Summary
discussing a surety's contractual obligations to third parties in a suit on a contractor's performance bond
Summary of this case from M v. Renasant Ins., Inc.Opinion
No. 42254.
April 16, 1962.
1. Principal and surety — private contract performance bond — what third party, other than one furnishing labor or materials, must prove in order to recover.
Third party, other than one furnishing labor or materials, seeking to recover on private contract performance bond must prove that terms of bond are expressly broad enough to include him either by name or as one of specified class, that he was evidently within intent of terms used, and that obligee had substantial and articulate interest in his welfare in respect to subject of contract. Sec. 374, Code 1942.
2. Principal and surety — same — surety not liable for claims based on equipment rental or transportation of equipment — liable for claims for gas, oil and necessary repairs to equipment.
Surety on performance bond which guaranteed contractor's performance and completion of work free from liens and claims, and which incorporated contract wherein contractor agreed to perform labor and services and supply materials, tools and equipment, and to notify owner of any liens or claims and discharge them, was not liable to suppliers for claims based on equipment rental or transportation of equipment, but was liable for claims for gas and oil and ordinary, necessary repairs to equipment used in performance of contract. Sec. 374, Code 1942.
3. Conflict of laws — Mississippi law governed surety's liability on contract made in state, and partly to be performed in state.
Surety's liability under contract made in Mississippi, and partly to be performed in Mississippi, was governed by Mississippi law, although part of contract was performed in Alabama.
Headnotes as approved by Gillespie, J.
APPEAL from the Chancery Court of Hinds County; S.V. ROBERTSON, JR., Chancellor.
Cox, Dunn Clark, Jackson, for appellants.
I. Under the law of Mississippi there is no liability under a private contract performance bond for equipment rent, repairs or transportation. McElrath Rogers v. W.G. Kimmons Sons, 146 Miss. 775, 112 So. 164; Seaboard Surety Co. v. Bosarge, 226 Miss. 482, 84 So.2d 517; Shuptrine v. Jackson Equipment Service Co., 168 Miss. 464, 150 So. 795; United States F. G. Co. v. Yazoo County, 145 Miss. 378, 110 So. 780; Watts v. Western Casualty Surety Co., 210 Miss. 211, 49 So.2d 255; Sec. 374, Code 1942.
II. Under the law of Alabama, there is no liability under a private contract performance bond for the claims of third parties for any kind of supplies to the contractor. Adams Supply Co. v. United Fidelity Guaranty Co., 269 Ala. 171, 111 So.2d 906; Couret v. Conner, 118 Miss. 374, 79 So. 230; Fidelity Deposit Co. of Baltimore, Md. v. Rainer, 220 Ala. 262, 125 So. 55, 77 A.L.R. 13; David Lupton's Sons Constr. Co. v. Hugger Bros. Constr. Co., 227 Ala. 25, 148 So. 610; J.R. Watkins Co. v. Hill, 214 Ala. 507, 108 So. 244; New York Life Ins. Co. v. Scheuer, 198 Ala. 47, 73 So. 409; Price v. Harley, 142 Miss. 584, 107 So. 673; Security Federal Savings Loan Assn. v. Underwood Coal Supply Co., 245 Ala. 56, 16 So.2d 100; Anno. 77 A.L.R. 71; Title 33, Secs. 37 et seq., Title 50, Sec. 16, Alabama Code 1940; 15 C.J.S., Sec. 11(c) note 36 p. 889.
Butler, Snow, O'Mara, Stevens Cannada, George H. Butler, Roger C. Landrum, Jackson; Henry Barbour, Herman B. Decell, Yazoo City, for appellees, Stribling Bros. Machinery Company, et al.
