 1929 merely affected the appellant's remedy without impairing its substantive rights. It treated the act of 1917, pursuant to which appellee gave its bond, as having 'the same general purpose as the mechanic's lien statutes.' It said: 'The beneficiaries of the legislation are given a lien under private contracts, recourse on the bond under public contracts.' After stating that it was unnecessary to decide whether a mechanic's lian,-a remedy created by statute and not by the contract of the parties-may be abolished or modified by statute without impairing the obligation of the contract, or, on the contrary, the lienor has a vested interest in the remedy, upon accrual of his lien, of which the cannot be deprived without such impairment, the court disposed of the appellant's contention thus: 'If we concede that the materialman's lien in the one instance, or his recourse on the bond in the other instance, enters into his contract and is a part thereof, and that a remedy so embraced cannot be impaired without impairing the obligation of the contract, still our construction of chapter 80 of the Acts of 1929 does not bring that statute into any constitutional difficulty. We construe the statute as regulating, after its passage, the procedure to be followed by all parties in respect to the final settlement of every highway contract, whether the contract itself was made before or after the enactment of chapter 80 of the Acts of 1929.'

[Page 297 U.S. 657, 665]

Beyond doubt the statute thus violates the contract clause of the Constitution.

The respondent insists that as the appellant joined the Equitable Company, surety on the refunding bond, as a defendant, it sought to take advantage of the amendatory act of 1929 and is now estopped to question the constitutional validity of the statute. Appellant replies that the suit went upon the theory adopted by the chancellor that the amendatory act was not retroactive so as to release the earlier bond but intended merely to substitute a refunding bond in the place of the funds retained by the Highway Commissioner which, under the original act, were also held for satisfaction of the appellant's claim. Such a construction of an act which had not been passed upon by any court was permissible, and if, as now appears, the appellant was in error in so construing the act, the mistake cannot be made the basis of an estoppel. In both appellate courts the appellant insisted on its original view that the act of 1929 did not operate to discharge the obligation of the appellee's bond. The appellee asserted no estoppel in either of those tribunals. Not until the decision of the Supreme Court was there a holding that the act retroactively affected the enforcibility of the bond. Not until then was there occasion for appellant to urge that, if so construed, the act would impair the obligation of the bond. As we have indicated, the record discloses that when this construction of the act appeared probable, the appellant promptly raised the constitutional question. It cannot be estopped so to do by its previous insistence upon a construction which would render the statute consistent with the act of 1917 and present no constitutional difficulty. [Footnote 6] The appellee says that estoppel, a nonfederal ground, adequate to

[Page 297 U.S. 657, 666]

support the judgment, was in the case from its inception. The point was not made or considered in the state courts. The validity of the act was adjudged on the issue of impairment of the obligation of the appellee's bond. We do not, therefore, consider the defense of estoppel. 'The rule that when the decision of a state court may rest upon a nonfederal ground adequate to support it, this court will not take jurisdiction to determine the federal question, has no application where, as here, the nonfederal ground might have been considered by the state court but was not.' 7

The judgment is reversed, and the cause remanded for further proceedings not inconsistent with this opinion.

So ordered. Footnotes

Footnote 1 Chapter 74, Public Acts of Tennessee 1917 (page 217). By section 6 ( pages 222, 223) it is provided: 'All contractors with whom contracts are made by the Department shall enter into good and solvent surety bond in an amount fixed by the Department, conditioned upon the full and faithful performance of every part and stipulation of the contract, especially the payment for all materials purchased and for all labor employed in the contemplated work. ... Not more than ninety per cent. of the contract price shall be paid on any contract until it is completed and the work is accepted. Before final acceptance, the contractor must furnish evidence to satisfy the Department that all the material used by him, his sub- contractors, or his agents, has been fully paid for and all laborers and other employees working for him, his sub-contractors, or his agents, have been fully paid. When this is done, full settlement may be made with the contractor; but not until thirty days' notice in some newspaper ... that settlement is about to be made and notify (sic) all claimants to file notice of their claim with the Secretary of the Department. The Secretary of the Department shall withhold a sufficient sum from the contract price due to pay all claims ... of which notice is filed with him, for a reasonable time to allow claimants to sue for and prove their claims against the contractor or his agent, in some court of competent jurisdiction.'

Footnote 2 Public Acts of Tennessee 1929, chapter 80›(pages 173-175).

Footnote 3 'Section 1. ...'(a) The Secretary of the Department (now the Commissioner of Highways and Public Works) shall withhold a sufficient sum from the contract price due to pay all claims, of which notice is filed with him, for a period of sixty days from the date of the last advertising, to allow claimants to sue and prove their claims against the contractor of his agent, in some court of competent jurisdiction. In the event suit is brought against the contractor within the said sixty days from the date of the last advertising, by any claimant, the Department or its officers shall pay the amount of said claim into court. But in all cases where suits are not brought within the said period of sixty days the Secretary shall pay said sum or sums so withheld to the contractor.'(b) On the date set for full and final settlement with the contractor, the contractor may make proper refunding bond to the State of Tennessee for the amount of any sum or sums so held for the said period of sixty days, such bond to be approved by the Commission, whereupon the Commissioner or the Department of Highways and Public Works shall pay such contractor in full.'

Footnote 4 Compare Lynch v. New York, 293 U.S. 52, 55 S.Ct. 16.

Footnote 5 City of Bristol v. Bostwick, 139 Tenn. 304, 310, 317, 202 S.W. 61; Cass v. Smith, 146 Tenn. 218, 227, 240 S.W. 778, citing and quoting Equitable Surety Co. v. United States, 234 U.S. 448, 34 S.Ct. 803; Standard Oil Co. v. Jamison Bros., 166 Tenn. 53, 55, 59 S.W.(2d) 522.

Footnote 6 Compare Saunders v. Shaw, 244 U.S. 317, 37 S.Ct. 638; Great Northern Railway Co. v. Sunburst Oil & Refinding Co., 287 U.S. 358, 367, 53 S.Ct. 145, 85 A.L.R. 254.

Footnote 7 Grayson v. Harris, 267 U.S. 352, 358, 45 S.Ct. 317, 319.