The Century Indemnity Company, co-sureties on a performance and payment bond of January 16, 1952 which was executed by Crystal Lumber Co., Inc. as principal, in connection with a construction contract of even date between it and the Housing Authority of the City of Fayetteville, North Carolina, for the construction of a low cost housing project.  The purpose of the suit is to recover certain sums assessed against the Crystal Lumber Co. for unemployment taxes, withholding taxes and Social Security taxes which accrued during the progress of the work.


2
The Government claimed that the sureties are liable for the payment of these taxes by reason of provisions of the construction contract and of the performance and payment bond.  The construction contract provided that Crystal Lumber Company, asLumber Company, as principal, and the surety companies as surety, and the obligee in the bond was the Housing Authority of the City of Fayetteville, North Carolina.  The penalty of the bond was $1,214,000.


3
On or about January 29, 1952 the Crystal Lumber Co. began the construction of the project and continued therein until March 11, 1953 when it executed a contract with the Housing Authority and the two sureties, acknowledging that it was in default, and the surety companies agreed to undertake the performance of the contract.  During the intervening period the taxpayer was the employer of divers individuals on the work and as the result thereof the Commissioner of Internal Revenue made certain assessments against it representing taxes, penalty and interest due under certain federal