I. The Mississippi law is that where a private construction contract requires a contractor to pay for equipment rental and repairs, and the contractor's performance bond requires the contractor to faithfully perform all covenants of the contract, then the person furnishing equipment or repairs is entitled to recovery therefor on such performance bond. Davis Co. v. D'Lo Guaranty Bank, 162 Miss. 829, 138 So. 802; Hartford Acc. Indem. Co. v. Hewes, 193 Miss. 850, 11 So.2d 309; Linde Air Products Co. v. American Surety Co., 168 Miss. 877, 152 So. 292; McElrath Rogers v. W.G. Kimmons Sons, 146 Miss. 775, 112 So. 164; Seaboard Surety Co. v. Bosarge, 226 Miss. 482, 84 So.2d 517; United States F. G. Co. v. Yazoo County, 145 Miss. 378, 110 So. 780; Watts v. Western Cas. Surety Co., 210 Miss. 211, 49 So.2d 255; Yazoo M.V.R. Co. v. Sideboard, 161 Miss. 4, 133 So. 669.
II. Since the claims of Stribling and the Andersons all arose in connection with that portion of the contract which was to be performed in Mississippi, the law of Mississippi is applicable and said claims must be allowed. Commercial Bank v. Auze, 74 Miss. 609, 21 So. 754.
Wise, Smith Carter, W. Swan Yerger, Jackson, for appellees, Southern States Equipment Company, Inc., et al.
I. Under the law of Mississippi there may be liability under a private contract performance bond for equipment rental and repair parts for such equipment where the provisions of 1 Miss. Code Ann. (1942, Recompiled), Section 374, have been expanded and enlarged by the bond itself. Lindy Air Products Co. v. American Surety Co., 168 Miss. 877, 152 So. 292; McElrath Rogers v. W.G. Kimmons Sons, 146 Miss. 775, 112 So. 164; Seaboard Surety Co. v. Bosarge, 226 Miss. 482, 84 So.2d 517; Watts v. Western Casualty Surety Co., 210 Miss. 211, 49 So.2d 255; Sec. 374, Code 1942.
II. Under the law of Alabama, there may be liability under a private contract performance bond for the claims of laborers and materialmen and equipment suppliers of the contractor. Adams Supply Co. v. United States F. G. Co., 269 Ala. 171, 111 So.2d 906; Cleveland Window Glass Door Co. v. National Surety Co., 118 Ohio St. 414, 161 N.E. 280; Copeland v. Kehoe, 67 Ala. 594; David Lumpkin's Sons Constr. Co. v. Hugger Constr. Co., 227 Ala. 25, 148 So. 610; Fidelity Deposit Co. v. Rainer, 220 Ala. 262, 125 So. 55, 77 A.L.R. 13; First Colored Cumberland Presbyterian Church v. Wood Lumber Co., 205 Ala. 442, 88 So. 433; Gray v. McKinley, 34 Ala. App. 630, 43 So.2d 421; Hartford Acc. Indem. Co. v. W. J. Knox Net Twine Co., 150 Md. 40, 132 A. 261; Oak Cliff Lumber Co. v. American Indem. Co., (Texas), 266 S.W. 429; Snelling Lumber Co. v. Porter, 225 Ala. 164, 142 So. 560; Sunset Lumber Co. v. Smith, 91 Cal.App. 746, 267 P. 738; Tanner v. Foley Bldg. Mfg. Co., 254 Ala. 476, 48 So.2d 785; 2 Ala. Law Journal 252.
III. Where the contract and bond are made in Mississippi but work under said contract is to be performed in Mississippi and Alabama, the interpretation of the contract and bond is determined under the laws of Mississippi. Castorri v. Milbrand (Fla.), 118 So.2d 563; Livingston v. Atlantic Coastline R. Co., 176 S.C. 385, 180 S.E. 343; Morgan v. New Orleans M. T.R. Co., 2 Woods 244, 17 F.Cas. 9804; Scudder v. Union Nat. Bank, 91 U.S. 406, 23 L.Ed. 245; Smith v. Compania Litografica de la Habana, 217 N.Y.S. 39, 127 Misc. 508; Title 33, Sec. 37, Alabama Code 1940; 11 Am. Jur., Conflict of Laws, Sec. 119.
Carter Mitchell, Sam E. Scott, Jackson, for appellees, Cecil W. Thigpen, et al.
I. The laws of the State of Mississippi govern all questions on this appeal. Aetna Ins. Co. v. Mount, 90 Miss. 642, 45 So. 835; Brown Bros. Co. v. Freeland Murdock, 34 Miss. 181; Clark v. Till, 177 Miss. 891, 172 So. 133; Commercial Bank v. Auze, 74 Miss. 609, 21 So. 754; Hart v. Livermore Foundry Machine Co., 72 Miss. 809, 17 So. 769; Hinds v. Brazealle, 2 How. (3 Miss.) 837; Hooker v. McRae, 131 Miss. 899, 95 So. 744; Interstate Life Acc. Co. v. Pannell, 169 Miss. 50, 152 So. 635; Ivey v. Lalland, 52 Miss. 444; McKee v. Jones, 67 Miss. 405, 7 So. 348; Metropolitan Cas. Ins. Co. of N.Y. v. Koelling (Miss.), 57 So.2d 562; Morgan v. New Orleans, M. T.R. Co., 17 Fed. Cas. No. 9804, 2 Woods 243; Oakes v. Chicago Fire Brick Co., 388 Ill. 474, 58 N.E.2d 460; Partee v. Silliman, 44 Miss. 272; Perkins v. Guy, 55 Miss. 153; Reed v. Maryland Cas. Co., 244 F.2d 857; Smith v. Compania Litografcia de la Habana, 217 N.Y.S. 39, 222 N.Y.S. 902; Woodsen v. Owens (Miss.), 12 So. 207; Sec. 374, Code 1942; 9 Am. Jur., Building and Construction Contracts, Sec. 14; 11 Am. Jur., Secs. 3, 117, 168 pp. 296, 397, 398, 474; 12 Am. Jur., Sec. 315 p. 870; A.L.I. Restatement of the Law (Contracts), Sec. 266; 2 Beale, Conflice of Laws pp. 1079 et seq., 1091; Griffith's Mississippi Chancery Practice (2d ed.), Sec. 291 p. 276.
II. Under Mississippi law and the terms of the bond and contract in question all claims of appellees should be allowed. Globe Music Corp. v. Johnson, 226 Miss. 329, 84 So.2d 509; Linde Air Products v. American Surety Co., 168 Miss. 877, 152 So. 292; McElreath Rogers v. W.G. Kimmons Sons, 146 Miss. 775, 112 So. 164; Metropolitan Cas. Ins. Co. of N.Y. v. Koelling, supra; Seaboard Surety Co. v. Bosarge, 226 Miss. 482, 84 So.2d 517; Standard Oil Co. v. National Surety Co., 143 Miss. 841, 107 So. 559; United States F. G. Co. v. Yazoo County, 145 Miss. 378, 110 So. 780; Watts v. Western Cas. Surety Co., 210 Miss. 211, 49 So.2d 255.
John C. Sullivan, Jackson, for appellee, Equipment Inc.
I. Under the law of Mississippi appellant is liable under the bond in suit for equipment rental. Linde Air Products Co. v. American Surety Co., 168 Miss. 877, 152 So. 292; McElrath Rogers v. W.G. Kimmons Sons, 146 Miss. 775, 112 So. 164; Seaboard Surety Co. v. Bosarge, 226 Miss. 482, 84 So.2d 517; Shuptrine v. Jackson Equipment Service Co., 168 Miss. 464, 150 So. 795; United States F. G. Co. v. Yazoo County, 145 Miss. 378, 110 So. 780; Watts v. Western Cas. Surety Co., 210 Miss. 211, 49 So.2d 255; Secs. 374, 9014, Code 1942.
II. Under the law of Alabama, appellee is entitled, as a third party beneficiary, to protection under the bond in suit. Adams Supply Co. v. United States F. G. Co., 269 Ala. 171, 111 So.2d 906; Fidelity Deposit Co. v. Rainer, 220 Ala. 262, 125 So. 55; David Lupton's Sons Constr. Co. v. Hugger Bros. Constr. Co., 227 Ala. 25, 148 So. 610; Security Federal Savings Loan Assn. v. Underwood Coal Supply Co., 245 Ala. 56, 16 So.2d 100; Sec. 374, Code 1942.
III. The law of Mississippi governs in determining whether or not appellant is liable to appellee and other third party claimants without regard to the state in which the work under contract was performed. Brown Bros. Co. v. Freeland Murdock, 34 Miss. 181; Southern R. Co. v. Harrison, 119 Ala. 539, 24 So. 552; Secs. 376, 378, Code 1942.
Lipscomb Barksdale, Jackson, for appellee, Capital Welding Supply Company.
I. The appellee, Capital Welding and Supply Company, makes reference to and adopts the briefs filed herein on behalf of the appellee, Stribling Brothers Machinery Company, and all other appellees.
Creekmore Beacham, Jackson, for appellee, Southern Equipment Tractor Company.
I. It is well settled in this state that neither the statutory private contractor's bond (Code Section 374, Code 1942), nor the statutory public contractor's bond (Code Section 9014, Code 1942), impose liability upon the surety to pay claims incurred by the contractor for rental on, or repairs to equipment used in performing the contract job. McElrath Rogers v. W.G. Kimmons Sons, 146 Miss. 775, 112 So. 164; United States F. G. Co. v. Yazoo County, 145 Miss. 378, 110 So. 780; Watts v. Western Cas. Surety Co., 210 Miss. 211, 49 So.2d 255.
II. The statute (Code Section 374, 1942) expressly provides that the bond may contain "such provisions and penalties as the parties thereto may insert therein", and our Court has held, in respect to the bonds of both private and public contractors, that they may be so written as to provide coverage for those who furnish equipment used on the job; and where a bond is so written that the payment of such claims was within the full contemplation of both the contractor and its surety, then recovery is allowed against the bond. Linde Air Products Co. v. American Surety Co., 168 Miss. 877, 152 So. 392; Seaboard Surety Co. v. Bosarge, 226 Miss. 482, 84 So.2d 517.
III. Therefore, it becomes necessary to carefully consider the contract and the bond, in order to determine whether it was within the contemplation of the parties that claims of this nature be protected; and in so considering the same, the Court should bear in mind the well settled rule that if the contract is susceptible of two constructions, one of which will uphold and the other defeat the claim, in that event the construction favorable to the insured will be adopted. Metropolitan Cas. Ins. Co. of N.Y. v. Koelling (Miss.), 57 So.2d 562.
IV. Here the contract and the bond are so integrated by clear and precise language that they become one instrument, single and indivisible. It was clearly within the contemplation of the parties that the bond should protect those furnishing equipment. Seaboard Surety Co. v. Bosarge, supra.
V. Even if the contract did not expressly provide that the obligation to furnish equipment includes the obligation to pay rental thereon and to pay for necessary repairs thereto, our Court has held that the obligation to furnish equipment encompasses the obligation to pay rental therefor, and make repairs thereto. Linde Air Products Co. v. American Surety Co., supra; Seaboard Surety Co. v. Bosarge, supra; Shuptrine v. Jackson Equipment Service Co., 168 Miss. 464, 150 So. 795.
F. Kent Stribling, Jackson, for appellee, Turner Supply Company.
I. The appellee, Turner Supply Company, adopts the argument as to the legal principles contained herein in the briefs of the appellees, Southern Equipment Tractor Company.
The contractor, P. W. Inc., entered into a contract with the owner, United Gas Pipeline Company, for the construction of new natural gas pipelines and the removal of old lines in Jones County, Mississippi, and in Mobile County, Alabama.
Article I of said contract provides, in part, as follows:
"Contractor agrees at its own sole cost and expense to perform all of the labor and services, to furnish such materials as Owner may require, as hereinafter set out, and to furnish all the tools and equipment necessary to complete in a good, substantial, workmanlike and approved manner and in accordance with the terms, conditions and provisions of this Contract and of the instructions, orders and directions of the Engineer made in accordance with this Contract, the following work, towit: . . . ..
"B-18 LIENS. If a lien or claim be filed or made by any subcontractor or materialmen or any other person, the Contractor shall notify the Owner immediately and unless otherwise directed by the Owner shall cause the same to be discharged of record within thirty days after the filing thereof."
To guarantee a faithful performance, the contractor was required to furnish and did furnish a performance bond with appellant, Western Casualty Surety Company, as surety thereon. The conditions of the said performance bond are as follows:
"THE CONDITION OF THIS OBLIGATION IS SUCH that if the said Contractor shall fully complete the work, as provided in the Contract, free from all liens and claims of any kind whatsoever, and in all other particulars shall faithfully and fully perform the Contract on its part according to all the terms, covenants, and conditions thereof, and within the time specified therein, then this obligation shall be void; otherwise to remain in full force and effect."
The contract was made a part of the bond by reference. The contractor failed to complete the contract and the work was taken over and completed by the owner who commenced this action against appellant, as surety on the performance bond, for losses alleged to have been sustained in the amount of $23,674.12, plus interest. Notice was published under the provisions of Section 376, Mississippi Code of 1942, relating to actions on bonds in this State, and thereafter the several appellees filed intervening petitions as third party claimants. The claims of appellees consist of equipment rental, repairs to equipment, gas and oil and repair parts, and transportation of equipment, and part of these items were incurred in connection with the Jones County, Mississippi, part of the contract and part in connection with the Mobile County, Alabama, part of the contract.
These proceedings originated in the circuit court but were thereafter transferred to the chancery court. Appellant, Western Casualty Surety Company, filed demurrers to the claims of the several appellees, which were overruled. The chancellor thereupon allowed an interlocutory appeal to settle the principles involved.
The questions presented are (1) whether the surety company is liable under its private contract performance bond for equipment rental, repairs, and transportation of equipment, and (2) whether the Mississippi or the Alabama law governs that part of the contract performed in the State of Alabama.
Under Section 374, Mississippi Code of 1942, a private contract performance bond guarantees the payment of labor and materials regardless of whether such provisions are written into the bond. Otherwise, Code Section 374 does not apply to a private contract performance bond.
Appellees rely strongly on Seaboard Surety Co. v. Bosarge, 226 Miss. 482, 84 So.2d 517, and to some extent on Linde Air Products Co. v. American Surety Company, 168 Miss. 877, 152 So. 292. In the Bosarge case the bond specifically referred to "tools and equipment to complete the erection of 185 defense housing units . . . . ." This Court held that the surety on the performance bond was liable for fuel and repairs furnished the obligor for the operation of certain vehicles used in fulfilling the contract. The Court reasoned that fuel and repairs were a necessary complement to the vehicles and were within the full contemplation of both the obligor and its surety, and were therefore covered by the bond. The Linde Air Products Company case is not in point. The condition of the bond in that case contained provisions requiring the payment of all persons furnishing equipment, supplies and materials for use in the work under the contract.
(Hn 1) Appellant relies on a number of cases including Hartford Accident Indemnity Company v. Hewes, 190 Miss. 225, 199 So. 93 (the first appearance of that case in this Court); U.S.F. G. Company v. Yazoo County, 145 Miss. 378, 110 So. 780; McElrath and Rogers v. W.G. Kimmons Sons, 146 Miss. 775, 112 So. 164, and Watts v. Western Casualty Surety Company, 210 Miss. 211, 49 So.2d 255. Appellant concedes that it is difficult, if not impossible, to reconcile the Bosarge case with the Hewes case and the other cases cited above. The difficulty in attempting to reconcile these cases arises largely from the different conditions contained in the surety bonds involved in these cases. All such performance bonds protect and indemnify the named obligee, in this case the United Gas Pipeline Company. Under the provisions of Code Section 374, laborers and materialmen are protected regardless of the conditions of the bond. We are of the opinion that the rule is and should be as follows: Other than persons furnishing labor or materials, in order for a third person to recover on a private contract performance bond it must appear (1) that the terms of the contract are expressly broad enough to include the third party either by name or as one of a specified class, and (2) the said third party was evidently within the intent of the terms so used, and (3) that the obligee had, in fact, a substantial and articulate interest in the welfare of the said third party in respect to the subject of the contract. Hartford Indemnity Insurance Co. v. Hewes, 190 Miss. 225, 199 So. 93, and A.L.I., Restatement of the Law of Security, Sections 165 and 166.
The material inquiry in surety contracts in connection with construction enterprise is whether there is a purpose to benefit someone in addition to the one for whom the construction is being done. Where there is no promise on the part of the surety to pay the liabilities of the contractor, and where the surety has not excluded a liability to pay them, the surety contract can be interpreted in terms of right, or lack of right. A.L I. Restatement of the Law of Security, Section 166. Where the surety only guarantees the contractor's promise to complete a construction project free and clear of all liens and claims, there is no right in third parties because there is no indicated purpose to benefit them. The promise that the contractor will furnish an item does not of itself amount to a promise to pay for the item. The rule is illustrated by contrasting two of our cases: In Linde Air Products Co. v. American Surety Company, supra, the condition of the bond was "that if the said contractor shall pay all persons, firms, and corporations who. . . . furnish equipment . . . for use in the work under the contract." The Court held that the surety was liable for the purchase of new tools and machinery necessary to enable the contractor to do the work under the contract. In that case the obligation of the surety was clearly one for the benefit of third persons furnishing equipment in addition to the obligation in favor of the one for whom the construction was being done. On the other hand, in the Hewes case, 190 Miss. 225, 199 So. 93, the surety on the subcontractor's bond guaranteed the faithful performance of the subcontract which required the subcontractor to carry public and employer's liability insurance; and the Court held that the surety was not liable for the premium on such insurance. After an amendment under which it was shown the obligation "to pay" the premium for such insurance, the surety was held liable therefor. 193 Miss. 850, 11 So.2d 309.
The contract in the case at bar under the paragraph entitled "B-18 LIENS" indicates that the obligee, United Gas Pipeline Company, is interested in being protected against liens or claims of record. The condition of the bond to the effect that the work provided in the contract shall be completed free from all liens and claims of any kind whatsoever is to the same effect. We do not construe the contract and bond as expressly including appellees either by name or as members of specified classes of persons to be protected by the performance bond, except as to those claimants having claims for repairs to equipment. In the Bosarge case, this Court did not follow the general rule that contractors' performance bonds do not usually cover labor and materials expended in the repair of the contractor's or sub-contractor's machinery, tools and equipment.
There is no substantial difference between the terms of the bond and contract in the case at bar and the terms of the contract and bond in the Bosarge case.
(Hn 2) We therefore hold that the surety in this case is not liable for the claims based on equipment rental or transportation of equipment. Under the authority of the Bosarge case the surety is liable for gas and oil and ordinary, necessary repairs to the equipment used in the performance of the contract.
(Hn 3) The next question is whether the law of Mississippi or Alabama applies to that part of the work done in the State of Alabama. The contract was made in Mississippi and it was to be partly performed in this State. We hold the Mississippi law governs the construction of the entire contract. 15 C.J.S., Conflict of Laws, Section 11, page 889.
For the reasons stated, the case is reversed in part and remanded to the lower court for further proceedings consistent with this opinion.
Reversed in part and remanded.
McGehee, C.J., and Kyle, McElroy and Jones, JJ., concur.